Antitrust Law Daily American Medical Association, AIDS Healthcare Foundation file amicus briefs in CVS, Aetna merger case
Friday, March 15, 2019

American Medical Association, AIDS Healthcare Foundation file amicus briefs in CVS, Aetna merger case

By Peter Reap, J.D., LL.M.

The two groups believe that the government’s proposed final judgment will not sufficiently protect consumers or competition.

The American Medical Association (AMA) and the AIDS Healthcare Foundation (AHF) have each filed amicus briefs in the proposed merger of CVS and Aetna in the wake of the government’s February 25 motion and memorandum in support of the proposed final judgment, which requires CVS to divest Aetna’s individual prescription drug care plans (PDP) business nationwide to WellCare, in order to complete the deal, valued at $69 billion. Both groups argue that the proposed final judgment will not adequately protect consumers or competition.

Proposed divestiture. In October 2018, the Justice Department conditionally approved the deal, which is valued at $69 billion. Under the terms of a proposed consent decree, CVS and Aetna were required to divest Aetna’s Medicare Part D prescription drug plan business for individuals in order for the merger to proceed. The Justice Department, along with the state attorneys general from California, Florida, Hawaii, Mississippi, and Washington filed a complaint, seeking an injunction to block the merger at the same time as the proposed settlement that, if accepted and approved by the court, would fully resolve the Justice Department’s concerns. The Department of Justice stated that the proposed divestiture will alleviate concerns that the merger will cause increased prices, inferior customer service, and decreased innovation in sixteen Medicare Part D regions covering 22 states.

Public comments. In response to the proposed settlement, the Justice Department received 173 comments. Some comments were supportive of the merger, while others acknowledged the significant scope of the divestiture, but expressed concerned over the divestiture buyer. According to the government, many comment letters raised concerns that were outside the scope of the Tunney Act review.

AMA brief. The AMA contends in its brief that the merger would harm competition and patients and that the divestiture remedy contained within the proposed final judgment will not restore competition in the Medicare Part D standalone PDP market to premerger levels. Thus, the AMA respectfully requests that the court deny approval of the proposed final judgment.

The AMA sought the views of prominent health economists and other experts in health policy and antitrust on the potential effects of this merger. Many of these experts testified in a California Department of Insurance hearing on the merger. The experts concluded, and the Department of Insurance agreed, that the merger would likely injure consumers by raising prices, lowering quality, reducing choice, and stifling innovation in five markets: PDP, PBM services, health insurance, retail pharmacy, and specialty pharmacy, according to the AMA.

Although the Justice Department agreed that the proposed merger would harm competition and consumers in the PDP market, it has asked that the merger be approved so long as Aetna divests its individual PDP business. The evidence, however, shows that the proposed divestiture will reduce competition in the PDP market, rather than restore it to premerger levels, the AMA asserts. In fact, the proposed divestiture will not even come close to restoring competition to premerger levels. The divestiture would decrease the number of firms in already concentrated and rapidly consolidating PDP markets, and new entry will not solve the problem because of the high barriers to entry into PDP markets. Further, the merger and divestiture would eliminate the important role of competition between CVS and Aetna in the PDP market and the divestiture of Aetna’s PDP business to WellCare is unlikely to make WellCare as formidable a competitor as Aetna. Therefore, the court should reject the proposed final judgment.

AHF brief. The AHF, the largest non-profit provider of care and treatment to people with HIV and AIDS in the world, contends that the Antitrust Division’s complaint identifies competitive concerns in only one product market—the PDP market—and the proposed final judgment addresses only that market, while ignoring the other markets in which the merger will have anticompetitive effect. However, even in this one market, the remedy is inadequate.

The court has broad authority under the Tunney Act to look not only at the market and remedy chosen by the Justice Department, but to determine if the merger would lead to anticompetitive effects in other markets. There are three other markets that the court should analyze, AHF argues: the health care provider, pharmacy benefit manager, and pharmacy markets. In each of these markets the merger would lead to a substantial lessening of competition that would harm AHF and its patients.

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