Go away on holiday, Judge Leon finally jumps into the hole. It took two months from the last hearings in mid-July, and nine months in total (delivered after last year’s Thanksgiving turkey) but Judge Richard Leon of the Federal District Court finally–and somewhat unexpectedly–ruled that the CVS-Aetna merger could be at last a Done Deal.
The Final Judgment goes into extensive detail about the Medicare Part D divestiture by Aetna to WellCare, complete with a Monitoring Trustee. On the very last page, Judge Leon admits that the merger is in the Public Interest.
The entire process, which is chronicled here, was unprecedented in the annals of Federally approved mergers. Usually a District Court Tunney Act review of a merger already through the wringer of the DOJ and the states is brief. Judges don’t make headlines, save when their rulings are the coup de grace (see: Aetna-Humana, Anthem-Cigna). Instead, Judge Leon called hearing after hearing, witness after witness from the AMA to PIRG, opining all the way, even turning away five supporting states petitioning (in vain) to be heard.
This high-profile precedent doesn’t bode well for future mergers, especially for healthcare. Fierce Healthcare, Columbus Dispatch
This time, five states are speaking up loudly. California, Florida, Hawaii, Mississippi, and Washington petitioned the DC Federal District Court’s Judge Richard L. Leon for a hearing on the CVS-Aetna merger, which will be held this Wednesday 17 July. The five states were original supporters of and advisory participants in the Department of Justice’s (DOJ) settlement with Aetna to sell its Medicare Part D business. As co-plaintiffs, the states’ regulators are defending their position that the sale would avoid harmful horizontal market concentration.
Both Judge Leon and the American Medical Association debated in June whether the divestiture of Part D was enough to ensure competition in Part D, since both maintained that WellCare Health Plans was too small to compete with CVS Caremark as a pharmacy benefits manager. Yet WellCare is being acquired by larger Centene, another government-sponsored health plan organization, in a transaction expected to close, pending Federal and state approvals, in 1st Quarter 2020. That merger weakens that argument.
While publications like Barron’s and the New York Post consider it a foregone conclusion that Judge Leon will, after he runs out of hearings, nix the merger [TTA 13 June], whether he actually can under the Tunney Act (1974) is debatable. The Tunney Act has been rarely invoked to stop a merger–especially a merger which is about half-done and a sale transaction which is an important part of the value of the acquiring company in its own acquisition.
The Hartford Business Journal makes the excellent point that every time the industry thinks Judge Leon’s hearings are wrapping up, they continue. This Editor will be surprised if there are any bombshells from this round. On to the next!
Within two to three weeks, we will know whether Judge Richard Leon of the Federal District Court will–or can–block the CVS-Aetna merger. Already a fait accompli, the merger itself would have to unwound if this is the decision–and uncertainty reigns on whether this actually can be done, as the companies have been merged for several months and have divested what DOJ requested (e.g. PDP to WellCare).
The CVS-Aetna vision is for HealthHubs–combined stores, data, MinuteClinics, kiosks, and the retail business, ultimately combined at a macro level with pharmacy benefit management, external data, and also Aetna’s insurance business. While the HealthHubs are in test, the reach of CVS on both the national and local/individual levels will be huge, if only starting with the data and analytics side. And the retail side is no slouch. Their growth on the retail pharmacy side has been over three times the industry.
In the prescription drug plan (Medicare PDP) market, that horse already left the barn. 70 percent of the PDP market is controlled by three companies: CVS Health, Express Scripts (Cigna), and Optum (UnitedHealth Group). The concerns expressed at the hearings about premiums rising and reduction of competition has already largely happened, with a market not truly private and highly restricted.
Uncertainty may very well be the theme of the rest of the year as it has been since last fall. The smart money is betting that Judge Leon will block the merger on anti-competitive grounds, leading to another round of court actions. Both companies are healthy and will fight it. If forced to part, the Seeking Alpha analyst bets on CVS doing just fine long term, which leaves little in choices for Aetna with its way forward in merging with other insurers blocked.
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.
“The Perils of Pauline” saga that is the CVS-Aetna merger continues. Judge Richard Leon of the US District Court for the District of Columbia twirled his mustache and announced that his court will hold a hearing in May on the merger. Practically nobody dislikes this particular $69 billion merger that’s already closed–not the companies, shareholders, Congress, the states, and not the Department of Justice, once Aetna sold off its Medicare Part D drug business to WellCare. But Judge Leon is an exception.
The Tunney Act requires the government to file proposed merger settlements as an approval of the consent decree with a Federal district court to assure they are in the public interest. Most are filed, reviewed by a judge, and approved with no hearings. Since October, Judge Leon has been examining the merger up, down, and sideways in, of course, the public interest and great attention by the press. Now a week (or more) of May hearings will commence with those who don’t like this merger, including the American Medical Association, the AIDS Healthcare Foundation, pharmacy and consumer groups.
Certainly this is long and drawn out, even for the DC district court. Even the high drama of the Aetna-Humana and Cigna-Anthem mergers took a little less time. Judge Leon continues to get coverage and the merger continues to be held up. Reuters, Fox News, Seeking Alpha