Assemblymember Cahill: “Reconsider the Conditional Approval of the CVS/Aetna Merger”

Commitments to address current deficiencies needed to protect New Yorkers
December 19, 2018

Albany, NY – Today, Assemblymember Kevin Cahill (D-Kingston) released his letter to the New York State Financial Services Superintendent, Maria T. Vullo, in response to the Department’s recent decision to conditionally approve the acquisition of Aetna, Inc. (Aetna) by CVS-Health (CVS). The correspondence highlighted concerns that surfaced following a review of the stipulated agreement. Assemblymember Cahill urged the DFS to reconsider its conditional approval asserting that “authorizing a conglomerate of this magnitude without sufficient and necessary safeguards will adversely impact health care delivery in New York State.”

A summary of the Assemblymember’s concerns follow:

  • This merger will undoubtedly impact network adequacy throughout the State. Commitments to assure reasonable access for every subscriber are essential. Stronger protections for independent pharmacies are warranted since the newly merged entity competes directly with them.
  • Reporting requirements as set by the conditional approval are questionably short. Periodic reporting beyond the initial timespan would enable the DFS to hold CVS and Aetna accountable to their promises made at the Assembly and Department hearings.
  • Data privacy commitments only establish initial compliance and are not a fully formed solution. Setting strict reporting guidelines and regular audits would provide DFS with the tools to monitor and prevent the misuse of confidential patient data.
  • The limitations set forth do not sufficiently prevent distortion of the Medical Loss Ratio). Conditions must be in place to ensure that pricing interactions within the conglomerate are not manipulated for financial gain at the expense of consumers.
  • The plan outlined by DFS for health care investment provides too few details and the amount of the investment is significantly less than other states. Programs such as addressing the opioid or diabetes epidemics should be specified to ensure the State is meeting its promise to improve the quality of health care for all. Safeguards should be in place to protect the investment from being diverted to the general fund.
  • The final approval is missing provisions that would allow the DFS to hold CVS and Aetna accountable. The approval order should be revised to include enforceability, severability and other clauses to strengthen the Department’s ability to exercise its regulatory authority.


December 19, 2018

Maria T. Vullo, Superintendent
New York State Department of Financial Services
1 Commerce Plaza
Albany, New York 12257

RE: Conditional Approval for the Merger of CVS Health Corporation and Aetna, Inc.

Dear Superintendent Vullo:

I write regarding your recent decision to approve the acquisition of Aetna Inc. (Aetna) by CVS Health (CVS). After reviewing the final decision and order issued on November 26, 2018, I am concerned that the agreement, as written, contains several deficiencies and fails to address specific concerns that were raised by numerous advocates and members of the Legislature, including myself. This transaction will irrevocably alter the health care delivery system in the State and proper guardrails must be enacted to protect the best interests of the public. A summary of those concerns follow. 

I.     The Three-Year Time Frame Placed on Commitments Addresses Short-Term Matters at the Expense of Long-Term Outcomes.

In light of the ongoing trend of vertical integration among insurers, pharmacies, and pharmacy benefit managers, protecting consumer access, especially in remote areas of the State, is more important than ever. Though CVS has recognized the central role of independent pharmacies and given assurances that customers can continue to obtain their prescriptions from these businesses, I am deeply concerned about the impact this merger will have on physical network adequacy. Patients must have the ability to go to their local pharmacy, speak to their pharmacist and ask questions. It is simply not enough for Aetna to say it provides sufficient pharmacy access because it offers direct-to-home mail order. Detailed standards assuring, not just promising, reasonable access for every subscriber is essential. Additional protections are also warranted to prevent unfair practices when an insurance company has an imbedded pharmacy chain in direct competition with essential independent pharmacies.

Throughout the approval process, CVS and Aetna asserted the merger would increase healthcare efficiencies, lower costs and offer more consumer products through the use of new care models. However, at both the Assembly and the DFS hearing, neither entity could share a detailed or specific plan on how to accomplish these goals. While establishing timelines for the release of new insurance products and obtaining agreements on annual reporting will enable the DFS to track the progress of new health initiatives, that requirement does not go far enough. The conditional approval requires the submission of this invaluable information for only three years. Implementing new care models will not happen overnight and it will take significantly more time before trending data on outcomes is discernible. Continued reporting beyond the initial timespan would provide more useful data and enable the Department to, “ensure that the promises of today... are actually realized.” Further, even with the limited audit requirement, there appears no means of directing savings to the benefit of consumers and beleaguered providers, rather than just enriching shareholders.

II.    Commitments on Data Privacy Fail to Provide DFS with the Long-Term Ability to Assess CVS and Aetna’s Use of Patient Data or the Adequacy of Firewall Protection.

According to the conditional approval, the merged entity must establish clear data separation policies between Aetna, CVS and Caremark that will safeguard patient data and prevent it from being accessed inappropriately. Additionally, within one year of the merger, the entities must contract an independent security audit to assess whether employees have violated the firewall policy and submit the results to the DFS. While these commitments form the basis of protecting the confidential information of New Yorkers from unauthorized exposure, it is not a fully formed solution. Requiring only one audit may serve to establish an initial compliance plan, but leaves open the door to future data misuse across these vertically integrated companies. Setting strict guidelines and requiring regular audits at periodic intervals would provide the DFS with the tools necessary to monitor this type of behavior and prevent it before it starts.

III.    The Conditional Approval Fails to Address Several Concerns Including the Potential Manipulation of the Medical Loss Ratio (MLR).

With the approval of the merger comes the real potential for Aetna to use its internal relationship with CVS and Caremark to massage and manipulate internal financial arrangements to impact the Medical Loss Ratio. Under the new corporate structure, for example, Caremark, the PBM, could charge Aetna, the insurer, higher prices for services such as medication management, than it charges other competitors. Increases in the fees for these kinds of services are allowed under the MLR calculation and would be seen as medical spending hikes, even though no additional care was provided. An increase in medical spending under the MLR would justify higher premiums for consumers with no additional benefits, in fact, possibly crowding out other benefits or consumer rebates and allowing Aetna to increase profits precipitously. Without strong and vigilant oversight, this practice could be manipulated and abused. The limitations set forth in your order do not sufficiently prevent this kind of profiteering. Conditions must be placed on CVS and Aetna to protect against the manipulation of the MLR and other chargeable costs for financial gain.

IV.    The Plan Outlined by DFS for Health Care Investments Lacks Sufficient Specificity.

As a condition of approval, CVS and Aetna have agreed to pay a total of $40 million over three years to support health insurance education and enrollment activities in the State while also making payments to the New York State Health Care Transformation Fund. Though it is an admirable goal to increase consumer knowledge and expand coverage, the remaining investment plan provides no further details. This is open-ended designation is simply unacceptable. Funds received from this merger should and must be used to invest in the State’s health care system and should not, under any circumstances, be diverted to the general fund. Outlining specific initiatives or programs, such as addressing the opioid or diabetes epidemics, will ensure that the State is meeting its promise to improve the quality of health care for all.

I also note that the scale of investment agreed is significantly lower than other states, such as California, where the settlement amount was almost $240 million and coupled with a robust premium increase limitation. It is incumbent upon the Department to explain why New Yorkers are not receiving the same level of transitional investments as other jurisdictions.

V.    The Final Approval Order Lacks Basic Terms and Conditions and Does Not Contain Specific Commitments on Adjudication of Disputes or Enforceability.

Since the announcement of the merger, responsible concerns have been raised about the Department’s ability to regulate the resulting conglomerate. CVS is already one of the largest retail pharmacy chains in the United States and the company currently owns Caremark, the second largest pharmacy benefits manager (PBM) in the country. Aetna is the third largest health insurance company in America. It is incumbent upon the DFS to ensure the entities involved abide by the terms of the approval agreement and fulfill their obligations to the people of New York. Unfortunately, the conditional approval issued by your office is missing basic provisions that would allow the DFS to hold CVS and Aetna accountable.

In reviewing the decision and order, I noted a lack of any contractual terms that address disputes arising from the agreement. Provisions addressing governing law, proper venue, amending the agreement or severability were all missing. Additionally, no commitments specifically address enforceability as CVS, Aetna or its subsidiaries did not explicitly agree to enforcement actions against them in New York courts by the DFS. Revising the terms of the approval to include enforceability, severability and other clauses will strengthen the Department’s ability to exercise its regulatory authority. 
VI.    Conclusion: The Department of Financial Services Should Reconsider the Approval of the CVS and Aetna Merger and Require Additional Commitments for the Protection of New Yorkers and Their Health Insurance.

The Legislature and executive agencies such as the Department of Financial Services share the obligation to protect New York consumers, providers and others doing business in our state. Accordingly, I call upon the DFS to reconsider its conditional approval in light of the points made herein.  I encourage you to take all necessary steps to install necessary safeguards and to secure additional commitments from CVS and Aetna that will address the current deficiencies in the agreement. Authorizing a conglomerate of this magnitude without these important measures will undoubtedly adversely impact health care delivery in New York State.


Kevin A. Cahill, Chair
New York State Assembly
Standing Committee on Insurance