By Laura Lefkow, J.D.
In the latest chapter of the battle to gain approval of the consent judgment to finalize the merger of CVS Health Corp. and Aetna Inc., the government, CVS, and AMA submitted supplemental briefs.
The United States and Aetna both filed supplemental briefs in support of the proposed consent judgment in the CVS-Aetna merger declaring the judgment would protect consumers, competition, and avoid trial. The American Medical Association filed a supplemental brief in opposition, memorializing arguments that were heard before the U.S District Court for the District of Columbia in early June 2019 (U.S. v. CVS Health Corp., Case No. 1:18-cv-02340-RJL).
In response to the proposed merger between CVS and Aetna, the United States simultaneously filed a complaint and a proposed consent judgmentin 2018. Under the terms of the consent judgment, CVS would divest Aetna’s individual Medicare prescription drug plan (PDP) business to WellCare Health Plans, Inc.
Brief of the AMA. Arguing that the merger would reduce competition and increase premiums in the PDP market, and reduce competition in the PBM market to the detriment of PBM consumers, the AMA urged the court to deny the motion to enter the proposed final judgment.
Brief of the Antitrust Division. In pressing the court to approve the final judgment, the United States focused on limiting the inquiry to the issues raised in the United States’ complaint and whether the proposed consent judgment, not the merger itself, was in the public interest. The Division lamented that the hearing expanded the inquiry from those concerns identified in its complaint, such as whether the transaction provided CVS’s PBM with additional leverage, a monopsony theory irrelevant to the complaint. The Tunney Act requires the consent judgment to be in the public interest and the court’s sole consideration is whether the proposed consent judgment is a reasonably adequate remedy for the alleged harm. The court may not reach beyond the complaint to examine practices the Executive Branch did not challenge, the government reiterated.
The Antitrust Division cited its "careful analysis" that the merger would not cause CVS to increase costs to Aetna’s rivals or enable CVS to profitably raise its pharmacy benefit management (PBM) or retail pharmacy prices post-merger. Although the merger would eliminate horizontal competition between CVS’s SilverScript and Aetna, by divesting Aetna’s individual PDP business to WellCare, CVS would remedy the harm. The divestiture would offset the increased concentration in those markets and ensure that the remaining market participants faced strong competitors to provide incentive to lower prices, innovate, and improve. Although the Division investigated vertical theories of harm, it was not convinced the merger would substantially lessen competition through vertical foreclosure. The Antitrust Division underscored that its analysis is entitled to deferential review.
The Antitrust Division contended it would be inappropriate for the court to rely on testimony from amici’s witnesses when the United States was functionally excluded from the Tunney Act hearing. Overall, it characterized the amici’s complaints as unreliable opinions, based on incorrect facts. For instance, the experts were incorrect that WellCare lacked sufficient brand recognition to compete successfully because it has competed successfully in the past. The United States distinguished WellCare’s ability to retain customers from its ability to compete, which is the fundamental goal of the antitrust laws.
The amici’s worries about potential restructuring of competition were to be expected with any merger, but only anticompetitive effects are unlawful. Concerns over CVS’s ability to foreclose WellCare from being an effective competitor were misplaced, because CVS did not foreclose Aetna from being a strong competitor of CVS for the sale of individual PDPs. CVS’s post-merger incentive would not be to foreclose insurance company rivals or force its pharmacies on unwilling customers, the United States contended.
CVS brief. CVS’s arguments largely tacked to the government’s arguments. Attacking the credentials and disinterestedness of the experts who testified against the merger at the June hearing, CVS asserted that the proposed final judgment was in the public interest and should be entered by the court. CVS underscored the exhaustive review undertaken by the United States to ensure the merger would not harm competition and warned that courts may not "redraft the complaint."
CVS focused on the significant consumer benefits, especially to those suffering from chronic illnesses. The merger would create incentives to bring innovations to revamp healthcare delivery at lower cost, it asserted. Any anticompetitive effects were fully addressed by the divestiture to WellCare, a strong asset purchaser capable of bringing greater competition to the Part D industry. While WellCare would be dependent upon CVS Caremark for PBM services, strict firewalls will ensure that WellCare can operate independently of CVS.
CVS contended the merger would not enable it to engage in vertical foreclosure, and pointed out that its Part D business revenues are about $3 billion and its non-Aetna health plan PBM business is about $36 billion. It would be commercially nonsensical for CVS to risk losing customers that comprise a huge part of the overall CVS PBM business.
The case is No. 1:18-cv-02340-RJL.
Attorneys: Andrew James Robinson, U.S. Department of Justice, for the United States. Craig D. Singer (Williams & Connolly LLP) for CVS Health Corp. and Aetna Inc.
Companies: CVS Health Corp.; Aetna Inc.
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