The Akerman LLP Healthcare Practice Group, as part of its ongoing informational blogs and Practice Updates, will be publishing a series of articles, each outlining a significant healthcare industry issue from 2018, with an eye towards what to expect in 2019. The following is the second in our series – The Year in Review/The Year Ahead:

In 2018, there were a number of large mergers in the healthcare industry that have the potential to significantly alter the ways in which healthcare is delivered in the United States. Several of the largest announced mergers were “vertical mergers” – mergers in which the merging parties are not current competitors, and are instead operating at different levels of the healthcare distribution chain. Two of the biggest such mergers – but certainly not the only ones – were the merger between Cigna and Express Scripts and CVS and Aetna. Each of these mergers paired a “top five” national health insurer with a “top five” pharmacy benefit manager.

While the FTC and the DOJ Antitrust Division (the two federal regulators principally charged with merger review) typically focus their attention on horizontal mergers (where the merging parties are current or potential competitors), the size and scope of several of these proposed vertical mergers were such that federal regulators closely examined them as well. The key antitrust issue in such mergers, as announced by the DOJ Antitrust Division, was, and is, whether, as a result of such a merger, the merged entity could effectively “withhold a source of supply from its rivals or otherwise foreclose access on competitive terms” to other competitors.

Notably, in the Cigna/Express Scripts transaction, after a six month review, the DOJ Antitrust Division announced that it was approving the deal, finding that the combination would not impair future competition in either the health insurance or PBM markets. Similarly, in October, the DOJ Antitrust Division reached the same conclusion with respect to the CVS/Aetna deal (while, at the same time, finding that the combination created competitive concerns in the Medicare Part D market – in which both parties were current competitors – and requiring that Aetna divest its Medicare Part D business to gain approval for the deal).

In addition to these larger, vertical mergers, there are numerous smaller, more regional examples of vertical integration that recently have occurred or have been announced. For example, in Florida, the BayCare hospital system in Tampa formed its own HMO – BayCare Select Health Plans, Inc. BayCare Select received its license, and is offering Medicare Advantage coverage that became effective January 1, 2019. Another example is Advent Health’s proposal, that was announced in November 2018, to enter into a minority ownership relationship with Health First, Inc. Health First Inc. is already a vertically integrated health system through its ownership of health maintenance organizations, a health insurance company, hospitals and other provider groups, and Health First and Advent Health had an existing relationship pursuant to which Health First offered HMO products in certain of the Advent Health service areas. However, Advent Health will enter into a “true” vertical integration when it becomes a minority owner of Health First, Inc. It is expected that other regional health systems – in Florida and elsewhere – increasingly will vertically integrate as well – through mergers or through the pursuit of their own, insurance/HMO licenses.

As noted above, many of these mergers have the potential to alter the ways in which consumers receive, and pay for, healthcare services in material ways. Accordingly, it is highly likely that the “vertical merger” phenomenon that increased in 2018 will continue into the new year, and that the ways in which consumers receive healthcare services, and from whom, will continue to evolve.