gettyimages-846536784-300x200-2912916In approving the $69 billion merger of CVS and Aetna, the state Department of Financial Services attached a noteworthy condition: The two companies must forward $40 million to the state of New York.

It was the second time this year that the Cuomo administration has leveraged its regulatory authority over a health insurance company to extract a large sum of cash. This spring, the state commanded $2 billion in proceeds from the sale of Fidelis Care to Centene.

Although smaller in scale, the CVS-Aetna payment shares problematic features of the Fidelis deal: The state is again squeezing money from companies in the context of a regulatory review, which smacks of a shakedown. And the governor has again arranged to spend the money without consulting the Legislature, which is an end-run around constitutional checks and balances that opens to door to abuse of public funds.

In the Fidelis transaction, the state’s receipts included $500 million from Centene and $1.5 billion that were effectively diverted from charity. Fidelis had been a non-profit health plan controlled by the state’s Catholic bishops, who used proceeds of the sale to endow a foundation. The resulting Mother Cabrini Health Foundation ended up receiving about $3.2 billion instead of almost $5 billion.

The state has no specific entitlement to any share of proceeds when insurers are sold. Nor have the parties to these deals been accused of wrongdoing. Rather, the companies are agreeing to make the payments voluntarily, albeit under an implicit threat that their high-stakes transactions could be blocked or delayed.

Receipts from both Fidelis and CVS-Aetna are flowing to the so-called Health Care Transformation Fund, established as part of this year’s budget, which the governor and his appointees can use for health-related purposes without consulting the Legislature.

The first such expenditure, revealed earlier this month, is going toward a Medicaid rate increase earmarked to increase the pay and benefits of hospital and nursing home workers – many of whom are represented by a politically influential union allied with Cuomo. Although the rate increase was effective Nov. 1, full details have not yet been made public.

The governor’s rationale for the Health Care Transformation Fund has shifted over time, and the rules governing its use give him flexibility to spend it on almost any health-related purpose.  

The payments are one of 14 conditions included in DFS’s “decision and order” approving the CVS-Aetna transaction:

The applicants agree to pay $40 million over three years to New York State, subject to a plan approved by the superintendent of financial services and the director of the Division of the Budget. Such plan shall include, but not be limited to: (i) funds paid to organizations to support health insurance education and enrollment activities; and (ii) funds to strengthen New York health care transformation activities, which may include payments to the New York State Health Care Transformation Fund.

About the Author

Bill Hammond

As the Empire Center’s senior fellow for health policy, Bill Hammond tracks fast-moving developments in New York’s massive health care industry, with a focus on how decisions made in Albany and Washington affect the well-being of patients, providers, taxpayers and the state’s economy.

Read more by Bill Hammond

You may also like

State Offers Taxpayer-Funded Health Coverage to Unionized Home Care Workers

In a new subsidy for the health-care union 1199 SEIU, the Hochul administration is allowing the union's benefit fund for home care aides to shift some members into taxpayer-funded health coverage through the Essential Plan. Read More

A Closer Look at $4 Billion in State Capital Grants to Health Providers

The state has awarded $4.3 billion in health-care capital grants over the past decade, with a disproportionate share flowing to upstate providers, Health Department records show. Th Read More

Hochul’s Pandemic Study Is a $4.3 Million Flop

The newly released study of New York's coronavirus pandemic response falls far short of what Governor Hochul promised – and the state urgently needs – in the aftermath of its worst natural disaster in modern history. Read More

82 Questions Hochul’s Pandemic Report Should Answer

This is the month when New Yorkers are due to finally receive an official report on the state's response to the Covid-19 pandemic, one of the deadliest disasters in state history. T Read More

Lawmakers Seek To Revive a $10 Fee for Prescriptions That Was Dropped by DFS

A plan to require a $10.18 "dispensing fee" for filling drug prescriptions is back on the table in Albany – this time in the form of legislation rather than regulation. The Read More

How a Medicaid ‘Cut’ Could Lead to More Unionization of Home Care Aides

A money-saving maneuver in the newly enacted Medicaid budget could end up increasing costs in the long term – by paving the way for more unionization of the state's burgeoning home health workforce. Read More

Budget Deal Slows Medicaid Growth But Plants Seeds for Future Spending

The growth of New York's Medicaid spending is projected to slow but not stop as Governor Hochul and the Legislature effectively split their differences over health care in the newly enacted state budget. Read More

Albany’s New Health Insurance Tax Comes with Few Limits

The newly enacted state budget imposes a multibillion-dollar tax on health insurance without specifying who must pay how much – leaving those basic details to be decided later by the health commissioner in negotiation wit Read More