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CVS Health Corp. and Aetna Inc. on Wednesday received conditional approval to proceed with their proposed $68 billion merger, one of the largest in a series of recent deals that stand to transform the U.S. health care business.

The combination would create a giant with a hand in insurance, prescription-drug benefits and drugstores across the United States. By gathering those businesses under one roof, the companies are betting they'll be better-positioned to face changing consumer habits and the emergence of new rivals.

The Justice Department's antitrust division signed off on the transaction with the caveat that the companies complete an agreed-to sale of Aetna's Medicare prescription-drug plans to another insurer. Doing so, the regulator said in a statement, would resolve its concerns that the deal could harm consumers.

The approval is another nail in the coffin of powerful pharmacy-benefit managers, which broker drug prices among pharmaceutical companies, insurers and employers.

"The divestitures required here allow for the creation of an integrated pharmacy and health-benefits company that has the potential to generate benefits by improving the quality and lowering the costs of the health-care services that American consumers can obtain," Makan Delrahim, the head of the department's antitrust division, said in the statement.

But critics worry that consumers could end up with far fewer options and higher expenses. Just last month, the Justice Department also approved the takeover of Express Scripts, a major CVS rival, by the big insurer Cigna.

"This type of consolidation in a market already dominated by a few, powerful players presents the very real possibility of reduced competition that harms consumer choice and quality," George Slover, senior policy counsel for Consumers Union, an advocacy group, said in a statement.

Previous mergers in the industry have left consumers with fewer choices and higher drug bills, said David Balto, an antitrust lawyer who is a critic of the pharmacy managers.

"This is a marketplace that hasn't done well because of lack of transparency, and transparency may be even weaker," said Balto, who had worked at the Federal Trade Commission and the Justice Department. Affiliations with large insurers could change that dynamic, he added. "It might correct some of the more pernicious practices."

The Aetna acquisition is among the most significant health-care mergers of the past decade, combining one of the top U.S. drugstore chains with the third-biggest health insurer. Along with its thousands of retail pharmacies, CVS manages drug-benefits plans for employers and insurers.

The approval comes just a few weeks after the United States signed off on another deal combining a big health insurer with a pharmacy-benefits manager -- Cigna Corp.'s $54 billion takeover of Express Scripts Holding Co. And it follows a recent foray by Amazon.com Inc. into the drug business with its $1 billion purchase of online prescription company PillPack.

CVS has said the Aetna deal will enable a variety of new services to be brought into its retail stores, part of its evolution from corner pharmacy chain to a health care hub with thousands of locations nationwide. Steering Aetna customers toward its stores to fill prescriptions -- and shop for shampoo and razors -- could also help CVS cope with a rocky retail landscape.

To help seal U.S. approval for the deal, Aetna last month agreed to sell its Medicare drug plans to WellCare Health Plans Inc., to alleviate concerns that a takeover by CVS would otherwise harm competition among plans that sell pharmaceutical coverage to senior citizens. Under the proposed settlement, Aetna will have to help WellCare run the business during the transition and give it the opportunity to hire key employees.

In a statement, CVS said the deal was subject to state regulatory approvals, many of which have already been granted, and that the deal is on track to close early in the fourth quarter, which began this month.

"We are now working to complete the remaining state reviews," Larry Merlo, CVS' chief executive officer, said in a statement. The combined company, with its thousands of retail locations, will "be able to offer better care and convenience at a lower cost for patients and payors."

Consolidation has increased across health care among hospitals, drug makers and insurers, though some previous deals were thwarted by antitrust issues. The Cigna and CVS deals came only after the Justice Department blocked Cigna and Aetna from merging with rival health insurers last year.

Completion of the CVS-Aetna deal could put pressure on rivals to come up with their own deals. Walgreens Boots Alliance Inc. is the United States's last remaining giant stand-alone pharmacy chain, and its deal-friendly CEO, Stefano Pessina, has spoken about bringing together pieces of the medical supply chain. Walgreens holds a 26 percent stake in drug distributor AmerisourceBergen Corp., which helps supply Walgreens stores, and last winter the companies held early discussions about a merger, according to reports at the time.

Walgreens, which is scheduled this morning to report its fourth-quarter results, declined to comment.

Humana Inc., whose deal to merge with Aetna was blocked on antitrust grounds last year, is another potential deal-maker. It has held talks with Walmart Inc. for a closer partnership to provide health care to consumers at home and prevent illness. Anthem Inc., whose deal to acquire Cigna Corp. was blocked last year, is another possible acquirer.

Information for this article was contributed by David McLaughlin; by Robert Langreth of Bloomberg News; and by Reed Abelson of The New York Times.

Business on 10/11/2018

Print Headline: U.S. clears $68B CVS-Aetna tie-up

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