Additional consolidation in the health care industry is underway. Concerns about consolidation creating oversized companies naturally escalate in segments of the health care industry such as pharmaceuticals, distribution and insurance. A recent AMA study found that the prices of labor, pharmaceuticals, devices and administrative costs explain the almost double cost of health care in the US compared with other well-developed countries.

Consolidation can produce labor efficiencies and should reduce distribution and administrative costs. Nevertheless, some claim consumers are not benefiting, even when the consolidation is horizontal. The usual antitrust objection to consolidation is that consolidation equips firms with the market power to increase prices in the short run. That market power is limited in the long run, and especially when the consolidation is vertical, as is most of the consolidation recently announced.

In December 2017, CVS announced its intent to pursue a vertical deal acquiring Aetna. The deal has not yet closed, but the court approval of ATT’s vertical acquisition of TimeWarner probably signals that the Department of Justice (DoJ) would be unsuccessful in challenging CVS-Aetna on antitrust grounds.

The CVS-Aetna deal may well deliver consumer benefits by offering an integrated health insurance platform, 9,700 pharmacies, and 1,100 “minute clinics.” That clinic network will help many customers avoid hospital emergency room sticker shock. CVS already offers a pharmacy benefit manager (PBM) function to help keep drug costs in check. There are plentiful retail pharmacy outlets that compete with CVS (Walgreen, Kroger, Bi-Lo, Safeway, Walmart, Target). CVS-Aetna looks like a benign acquisition. To add consumer convenience, CVS is partnering with the US Postal Service to offer $5 home delivery for prescriptions.

If there is any obvious federal shackle to put on this and other benign acquisitions, it would be to require that CVS’s pharmacists reveal to customers the cash price for each prescription, even if the consumer does not ask. This would shine a spotlight on the often-higher consumer co-pay for insured drugs. Federal regulators should help the consumer by breaking the gag-order that some insurers or pharmacy benefit managers impose on pharmacists.

In March 2018, Cigna announced its intention to buy Express Scripts – a vertical acquisition between an insurance company and a large PBM. The court approval of the ATT-TimeWarner vertical acquisition suggests that Cigna’s move, similar in scale to CVS-Aetna, should face no regulatory opposition. Already, Cigna’s competitor, United Healthcare, has acquired the PBM named Optum Rx. With a PBM that can match United Health’s capabilities, Cigna should be able to compete better.

Smaller in scale, and horizontal rather than vertical, Wellcare announced that it will acquire Meridian Health. The combined company will serve more than 5 million Medicaid members and generate about $17 billion in revenues. Centene, a rival to Wellcare in the Medicaid marketplace, is about three times larger, with $48 billion in revenues. Again, bulking up to compete more capably with a larger rival should be welcomed.

Amid this consolidation, online retail behemoth Amazon is rumored to be moving into the pharmacy business. Amazon excels at retailing partly because it gives consumers access to many other vendors, and provides a well-developed product ordering platform with sophisticated, popular shipping arrangements. In the short term, Amazon’s shipping prowess lacks the “cold chain” component necessary to safely ship some drugs. Since a cold chain would be a useful attribute in the supply chain of Whole Foods, Amazon may soon develop this capability.

We can expect a brief period of political grandstanding in populist opposition to anything the private sector does in health care. However, vertical consolidation between insurers, PBMs, and pharmacy chains has a good chance of being consumer-friendly and should not draw knee-jerk opposition.