Statement of Ranking Member Jerrold Nadler for the Hearing on “Competition in the Pharmaceutical Supply Chain: The Proposed Merger of CVS Health and Aetna”

Feb 27, 2018 Issues: Regulatory Issues, Health Care

WASHINGTON, D.C. -- Today, Congressman Jerrold Nadler (D-NY), Ranking Member of the House Judiciary Committee, delivered the following statement during a hearing examining the proposed merger between CVS Health and Aetna and its effects on competition in the pharmaceutical industry.

"Mr. Chairman, while I do not prejudge the merits of the proposed merger of CVS Health and Aetna, health care is an incredibly complex industry and we must consider carefully the potential impact of this transaction on competition and, ultimately, on consumers.

"CVS Health is one of the Nation’s two largest retail pharmacy chains, with more than 9,700 retail pharmacy locations and 1,100 walk-in health clinics.  It is also one of the two largest pharmacy benefit managers, or PBM’s.  PBM’s are entities that are responsible for administering prescription drug benefits through negotiations and contracts with drug manufacturers, health insurers, health care providers, and pharmacies, and they represent a crucial part of the process by which prescription drugs are provided to consumers.  Aetna, meanwhile, is the Nation’s third-largest health insurance company, which had previously pursued a merger with Humana, the fourth-largest health insurer, until the Department of Justice filed suit to challenge that merger.

"Proponents of this merger make a number of arguments in its favor, centering on the potential for efficiencies, enhanced consumer services, and lower drug prices if the merger were to be approved.

"Additionally, some contend that a vertical merger—that is, a merger between companies that operate at different stages or levels of a given industry’s supply chain, such as the proposed CVS-Aetna merger—raises few, if any, competition concerns compared to a merger between two direct competitors.  Some other noted antitrust thinkers, however, are skeptical of this view, a skepticism I share. 

"Moreover, I note that even the Trump Administration’s Department of Justice recently filed a lawsuit challenging the AT&T-Time Warner transaction—another vertical transaction—though it remains to be seen whether that lawsuit represents any sort of longer-term philosophical shift in antitrust enforcement.

"With this background in mind, I hope that our discussion can focus on two points about the impact on consumers of the transaction that is before us.

"To begin with, the health care sector is already highly concentrated, and there remains a concern that dominant firms—including a post-merger CVS-Aetna—would have the ability and the incentive to exclude competitors or to diminish competition, an issue that I would like all of our witnesses to address today. 

"In November 2015, this Subcommittee held a hearing on the state of competition in the pharmacy benefit manager and pharmacy markets.  We learned then that most studies show that just 3 companies—including CVS—control 80 percent of the PBM market. 

"Additionally, the largest PBM’s also own the largest retail pharmacy chains, and concerns were expressed at the 2015 hearing that these firms have the incentive and the ability to leverage their dominance in the PBM marketplace to steer business to their pharmacies, a concern exacerbated by the fact that it is difficult for the public to know whether any cost savings were ultimately being passed on to consumers.

"Similarly, this Subcommittee previously examined the health insurance market when it held a hearing on the proposed Aetna-Humana and Anthem-Cigna mergers in September 2015.  During that hearing, we learned that an American Medical Association study concluded that health insurance markets in 7 out of 10 metropolitan statistical areas were highly concentrated.  It found that in almost 40 percent of the metropolitan areas studied, one health insurer controlled more than 50 percent of the market, as was the case in 14 states, raising concerns about excessive concentration among health insurers.

"The basic concern expressed at these earlier hearings remains today, namely, that in such concentrated markets, a dominant firm has the ability and the incentive to use its dominance to exclude potential competitors or to diminish competition, even in markets where the firm being acquired is not a direct competitor of the acquiring firm.

"Another question that I hope the witnesses will address is why a merger is necessary at all to accomplish the goals of greater efficiency, lower costs for consumers, and more innovation in health care delivery that the merger purportedly will offer. Where we can avoid concentrating economic power in one firm, particularly when the potential harm to consumers outweighs the potential consumer benefit, we should do so. 

"This merger may very well turn out to yield the benefits that its proponents claim.  Nonetheless, antitrust enforcers, and our witnesses, should closely examine the overarching questions that I posed as they review this significant transaction.

"I thank the Chairman for holding this timely hearing and I look very much forward to hearing from our witnesses."

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