CVS Aetna Merger Shows AMA Hypocrisy

Warren Albrecht | United States

We frequently hear that the cost of healthcare is increasing. But we rarely hear anyone define why despite the reason being so obvious: government intrusion. Neither Blue Cross Blue Shield, Aetna, Cigna, Humana, Medica, nor Anthem was ever on business programs complaining of the cost of healthcare. Instead, the mainstream media gave platforms to the representatives of Medicare and Medicaid, debt providers for taxpayers. Meanwhile, the Obama administration stopped the mergers of health insurance companies.

Attorney General Loretta Lynch said the deals “would leave much of the multi-trillion dollar health insurance industry in the hands of three mammoth insurance companies, drastically constricting competition in a number of key markets that tens of millions of Americans rely on to receive health care”.

So one has to ask anyone supporting single-payer health care: why would government control (socialized medicine) be work without any competition? In short, it wouldn’t.

The CVS Aetna Merger

CVS Health Corp’s merger with Aetna has hit a snag. The Department of Justice (DOJ) gave approval to the merger in November 2018 and is awaiting a signature from a judge. Judge Richard Leon, U.S. District Court for the District of Columbia, has looked at the material and has scheduled a set of hearings on the merger. But during this, the American Medical Association (AMA) is pushing for more review.

Online retailers provide the greatest possible competition for CVS pharmacies. Obamacare’s limitations and increasing wholesale costs of medications also play factors. Amazon has the potential to be the mammoth when anyone involved in providing healthcare is trying to stay afloat. When the healthcare market is worth $3.2 trillion, there is plenty of room for Amazon to possibly play; their role alone may be worth up to $50 billion.

CVS CEO Larry Merlo has never been a stranger to the idea that CVS could one day be the Amazon of primary healthcare distribution, with clinics and pharmacies integrated to deliver efficient and cost-controlled care. Diabetes receives frequent mention as one disease that this framework could better control.

The AMA opinion is wrong

Yet, the AMA has been a major critic of the CVS merger; they asked Judge Leon to allow for further experts to give testimony. Under the Tunney Act, Judge Leon has the authority to review antitrust agreements between parties and the DOJ.

Any third party can present evidence they believe is sufficient to advise the reasoning of the DOJ decree is wrong. The AMA believes that the DOJ may not have correctly evaluated the impact on competition and the public. The Judge does not make a judgment but signs off when he or she feels the DOJ has done its due diligence.

From the AMA:

The American Medical Association (AMA) today urged the U.S. Department of Justice (DOJ) to block the proposed acquisition of Aetna, Inc. by CVS Health Corporation, and shared with federal regulators an exhaustive AMA analysis indicating the proposed merger would likely substantially diminish competition in many health care markets to the detriment of patients.

A merger of these two rivals would risk a substantial reduction of competition in the stand-alone Medicare Part D prescription drug plan market and the pharmacy benefit management (PBM) services market.

A Lack of Economic Knowledge

The AMA simply does not understand the business side, let alone the economics within this merger. These two companies are not rivals. The merger is a “vertical” merger because the two are not competitors (whereas a horizontal merger describes one between two competitors). In 2010, Aetna developed a long-term association with CVS to benefit both and this makes sense. Businesses are always looking for relationships to stabilize their loss possibility. As a Cato Institute study revealed:

“80 percent of enrollment in Medicare part D, and 80 percent of the dollars spent by Part D, merely crowd out private prescription drug coverage and spending.”

From Politico in 2008:

“The growth of state and federal health care programs — including President Bush’s prescription drug plan for seniors — means that today about half of the pharmaceutical market is controlled by government.”

The Mises Institute also documents the way Medicare part D is worsening the opioid epidemic.

Government Cronyism

So the AMA should be worried about Medicare Part D and ways to get rid of it. There is a program many do not know called 340B. This forces companies to sell wholesale medications to specific pharmacies at a discount. The goal is to provide medications at very low prices. But the hospitals who should be using the savings in medication prices to provide more indigent care are providing less.

Many organizations the government designates to get these special subsidies actually use them to turn greater profits. One of the experts the AMA has to speak against this merger is Dr. Michael B. Wohlfeiler. He is the Chief of Medicine for AIDS Healthcare Foundation which provides specific care for HIV-positive patients. This appears to be a fantastic organization, but cronyism could cause it to flame out, leaving thousands of citizens government-dependent.

I am sure that Dr. Wohlfeiler will be testifying to the fact that this merger would create less competition, actually creating too much for the AHF pharmacies. The AHF needs a concept more closely resembling St. Jude’s Children’s, which does not rely on any government program. The AMA does not see this potential problem or potential harm to people.

President Trump as Rep. Paul Ryan before him is trying to decrease entitlement spending. But both of their actions are fairly small. From the Cato Institute:

“Over the next 10 years, Medicare is projected to spend more than $10.2 trillion, meaning the president’s proposed cuts amount to less than 9 percent of the entitlement’s projected expenditures.”

The Association of American Physicians and Surgeons

The Association of American Physicians and Surgeons (AAPS) has long advocated for free-market healthcare solutions. It criticizes the AMA for not addressing Obamacare’s harm to physicians and patients. They strongly speak out against regulatory action:

..harms including loss of insurance plans, often more than once; loss of long-standing physicians as patients are pushed into narrow insurance networks; physicians driven from independent practice by regulatory costs; enormous premium increases, some doubling or even tripling, while deductibles also soared; and the destruction of true insurance, which covers only large, unexpected costs, with premiums based on risk.

In further AAPS discussion:

“our system of venture socialism is worse than single-payer because it combines socialism with the greed of capitalism. However, unlike capitalism, in venture socialism, government shields the private entities from market forces. It guarantees them an endless flow of public funds, consumer mandates, and regulatory favors (no anti-trust laws, but onerous coverage burdens to keep out new competitors) to remove any need to innovate and compete.”

AMA Hypocrisy

The AMA has the copyright to CPT (Current Procedural Terminology) codes used in billing procedures throughout hospitals and clinics for medical care reimbursement. The government will not reimburse without the use of those codes. Insurance companies follow what Medicare and Medicaid follow. In 1983, the federal government and the AMA made a deal for the CPT codes to be the sole coding system.

Arguably, the CPT coding system has strongly contributed to the absurdly high cost of medical procedures. Every hospital and clinic whether for-profit or not, private or public, has to buy the system or books for coding. Though more than 75% of physicians are not members of the AMA, the group has a monopoly on the coding supplies. Many think the AMA represents physicians in the United States, but it does not. It survives via a crony relationship with the government.

The Association of American Physicians and Surgeons also does not support the merger. But unlike the AMA, they are trying to give real market alternatives. What would happen if the AMA became a free market advocate against governmental healthcare policies? I wonder if some on the left would call for the end to the monopoly of using taxpayer benefit to the coding business as a way to finance their criticism of federal government programs.

Beware the AMA

The AMA is a big proponent of the Affordable Care Act or Obamacare. We have seen several attempted mergers of health insurance companies, which the AMA argues against. But any huge profits are secondary to too little competition. The insurance companies have made deals with the devil and the devil moved the goalposts. Now, insurance carriers are either shutting down the Obamacare options or trying to merge to survive. What the AMA is trying to stop only happened because of their own support. The AMA uses competition as a propaganda word but backed the one governmental overhaul that would stop all competition.

The former Secretary of Health and Human Services Kathleen Sebelius is known to many non-AMA members as not understanding the industry she was overseeing. The AMA and the Obama Administration were using the same talking points.

So when you hear “Medicare For All” in the 2020 Presidential campaign, remember that the AMA has helped position the catastrophe we call healthcare and the collapse of the insurance industry. Universal healthcare would only cement the perpetual relationship between the U.S. government and the AMA. Right or wrong, CVS and Aetna are just trying to survive by playing the game the government set up.

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