This week, the Justice Department blessed a $69 billion merger between pharmacy chain CVS and insurance giant Aetna. CVS also owns Caremark, one of the three largest pharmacy benefit managers (PBMs), which negotiate drug discounts on behalf of health plans. With another tie-up between a PBM and an insurance company—Express Scripts and Cigna—awaiting likely approval, this signals an almost formal merger between the PBM industry and the health-insurance industry.

When the CVS/Aetna merger was proposed, I wrote at the Prospect that this vertical combination would be incredibly dangerous. If CVS/Aetna knows the prescription drug usages, methods of delivery, and pricing data for all of its rivals, who all have patients who order prescriptions from CVS pharmacies, it can exploit that data advantage to skim off the top of every side of the pharmaceutical market.

But a funny thing happened on the way to the deal closing. Congress, state legislatures, and even the Trump administration have cracked down on PBM profits in numerous ways, making CVS's ownership of a market leader in that industry far less lucrative. Does that make the combination of CVS's and Aetna's assets less harmful to consumers, health plan competitors, and pharmacies? Absolutely not. In fact, the need to compensate for that lost profit center makes it more likely that CVS/Aetna will employ market power.

This merger should absolutely not have been approved.

The multi-sided hits on PBMs are a result of the pharmaceutical industry using PBMs as a foil to deflect from their own price-gouging. But that doesn't mean PBMs' exploitation isn't consequential. Acting as hidden monopolies, PBMs skim as much as one in five dollars out of every prescription drug purchase, harming pharmacies, health plans, and consumers alike. They accomplish this by being the only player in the drug supply chain with perfect information about what everyone else pays. They pocket secret rebates from drug companies, overcharge health plans for drugs while undercutting reimbursements to pharmacies, and use punishing fees and claw-backs to recoup money even after the transaction is made.

But this gravy train is coming to an end. This week, President Trump signed two bills ending PBMs’ abhorrent “gag order” practices, whereby they would contractually bar pharmacists from informing patients of the lowest price for their drugs. Often paying out of network in cash is cheaper than using the prescription drug plan, but PBMs wanted to keep that secret, because they don’t take the spread on an out-of-network payment.

State legislatures have also gotten into the act. In California, AB 315, signed by Governor Jerry Brown in late September, licenses PBMs; requires them to disclose all data regarding drug costs, rebates, and fees; and mandates that they act as fiduciaries, in the best interest of their health plan clients. If this model legislation is taken up nationwide, it would severely limit PBM skimming.

Arkansas signed a licensing law as well in March, with monitoring of industry reimbursement practices. And Ohio’s Medicaid program fired its PBMs—OptumRx and CVS Caremark—and moved the business to companies with a transparent pricing model.

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The most surprising moves against PBMs came from the Trump administration. In February, Trump's Council of Economic Advisers effectively called for a breakup of the industry. Then in July, the Department of Health and Human Services proposed to eliminate the industry’s “safe harbor” for negotiating drug company rebates. This provision has protected PBMs from anti-kickback statutes, which prevent any company from paying off another to increase its business. Without the safe harbor, PBMs could not negotiate a rebate with a drug company, and then make that drug available to its customers, without violating the law.

The cumulative impact of all this should significantly cut PBM profits, including that of CVS Caremark. Over 70 percent of CVS's net revenues in its most recent quarter came from its “pharmacy services” segment, which includes its PBM. But the company will inevitably seek to make up that shortfall somewhere. And the combining with Aetna provides exactly that opportunity.

The merged company can now segregate Aetna's 22 million insurance subscribers, so they can only get primary care treatment and medications at their own pharmacies. For example, at CVS “Minute Clinics,” practitioners treat minor illnesses and injuries, administer vaccinations and injections, and give physicals. And CVS can also offer lower drug prices in its “preferred pharmacy network,” or even grant exclusivity to its locations so Aetna customers can only access drugs at their local CVS.

This would obviously degrade competing pharmacies, who have already felt the pressure. Independent pharmacies contended in January that CVS Caremark had slashed reimbursements for numerous prescription drugs. At the same time, CVS was sending these pharmacists inquiry letters about buying their stores. This “squeeze and buy” gambit did not lead to any government enforcement, but you can see how further steering of Aetna subscribers would lead to even fewer choices for pharmacies.

Moreover, CVS/Aetna will still acquire all that pricing data on its rivals by virtue of owning a large pharmacy chain, information that can be put to use even in an environment where PBMs are on a leash. Aetna subscribers in remote areas or just far from a CVS could get pushed into CVS's new next-day drug delivery service, and mail-order drug schemes have been criticized for creating substantial wasted prescriptions and for pocketing the extra cash.

If Aetna and CVS had incentive to use their market power to crush rivals before, they really have it now, after state and federal governments hollowed out one of CVS's main profit centers.

Of course, the antitrust authorities simply don't think in these terms. They look solely at “consumer welfare” in determining whether to improve a merger. CVS Minute Clinics could be a cheaper option for routine care, and the chronically ill could benefit from the combination. “Vertical” deals between complementary companies in the same sector don't cause much concern for antitrust enforcers or especially the courts: Just ask AT&T/Time Warner.

The Justice Department did force the divestiture of Aetna's Medicare Part D drug plan business, because CVS sells one already. But they ignored the impact of a more concentrated overall health sector, not just on costs but on the system's fragility, innovation, and patient access. They enabled a health behemoth to grow in every community in America, giving it the wherewithal and the motive to put that dominance to work at the expense of practically everyone. It was a terrible mistake.