About that CVS-Aetna Merger…

June 11, 2019

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Source: Benefits Pro

Late November Judge Richard Leon rose to the bench in his Washington, D.C., courtroom for what was expected to be a routine hearing as the Justice Department sought final approval of a settlement clearing CVS Health Corp.’s acquisition of Aetna Inc.

The hearing was supposed to address the appointment of an outside monitor to oversee the divestiture of Aetna’s prescription drug plan business, a condition of the Justice Department’s approval of the $69 billion merger. But Leon apparently had more on his mind.

Leon launched into a blistering statement, accusing the Justice Department of keeping him “in the dark, kind of like a mushroom” about CVS and Aetna formally consummating their $69 billion deal while his review of their settlement was pending. More than six months later, Leon has made clear that he has no intention of serving as a “rubber stamp,” as he put it then.

On Tuesday and Wednesday, Leon presided over an unprecedented hearing to examine whether the Justice Department adequately protected consumers in approving CVS’ acquisition of Aetna. The proceeding was closely watched in antitrust circles, likened to a “mini trial” with witnesses testifying about a deal that received the Justice Department’s blessing.

On Wednesday, as CVS and the Justice Department called their witnesses, Leon expressed skepticism that the settlement did enough to ensure continued competition in the health care industry.

Leon sharply questioned former Federal Trade Commission economist Lawrence Wu, the first witness called by CVS, about whether the newly combined company now possesses undue market power. Wu’s questioning was led by Dechert partner Michael Cowie, with Leon occasionally jutting in.

Much of the testimony concerned CVS’s pharmacy benefit management business, which administers prescription drug programs for health plans. Pharmacy benefit managers, or PBMs, effectively serve as middlemen between drug makers and pharmacies.

Wu, the president of NERA Economic Consulting, dismissed concerns that the acquisition of Aetna would give CVS unfair leverage allowing it to undercut competitors. Since 2011, Wu noted, CVS has served as the pharmacy benefit manager for Aetna under a 12-year contract.

But Leon said the acquisition put Aetna in a  “very different” position with CVS.

“It’s different now,” Leon said. “If they merge, they own it.”

“That’s a very different posture, is it not?” he added.

Wu replied that many health plans use pharmacy benefit managers other than CVS’s, which operates under the brand name “CVS Caremark.” Early in his testimony, Wu referred to the business as only “Caremark,” which appeared to frustrate Leon.

“Don’t disassociate it from CVS. It’s CVS’s PBM,” he said.

Leon took a more reserved approach in his questioning Tuesday, when the American Medical Association and other groups opposed to the merger called witnesses. The hearing was set to last up to three days but ended Wednesday after Wu and executives from CVS and Aetna argued that the merger would not stifle competition.

The hearing marked Leon’s latest run-in with the Justice Department’s antitrust division. Last year, he rejected the Justice Department’s challenge to AT&T’s proposed acquisition of Time Warner, dealing the antitrust division a defeat in one of the most significant antitrust cases in decades.

During Wednesday’s hearing, Leon gave a nod to that case when Wu drew a comparison between the AT&T-Time Warner deal and CVS’s acquisition. At the mention of the AT&T deal Wednesday, Leon said, “This should be very interesting. I’m all ears.”

The three witnesses called Tuesday expressed concerns that the merger would further consolidate the health insurance market and drive up out-of-pocket costs for consumers. The Justice Department had asked leading up to the hearing to be allowed to cross-examine witnesses, but Leon rejected the request.

“We are not only losing a competitor,” said University of Southern California professor Neeraj Sood, an expert called by the American Medical Association. In Aetna, he said, “we are losing a strong competitor in this market.”

As a condition of approving the CVS deal, the Justice Department required Aetna to sell off its Medicare Part D prescription drug plan business to address antitrust concerns in that specific market. On Tuesday, Leon appeared to wrestle with his review should center on that market or extend more broadly.

“Should I limit myself to (prescription-drug plans) or look at how these entities that have merged will impact the greater market?” Leon said.

Sood demurred, saying that he wasn’t a lawyer. But he argued that the CVS-Aetna merger raised broader issues across the health care industry.


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