Health Policy$ense

Burns Calls BS on CVS-Aetna Merger

Testifies before California Insurance Commission

[Editor's note: on August 1, 2018, California Insurance Commissioner Dave Jones recommended that the United States Department of Justice sue to block the proposed merger.]

The proposed $69 billion merger of CVS and Aetna drew sharp criticism in a June California Insurance Commission hearing, including from LDI Senior Fellow Lawton R.  Burns, PhD, MBA, Professor of Health Care Management in the Wharton School.

In his written testimony, Burns offers a comprehensive review of the evidence that vertical integration fosters higher prices and harms consumers. The testimony is a master class in challenging unsupported claims and wishful thinking about the likely benefits of the merger. A summary of his points follows here:


  • Several individuals are testifying in this hearing regarding the antitrust implications of the proposed merger of Aetna into CVS Health. When antitrust is a consideration, courts often consider whether there are consumer benefits that might compensate for welfare losses from the merger.
  • I am here today to discuss the rationales and potential benefits for the proposed merger of Aetna into CVS Health. In particular, I focus on the companies’ contention that retail clinics hosted in CVS pharmacies can effectively serve as a healthcare hub for patients and consumers.
  • The proposed merger is based on the corporate strategy of vertical integration. There is no prima facie evidence for consumer welfare benefits flowing from this strategy. Indeed, in the healthcare industry, this strategy sometimes leads to higher prices, higher costs, higher utilization, and greater market power.
  • Based on the research evidence, one cannot assume consumer benefits will automatically flow from a merger such as the one considered here. Thus, one must consider the specific benefits of the merger as espoused by company executives.
  • There is a disconnect between the rationales espoused by company executives and those enunciated in academic theory and research. In the past, such disconnects can portend strategic failures to deliver on promised benefits.
  • The specific benefits of the merger espoused by company executives are unlikely to be achieved. The numerous benefits cited lack any documentation and are contradicted by the research evidence.
  • Many of these benefits rely on retail pharmacies and in-store health clinics to “transform” healthcare and serve as a healthcare hub for consumers. For a multitude of reasons, such outcomes are unlikely. In fact, pharmacy-based retail clinics are unlikely to improve quality, improve health outcomes, or reduce cost of care.
  • I conclude that there are no apparent benefits from the proposed merger that compensate for welfare losses stemming from antitrust concerns.

Late last year, Burns and Wharton colleague and LDI Senior Fellow Mark Pauly published an Op-ed in The Hill, calling claims of synergies that could result from the merger “corporate speak”.

And in his oral remarks before the California Insurance Commission, Burns minced no words, calling the industry “full of BS.” "If the two parties in the proposed merger were able to pull all of these things off, they deserve the Nobel Prize,” he said.

Tell us what you really think, Dr. Burns.