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The CVS-Aetna Merger Just Got a Green Light. Here’s What That Says About Health Care M&A

October 10, 2018, 8:31 PM UTC

CVS-Aetna appears to be headed for completion. On Wednesday, federal antitrust regulators gave the mammoth $68 billion health care merger the blessing that it needed, setting up a corporate marriage between a massive insurer, drug benefits manager, and retail pharmacy chain that will likely conclude by the end of the year or the beginning of 2019.

As I’ve mentioned before, the CVS-Aetna deal highlights an evolution in how health care companies are approaching M&A. Rather than spring for horizontal mergers—where companies in the same supply chain space gobble each other up (and may raise regulatory eyebrows in the process)—an increasing number of medical firms are opting for a vertical approach (think: Cigna-Express Scripts).

The thinking goes that such a technique can boost margins for a combined company through supply chain synergies. The added benefit of a more diversified portfolio that may not cause regulators to balk as easily probably doesn’t hurt, either.

That’s not to say that such M&As are 100% easy sailing. The Justice Department’s approval of CVS-Aetna was contingent on a sale of Aetna’s Medicare Part D prescription drug plan business to a subsidiary of WellCare. That sale was announced in late September and is expected to close by the end of the year.

The decision appears to have done the trick. “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,” said Makan Delrahim, the head of DOJ’s antitrust division, in a statement Wednesday.

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