U.S. GOVERNMENT PUBLISHING OFFICE

30–952 WASHINGTON : 2018

COMPETITION IN THE PHARMACEUTICAL SUPPLY 

CHAIN: THE PROPOSED MERGER OF CVS 

HEALTH AND AETNA 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

REGULATORY REFORM, 

COMMERCIAL AND ANTITRUST LAW 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

FEBRUARY 27, 2018 

Serial No. 115–28 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 


sradovich on DSK3GMQ082PROD with HEARING
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COMMITTEE ON THE JUDICIARY 

BOB GOODLATTE, Virginia, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

LAMAR SMITH, Texas 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

STEVE KING, Iowa 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

RAU ́ L LABRADOR, Idaho 

BLAKE FARENTHOLD, Texas 

DOUG COLLINS, Georgia 

RON DESANTIS, Florida 

KEN BUCK, Colorado 

JOHN RATCLIFFE, Texas 

MARTHA ROBY, Alabama 

MATT GAETZ, Florida 

MIKE JOHNSON, Louisiana 

ANDY BIGGS, Arizona 

JOHN RUTHERFORD, Florida 

KAREN HANDEL, Florida 

JERROLD NADLER, New York 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., Georgia 

THEODORE E. DEUTCH, Florida 

LUIS V. GUTIE ́ RREZ, Illinois 

KAREN BASS, California 

CEDRIC L. RICHMOND, Louisiana 

HAKEEM S. JEFFRIES, New York 

DAVID CICILLINE, Rhode Island 

ERIC SWALWELL, California 

TED LIEU, California 

JAMIE RASKIN, Maryland 

PRAMILA JAYAPAL, Washington 

BRAD SCHNEIDER, Illinois 

VALDEZ VENITA ‘‘VAL’’ DEMINGS, Florida 

SHELLEY HUSBAND, Chief of Staff and General Counsel 

PERRY APELBAUM, Minority Staff Director and Chief Counsel 

SUBCOMMITTEE ON REGULATORY REFORM, COMMERCIAL AND ANTITRUST LAW

TOM MARINO, Pennsylvania, Chairman 

BLAKE FARENTHOLD, Texas, Vice-Chairman 

DARRELL E. ISSA, California 

DOUG COLLINS, Georgia 

KEN BUCK, Colorado 

JOHN RATCLIFFE, Texas 

MATT GAETZ, Florida 

KAREN HANDEL, Florida 

DAVID CICILLINE, Rhode Island 

HENRY C. ‘‘HANK’’ JOHNSON, JR., Georgia 

ERIC SWALWELL, California 

BRAD SCHNEIDER, Illinois 

VALDEZ VENITA ‘‘VAL’’ DEMINGS, Florida 


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C O N T E N T S 

FEBRUARY 27, 2018 

OPENING STATEMENTS 

Page 

The Honorable Tom Marino, Pennsylvania, Chairman, Subcommittee on Regulatory Reform, Commercial and Antitrust Law, Committee on the Judiciary ......................................................................................................................... 1 

The Honorable David Cicilline, Rhode Island, Ranking Member, Subcommittee on Regulatory Reform, Commercial and Antitrust Law, Committee on the Judiciary ........................................................................................ 2 

The Honorable Jerrold Nadler, New York, Ranking Member, Committee on 

the Judiciary ......................................................................................................... 5 

WITNESSES 

Mr. Thomas M. Moriarty, Executive Vice President, Chief Policy and External 

Affairs Officer, General Counsel, CVS Health 

Oral Statement ................................................................................................. 7 

Mr. Thomas J. Sabatino, Jr., Executive Vice President, General Counsel, 

Aetna, Inc. 

Oral Statement ................................................................................................. 8 

Dr. Craig Garthwaite, PhD., Director, Health Enterprise Management Program, Kellogg School of Management, Northwestern University 

Oral Statement ................................................................................................. 22 

Dr. Lawrence Wu, PhD., President, NERA Economic Consulting 

Oral Statement ................................................................................................. 24 

Mr. George Slover, Senior Policy Counsel, Consumer Union 

Oral Statement ................................................................................................. 26 

Mr. Geoffrey A. Manne, Executive Director, International Center for Law 

and Economics 

Oral Statement ................................................................................................. 27 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Statements submitted by the Honorable Tom Marino, Pennsylvania, Chairman, Subcommittee on Regulatory Reform, Commercial and Antitrust Law, Committee on 

the Judiciary. These materials are available at the Committee and can be 

accessed on the Committee Repository at: 

https://docs.house.gov/meetings/JU/JU05/20180227/106898/HHRG-115- 

JU05-20180227-SD003.pdf 

Statement submitted by the Honorable Bob Goodlatte, Virginia, Chairman, Committee on the Judiciary. This material is available at the Committee and can be 

accessed on the Committee Repository at: 

https://docs.house.gov/meetings/JU/JU05/20180227/106898/HHRG-115- 

JU05-MState-G000289-20180227.pdf 


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COMPETITION IN THE PHARMACEUTICAL 

SUPPLY CHAIN: THE PROPOSED MERGER 

OF CVS HEALTH AND AETNA 

Tuesday, February 27, 2018 

HOUSE OF REPRESENTATIVES

COMMITTEE ON THE JUDICIARY

SUBCOMMITTEE ON REGULATORY REFORM, 

COMMERCIAL AND ANTITRUST LAW

Washington, DC 

The Subcommittee met, pursuant to call, at 1:30 p.m., in Room 

2141, Rayburn House Office Building, Hon. Tom Marino [Chairman 

of the Subcommittee] presiding. 

Present: Representatives Marino, Goodlatte, Farenthold, Issa, 

Collins, Buck, Ratcliffe, Gaetz, Handel, Cicilline, Nadler, Johnson 

of Georgia, Swalwell, Schneider, and Demings. 

Staff Present: Dan Huff, Counsel; Andrea Woodard, Clerk; and 

Slade Bond, Minority Counsel. 

Mr. MARINO. The Subcommittee on Regulatory Reform, Commercial and Antitrust Law will come to order. Without objection, the 

Chair is authorized to declare recess of the committee at any time. 

We welcome everyone to today’s hearing on Competition in the 

Pharmaceutical Supply Chain: The Proposed Merger of CVS Health 

and Aetna. And I now recognize myself for my opening statement. 

Welcome to this hearing on the proposed merger of CVS Health 

and Aetna. I am interested in how this merger would help deliver 

consumer value, particularly in regard to drug prices. Prescription 

drug expenditures are nearly 20 percent of the healthcare costs and 

they are rising. In fact, prescription spending is growing faster 

than any other part of the healthcare system. Four of the top 10 

prescription drugs in the United States have increased in price by 

more than 100 percent since 2011. President Trump has made lowering drug costs a priority. 

This administration’s recently released budget includes initiatives, such as caps on copays. Here in Congress, we have been hard 

at work as well. I, along with the Ranking Member Congressman 

Cicilline, introduced the Creating and Restoring Equal Access to 

Equivalent Samples (CREATES) Act earlier this term. This bipartisan legislation targets abusive delay tactics that are being used 

to block the market entry of affordable generic drugs. 


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Specifically, the legislation ensures that pharmaceutical companies provide generic manufacturers access to samples needed to 

perform comparisons required for FDA approval. In helping 

generics get to market faster, the Congressional Budget Office estimates the bill would save government insurance programs alone 

$3.8 billion. The American people should not need to wait for this 

bill. I urge my colleagues to join me and Ranking Member Cicilline 

in making it a priority to pass the CREATES Act this year. 

Another factor influencing healthcare costs is market consolidation. Such concerns may be lessened in the context of a vertical 

merger. As Judge Bork has explained, as a general matter, vertical 

mergers ‘‘may cut sales and distribution costs, facilitate the flow of 

information [and] create economies of scale in management.’’ The 

proposed CVS Health and Aetna merger is a vertical merger. It is 

my hope that it presents an opportunity for cost savings. Uniting 

a provider and an insurer to create an alignment of incentives as 

well as valuable data-sharing opportunities that can pay dividends 

in the long run. 

For example, the integrated post-merger entity could run a pilot 

program offering zero copays on preventive medicines such as cholesterol drugs. It could track the data to test the hypothesis that 

the lost copay revenue is more than made up for by reduced hospitalizations. 

Proven concepts could then be rolled out across the healthcare 

delivery network. Of course, we also have to be sensitive to potential concerns. Vertical mergers can create anticompetitive problems 

such as foreclosure. 

Consider an integrated health insurer-pharmacy benefits manager (PBM) pharmacy. The integrated entity must offer less competitive terms for its PBMs and pharmacies services to competing 

insurance companies. Competition should deter such discrimination, but the healthcare industry is increasingly consolidated. 

Accordingly, I think it would be helpful for the Subcommittee to 

hear what assurances the parties can give that the proposed CVS/ 

Aetna entity will not favor Aetna over its insurance business competitors in CVS’ PBM contracts. 

In short, there are important considerations on all sides. It is the 

task of this Subcommittee to conduct a thorough examination. To 

that end, we have assembled a distinguished panel of witnesses. 

And I look forward to hearing from each of them. 

The Chair now recognizes the Ranking Member of the Subcommittee on Regulatory Reform, Commercial and Antitrust Law, 

the Congressman from Rhode Island, Mr. Cicilline for his opening 

statement. 

Mr. CICILLINE. Thank you, Mr. Chairman, and thank you for 

calling today’s hearing on the impact of CVS Health’s proposed acquisition of Aetna on the pharmaceutical supply chain. The high 

cost of healthcare is squeezing the budgets of American families. 

We need a competitive healthcare system that delivers lower 

prices, more access to improved quality of care, and better outcomes for patients. That starts with tackling the sky-rocketing 

price of prescription drugs, one of the main drivers of high 

healthcare costs. 


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Today, Americans pay more for prescription drugs than people in 

any other country. Over the past decade, prescription drug costs 

have sky-rocketed by 200 percent, resulting in higher insurance 

premiums, larger hospital bills, and billions of taxpayer dollars 

that are unnecessarily going into the pockets of the largest prescription drug companies. This out of control spending, primarily 

for brand-name drugs, accounts for nearly a quarter of all 

healthcare costs and 19 percent of Medicare’s spending. 

And for many Americans, including, for example, cancer survivors and people with multiple sclerosis, who have good health insurance, drug prices just are not outrageous, they are life-threatening for people are skipping doses and cutting pills, because they 

cannot afford their medications. To quote David Mitchell, ‘‘People 

are angry and they are hurting, and they do not understand how 

this could be happening to them in the United States of America.’’ 

Mr. Mitchell founded Patients for Affordable Drugs, an independent, nonprofit organization dedicated to lowering the price of 

prescription drugs—and I agree very much with his statement. 

We must end this moral outrage that is bankrupting American 

families, particularly those that are most vulnerable. And the first 

step on the path to fixing this life-threatening problem is creating 

timely and effective generic drug competition. 

The Federal Trade Commission reports that generic drugs can 

reduce the price of branded drugs by more than 85 percent. While 

the presence of just one generic competitor can decrease subscription drug pricing by 20 to 30 percent. That is why, as Chairman 

Marino mentioned, he and I proposed have H.R. 2212, the CREATES Act, a targeted solution to reducing drug prices through generic competition. 

It is also why I am skeptical of claims that the pharmacy benefit 

managers, or PBMs, that should negotiate for lower drug costs on 

behalf of health insurance payers and employees, are the cause of 

high-drug costs. To the contrary, there is evidence that PBMs reduce costs and improve patient outcomes, while retail pharmacies 

save consumers and health insurers billions of dollars by automatically substituting generic drugs for branded drugs available, as 

Professor Robin Feldman and other leading researchers have noted. 

I strongly support promoting competition in every market, including within pharmaceutical supply chain, albeit that it is critical 

that consumers ultimately are seeing benefits from lower drug 

prices. 

But make no mistake: simply demonizing PBMs and retail pharmacies of the drug supply chain is a distraction from the leading 

cause of high drug prices. These include: the lack of competition in 

the manufacturing of prescription drugs, regulatory abuse by 

branded drug companies to delay generic competitors, and barriers 

to generic competition—such as pay-for-delay settlements—that 

keep drug prices at artificially high, monopoly levels. 

Addressing these issues head-on is a precondition for lowering 

the cost of prescription drugs. CVS Health’s proposed acquisition of 

Aetna occurs within this backdrop and emits ways of consolidation 

of fair markets. Last year, in a very different merger proposal, the 

district court for the District of Columbia blocked Aetna’s attempt 

to acquire Humana, a rival health insurer, concluding that the 


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transaction was ‘‘presumptuously unlawful, a conclusion that is 

strongly supported by direct evidence of head-to-head competition, 

as well.’’ As the Justice Department noted in response to this decision, blocking that merger will save consumers and taxpayers up 

to $500 million per year and results in more generous benefits at 

lower prices. 

There appear to be significant differences between CVS Health’s 

proposed acquisition of Aetna and prior attempted mergers that 

would have contributed to the collapse of competition in health insurance markets. And I want to take a moment here to thank the 

CVS team who have provided really important information data to 

me on this proposed transaction. 

And with this in mind, I look forward to hearing from our distinguished witnesses on this subject. It is incredibly important that 

working Americans understand how the proposed transaction will 

affect their access to care, their prescription drug costs, and the 

health insurance premiums, and whether we can do more to promote competition to lower prices in the drug supply chain. With 

that, I thank Chairman Marino for calling today’s hearing and 

yield back the balance of my time. 

Mr. MARINO. Thank you, Mr. Cicilline. Without objection, other 

Members’ opening statements will be made part of the record. 

Chairman Goodlatte’s written statement is available at the Committee or on the Committee Repository at: https://docs.house.gov/ 

meetings/JU/JU05/20180227/106898/HHRG-115-JU05-MStateG000289-20180227.pdf. 

Mr. MARINO. And I will begin by swearing in our witnesses before introducing them. Would you please rise? Please raise your 

right hand. Do you swear that the testimony you are about to give 

to this committee is the truth, the whole truth, and nothing but the 

truth so help you God? 

Let the record reflect that the witnesses have affirmatively said 

yes and please take your seat. 

The Ranking Member, Mr. Cicilline, is going to introduce Mr. 

Moriarty of CVS because he is from his home State. 

Mr. CICILLINE. Thank you, Mr. Chairman for the opportunity to 

introduce our esteemed witness from CVS health; a constituent 

company that is headquartered in my district and employs 6,792 

hard-working Rhode Islanders. As one of Rhode Island’s leading 

job-creators, CVS is an incredible corporate citizen. From providing 

access to healthcare for underserved populations, to pharmacy 

school scholarship programs to support talented students, CVS’ actions continue to make Rhode Island, and, indeed, this country a 

better place. 

CVS also continues to lead the way in promoting public health 

and wellness in pharmacies. I was very proud to stand on the 

House floor to applaud CVS Health’s decision to stop selling cigarettes and other tobacco products in its more than 7,600 stores 

across the United States. And I hope other pharmacies will soon 

follow their example. 

Our country faces tremendous challenges in creating an equitable and affordable healthcare system, and CVS Health has 

helped countless Rhode Islanders and people across the Nation betVerDate Sep 11 2014 21:47 Aug 07, 2018 Jkt 030952 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 E:\HR\OC\A952.XXX A952

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ter manage their health and improve access to affordable prescription drugs. 

It is my pleasure to introduce Mr. Thomas Moriarty, the executive vice president, chief policy and external affairs officer, and 

general counsel for CVS Health, a position he has held since March 

of 2017. In this role, Tom leads the company’s external affairs programs including the policy, government, and public affairs, corporate communications, and legal and regulatory teams. 

He received his law degree from the University of Virginia School 

of Law and his undergraduate degree from Lafayette College. We 

thank him for appearing before our community today. And thank 

you, Mr. Chairman, for the opportunity to make that introduction. 

And with that, I yield back. 

Mr. MARINO. Thomas J. Sabatino, Jr. is Aetna’s executive vice 

president and general counsel, the chief legal officer of the company with worldwide responsibilities for leading its legal operations. Mr. Sabatino has received numerous rewards from his peers 

including inside counsels, Transformative Leader Award in 2012, 

the National Bar Association Gertrude E. Rush Award in 2013, and 

the Equal Justice Works Scales of Justice Award in 2014. In addition, the Women’s In-House Counsel Leadership Institute created 

the Sabatino Advocacy Award in his honor in 2016. 

Now the Ranking Member of the full Judiciary Committee, Mr. 

Nadler of New York, will make his opening statement. 

Mr. NADLER. Thank you, Mr. Chairman. Mr. Chairman, while I 

do not prejudge the merits of the proposed merger of CVS Health 

and Aetna, healthcare 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 PBMs. PBMs are entities that are responsible 

for administering prescription drug benefits through negotiations 

and contracts with drug manufacturers, health insurers, healthcare 

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 supply chain such as a 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 generally 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, although it reVerDate Sep 11 2014 21:47 Aug 07, 2018 Jkt 030952 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 E:\HR\OC\A952.XXX A952

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mains 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 healthcare 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 

three companies, including CVS, control 80 percent of the PBM 

market. Additionally, the largest PBMs also owned 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 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 in American Medical Association 

study concluded that health insurance markets in seven 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 that these earlier hearings remains 

today. Namely, that in such concentrated markets, the 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 

healthcare delivery that the merger reportedly will offer. 

Where we can avoid concentrating economic power in one firm, 

particularly, when the potential harm to consumers outweighs the 

potential consumer benefits, we should do so. This merger may 

very well turn out to yield the benefits that its proponents claim. 

Nevertheless, antitrust enforcers and our witnesses should closely 

examine the overarching questions that I pose as they review the 

significant transaction. 

I thank the Chairman for holding this timely hearing and I look 

forward, very much, to hearing from our witnesses. I thank you, I 

yield back. 

Mr. MARINO. Thank you, Mr. Nadler. Each of the witness’ written statement will be entered into the record in its entirety, and 

I ask that each of you summarize your statement in five minutes 


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or less, and to help you do that, stay within that timing, there are 

lights in front of you. You have been here before. When a light 

turns yellow, that means that you have one-minute left; when it is 

red, your time has run out. And if you go over that, we have a little 

leeway, but I will be polite and diplomatically pick up the gavel. 

Mr. Moriarty, please. 

STATEMENTS OF THOMAS MORIARTY, EXECUTIVE VICE 

PRESIDENT, CHIEF POLICY AND EXTERNAL AFFAIRS OFFICER, GENERAL COUNSEL, CVS HEALTH; AND THOMAS 

SABATINO, JR., EXECUTIVE VICE PRESIDENT, GENERAL 

COUNSEL, AETNA, INC. 

STATEMENT OF THOMAS MORIARTY 

Mr. MORIARTY. Chairman Marino, Ranking Member Cicilline, 

Ranking Member Nadler, and Members of the Subcommittee, 

thank you for having me here today to discuss CVS Health’s proposed combination with Aetna. My name is Tom Moriarty and I am 

executive vice president, chief policy and external affairs officer, 

and general counsel for CVS Health. 

Most of you know us as a local pharmacy in your community, but 

we are really more than that. We are the front door to a path to 

better health. We have long been at the forefront of putting our patient’s health first and improving the public health of our communities. Over the past few years, we have taken bold steps to define 

us as a company. We have removed tobacco from our stores. We 

have been promoting healthier snack options, and we have been 

waging a multifront fight against the opioid epidemic. 

Our proposed combination with Aetna is a natural extension of 

these commitments. We will put consumers at the center of 

healthcare to ensure that they can access convenient, high quality, 

more affordable care where they are when they need it. 

Our health system, in many ways, is a work in progress. It was 

built for a different time, for a different consumer with different 

needs. It is fragmented, complex, burdensome for consumers and 

providers, and it is unsustainably expensive. It faces huge demographic and chronic care challenges. And too often, the tug of war 

between entities with conflicting incentives means that the patient 

is not always being looked at holistically with the goal of preventing disease and improving his or her health. 

Our vision is to create a new, open healthcare model that will 

help consumers improve their health and simplify their healthcare 

experience. And I would like to highlight three ways this transaction does that. 

First, we will put consumers at the center of their care. Consumers are looking for more value, greater convenience, and help 

in making healthier choices in their everyday lives. This new model 

will provide consumers the information and resources they need to 

better manage their own health and access care in more convenient 

community settings at an affordable price. 

Second, we will focus on prevention and primary care. The combination of our companies will give us and physicians a holistic 

view of a patient’s health. On average, your constituents see their 

pharmacists much more often than they see their doctor. In fact, 


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many see multiple specialists, but only see one pharmacist. We are 

going to build on that point of continuity by having pharmacists engage patients early and often to help prevent and manage illness 

more effectively. 

And, finally, we will find ways to address the rising costs of 

healthcare. Aging populations and the rise of chronic diseases such 

as diabetes and heart disease are two of the biggest trends threatening to bankrupt our system. 

Unfortunately, we simply do not provide enough assistance for 

physicians and their patients who are coping with a chronic illness. 

We know that things like patients not taking their medicines as 

prescribed, excessive administrative complexity, and unnecessary 

emergency room visits cost the healthcare system billions and billions of dollars, needlessly, each and every year. 

We believe that this transaction, through better pharmacy care 

and coordination with primary care professionals, can make a significant dent in reducing healthcare costs. Put simply, to make real 

progress on behalf of consumers and the healthcare system, we 

have to break the current log jam. There is not a one-size-fits-all 

solution to these issues, and you should be suspicious of those who 

suggest there is. 

But we do know, healthcare can only improve if consumers are 

connected to support from pharmacists and providers who live in 

their communities and understand their personal experiences. 

Healthcare, like politics, is very local. 

For us, the combination with Aetna is the next step in our company’s long-running commitment to the health of all Americans. 

We do not see it as more of the same, but, rather, as a bold innovation that will reshape how healthcare is accessed and delivered 

starting first by putting the patient at the center of all that we do. 

And with that, Mr. Chairman, I look forward to taking your 

questions. 

Mr. Moriarty’s written statement is available at the Committee 

or on the Committee Repository at: https://docs.house.gov/meetings/ 

JU/JU05/20180227/106898/HHRG-115-JU05-Wstate-MoriartyT20180227.pdf. 

Mr. MARINO. Thank you, Mr. Moriarty. Mr. Sabatino. 

STATEMENT OF THOMAS SABATINO, JR. 

Mr. SABATINO. Mr. Chairman, Chairman Marino, Ranking Member Nadler, Ranking Member Cicilline, and the other Members of 

the subcommittee, thank you for giving me the opportunity to testify today about our efforts to improve the consumer health experience. Aetna serves 22.2 million medical members through our commercial Medicare and Medicaid products. And our nearly 50,000 

employees are committed to helping our members achieve their 

best possible health. The acquisition by CVS is the next step in 

that journey to put consumers at the center of their care. And I am 

pleased to be here today to describe how we are going to do that. 

Today’s healthcare system is designed to fix people when they 

are broken, not keep them healthy throughout their lives. For decades, the system has focused on delivering new, clinical capabilities. But, research now shows that 60 percent of the factors impactVerDate Sep 11 2014 21:47 Aug 07, 2018 Jkt 030952 PO 00000 Frm 00012 Fmt 6633 Sfmt 6602 E:\HR\OC\A952.XXX A952

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ing premature death have nothing to do with the care that people 

receive in a doctor’s office or in a hospital, or with their genetics. 

The current system has taken a very narrow perspective of 

health that largely ignores the social, environmental factors that 

play a critical role in overall well-being. Aetna is joining with CVS 

Health to fortify the healthcare system. Together, we will work to 

create a value-based system that aligns with the goals of the physician payment reform passed by Congress 2 years ago, commonly 

known as MACRA. 

We want to reward healthcare providers based on patient outcomes instead of a greater volume of services and work with our 

members to improve the social and environmental factors impacting their health. We will develop the system by focusing on the consumer; making healthcare simpler and easier to use. Our new company will learn about our member’s individual health goals and 

connect them to the tools, information, and resources they need to 

achieve a lifetime of wellbeing. 

This is not something Aetna can achieve on its own. To fulfill our 

shared vision for a value-based and consumer-focused experience, 

we need to have a significant presence in the communities where 

our members live. That is why our combination with CVS is so 

compelling. We plan to combine CVS Health’s extensive retail footprint with Aetna’s health plans, analytical capabilities, and our extensive network of medical professionals. 

Together, we will create a new, consumer service model in the 

local community that enables us to learn about the health needs 

and ambitions of our members. We will then connect our members 

to relevant resources, including healthcare providers or community 

organizations, that can improve the social and environmental factors affecting health. 

We understand the important relationships that consumers have 

with their physicians and other healthcare providers. Our new 

company will not replace this valuable relationship. Instead, we 

will work closely with local providers to help consumers achieve 

their personal care plans. For example, providers could encourage 

members to make regular visits to their local CVS store to get advice on fitness, on nutrition, on managing their medications. 

We could also perform routine tests and share those results electronically with the member’s primary care physician. I want to remind the committee that this is a vertical transaction, with no significant overlap in our existing businesses. The vast majority of 

CVS Health’s revenues come from retail pharmacy and pharmacy 

management. 

Aetna, on the other hand, is focused on health insurance and 

does not have a retail footprint in any of the communities we serve. 

It is also important to note that Aetna and other insurance companies are among the most highly regulated stakeholders within the 

healthcare sector. For example, in the bulk of our business, we are 

required to pay rebates to our customers if the proportion of premium revenues spent on clinical services and quality improvement 

is less than 85 percent. The remaining funds go towards all of our 

costs of doing business, including our investments in innovative 

healthcare solutions. 


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So, in conclusion, the Aetna and CVS health transaction brings 

together two innovative businesses in a sector that needs to 

change. The new company will offer a local experience that is simpler to use and build around consumers. Our value-based model 

will help consumers receive higher quality, more affordable care, 

while also addressing the social and environmental factors that impact their health. 

Thank you again for the opportunity to testify, and I look forward to addressing any questions you have. 

Mr. Sabatino’s written statement is available at the Committee 

or on the Committee Repository at: https://docs.house.gov/meetings/ 

JU/JU05/20180227/106898/HHRG-115-JU05-Wstate-SabatinoT20180227.pdf. 

Mr. MARINO. Thank you, Mr. Sabatino. We will now begin with 

the Members’ 5 minutes of questioning. And I will recognize myself 

to begin the questioning. Mr. Moriarty, you mentioned in your 

opening statement the opioid epidemic, could you please tell me 

what you plan to do to help bring this epidemic to its knees and 

what the lateral merger would do, overall. 

Mr. MORIARTY. Mr. Chairman, there is no question the opioid 

epidemic touches everywhere across this country. Over the last several years, I have traveled around to all the communities that we 

serve in our current operations. We have begun a very large initiative where we are placing drug disposal units in each of our pharmacies; 750 across the country. 

Each time we go into these pharmacies I talk to the local police 

chiefs as to what they are dealing with. And one, in particular, in 

Wilmington, North Carolina, the night before that we actually did 

the drug disposal event, there were two overdoses just one block 

from our pharmacy. So, there is no question it touches everywhere. 

It knows no economic, social, or other bounds. 

What we have been doing as a company, and we will continue 

to do and leverage through the combination with Aetna, is we have 

been able to put into a plan design that actually limits the amount 

of a first fill for an opioid-naı ̈ve patient to 7 days. Working with 

physicians directly, consistent with the recommendations for the 

Centers for Disease Control to limit the availability of those first 

fills as they go out the door. 

We have made substantial investments in counseling with school 

kids, both at middle schools and high schools, having our pharmacists go back into the communities to educate them on the danger of just simply one bad choice. All those efforts will continue, 

and as we are better able to integrate the data with Aetna, we can 

work much more directly with the prescribing physicians to get our 

practices to change those practices to educate the physicians about 

the dangers of over-prescribing and really get at this. 

This is a multifaceted problem. It will not go away quickly, and 

it is going to take multiple-pronged solutions to get at it. 

Mr. MARINO. Thank you. Mr. Sabatino, would you like to respond? 

Mr. SABATINO. Sure, I would add just a couple of things. First of 

all, I will echo what Mr. Moriarty said about the 7-day prescription 

that we will only pay for 7 days for the initial prescription, as well. 

So, we are in concert with that. 


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A couple of other things I would note that Aetna has done. We 

have identified the high-prescribing physicians and going after 

them. And, first of all, trying to educate them as to the fact that 

they are high-prescriber physicians; sometimes they are not fully 

aware of it. Understanding who they are. In some cases, for example, if you are an oncologist that may be appropriate. But, in other 

situations, it is not appropriate. And we will stop paying high-prescribing physicians when we think there is abuse. And we will 

work through that. 

The other thing we are doing, for example, believe it or not, dentists have a high number of high-prescribing dentists in that network. So, when we identify that, we are trying to find ways to get 

non-opioid pain medication to patients that need it following, say, 

oral surgeries or something like that. So, we are trying to work 

with our enormous network of medical professionals to get at those 

issues. 

Mr. MARINO. I am a former State and Federal prosecutor and 

what you two just said, I do not think I can hear anything better 

during this hearing. Thank you so much for what you have said, 

and I hope you really put that into effect. 

Mr. Sabatino, I represent a rural district in Northeast Pennsylvania that has many independent pharmacies. What affect, if any 

will this merger have on independent pharmacies for my constituents? 

Mr. SABATINO. Mr. Chairman, we believe that it will not impact 

independent pharmacies. Aetna now contracts with 65,000 pharmacists around the country to satisfy our network. We will have an 

open system that continues to provide for that. For us to be competitive, we need to provide the breadth of coverage for all of our 

members to be able to access healthcare. And so, we do not believe 

that it will impact the individual pharmacists in any significant 

way. 

Mr. MARINO. Mr. Moriarty, would you like to respond to that? 

Mr. MORIARTY. I would, sir. And I think, actually, it offers us a 

real opportunity to sort of change and further evolve the role of the 

pharmacists, both in rural communities and other areas. Eighty 

percent of the issues associated with healthcare costs today are behavioral in nature. That contact, that point of reference, that point 

of engagement that pharmacists have is real. Pharmacists are one 

of the most trusted professionals in the healthcare community. 

We can, and we should, look to much more of a value-oriented 

system that rewards pharmacists for that activity, as opposed to 

just simply for dispensing. And, many Members of this Committee, 

have supported efforts to bring provider status into Medicare to acknowledge the significant role that pharmacists can play in lowering total healthcare costs by beyond just simply prescribing, but 

working directly with patients. And we applaud the Members who 

support that. And we need to continue to make that happen. 

Mr. MARINO. I think pharmacists are one of the most important 

tools that we have to address this opioid epidemic. Not the only 

tool, I mean, we have to talk about physicians; we have to talk 

about manufacturers, distributors, education, the whole nine yards. 

But, I am very pleased with what you have to say, and my time 


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has run out. And I yield to the Ranking Member of the Subcommittee, Mr. Cicilline from Rhode Island. 

Mr. CICILLINE. Thank you, Mr. Chairman. Thank you again to 

our witnesses. First, I would like to ask the witnesses, and we will 

begin with Mr. Moriarty, I think everyone recognizes that access to 

preventative care is really essential in terms of a restructuring of 

our healthcare delivery system. 

I wonder if you would just speak a little bit on what this transaction might mean in terms of—and Mr. Sabatino, as well—what 

it might mean in terms of access to preventative care; how it may 

be enhanced by this proposed merger. 

Mr. MORIARTY. Certainly, sir. I think, you know, just high level, 

statistically, 62 million Americans do not have access to adequate 

primary care. We have our MinuteClinic business, we know that 50 

percent of folks who visit MinuteClinics do not have a primary care 

physician. One of the things that we do, is we go into the primary 

care community in which we are placing a MinuteClinic and ask 

if they are taking referrals; doctors are taking referrals, and if they 

are, we put them on a list. So, if a patient comes into MinuteClinic 

says I do not have a primary care physician, we emphasize the 

need to have one, and actually connect them with that primary 

care physician. 

The other thing we know is, primary care, a lot of times, is being 

sought out when it is not available in regular business hours; 50 

percent of the visits at MinuteClinic are nights and weekends when 

core primary care is not available. The ability to extend out and 

have available primary care at off-hours, at times when it may not 

otherwise be available, that is clearly something we can build out 

even more so with Aetna. And we, once we develop those solutions, 

can make them available more broadly into the marketplace as 

Aetna actually implements those with other providers outside of 

CVS. 

Mr. CICILLINE. And, I take it, Mr. Moriarty, that the model provides some of the efficiencies and cost savings that are worked out 

in that relationship to be passed on to the consumer? 

Mr. MORIARTY. Absolutely, because if you look, Congressman, 

roughly one-third of emergency room visits are unnecessary; the 

emergency room visit for that individual, who has to pay out of 

pocket for it, is huge. The average MinuteClinic visit is roughly $75 

to $80 versus $600 to $800 for the patient. 

Mr. CICILLINE. Thank you. Mr. Sabatino. 

Mr. SABATINO. Yes, and I would agree with my colleague, and 

just add a couple of additional points. From Aetna’s perspective, 

the exciting aspect of this combination is that we have a small 

presence in the community but working with CVS we will now 

have a much larger presence. The social and environmental 

determents of health are impacting health in ways that we are just 

beginning to understand. And so, we need to get to the local communities and interact with the individuals. And we can do that 

best through the doorway that CVS provides. 

We also need to go beyond that; and we will go beyond that by 

going to the home. And so, we have a pilot program with Meals on 

Wheels, where we have trained Meals on Wheels volunteers, when 

they go in the home, to look for other determents of issues. Like, 


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do they have food in the refrigerator, is the heat on, and those 

sorts of things, so they can report them back and we can then have 

an intervention to make sure people stay healthy. As Mr. Moriarty 

mentioned, keeping people healthy is the best way to save the 

healthcare system money and to make people happier and have a 

longer life. 

Mr. CICILLINE. Thank you. And, Mr. Moriarty, some have raised 

concerns that if this transaction is approved, it may increase the 

incentives and ability of CVS to foreclose rivals or steer consumers 

such as Aetna enrollees to CVS pharmacies, and you and I spoke 

about that. Maybe you could explain how that will be 

operationalized or prevented. 

Mr. MORIARTY. Sure, so a few points, Congressman, on that. 

First off, if you look Aetna today, because we are the service provider to Aetna, represents roughly 11 to 12 percent of CVS’ revenue. The other 89/88 percent sits with other health plans; other 

employer groups, et cetera. If we sought in any way to foreclose, 

availability to all the services and creations that we are going to 

make here as part of this to the rest of the market, we would have 

so much more to lose than we would to gain in that regard. 

The other thing I can give you is one very tangible example in 

Medicare Part D. CVS has their own Part D Plan SilverScript. We 

have innovated, we have invested very heavily in that, and we 

have provided great member satisfaction for that. But at the same 

time, we are the service provider to some 43 other Part D plans 

run by other health plans. 

And we have made available all of the innovation and 

SilverScript to those plans and 83 of the plans that we service outside of SilverScript have a four or five star rating, which are the 

highest ratings CMS will give to a health plan associated with 

quality of service, adherence, member satisfaction, and the like. 

So if you look at just simply the SilverScript example as one and 

then others across our business, the risk of foreclosure, we feel 

really does not exist and in fact the economic interest would argue 

very strongly that it simply cannot happen. 

Mr. CICILLINE. Thank you. With that, I yield back Mr. Chairman. 

Mr. MARINO. The Chair recognizes Congressman Issa, from California. 

Mr. ISSA. Thank you, Mr. Chairman. Mr. Moriarty, beforehand I 

walked up to you before this started and said, ‘‘How is this trust 

going to work?’’ And I did so because clearly this is a vertical integration. 

But what I find interesting and I just want to go through it 

quickly and then ask a couple of questions is, it is a pretty inaccurate vertical integration. You are buying a convenience store 

with a pharmacy hooked to it. Your 11 percent relationship between CVS and Aetna is certainly not all the ore of the northeast, 

or the central area being brought up for a given group of steel 

mills. 

So, the synergies are pretty imperfect in the sense that these are 

not, you know, 88 percent, and you are bringing it together. And 

it reminds me of the United Airlines buying the Weston hotels. 

And everyone was doing it for a while. It was called synergies. 


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Now, it is your company’s decision and your stockholder’s decision about whether this is a good decision or not. But would it not 

be fair to say that this is at least an experiment in whether or not 

you can use the synergies in a way that not only give you efficiencies with this 11 or 12 percent, but then can turn into novel 

ideas to work with other groups? 

Mr. MORIARTY. It is a transaction, Congressman, that we feel is 

based on some known facts in terms of our own experience to date. 

So, for example, we know that transitions in care from a hospital 

to home, and the lack of the proper coordination of pharmacy associated with that is one of the single biggest indicators of readmissions back into the hospital. 

Roughly 70 percent of all readmissions is associated with essentially bad pharmacy management in that. We have a business that 

has home infusion, so it is infusions and therapies are moved from 

hospital, where they cost roughly $340,000 a year, to a lower cost 

home settings. 

We have been able to work on those transitions, make sure the 

medications are correct, and we have reduced hospitalizations by 

some 24 percent in that instance. So, that gives us a value proposition that we think that we can scale with Aetna, create an even 

more marketable product, and sell more broadly beyond simply 

Aetna and to other health plans and other providers. 

Mr. ISSA. Now, a question for you is if Aetna were to decide that 

you were going to be their exclusive vendor in every through put 

servicer in every possible area where CVS has the infrastructure 

to do so, then what portion would you get that you are not currently getting from Aetna? Just ballpark number: I am sure the figure has been run. 

Mr. MORIARTY. You know, I do not know it off hand. But I think 

it would be a very small percentage. And the risk of loss of so much 

other business would greatly outweigh any smaller benefit that 

comes—— 

Mr. ISSA. Well, Mr. Sabatino? If Walmart came to you the day 

after this merger and said, ‘‘You know what, we are going to set 

up our little mini-urgent care centers to meet or exceed what they 

are doing over there at CVS,’’ and Walgreens did the same thing, 

Rite Aid, you know, a list of names. After the merger what would 

be your position if in fact they had the same value proposition at 

additional storefronts? How would that be affected by this integration? 

Mr. SABATINO. Well, I think we would have to look at any opportunity that we have to lower the cost of healthcare. We service people around the country, and we need to find every opportunity. We 

intend to have an open system that allows all to participate in it. 

Because the ultimate goal is to find the ways to get our members 

to find the right healthcare. And so, the system needs to be open. 

It will not work otherwise. And we will not be able to compete effectively against the other managed care organizations. 

Mr. ISSA. Now, I am going to act as though there are no insurers 

here for a moment and go back to Mr. Moriarty. In a perfect world, 

would CVS become the household word for the principal alternative, to emergency room? The place the people who do not have 

a primary care physician that they can just call in a concierge’s 


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type way that will see them. Would you envision that that is your 

goal? Is to be the go to so that never again does somebody run to 

the emergency room, because they do not know where else to go? 

Mr. MORIARTY. Well, the foundational elements of not only 

MinuteClinic, but what we have done with primary care providers, 

as well as the health systems is that it is not replacement. It is 

a complement. We cannot address every condition in a 

MinuteClinic that needs to be addressed in the emergency room. 

What we can do is do it—— 

Mr. ISSA. But tens of thousands of flu cases you could? 

Mr. MORIARTY. Well, those acuity issues—— 

Mr. ISSA. Yes. 

Mr. MORIARTY. Yes, we certainly can. 

Mr. ISSA. And finally, Kaiser, decades ago, integrated much more 

than most insurance companies do today. Could one of you contrast 

your proposal to theirs since it obviously did not disrupt the market? 

Mr. MORIARTY. I will start, and Mr. Sabatino can add to it. But 

I think more than anything, what is being built out here is going 

to be an open source model. It will be made available not just to 

Aetna members, but other health plan members, as well as, to 

other pharmacies across—there are some 70,000 pharmacies in this 

country. CVS has 9,700, which is a lot. But it represents a very 

small percentage of all that. The coverage that is needed to cover 

all of America sits with those other pharmacies. That has to be addressed as part of this as well. 

Mr. SABATINO. And I would add that I think, obviously, the Kaiser system is a closed system. Our system is an open system and 

will remain open. And I think it demonstrates the fact that our 

healthcare system is complex. And we need different models, in different places, in order to attack the issues that we are trying to address. 

So I think there is a place for a Kaiser system in the environment in which Kaiser operates. And there is the place in the other 

systems like ours with CVS in order to address this issue. 

Mr. ISSA. Thank you, Mr. Chairman. 

Mr. MARINO. The Chair recognizes Congressman Nadler, the 

Ranking Member with the full Committee from New York. 

Mr. NADLER. Thank you, Mr. Chairman. Mr. Moriarty, in your 

written statement, you argue that the proposed transaction will 

benefit consumers and lower healthcare costs through greater deployment of community-based care via the CVS health’s 

MinuteClinic services, and you talked about that. Will these efficiencies achieved by the transaction be passed on to consumers in 

the form of lower prices for healthcare services or prescription 

drugs? And how do we know that? 

Mr. MORIARTY. Well, the answer is yes, sir. And the way it will 

be, is as we can lower the total cost of care it will be reflected— 

and Mr. Sabatino can comment on this better, he is more the expert—ultimately in lower premiums. What we can do as well, 

whether it is MinuteClinic or what we do today in our core pharmacy business, is the better use and better efficient use of generics 

over branded pharmaceutical products. Lower copays associated 

with that. 


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At CVS as an employer, in our plan design we saw the impact 

of higher cost drugs on our employees. We saw utilization of in key 

categories of diabetes, cardiovascular, the utilization, use of those 

by our employees go down. We decided to do, implement a plan design of zero copay associated with generics, but also branded products in those key categories like diabetes and otherwise, because 

we know that the use of pharmacy adherence to pharmacy is critical to longer term healthcare. 

And what we have seen as a result of that, is actually better utilization on our employee base and a healthier population as a result. And that gives us a lot of comfort and a lot of instruction as 

we go forward working with Aetna as we put this combination together. 

Mr. NADLER. I am not sure I understood your answer. You have 

done a lot of nice things. But how do those lead to the conclusion 

that the efficiencies achieved by the transaction would be passed 

on to the consumers? 

Mr. MORIARTY. It, ultimately, in the sense of what the consumer 

will pay can be reflected either in the form of a lower premium for 

the insurance that they are buying or, ultimately, for what they are 

paying at the pharmacy counter. 

Mr. NADLER. And how do we know that it would be? 

Mr. MORIARTY. I am sorry, sir? 

Mr. NADLER. You said, ‘‘can be.’’ How do we know that it would 

be? 

Mr. MORIARTY. Well, that is what we will deliver as part of this. 

If we can lower cost, maybe Mr. Sabatino can comment on how the 

model works? 

Mr. SABATINO. Yes. 

Mr. NADLER. I have got questions for him. So, let me travel on 

to that. I will ask this of Mr. Sabatino, Mr. Moriarty may also want 

to comment. Professor Lamar Daphne, a leading healthcare economist recently argued that in the absence of this transaction, Aetna 

could have been a potential entrant in some business segments in 

which CVS currently operates such as entering the market for 

pharmacy benefit management. How would you respond to that? 

Mr. SABATINO. Thank you for the question. We have gone 

through an analysis. We went through analysis several years ago 

looking at how we would have our PPM services, for example. 

Should we create our own PPM company or do other things? In the 

course of that we looked at all options and we came to the conclusion that the best solution for us, given our skill sets, was to contract with CVS for those PPM services because they were an efficient and effective provider of those services. 

In the meantime, we focused on the things we can do more effectively around managing medical costs and driving down the total 

cost of care. And, in terms of the drug issue, just to address that 

very quickly, you know, we have a shared goal in keeping drug 

costs down. We benefit our members by keeping our costs down. 

Those are passed on in premium reductions and increasing benefits 

for the members. That is how we operate our business. When we 

are able to save costs, they get passed on, and we are able to lower 

the cost of care. 


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Mr. NADLER. Okay, and Mr. Slover is going to testify on the second panel, argues in his written testimony that there is a horizontal dimension of the proposed transaction which is that Aetna 

would essentially, ‘‘get its own in-house PBM,’’ and outcome it 

could also achieve is a potential competitor in the PBM market. 

How do you respond to concerns that the proposed transaction 

harms potential competition in the PPM market? 

Mr. MORIARTY. I can start and then Sabatino can add to it. Congressman, no player is leaving the field here. In the sense of there 

is no PBM competition. We are the service provider today for Aetna 

from a pharmacy benefit management prospective. And so, there 

will be no consolidation at the PBM level. There is a ripe competition today. We have anywhere from eight to 15 substantial players 

in the PBM market. We see a robust, competitive environment in 

that regard. So, I do not see how this combination impacts competition in the PBM space. 

Mr. NADLER. Thank you. In the 17 seconds I have left, let me ask 

for a brief answer to one final question. This is for Mr. Sabatino. 

What assurances can you give this transaction is approved that 

CVS will not provide favorable treatment to Aetna over rival insurance companies? Maybe it should be Mr. Moriarty, whoever. 

Mr. SABATINO. Because we need to stay competitive. We have a 

very competitive market place. We have other competitors in this 

space that are also looking to manage their costs down and we will 

have to do that in order to be a viable player in this industry. 

Mr. NADLER. Thank you, my time has expired. So, I yield back. 

Mr. MARINO. The Chair now recognizes Congresswoman Handel 

from Georgia. 

Mrs. HANDEL. Thank you, Mr. Chairman, and thank you both for 

being here today. For Mr. Moriarty, could you give us just a more 

detailed example or detailed vision of what sort of the post-merger 

MinuteClinics are going to look like with the expanded services 

that you will offer there? 

Mr. MORIARTY. Certainly, Congresswoman. I think if you look 

what we will be looking at doing is expanding the scope of services, 

consistent and better complimenting the primary care within the 

communities we serve. So, there will be gaps, potentially in primary care, in certain communities that do not exist elsewhere. We 

can actually modify the services provided at MinuteClinic to help 

fill those gaps. We will have much better coordination and further 

investments and coordination with those primary care physicians. 

So, for example, we have made a very significant investment in 

Epic which is an electronic medical record system that will allow 

each of the visits that folks seen at MinuteClinic to go back to their 

primary care physician or to the health system in which that patient is associated. So, we avoid fragmentation in care. You will see 

a much more clinic approach to MinuteClinics as we go forward as 

well. And I think those are probably the highlights of how we will 

move forward in that area. 

Mrs. HANDEL. If I can just follow up on that. You keep saying, 

‘‘expanding services.’’ And so, I am looking for specifically—— 

Mr. MORIARTY. Sure. 

Mrs. HANDEL [continuing]. Is it going to be more of a full scale, 

the way the neighborhood sort of urgent care clinics work? Which 


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are not really urgent care anymore. They are, just they are open 

late, and we can go there, like that? Or, something scaled down? 

Mr. MORIARTY. For example, so today, Congresswoman, the 

MinuteClinics address roughly 40 to 45 percent of what can be 

done at primary care. We envision over the next year or so that we 

can expand that to about 90 percent. It will not involve having Xrays or the ability to fix broken bones or things along those lines. 

But it will be much more the acute conditions that you will see; the 

ear infections, eye infections, skin abrasions, other things, flu. 

And perhaps more importantly, chronic care management. As diabetes becomes more and more of an issue, the ability to interface 

with patients on a much more regular basis to ensure they are 

compliant with their A1C testing, taking their medications. That 

chronic care counseling will become a very big part of what we do 

going forward. 

Mrs. HANDEL. Okay, great. Thank you. I wanted to talk a little 

bit about lower prices. There were some recent media reports suggesting that Caremark had recently slashed reimbursements for 

generic prescriptions to the independent pharmacies. My question 

is less about that, and more about were those lower prices passed 

on to consumers in keeping with Mr. Sabatino’s comments about 

passing along cost savings to consumers? How is that going to work 

so that consumers really do see a competitive lower cost outcome 

from this? 

Mr. MORIARTY. That is a great question, Congressman. Let me 

start to take a step back, because I think if we look at reimbursement at the retail pharmacy level, there is incredible pressure 

there for a lot of different reasons. I think one of the single biggest 

things that is happened over the last two years is the changes in 

reimbursement for Medicaid. 

So, changes were made roughly in 2016 and have taken some 

$600 million in reimbursement from retail pharmacies out of Medicaid. Savings to CMS, savings to the Medicaid program. Those are 

significant cost impacts and headwinds that retail pharmacy is 

bumping up against. That has had a natural drag on pressure in 

the commercial world as folks have seen those rates, there is been 

a lot of pressure from our employer, clients, and others who are 

looking to save money. 

I feel very strongly that we solve for this longer term, is we have 

a new model for pharmacists where much more of the professional 

skills they bring in terms of the ability to counsel patients, work 

with patients on chronic conditions and otherwise is acknowledged 

and reimbursed, not only by the Federal Government, but also by 

commercial payers. And we fundamentally believe as we put these 

models together, we can see the value of that showing up in medical costs. We can create new reimbursement models for pharmacists as we go forward. 

Mrs. HANDEL. And has the response or the input from the pharmacists, what has that been? Pro? Con? In between? Wait and see? 

Mr. MORIARTY. Well, actually interesting, today the National 

Community Pharmacy Association which represents the independent pharmacist stated that they had no position on the merger. 


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Mrs. HANDEL. That is interesting. Okay. Thank you so much. I 

appreciate it. Mr. Chairman, I yield back. 

Mr. MARINO. The Chair recognizes Val Demings from Florida. 

The newest Member of our Judiciary Committee and our Subcommittee. And we look forward to your input. So, welcome. 

Ms. DEMINGS. Thank you so much, Mr. Chairman, and thank you 

to both of you for being here with us today. I think you have both 

said that healthcare is complicated and that is an understatement. 

Certainly, we need to expand care and lower cost. Could each of 

you please tell me how the proposed transaction will benefit more 

underserved communities? 

Mr. MORIARTY. Yes. I can start. I think, Congresswoman, as you 

look first and foremost it will take the form of what we can offer 

within not just our pharmacies, but how we can extend that to 

other pharmacies. We know in certain areas that, from a behavioral standpoint and from just social determinants, that where you 

live has as much to do with your healthcare and your health outcomes as any other factor. 

We can extend and push care, not just physically, but also 

through telemedicine and other related capabilities that we will be 

able to invest in as part of this transaction. Those are things we 

are doing today. Those are things we will accelerate as we go forward with Aetna. 

Mr. SABATINO. Yes, and let me start by saying that I think we 

all recognize that not only is healthcare complicated, but the status 

quo is unacceptable. We are not able to provide healthcare to everyone in an effective way and we are working to do that. We believe that by getting to our communities, by becoming much more 

locally focused on people and their issues, we can get at those social determinates of health that are affecting it. 

Mr. Moriarty alluded to this. Our CEO is famous for saying—not 

famous. I do not know if he is famous or not. But he will say, ‘‘That 

today we now recognize that our zip code matters more than our 

genetic code’’ in terms of whether or not our health outcomes. So, 

we need to get into those communities. This transaction allows us 

that opportunity to do that. It allows us to get where the people 

are in every community in which we operate. And so, we think that 

is the best way to get at increasing the health of individuals and 

reducing the costs. 

Ms. DEMINGS. And some antitrust experts express skepticism 

about the merger being necessary to expand services. Could you 

tell me why this merger is necessary as opposed to a contractual 

relationship? 

Mr. MORIARTY. Again, I can start, and Sabatino can add to it. We 

start with the very proposition of we have a $3.2 trillion healthcare 

budget in this country. We know the data suggests that one-third 

is not being spent appropriately, may even being wasted. 

So looking at solutions as to how we get at that. Whether it is 

unnecessary emergency room visits, lack of compliance, lack of people taking their medications as prescribed by the doctors costs $300 

billion each year. There is a fragmentation in the system today 

where the primary care doctor will recommend that you do X, Y, 

and Z and that is not being followed through on. 


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Our ability to integrate the data that Aetna has in terms of it 

is medical records, with our touch points at the pharmacists can 

lead to a much more connected care management system that we 

think will make a real difference. 

It will also allow us to extend things like we are doing today with 

the Veteran’s Administration in Phoenix. As we have looked at 

what is happening at the VA, we have been able to extend 

MinuteClinic services to those veterans to triage conditions that 

can be seen at MinuteClinic. Reduce the back log at the hospitals 

that are in the VA systems, get the veterans the care they need 

for what we can take care of, and only those who truly need to be 

back in the VA system actually go there. These are all examples 

of things that we can extend and accelerate when we put the combination together. 

Ms. DEMINGS. Thank you. 

Mr. SABATINO. And I would just add that from Aetna’s prospective, CVS has the doorways that we need to go to. We do not have 

those doorways today. We have the analytics. We have the medical 

professional network that we can link in with the system, and we 

cannot fully integrate those unless we are actually one part, part 

of one combined company. Our data analytics will fuel that, but it 

needs to be as part of a single entity for us to really get to the true 

value that is able to be captured. 

Ms. DEMINGS. And finally, could you talk just a little more about, 

kind of, the guarantee that you will not force your consumers to 

use one or the other because you need to remain competitive. Could 

you just talk a little bit more about how that makes you more competitive? 

Mr. MORIARTY. Sure, I can do that. 

Ms. DEMINGS. Allows you to be more competitive than the other 

way. 

Mr. MORIARTY. That is right. And, ultimately the model is we 

will want them to come. We cannot force them to come. And, in 

fact, if we look at our broad customer base at CVS and the number 

of companies we provide services for, if we try to restrict these only 

to Aetna, we would lose so much other business that we are just 

simply cannot do that as part of our model. So, what we have built 

today, and we will continue doing is offering and developing services made available across the healthcare spectrum. Not limited to 

any one company or to only one group. 

Mr. SABATINO. And I would just simply add that for us to continue to serve our customers, school, unions, corporations, we need 

to be able to provide access to a retail pharmacy wherever they 

may be and a large number of those. So, it is imperative that we 

keep our network wide and broad in order to continue to provide 

those services. 

Ms. DEMINGS. Thank you so much to both of you. Mr. Chairman, 

I yield back. 

Mr. MARINO. Thank you. Seeing no other Members on the dais 

for questions, this concludes the first panel of our hearing. I want 

to thank our witnesses. Gentleman, your testimony has been very 

encouraging. I think I speak on behalf of Mr. Cicilline, particularly 

pursuant to some of the legislation and issues on which we are 

working, thank you very much. You are excused. 


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Mr. MORIARTY. Thank you for the opportunity. 

Mr. MARINO. And it is time now we will call the second panel for 

today’s hearing. I will begin by swearing in our witnesses before we 

introduce them. So would you please stand and raise your right 

hand? Do you swear that the testimony that you are about to give 

before this Committee is the truth, the whole truth, and nothing 

but the truth, so help you God? 

Let the record reflect that the witnesses have confirmed in the 

affirmative and may be seated. 

I will now introduce all of the witnesses before we go into your 

individual statements. And if I mispronounce your name, let me 

know. 

Dr. Craig Garthwaite is the Herman R. Smith research professor 

in hospital and health services management and the Director of the 

Health Enterprise Management Program at Northwestern University, Kellogg School of Management. His research focuses on a variety of issues related to the pricing and development of pharmaceutical products and the effects of the changing healthcare market 

on the operations of hospitals and other healthcare providers. Dr. 

Garthwaite has a bachelors and master’s degree from the University of Michigan and a Ph.D. in economics from the University of 

Maryland. Doctor, welcome. 

Dr. Lawrence Wu is an economist and president of NERA Economic Consulting. A global firm of experts in economics, finance, 

and statistics. Dr. Wu specializes in health economics and antitrust. And over the past 25 years he has analyzed the competitive 

impact of scores of mergers across the healthcare industry. 

From 2011 to 2015, he was a visiting scholar at the Stanford Institute for Economic Policy Research at Stanford University. From 

1992 to 1996, before he joined NERA, he was a staff economist in 

the Bureau of Economics of the Federal Trade Commission. Doctor, 

welcome. 

Mr. George Slover is a senior policy counsel at Consumers Union, 

the advocacy division of Consumer Reports, where he works on 

competition policy, regulatory policy, and other consumer protection policy issues. He has authored numerous comments on agency 

rulemakings, has testified before Congress on several antitrust and 

competition policy matters, and has assisted with the drafting of a 

number of bills. Before going to Consumers Union, he worked in 

the legal policy section of the Justice Department’s Antitrust Division, as well as at the House Judiciary Committee, where he was 

again focused on antitrust issues. He holds a JD from the University of Texas Law School and a Master of Public Affairs from the 

LBJ School. Counselor, welcome. 

Mr. Geoffrey Manne is the founder and Executive Director of the 

International Center for Law and Economics. A nonprofit research 

center based in Portland Oregon. He is an expert in law and economics with two degrees from the University of Chicago; a BA in 

economics and political theory and a JD. And he is the son of 

Henry Manne, one of the founders of Law and Economics and 

former dean of George Mason Law School. 

He was a law professor at Lewis and Clark Law School in Portland, a lecturer in law at the University of Chicago and the University of Virginia and worked as a research assistant for Judge RichVerDate Sep 11 2014 21:47 Aug 07, 2018 Jkt 030952 PO 00000 Frm 00025 Fmt 6633 Sfmt 6602 E:\HR\OC\A952.XXX A952

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ard Posner. Jeff has written extensively on antitrust law and economics, particularly on vertical mergers and on merger issues in 

the healthcare and health insurance industries. Welcome, Counselor. 

Each of the witnesses’ written statements will be entered into 

the record in its entirety. And again, I ask that when you make 

your statements, please try to keep them within 5 minutes. And as 

you heard, you will see that there is a timing light. And when the 

green light goes to yellow, you have 1 minute, and when it goes to 

red, your time has run out. 

And as I say, I will be very polite and diplomatic. If you excessively run over, I will just raise the hammer a little bit to give you 

an idea that it is time to wrap up. So, with that in mind, Dr. 

Garthwaite, would you like to make your opening statement? 

STATEMENTS OF CRAIG GARTHWAITE, ASSOCIATE PROFESSOR OF STRATEGY, DIRECTOR, HEALTH ENTERPRISE 

MANAGEMENT PROGRAM, KELLOGG SCHOOL OF MANAGEMENT, NORTHWESTERN UNIVERSITY; LAWRENCE WU, 

PRESIDENT, NERA ECONOMIC CONSULTING; GEORGE 

SLOVER, SENIOR POLICY COUNSEL, CONSUMER UNION; AND 

GEOFFREY MANNE, EXECUTIVE DIRECTOR, INTERNATIONAL 

CENTER FOR LAW AND ECONOMICS 

STATEMENT OF CRAIG GARTHWAITE 

Mr. GARTHWAITE. Chairman Marino, Ranking Member Cicilline, 

Ranking Member Nadler, and Members of the Subcommittee, 

thank you for holding a hearing examining the merger between 

CVS Health and Aetna and the potential implications of vertical 

mergers of this nature. As you have said, I have prepared a written 

statement for the record that I will briefly summarize here today. 

First, I would like to clarify for the Committee that I have not 

been in contact with any representatives of either of the organizations, nor do I have access to any propriety documents relevant to 

the merger. Therefore, my testimony is primarily intended to highlight the broad economic incentives involved with a merger of this 

nature. As such, it is also generally relevant to other similar combinations of assets we see in the market, such as those with United 

Health Group with its United Healthcare and Optum divisions. 

The proposed merger, as you mentioned, is primarily a case of 

vertical integration, a situation where a firm and either its customer or supplier attempt to organize into a single entity. Such 

strategies involve effectively abandoning the broader supplier market in favor of an internal supplier, and they are often met by with 

skepticism by economists and strategy professionals, a skepticism 

that stems from our knowledge that well-functioning economic markets allow firms such as Aetna and CVS to obtain the best price 

quality combination for various inputs and services. 

That said, we also know that firms often do not face the wellfunctioning and efficient markets that inhabit many economic textbooks. In fact, features such as the presence of incomplete information, uncertainty, meaningful transaction costs, decreased market 

efficiency, and facing those imperfect markets, strategic vertical integration can increase social welfare. 


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And concerning the merger of CVS Health and Aetna, I can identify three primary rationales for how vertical integration could increase social welfare in this context. First, the proposed merger 

may allow a better coordination of the various components of the 

health insurance benefit. Often, medical and pharmacy insurance 

benefits that we receive are provided by different firms, each of 

which is naturally focused on maximizing its own profits. For example, a PBM rarely bears risk for medical spending, and thus primarily focuses on how its decisions on copays and which drugs to 

cover affect drug spending rather than total health spending. 

The potential inefficiency is easiest to consider for something like 

the treatment of diabetes, where a PBM aims to minimize drug 

spending, while a firm responsible for total health spending realizes that diabetics who were not adherent to their medications result in future inpatient hospitalizations that are costly for society. 

A merged CVS-Aetna would have both the incentives and the information to offer this more coordinated benefit that considers 

these spillovers. That would be good for consumers, because such 

a benefit both increases health and lower healthcare spending. 

A second potential source of value creation is addressing inefficiencies in the existing PBM market. While there are many complexities to drug pricing, at a high level, payors such as an employer pay a publicly available list price to a pharmaceutical firm. 

They then hire PBMs to do, among other things, negotiate rebates 

from that list price, and then those rebates are shared to the firm 

and the PBM keeps some portion of it as well. 

In a well-functioning supplier market, PBMs would compete for 

a payer’s business until the appropriate amount of the rebate was 

transferred. But the PBM market does not appear to be as competitive as we would like, and is, in fact, quite concentrated. As a result, PBMs and pharmaceutical firms have an incentive to increase 

list prices and the size of the rebate in an attempt to capture value 

for themselves. 

My research suggests that in the current PBM market, both of 

these firms are benefitting from higher drug prices. This increases 

premiums and forces customers to pay directly higher prices at the 

pharmaceutical counter. But a merged CVS-Aetna would not have 

a similar incentive to raise these list prices for its insurance customers, since this would decrease the profitability of the merged 

firm’s insurance product. 

And a final source of potential value creation stems from the provision of medical services in new lower cost settings. And we heard 

both of the general counsels talk a lot about that. A merged CVSAetna could provide the appropriate incentives for more care to be 

provided at low cost locations such as CVS’s chain of 

MinuteClinics. 

Currently, when CVS picks the services they offer at those clinics, they focus on maximizing retail revenue. They do not focus on 

services such as chronic disease management for diabetes, and 

COPD, and other conditions. That would benefit customers and society through a reduced future health expenditure but would not be 

directly profitable for CVS as a standalone pharmacy. 

CVS does not invest in those services because it is worried its investments will be captured by another firm such as a health inVerDate Sep 11 2014 21:47 Aug 07, 2018 Jkt 030952 PO 00000 Frm 00027 Fmt 6633 Sfmt 6602 E:\HR\OC\A952.XXX A952

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surer, an economic concept we refer to as ‘‘hold up.’’ However, a 

merged CVS-Aetna would make those investments, because it 

would know that some portion of the merged firm, either the insurance arm or the pharmacy arm, would benefit from the future reduced savings and the increased rates of revenue. It would be beneficial both for consumers and for society. 

Despite the potential for value creation, it is still possible the 

value will ultimately be kept by CVS-Aetna rather than the consumers. How the value is ultimately distributed hinges on whether 

there is sufficient competition in the health insurance market. 

Without competition, the merged firm has little incentive to return 

the value it generates back to consumers in the form of lower premiums. 

However, if there is not sufficient competition in insurance markets, policymakers have tools to regulate the future profits of the 

firms. Note that this is not an option if the value creating activities 

from the merger never occurs in the first place. 

Overall, there are many potential economic avenues whereby this 

merger would increase value. At a minimum, we know the 

healthcare market is evolving. Given this fact, we should not imagine that the existing firms have the right combinations of assets 

and activities to succeed for this newly emerging market. And this 

merger appears to be one attempt of an example of two firms that 

are undertaking to address this fundamental reorganization of 

healthcare. I thank the Committee for having me here today, and 

I welcome any questions you may have. 

Mr. Garthwaite’s written statement is available at the Committee or on the Committee Repository at: https://docs.house.gov/ 

meetings/JU/JU05/20180227/106898/HHRG-115-JU05-WstateGarthwaiteC-20180227.pdf. 

Mr. MARINO. Thank you, Doctor. Dr. Wu. 

STATEMENT OF LAWRENCE WU 

Mr. WU. Chairman Marino, Ranking Member Cicilline and Members of the Subcommittee, I am pleased to appear before you today 

to share with you a few observations on the proposed merger, given 

my experience as an economist who has specialized in healthcare 

antitrust. 

I am Lawrence Wu. I am president of NERA Economic Consulting. For over 25 years, I have had the opportunity to analyze 

mergers and acquisitions across the spectrum of healthcare services. I am proud to be affiliated with NERA, but the views and 

opinions I express today are entirely my own. I have not been retained by any party to evaluate the proposed transaction. 

Before I share my thoughts with you, let me tell you how I approach transactions like the one we are discussing today. I always 

start by asking how a proposed transaction is going to improve consumer welfare. In the context of a healthcare merger, this means 

I focus on whether the transaction is likely to result in lower 

prices, an improvement in the quality of healthcare provided to 

consumers, increased access to care, and/or more innovation. 

Transactions that lead to such benefits would be called, ‘‘procompetitive.’’ Transactions that lead to the opposite outcome would be 

called, ‘‘anticompetitive.’’ This is the same approach that the antiVerDate Sep 11 2014 21:47 Aug 07, 2018 Jkt 030952 PO 00000 Frm 00028 Fmt 6633 Sfmt 6602 E:\HR\OC\A952.XXX A952

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trust agencies take as well. So, with that, here are three observations on the proposed transaction. 

First, an important characteristic of this transaction is that with 

the exception of Medicare Part D, prescription drug benefits, the 

merger combines companies that operate at different points along 

the pharmaceutical supply chain. This is why many describe the 

transaction as a vertical merger as opposed to a horizontal merger, 

which would be a transaction that combines companies that compete in the same market. 

This is important, because while vertical mergers can sometimes 

raise competitive concerns, they also have the potential to reduce 

costs and inefficiencies along the supply chain, with the result 

being lower prices. 

Second, the importance of MinuteClinics is in their ability to deliver to patients the care they need in a more cost-effective setting. 

Getting patients to the right place at the right time is currently a 

major challenge in this country. To give you an example, half of all 

U.S. hospital admissions come through the emergency department, 

which is an expensive place for doctors to figure out whether a patient needs to be hospitalized or not. 

This is a problem that insurers and providers and healthcare 

systems have been trying to address for a long time. If the proposed transaction can increase the use of low-cost clinics for diagnostic care, or if it can facilitate the expansion of these clinics, especially in areas where access to outpatient care clinics or urgent 

care centers is limited, then the proposed transaction is a big step 

forward. 

Third, and my last observation, is based on my experience seeing 

providers and insurers adapt and try new business models in response to market changes in an industry that is highly dynamic 

and innovative. Mergers and acquisitions have played an important 

role in achieving these goals. The proposed transaction is another 

example of innovation in action. 

Clearly, there are many ways for insurers to get cost-effective 

PBM services and ensure that their subscribers get their medications at a low cost. And there are many ways that providers can 

encourage patients to use low-cost clinics. Will the merged entity 

be successful in accomplishing these goals? Well, time will tell, and 

only time will tell whether the combined firm will pass the market 

test. 

The transaction has the potential to benefit consumers. I am confident that the talented attorneys and economists at the Antitrust 

Division are working hard to ensure that any potential for competitive harm that they foresee is minimized. If the Antitrust Division 

finds that the proposed transaction has a low risk of competitive 

harm, then let’s see what innovation flows from the transaction 

and let the experiment happen. Thank you for convening this hearing. I look forward to answering any questions that you might 

have. 

Mr. Wu’s written statement is available at the Committee or on 

the Committee Repository at: https://docs.house.gov/meetings/JU/ 

JU05/20180227/106898/HHRG-115-JU05-Wstate-WuL20180227.pdf. 

Mr. MARINO. Thank you. Attorney Slover. 


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STATEMENT OF GEORGE SLOVER 

Mr. SLOVER. Thank you. We have been working since our founding in 1936 for a healthcare marketplace that brings quality affordable care to all Americans. One key to making the marketplace 

work for consumers is meaningful choice, from effective competition, so consumers can shop around. That motivates businesses to 

respond to consumers’ wants and needs with more affordability and 

better quality, lest consumers go elsewhere. 

The healthcare marketplace is complex. Most costs are not directly paid by the consumer, and the ways costs are negotiated and 

shifted among various commercial actors are often obscured. Active 

antitrust enforcement can help foster competitive market forces in 

all parts of this marketplace, from hospitals and medical practices 

to health insurers, to drug makers, pharmacies, and pharmacy benefit managers. 

The CVS-Aetna merger would combine two giants into a new corporate structure, straddling more market sectors and creating new, 

far-reaching profit-maximizing incentives, impacting all those 

parts. If CVS-Aetna finds it has new ways to bring down costs and 

improve quality, what antitrust calls ‘‘efficiencies,’’ that can be good 

for consumers and the economy. We have heard those explained 

today, and that is the picture CVS and Aetna are painting. Some, 

or even most, of that picture might prove to be accurate. 

For example, encouraging Aetna policyholders to use a CVS 

MinuteClinic for simple, routine care instead of a hospital emergency room will cut expenses for Aetna. That might be passed 

along in lower costs or improved service—might. It is far from certain. For one thing, we would need transparency in competition, so 

those on the receiving end are aware of the savings upstream, and 

able to insist on a fair share or to go elsewhere. Unlikely in our 

current healthcare marketplace. 

What is more, efficiencies often turn out to be illusory or exaggerated. And when they are real, they can often be achieved without merging. Why does Aetna need a merger to encourage policyholders to visit MinuteClinic instead of an ER? And we could instead see reduced competition, which brings no benefit except to 

CVS-Aetna. 

For example, as we have heard today, CVS-Aetna might tell 

Aetna policyholders they can go only to MinuteClinic, not to a conveniently located walk-in clinic run by someone else, or might direct them to fill prescriptions only at CVS; or to use MinuteClinic 

for an expanded set of medical needs instead of seeing their own 

doctor. Or CVS Caremark might negotiate different, better prescription drug deals only for Aetna insurance, or only for purchases 

at CVS. The black box surrounding PBM back-end rebates and side 

agreements makes this area particularly open to anticompetitive 

abuse. 

CVS and Aetna said they would never do any of that. Maybe. But 

this is not about what present intentions might be, or what is happening now in the marketplace. It is about how incentives and capabilities would be altered by the new, market-straddling corporate 

structure. 

Solo Aetna would encourage policyholders to use MinuteClinics, 

but would also be fine with them choosing other walk-in clinics. 


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CVS-Aetna would see a trade-off—MinuteClinic visit adds to profits; going elsewhere means profits forgone. CVS-Aetna would probably still want to do business with those other clinics, but the 

terms would be more restrictive. 

This kind of merger is called ‘‘vertical,’’ because CVS and Aetna 

do not compete with each other, they deal with each other. We 

have heard about the differences in how you analyze competition 

issues with these kinds of mergers. It has sometimes been said, 

though, that vertical mergers cannot harm competition. This is not 

accurate. The concerns I am describing are squarely within established antitrust law. Forty years ago, they were often being cavalierly dismissed in the so-called ‘‘new thinking.’’ But our understanding has evolved and deepened. 

The Justice Department is challenging the proposed AT&T-Time 

Warner merger based on very similar kinds of concerns. 

We do not prejudge the outcome of the investigation, but we expect it to be thorough. And for the Department to take action as 

needed to protect competition. 

Genuine risks to competition will not be fixed by pledges of good 

behavior. As Assistant AG Delrahim recently noted, that unrealistically asks the merged company to make daily business decisions 

that run counter to its profit-maximizing incentives. 

Given the stakes, if the Department takes no action, we will 

want to know why. Of course, if the Department takes action, we 

will see a full explanation in the court filings. Thank you. 

Mr. Slover’s written statement is available at the Committee or 

on the Committee Repository at: https://docs.house.gov/meetings/ 

JU/JU05/20180227/106898/HHRG-115-JU05-Wstate-SloverG20180227.pdf. 

Mr. MARINO. Thank you. Attorney Manne. 

STATEMENT OF GEOFFREY MANNE 

Mr. MANNE. Thank you, Chairman Marino, Ranking Member 

Cicilline, and Ranking Member Nadler, Members of the Subcommittee. Thank you for allowing me to testify before you today. 

The overriding theme of my testimony is that the proposed merger 

is a commendable effort by two industry leaders to experiment with 

substantial reform of what, we can all agree, is a beleaguered 

healthcare system. 

I think it was interesting; one analyst talked about the thinking 

behind the deal and said, ‘‘What if an entire array of services was 

available at the pharmacy. Better yet, what if it would cost less?’’ 

The advantage is clear. Send the patients to the pharmacy and 

free up the doctors for more pressing needs. Everyone recognizes 

the urgent need to realign the healthcare industry. But the extent 

of agreement that something should be done is exceeded only by 

the extent of disagreement over what exactly should be done. And 

I think it is difficult to overstate the singular importance of private 

sector efforts to try new things in the healthcare industry. 

So, in that light, I look at this merger as not as a combination 

tending to increase or concentrate economic power in the existing 

industry structure, but as a step toward reorganization of that 

structure itself in which we do not know where the economic power 

will lie. 


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Amidst the typical antitrust concerns about industry concentration or foreclosure, it is often missed, I think, that changes in technology, changes in demand, experimentation with new ways of 

doing business, virtually always lead to changes in industry structure. Restructuring that may, in the abstract, seem troublesome, is 

often easily understood as a response to changing market conditions. 

Absent overwhelming evidence that the merger would create unacceptable risks of harm, this partnership and some others that I 

will talk about in second, that try to break down the old paradigms 

and fundamentally rethink traditional industry models should be 

welcomed by consumers and lauded by regulators. 

It is important that the relevant standard here is not that they 

demonstrate that they can increase efficiency and pass it all on. 

The real relevant standard here is that they can demonstrate that 

they are trying something. They are experimenting. They are doing 

something new, but most importantly, that they are not harming 

consumers. Those are very different. 

As I said, the importance behind this merger, I think, is a change 

in the industry. It is a technological evolution particularly with respect to data and data processing abilities and the growing movement away from fee for service care toward value-based care. Taking advantage of these, though, requires large investments in technology, comprehensive tracking of preventive care activities, and 

health outcomes, and more holistic supervision of patient care. And 

arguably, all of this may be accomplished more efficiently and effectively by larger, better-integrated firms. 

The idea that this kind of combination of diverse aspects of the 

current healthcare industry might better serve the direction that 

healthcare is going also comes from the fact that there is a 

veritable wave of these sort of interesting vertical mergers going on 

right now. There are a lot of examples, but I want to just draw 

your attention to two of them that I think are particularly interesting. 

So Walmart recently announced a deal with Quest Diagnostics to 

offer diagnostic testing services and potentially other basic 

healthcare services inside of some Walmart stores. Now, what is interesting about this arrangement that while it does not necessarily 

do this right out of the gate, it does portend the possibility of an 

expansion of the use of patient-initiated as opposed to doctor-authorized tested in States that allow it. 

Very much consistent with the direction, I think, of the sort of 

consumer-centric, outcome-based healthcare and potentially remarkably cost saving. It is something that I do not think Quest 

would really necessarily be able to accomplish on its own. But in 

partnership with Walmart, one can easily imagine that happening. 

And maybe even more interesting, is the pharmaceutical company Roche announced this month that it would buy cancer data 

company Flatiron Health, and as it said, ‘‘to speed development of 

cancer medicines,’’ and this is the interesting part, ‘‘and help price 

them based on how well they work.’’ 

Now, not only is the deal intended to improve Roche’s drug development price pipeline, but it is also aimed at accommodating efforts by other players in the industry to shift the pricing of drugs 


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toward an outcome-based model. I think that is terrific, and I also 

think, again, it is driven largely by the technological ability that 

we have now with the integration of data and other sorts of practices. And as I said, as a part of this transformation in the industry, I think. 

So, I think with respect to the Aetna-CVS merger in particular, 

as we heard this morning, there seem to be a lot of interesting opportunities. And again, I want to highlight just one, because sadly 

I do not even have time to do that, but I do not even have time 

to highlight more. 

And in particular, I think we heard about the Meals on Wheels 

program that Aetna runs. Well, they run another program that involves community care managers who typically drive to subscribers’ 

homes. They provide them with advice. They evaluate their needs. 

It acts on a very small scale, and it requires a lot of driving, it requires special meetings; it is probably not something that most 

subscribers see as something that sort of fits into the normal 

course of their day. 

But now, imagine that something like, say, and I am making this 

up, a third of workers in every CVS retail store has specialized 

training. And these care managers are located in a dedicated space 

in the store. And they do not interact with just a few patients between scheduled drives, but with hundreds of patients as they pass 

through the stores. You can imagine something like concierge medicine for the masses. And I think this is the kind of opportunity that 

this merger presents and exactly what we need in the healthcare 

industry today. 

Mr. Manne’s written statement is available at the Committee or 

on the Committee Repository at: https://docs.house.gov/meetings/ 

JU/JU05/20180227/106898/HHRG-115-JU05-Wstate-ManneG20180227.pdf. 

Mr. MARINO. Thank you. We now will start with our 5 minutes 

of questioning, and I will recognize myself. And if I select someone 

for a question and anyone else wants to respond to it, go ahead, 

but just bear in mind we are talking about 5 minutes. Dr. 

Garthwaite, Americans pay some of the highest prices worldwide 

for prescription drugs. Do you see this merger helping to drive drug 

prices down? 

Mr. GARTHWAITE. I think it is important to think about why we 

pay the highest prices for these prescription drugs. And I do not 

think it is a situation in which, you know, we should think about 

comparing the prices we pay here to the prices we pay in Europe. 

We should think about the value we get for the dollar in the 

United States. 

I think that what you would see in terms of prices in the United 

States is that the primary effect here would be on list prices as opposed to the net prices being paid by just sort of rank order. And 

that is sort of the pre-rebate price that we face. A lot of times, we 

dismiss that as a fiction, right? No one ever pays that price, we all 

get discounts. 

I would note, though, that increasingly consumers find themselves exposed to those list prices. And that is where, you probably 

heard a lot from your constituents in the sense that they are in 

their deductible, or they pay a percentage of the list price for their 


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coinsurance. I think that is where you would see some incentives 

to no longer play games to artificially inflate list prices to get high 

rebates. And you would see an effect there more than you would 

on sort of the aggregate spending on prescription drugs. 

Mr. MARINO. Okay. Dr. Wu, would you care to respond? 

Mr. WU. Well, I mean, drug pricing is a complicated topic. And 

this transaction does not cover all of those issues. But I think this 

transaction does represent an innovative way to tackle some hard 

issues that we face. And we need innovation. And this transaction 

is an example of that. 

Mr. MARINO. Attorney Slover. 

Mr. SLOVER. Yes, I think the merger is likely to lead to reduced 

costs within the CVS-Aetna corporate structure. The question is at 

what cost to the rest of the marketplace? And that is going to depend on other external factors, the competition that is available 

throughout the marketplace and the competition that remains after 

the merger and whether any of those costs get passed along to the 

rest of the market and ultimately to consumers. And that is, I 

think, going to require a careful look by the Justice Department. 

Mr. MARINO. Thank you. Attorney Manne. 

Mr. MANNE. I will just say very quickly; I think there are lots 

of opportunities in this merger to reduce double marginalization at 

various points in the pharmaceutical supply chain. And so, I think 

we can all agree that there are reasons to expect that the cost of 

delivering drugs to patients will go down. 

To Mr. Slover’s point, I do not see any reason to expect that the 

merger would portend higher prices for either the customers of 

Aetna’s and CVS’ customers or outside the firm elsewhere in the 

market. And as a result, even if the savings are not passed on, I 

cannot imagine a story that would explain why things would get 

worse with respect to drug prices following this merger. And I can 

certainly see some reasons why I might think they would get better. 

Mr. MARINO. Okay. Dr. Wu, United and Humana are both health 

insurers that also have PBMs. Has there been any antitrust problems or consumer harm based on these companies being both insurers and PBMs that you are aware of? And, again, anyone else can 

comment on this too. 

Mr. WU. I am not aware of any antitrust issues with the integration of PBMs and insurers. Again, this is the market experiment 

that is taking place. I do not think it is clear if there is one business model that will be more successful or less successful. The integrated model is the structure that CVS and Aetna want to move 

towards. This is an experiment. Will it work? Will it not work? You 

know, this is the market test. 

Mr. GARTHWAITE. I would also note just broadly that this is also 

the model that Anthem is moving towards as well as CVS-Aetna. 

So, you have got all the major insurers looking to this integrated 

model at this point. 

Mr. MARINO. Attorney Slover. 

Mr. SLOVER. Yes. PBMs make a lot of their money by negotiating 

reductions on the price they pay for pharmaceutical drugs and not 

turning all of that money over to the health insurers. And so, there 

is definitely a competition issue there. The reason they turn over 


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what they do is because there are options for health insurance companies to go to a different PBM or to do that service themselves. 

To the extent that the new market structure and coupled with 

other consolidation taking place removes those options, it could 

definitely have an effect. 

Mr. MARINO. Thank you. Attorney Manne. 

Mr. MANNE. I do have thoughts, but I see the time is up. 

Mr. MARINO. We are fine. Go ahead. 

Mr. MANNE. Well in case you had another question I thought I 

would leave it for you. But that is fine. Not surprisingly, I agree 

with Dr. Wu. I think the most important thing here is once again, 

it is difficult to see why there would be problems arising from this. 

And the PBM market such as it is has been kind of in a state of 

disruption for about a decade now. 

And I think it seems pretty clear, as Dr. Garthwaite said, what 

direction it seems to be heading. But it will not be inexorably in 

that direction. We will see some other changes happening, too. This 

seems like a perfect opportunity to try out this particular combination of companies around PBM market, see if it works, and if not, 

we will continue to try other things, too. I do not see any great 

problems in that market as it happens. 

Mr. MARINO. All right, thank you. The Chair now recognizes the 

Congressman from New York, the Ranking Member of the full 

Committee, Congressman Nadler. 

Mr. NADLER. Thank you, Mr. Chairman. Mr. Slover, a number of 

questions for you. The health insurance market is already highly 

concentrated. According to studies by the AMA, there has been a 

near total collapse of competition among health insurers. The cost 

of health insurance has also grown dramatically over the past 30 

years. What effect does concentration in this market have on premium growth, worse customer service, or less choice for health insurance options? 

Mr. SLOVER. Well, I think your question kind of contains the answer. The more—— 

Mr. NADLER. Best kind of question. 

Mr. SLOVER. The more concentration there is, the fewer choices 

are available in all levels of the marketplace. And when there are 

fewer choices, the ones who are offering those choices do not have 

to try as hard to make those choices attractive. 

Mr. NADLER. Thank you. Would the combination of Aetna, a 

dominant health insurer, with CVS Health, which is the largest 

pharmacy benefit manager and second larger retail pharmacy, create risks of anticompetitive conduct? 

Mr. SLOVER. Yes. It certainly could in some of the ways that I 

have described. If there is a silo where it is favoring its in-house 

operations, the question is whether it still has the incentive to 

make those same offerings available to others and to what extent. 

I think they will try to have their cake and eat it, too. And so, how 

that changes will affect the quality of those choices that are still 

available. 

Mr. NADLER. Now, I asked Mr. Moriarty and he says the following is not a concern for reasons you probably heard, but let me 

ask your opinion. Are you concerned that the proposed transaction 

would increase the risk of CVS Health steering Aetna enrollees to 


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its own pharmacies or creating disadvantageous conditions for rivals? 

Mr. SLOVER. I do not envision something happening right away 

that suddenly the merge company wants to lock everybody else out, 

but it is a question over time. For examples one of the scenarios 

that was described is CVS taking its MinuteClinics into markets in 

rural areas or underserved areas where there are no primary care 

physicians. Well, if they are meeting a need that cannot be met 

some other way, I think that is an unmitigated good. 

But why would CVS stop at that point and say we are only going 

to offer these profitable services in areas where there are not primary care physicians? They are going to say, ‘‘Well, look we have 

got it established, we will move into the other areas. We can take 

some of the business away from the primary care physicians.’’ So, 

it is a continuum, and the question is where the line changes in 

terms of having your cake and eating it too. 

Mr. NADLER. And there are studies that indicate that health insurance premiums and insurer profits tend to rise in the wake of 

health insurance mergers. Is this also true for vertical acquisitions 

effecting the availability of health insurance in your opinion? 

Mr. SLOVER. I think it is more complicated, as a lot of people 

have discussed here, how vertical mergers affect the marketplace. 

They generally do provide opportunities for cost cutting within the 

new merged entity. Then there is the question of whether those are 

going to get passed along to others. And then on the other side, 

there is the potential for foreclosure if it is profitable to the combined entity to freeze out others, or to disadvantage others, or to 

make life harder for others so that more business comes to it. 

Mr. NADLER. And as you note the market for pharmacy benefit 

managers or PBMs is highly concentrated with just three PBMs accounting for 70 to 80 percent of the market. What effect with the 

proposed transaction have on competition on the PBM market? And 

do you believe that consumers would benefit from Aetna entrance 

into the PBM market through organic growth and competition 

rather than through this proposed transaction? 

Mr. SLOVER. Well, we heard Aetna say that they had already 

looked at that a few years ago and decided that it did not make 

sense for them to go into that market themselves, and that they 

would have a contractual relationship with CVS. I think, absent 

the merger, they are going to take a fresh look at that. 

And if they say, ‘‘You know what? It kind of makes sense for us 

to give this a try, because we really have decided now that we want 

our own in-house PBM,’’ and they did enter, then it would provide 

another major competitor in the concentrated PBM marketplace. 

Mr. NADLER. Thank you. I have one last question. There is general consensus as you note in your written testimony that behavioral remedies are not an effective tool to address harms to competition in merger enforcement. To the extent the Justice Department determines that there are anticompetitive harms of the proposed transaction, such as increasing the risk of vertical foreclosure 

or steering by the merging companies, how might they address 

these concerns? In other words, what mitigation or remedies might 

there be? 


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Mr. SLOVER. Well, in a vertical merger, it is very difficult to handle that with divestiture or partial structural remedies, you are 

really talking about deciding whether or not the merger should be 

blocked or not. The Department has decided to challenge the 

AT&T-Time Warner merger for that very kind of reason. If you do 

not do that, the behavioral remedies may be the only alternative. 

And so, they can be considered as a last resort but they are very 

time consuming, very problematic to enforce, and like I said in my 

written statement, they actually require the merged company to 

act against its interests—— 

Mr. NADLER. In other words, behavioral remedies are the only 

remedies and they do not work very well? Is that your testimony? 

Mr. SLOVER. Well, the other remedy is to challenge the merger 

and say it should not go forward. And then there may be some others. I hope that the Justice Department will look at the full range 

of opportunities, and will do whatever it can to protect competition. 

Mr. NADLER. Thank you. I yield back. 

Mr. MARINO. The Chair recognizes Congresswoman Handel from 

Georgia. 

Mrs. HANDEL. Thank you very much, Mr. Chairman. I appreciate 

it. Dr. Wu, in your opinion, how reliable are the economic techniques that the Department of Justice and FTC regulators use in 

predicting whether or not a proposed merger will have an anticompetitive impact? 

Mr. WU. I am confident that the antitrust attorneys and economists at the Federal Trade Commission and Department of Justice 

have the tools and talent that they need to address these questions. 

They evaluate mergers before they happen, and they are also in a 

great position to evaluate mergers after they happen. And they 

should evaluate consummated mergers whenever they see problems 

arise. 

Mrs. HANDEL. Great, thank you very much. Mr. Manne, do you 

have any specific concerns regarding anticompetitive effects from 

this merger in the insurance marketplace, pharmacy market, or 

PBM market? 

Mr. MANNE. No. I can elaborate a little bit more. I think that 

some of the arguments that have been suggested, for example, with 

respect to the possibility that it is more difficult for other insurers 

to enter because they will not be able to compete unless they also 

have a PBM or some of the foreclosure arguments that Mr. Slover 

has suggested. I think all of those actually end up being examples 

of what they are actually saying this merger to the extent that it 

creates a more efficient arrangement, it makes it harder for other 

entities to compete. And that is not a bad thing. That is exactly 

what we want. 

So, there are, you know, some arguments out there, and we do 

not have enough time to go into them in great detail. But I am not 

persuaded that any of them are particularly problematic. 

Mrs. HANDEL. Okay. And one last question since there has been 

several references to the AT&T-Time Warner merger. Does the 

DOJ’s challenge of AT&T-Time Warner merger suggest anything 

about this particular merger? 

Mr. MANNE. Is that for me? 

Mrs. HANDEL. Yes. 


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Mr. MANNE. I do not think so, no. I think that the challenge of 

that merger is absolutely a bucking the trend, and the precedent, 

and the economics on vertical mergers. I am quite confident that 

the DOJ will lose that as well which also will mean that there will 

be no lasting precedent from that challenge. It is a little hard to 

suss out exactly why they did bring that merger. And, of course, 

there have been some stories floating around. I do not really have 

any idea if they are accurate or not. But I actually think that part 

of the story turns on what AG Delrahim said about behavioral remedies. And it goes to some of what Mr. Slover said. 

And I do have one important comment to make on that which is 

the real problem is not behavioral remedies. The problem is behavioral remedies that have nothing to do with the merger itself. And 

there are some terrible examples of the DOJ and other agencies engaging in those. Properly applied behavioral remedies are actually 

effectively just the same thing as saying the DOJ is going to continue to enforce the antitrust laws and make sure that no ongoing 

behavior causes anticompetitive problems. 

For example, if they said, ‘‘It would be anticompetitive to engage 

in certain foreclosure activities, and we are going to apply a behavioral remedy that prevents that.’’ That is no different than the 

world in which the DOJ has to monitor a company and make sure 

they do not engage in those allegedly anticompetitive problems. 

So, I actually do not think there is any problem with a behavioral remedy here or anywhere else. And I just want to say, of 

course, that in that last discussion they left off one option which 

is approve the merger without any remedies at all, of course. 

Mrs. HANDEL. All right, thank you very much. Mr. Chairman, I 

yield back. 

Mr. SLOVER. If I could jump in really quick and—— 

Mrs. HANDEL. I am yielding my time back, sir. Thank you. Mr. 

Chairman, I yield back. 

Mr. MARINO. Your testimony is very helpful. But I would like to 

ask Mr. Slover, you testified before on behalf of our CREATES Act. 

Mr. SLOVER. That is correct. 

Mr. MARINO. I remember that. Could you please comment on the 

CREATES Act? What you think about it? What benefits there are 

to it? Why if you believe we need it? 

Mr. SLOVER. Well, one of the big insights that Congress had 

many years ago in enacting the Hatch-Waxman Act was that if an 

easier way could be found for generic alternatives to enter the market, they would be more affordable. Consumers would have greater 

choice; they would be able to get the drugs that they needed at a 

better cost. And since then, the brand name drugs have looked for 

ways to try and throw obstacles in the way of that happening. 

And one of the ways that they had been doing that is to block 

access to the samples, because the generic drug makers need to 

have the samples to be able to test their drug alongside the brand 

name drug to show the FDA that they are bioequivalent. So, that 

is one of the ways that they have impeded the entry of competition 

for more affordable generics. 

Another way has been that there are some drugs that have protocols. There are dangers that are significant enough in misuse or 

misprescription that they need to have a protocol established to 


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make sure that that is taken care of properly. And if those protocols are blocked, if the generics are denied access to those protocols, 

they can also be a hamper from entering the market. 

So, the CREATES Act just takes care of those two specific problems. There are others too. But those are two very important ones 

to take care and so that is why we enthusiastically support that 

bill. 

Mr. MARINO. The CREATES Act, I think you would agree with 

me, that this all takes place after the patent has expired. Correct? 

Mr. SLOVER. A lot of times it is a challenge that is being brought 

by the generic to the patented drug, and they found a way to successfully challenge the patent. 

Mr. MANNE. The access to the sample sometimes happen—that 

process can start, I believe, before the patent expires, right? I mean 

all of this is taking place generally at the end of the—— 

Mr. SLOVER. It is in anticipation of the patent expiring. 

Mr. MARINO. You cannot infringe upon the patent. 

Mr. MANNE. Right. Well, it would not be an infringement. That 

is right. 

Mr. MARINO. Right. Yes, sir. 

Mr. GARTHWAITE. I think you asked earlier about drug pricing as 

it encourages to the Committee focusing on this issue of generics. 

Because there are two sets of high drug prices in the United 

States. There is one for brand name drugs that we think provide 

this dynamic incentive to get better cures in the future. 

And then to your last statement, there is these generic drugs 

where the patents expired. And we want to do everything we can 

to push things to marginal cost. And we see an incessant amount 

of gaming in that area that is causing high prices particularly from 

very valuable small market drugs. 

And so, your ability to influence drug pricing there is going to 

have far more of an effect on consumer welfare and a far more unambiguous effect on consumer welfare then things on brand name 

medications. 

Mr. MARINO. Manne. 

Mr. MANNE. I had one quick comment which is just that as you 

may know I have written in support of the CREATES Act as well. 

I submitted some materials for the record. I think it is a great idea. 

I want to just flag one thing which is that the problems that it tries 

to solve are not necessarily endemic to the brand patent industry. 

There are plenty of actors who are acting perfectly appropriately 

in that market. And in some ways, I think, it is a relatively small 

number of potentially bad actors who sort of have been consistently 

identified. Now, that does not mean that the other ones could not 

do it, but companies like Pfizer, for example, are not engaging in 

these practices. 

And, so, it is important not to paint with too broad a brush and 

tar the whole industry when it is not the whole industry. 

Mr. GARTHWAITE. These are often non-pharmaceutical companies 

that are doing this. These are private equity companies coming in. 

And this is a profitable trade like anything else. This is not large 

pharma engaging in these tactics. 

Mr. MARINO. All right. It has been referred numerous times that 

this vertical merger is an experiment. And I kind of like that conVerDate Sep 11 2014 21:47 Aug 07, 2018 Jkt 030952 PO 00000 Frm 00039 Fmt 6633 Sfmt 6602 E:\HR\OC\A952.XXX A952

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cept. But I think generally speaking and I do not want the public 

to think that or my constituents to think that we do not know what 

is going to happen here in this experiment. 

So, if you could comment on that, after I state that at any time 

if we see an antitrust issue particularly on this Committee, we can 

immediately address that. At any time, DOJ or the Federal Trade 

Commission can do the same thing. So, we will be watching this. 

I would not be supporting if this would not be a bipartisan matter, 

if we did not there was merit to this. There is no such thing as the 

perfect piece of legislation, but what I think the newer Members 

of Congress look at, it can always be tweaked. 

Just to go along with that, before I went to college and law school 

I was in manufacturing. And I am a baker by trade actually. And 

we always tweaked a product to make it better. If one of my supervisor’s that worked for me said to me, ‘‘We cannot be more efficient,’’ I knew I did not need that supervisor. 

And hospitals, the administrators, are constantly calling me 

about the cost of running an emergency room. And it should be this 

way, anyone who comes in, they really have to give them care, particularly if it is a life or death situation. But how are the hospitals—what do you think their position is going to be on these urgent cares or clinics, what impact is that going to have on the hospitals? Anyone. 

Mr. GARTHWAITE. I think one interesting thing about this is that 

we have long thought that provider sponsored health plans were 

coming, and Attorney Manne had spoken about the idea that we 

are seeing a move away from fee-for-service medicine. What is 

unique about these mergers is that it is the insurance companies 

that are buying up providers both United Healthcare buying up 

ambulatory surgical centers, and CVS-Aetna. But they are not interested in purchasing the in-patient hospital, and that is because 

in many ways that business is not going to be a very good business 

to be in going forward. At least that appears the debt people are 

making. 

That if we run these urgent care centers well, if we do a good 

job with the type of innovation these companies are looking at; we 

can cut in-patient volumes. And you are seeing declining in beds 

per capita. You are seeing utilization of the hospital go down. 

And so, they are going to be upset in some way because you are 

taking away their business. But that is not necessarily bad for society. Because for society, it is better. I do not think any of us want 

to be in the hospital. And so, if you do this right and you reduce 

in-patient hospitalization, that is a positive from this merger, not 

a negative. 

Mr. MANNE. I totally agree with that and I would just point out 

also lest we forget the in-patient hospital is itself a vertical and 

horizontally integrated entity. And there is every reason to expect 

exactly what I was saying before that when the market conditions 

change, those kinds of integrations change as well because whatever drove them before may not exist anymore, and vice versa. 

And so, for example, the fact that insurers may not be interested 

in buying in-patient hospitals may indeed suggest that they think 

that the most efficient form of offering care in the future may 

change. That does not mean that they are against provider care. 


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That does not mean they are against anything that is done in the 

hospital. They may just think that that particular organization is 

not the most efficient way to do it. I do not know that that is true. 

But it may very well be the truth. 

Mr. MARINO. Dr. Wu and then Attorney Slover. 

Mr. WU. Chairman, you are absolutely right that the antitrust 

agencies are in a good position to resolve antitrust issues when 

they see it. There is innovation and tweaking on all sides. 

For the antitrust agencies, for example, the Federal Trade Commission conducted a major hospital merger retrospective about 10 

years ago. That was after the Federal Trade Commission and Department of Justice lost a number of merger cases at trial. They 

did a fantastic study. They learned what they were doing right. 

They learned what they were not doing. And it really strengthened 

their premerger investigations. That is tweaking on that side. 

On the hospital side, this is called competition. I know we focused today on the competitive effects of the proposed transaction. 

But one thing we should keep in mind is the competitive response 

by rivals, and that includes hospitals who have emergency rooms. 

And emergency rooms are very important places, but it is not exactly the right place for a lot of the services that people go to. And 

they will have their challenges too, and I expect them to respond. 

Mr. MARINO. I have two more brief questions. But if you are 

ready to catch a plane, I will conclude. Is everybody all right for 

now? How about explaining to the public, because I do it all the 

time in meetings that I have, the difference between the expense 

of running the hospital and, you know, emergent care? Because a 

lot of people do not realize the differences between that. I know it 

and you know it, but as far as the expense of running a whole hospital compared to an emergency room, an operating room, and everything else. So, could any of you shed some light on that? 

Mr. SLOVER. Well, not as a healthcare expert but as someone 

who has had to use the emergency room services a couple of times 

recently on a doctor’s recommendation, I might add, the emergency 

room is all hands on deck. And it has everything that you could 

possibly need. So, it is a very expensive proposition because they 

want to be able to provide anything in an emergency situation. 

Mr. GARTHWAITE. I mean, I think hospitals get this wrong a lot 

when they talk about this as well, right? They did not think about 

the difference between their fixed and their marginal costs. It is 

clearly that the hospital is a higher fixed cost. And indeed because 

having all this all hands on deck side. 

The other thing that is very different about the hospital emergency room that is important, and you referenced it earlier, are the 

regulatory structures that we put on them. In which they are required to treat and stabilize all comers, whereas an emergent care 

center that does not have an ER is not. And that changes the nature of the payer mix that you have, and your ability to serve the 

public. 

So a well-run ER in a fairly wealthy area is a profit center for 

a hospital. Even well-run ER in downtown Chicago or on the 

Southside of Chicago is just a loss. It should not be surprising, 

right, when the University of Chicago built their new hospital recently and neglected to put an adult trauma center in because of 


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the negative payer mix that comes with that. So, I think that is 

a big issue. It is on the cost side, but also on the expected revenue 

side. 

Mr. MARINO. Attorney Manne, you wrote about an ill-advised return to the biggest baddie antitrust of the 1960s and 1970s. Can 

you elaborate on the risk to consumer welfare from a reflexive opposition to corporate combinations? 

Mr. MANNE. At great length, in fact. You know, I think it actually—it bears on a lot of the things we have been talking about. 

There are certainly circumstances in which, especially at a very 

horizontal level, an absence of competition can create problems for 

competitors. We all understand that perfectly well. 

But we also understand, and we have heard a lot about—talking 

about this merger—how the fact that an entity may be somewhat 

larger than before especially if it grows through a vertical integration does not necessarily mean that its either in a position to, or 

has any intention of taking advantage of its consumers, or other 

consumers. And, in fact, those kinds of integrations, the particular 

agglomerations of skills and resources, and all sorts of other things 

are in most circumstances and especially when vertical lead to benefits for consumers. 

So, of course, stopping that kind of thing simply because it is bigger than what we had before means that the consumers never receive the potential benefits of that. So, the harm to consumers is 

deterring the creation of what otherwise would be more efficient 

collections of capital, and of other resources. Because we simply say 

well, that is bigger, and so we do not like it. 

Mr. SLOVER. I think we need to be careful not to create a straw 

man that is too easy to knock down. I think simply saying big is 

always bad, and we should always be opposed to any merger because it is always going to make something bigger than it was before the merger is different than saying that the bigger the size 

that you are looking at, and the bigger a chunk of the market that 

is going to be captured by that merger; the closer look it needs, because the bigger entity is going to have more ability to potentially 

cause harm to the marketplace. 

If we were talking about a health insurer here that had 5 percent of the market, and PBM that was just a sliver of the market, 

and a pharmacy chain that was a sliver of the market, and they 

were all going to try to some new experiment; we would be looking 

at that much differently than if there was one PBM, one insurer, 

one pharmacy, and they were all going to unite. 

So, somewhere in-between there are infinite shades of difference. 

And that is why we have an antitrust division taking a close look 

at this rather than just somebody making a snap judgement. 

Mr. MARINO. Antitrust issues are some of the most complicated 

pieces of legislation to litigate. I clerked for a Federal judge as an 

intern, and when I was U.S. Attorney we had a civil division. This 

is just probably some of the most complex areas in the judicial system that there are. But we become smarter at it because of people 

like you. 

And I want to thank you for being here, because I learn something every time I have a hearing. And today’s hearing was exceptional with the gentlemen in the first panel, and you. And at the 


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risk of boring some people, I will not continue questioning because 

we could do this all night. But I want to thank you so much. 

And for the record I do want to enter in two statements. The 

statement from the National Community Pharmacists Association, 

NCPA, and a statement from the American Medical Association. Is 

there any objection? And that is what is nice about being here 

alone, there is no objection. So these will be answered into the 

record. 

This material is available at the Committee or on the Committee 

Repository at: https://docs.house.gov/meetings/JU/JU05/20180227/ 

106898/HHRG-115-JU05-20180227-SD003.pdf. 

Mr. MARINO. And this concludes our hearing. Again, thank you 

so much for attending, and you are excused. 

[Whereupon, at 4:22 p.m., the Subcommittee was adjourned.] 

Æ 


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