EDITORIAL: Stop looming health care ‘oligopoly’

Sept. 16--If President Donald Trump and Attorney General Jeff Sessions care about affordable health care, they will stop the Department of Justice from approving proposed mergers in the pharmaceutical industry.

The Wall Street Journal reports the Justice Department plans to approve mergers of CVS Health with Aetna, and Express Scripts with Cigna. It means two of the largest health insurers combining with two of the largest drug retailers and pharmacy benefits managers.

For consumers, this means less competition and more manipulation to raise drug costs higher. It takes us in the wrong direction. The health care market needs more competition, not less.

"Both deals could receive formal antitrust approval as soon as the next few weeks," explains the Journal, citing "people familiar with the matter."

Stock prices for all four companies indicate confidence among shareholders the Justice Department will approve the deals.

If the government allows the mergers, it does so against the advice of nearly all health care professionals who prescribe medication.

Addressing the CVS-Aetna merger, the American Medical Association pleaded with the Department of Justice to block it.

"The proposed merger would likely substantially diminish competition in many healthcare markets to the detriment of patients," the American Medical Association explains in an Aug. 8 statement.

The American Medical Association shared "exhaustive analysis" with the Department of Justice showing how proposed mergers will raise drug prices by reducing competition. They would "likely injure consumers by raising prices, lowering quality, reducing choice and stifling innovation."

A substantial component of the mergers involves pharmacy benefit managers. Known as PBMs, an article in the Journal of the American Medical Association describes the benefits managers as three "behemoths" that contract with pharmacies to negotiate drug prices.

The three PBMs that control 85 percent of the market are CVS, Express Scripts, and United Health/OptumRx/Catamaran. Aetna buys PBM services from CVS; United Health from OptumRX, and Cigna from Express Scripts. The whole thing is a smoke-and-mirrors racket of controlled pricing, in which PBM's earn up to $400 billion each year for setting prices.

"The merger's elimination of Aetna as a potential disruptive competitor and the formation of a vertically integrated PBM tight oligopoly of CVS-Aetna, Express Scripts/CIGNA and United Health/OptumRx further create an appreciable danger of parallel accommodating conduct that is likely to include not strengthening the position of downstream insurance market competitors and thus not aggressively bidding for those insurer rivals' contracts. As a result, those rivals would face higher prices for PBM services," the AMA says.

That is academic-speak for potential price colluding and gouging, which we suffer from. Even before the proposed mergers, three PBMs control 85 percent of the market. Three drug wholesalers control 80 percent of the market, and five pharmacy chains control 50 percent of the market. We can't afford less competition than that.

"The nation has learned the hard way that overlooking consolidation in health insurance and PBM markets is costly," the American Medical Association concludes. Trump and Sessions don't need the American Medical Association to tell them this. The president's Council of Economic Advisers issued a report in February explaining how the administration could lower drug prices by breaking up the noncompetitive PBM industry.

Three PBMs, the report states, exercise "undue market power against manufacturers and against the health plans and beneficiaries they are supposed to be representing, thus generating outsized profits for themselves... The system encourages manufacturers to set artificially high list prices... Policies to decrease concentration in the PBM market and other segments of the supply can increase competition and further reduce the price of drugs paid by consumers."

The Gazette routinely urges the government to facilitate a more robust and competitive supply of health care -- a supply-side tsunami -- for all the reasons explained recently by the American Medical Association and the Council of Economic Advisers. If the Justice Department does not stop these mergers, the Trump administration gets direct blame for reducing competition and making expensive drugs cost more.

The Gazette Editorial board

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