Reports emerging this past Monday after the close of last week’s DC Federal District Court hearings in indicate that the CVS-Aetna merger may be nixed by Judge Richard Leon. This may result in the full unwinding of the already-closed merger, a derailing of the settlement which involved selling the Aetna Medicare Part D business to government-plan insurer WellCare, or something in between.
The original report was in Monday’s New York Post. A source working with CVS and Aetna stated “I think Leon rules against us. If he rejects the settlement, we would have to figure out the next steps.” That settlement is significant because it represents the only major overlap between the CVS and Aetna businesses. In other words, there’s nothing left to divest or concede.
Judge Leon, based on reports, was consistently irritated with the Department of Justice, questioning everything from the Part D divestiture to the effects of adding 21 million Aetna customers to CVS’s pharmacy benefits management (PBM) business not being revealed in DOJ documents to him. Conversely, the sale of the Part D business to WellCare was batted one way–as not enough to reduce CVS’ market control and not competitive–and then the other, as WellCare remains a CVS PBM customer for 2.2 million members in its health plans. What was also clear from his selection of expert witnesses that Judge Leon was more interested in the anti-competitive effects of the merger than any of the benefits.
It is obvious both from Judge Leon’s in-court actions (such as not permitting DOJ attorneys to cross-examine any witnesses), assorted remarks, and delay for now over six months, that this merger is coming to a pre-ordained conclusion, at least by this judge. This is already a first under the Tunney Act enacted in 1974. A negative decision will certainly be appealed by CVS-Aetna and DOJ, which will drag out any finalization even if successful–and the sale of the Part D business, important to WellCare as part of its own pending acquisition by Centene–to the end of the year and possibly beyond.
With this background and oral arguments delayed until 17 July, according to Judge Leon, the legal teams on all sides won’t have much of a summer. Also Barrons, video on NBR.
The train that is the CVS-Aetna hearing, in the courtroom presided over by Judge Richard Leon of the US District Court for the District of Columbia, is at long last chugging down the tracks. And Pauline is still tied up. Tuesday 4 June was Day 1 of this hearing. Early reports are just being filed. The issue is whether Judge Leon will authorize the Department of Justice’s approval of the merger or dissolve a closed merger, based on his authority under the Tunney Act and his own repeated intent to search for harm that the merger might do to the public.
Today’s hearing focused on Aetna’s divestiture of its Medicare Part D business as a prelude to the merger, and whether it was quite enough. Much of the discussion was on the relative strength of the buyer, WellCare (itself in the early stages of being acquired), and whether it could be truly competitive in the Part D market. The other factor is that CVS as a dominant pharmacy benefits manager (PBM) could undermine WellCare in several ways. PBMs operate opaquely and are highly concentrated, with CVS, Optum (UnitedHealthcare), and Cigna-Express Scripts accounting for 70 percent of the market. Modern Healthcare
Other issues for Days 2 and 3 will cover the effects on competition in health insurance, retail pharmacy and specialty pharmacy.
Healthcare Dive discusses how these hearings are already setting precedent on how Tunney Act hearings are conducted, their scope (Judge Leon has ruled against every attempt by CVS-Aetna to limit it), and the unprecedented live testimony. There is the good possibility that Judge Leon will decide to dissolve the merger for competitive reasons, which DOJ likely would appeal. Add to this the cost of the delayed integration and the precedent set by the District Court on scrutiny of any healthcare merger, and this tedious hearing along with Judge Leon’s actions leading to it hold major consequences.