Merger Watch Update: Dignity Health-Catholic Health Initiatives and CVS-Aetna

Consolidation in the health industry often means fewer choices and less competition, with little to no benefit for patients or the public. Health care companies should not be allowed to get bigger unless they get better. In California, the top five insurers already control over 90% of the market. Health Access closely monitors mergers and advocates for strong consumer protections and other conditions to ensure that these mergers are in the interest of California consumers and the health system on which we all rely.

In the last month, there has been movement on two mergers in the health care industry: a merger between CVS and Aetna, and the merger between Dignity Health and Catholic Health Initiatives.

Dignity Health – Catholic Health Initiatives

On November 21st, California Attorney General Xavier Becerra approved the Ministry Alignment Agreement between Dignity Health and Colorado-based Catholic Healthcare Initiatives to join the two systems to become CommonSpirit Health. The Attorney General’s approval includes significant conditions that keep key services open for 10 years, ensuring charity care levels at historical levels, and $180 million in capital improvements.

We support the Attorney General’s work to impose strong conditions on this hospital merger, part of a worrying trend toward an increasingly consolidated health care system. These conditions will help ensure that patients and communities served by these hospitals will continue to have access to critical services, for at least a decade if not more. Consumer and health advocates had sought to keep these emergency, women’s health and other services open longer than the initial commitment because of the important role these hospitals play in the community.

The commitment for CommonSpirit Health to provide, and publicize the availability, of free or discounted care for income-eligible uninsured patients is welcome and needed at a time when California continues to have 3 million remaining uninsured even after major and successful coverage expansions. These commitments both incorporate existing charity care and fair pricing laws and expectations, and go beyond them to meet the real needs of California’s communities. We also welcome the new investments in coordinated care for homeless Californians, which is a small fraction of the worth of this mega-deal but will have a beneficial impact for those served.

One major concern from LGBTQ groups is CHI’s adherence to Ethical and Religious Directives which restricts access to reproductive health services and services for transgender patients. The conditions include a ban on the discrimination of LGBTQ patients.

We are pleased that the Attorney General’s conditions require CommonSpirit Health facilities to have written policies banning discrimination against lesbian, gay, bisexual, transgender, and queer (LGBTQ) Californians, and for those policies to be strictly enforced. Access to affirming health care continues to be a major challenge for many LGBTQ Californians, and so we hope the AG is vigilant in monitoring this anti-discrimination condition which is crucial to achieving our health equity goals. California hospitals and health care providers should be held to the highest standards of providing affirming health care.

We are glad that the Attorney General imposed standards for maintaining key services, as well as charity care and community benefits, as the Department of Justice has done for other transactions. We are disappointed that the approval does not include conditions against anti-competitive conduct and contract provisions, as consumer and labor advocates had sought. We think such conditions to protect competition will become even more important for pending and future mergers between two in-state hospital chains, which will exacerbate the concern about consolidation inflating health costs. We urge the Attorney General to monitor this deal closely into the future to ensure the goals of these conditions, from improving care for the uninsured and underinsured, to the continuity of care for patients served by these hospitals.

CVS – Aetna

On November 15th, California’s Department of Managed Health Care (DMHC) approved the merger of CVS Health and Aetna, the final step needed for the merger to continue in California following the approval by the U.S. Department of Justice last month. Continuing the trend of “diagonal mergers,” the merger of CVS, a major pharmacy chain and one of the nations largest independent pharmacy benefit managers (PBM), and Aetna, one of the nations largest insurers, is the largest health insurance deal in history. This approval comes just weeks before new laws take effect in California that would strengthen the state’s role in ensuring these large health care corporations are acting in the best interest of patients and the public.

These deals have major impacts on the health care system we all rely on and effect what choices we have and what we pay. While the conditions placed on this merger are laudable, we continue to be concerned about the impact this deal will have on our health system, and about the broader trend towards greater consolidation and higher health costs. Aetna had significant issues abiding by existing consumer protections, and a history of charging premiums deemed unreasonable by regulators. We will be watching to see if Aetna’s deficiencies persist, and that the commitments made, like the one to improve its quality ratings, are achieved. Many of the investments announced are important, but we note they are a relatively small fraction of the billions of dollars in the newly-merged corporation’s profit. We need to watch closely to see how the increased market power of Aetna and CVS impacts the health care system for all Californians.

Earlier this year, consumer advocates expressed concern over the continuing consolidation of the health industry. These acquisitions often lead to reduced competition, and can drive up costs for consumers without a corresponding increase in quality of care for the 14 million Californians in private coverage. The conditions imposed on the merger, including the divestment of Aetna’s Medicare Part D business required by the U.S. DOJ and investments in California’s health care delivery system required by the DMHC, are appreciated but not as strong as consumer and health groups were hoping for. Aetna has repeatedly pursued unreasonable rate increases and have failed to abide by basic consumer protections. CVS has offered no information on how it would correct any of their problematic practices by Aetna after they merge. Advocates are concerned that this deal gives more power to bad actors without all the necessary conditions to protect consumers.

The California Legislature and Governor Brown passed AB 595 by Assemblymember Wood this year which would institute stronger state oversight over health plan mergers and protects Californians from changes to the health plan market that may lead to higher health costs. Also enacted was AB 315 by Assemblymember Wood which adds oversight to pharmacy benefit managers like CVS Caremark. By regulating PBMs and requiring disclosure of information on rebates and discounts, this new law will help ensure that consumers and purchasers actually benefit from savings that are reaped by PBMs. Both of these laws will take effect on January 1, 2019 and will affect any pending and future health plan mergers.