Antitrust Law Daily Hearing procedures outlined for determining whether CVS-Aetna merger settlement is in public interest
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Tuesday, May 14, 2019

Hearing procedures outlined for determining whether CVS-Aetna merger settlement is in public interest

By Jeffrey May, J.D.

The federal district court in Washington, D.C. will hear testimony for three days on the divestiture remedy resolving a federal/state challenge to the combination of CVS Health and Aetna.

Six witnesses will testify at a hearing to be held by the federal district court in Washington, D.C. during the first week in June, as the court determines whether a proposed consent decree adequately remedies the competitive threat raised by the proposed merger of CVS Health Corporation and Aetna Inc. The hearing is an unusual step for approving such settlements. However, the court explained that it was “simply exercising its powers that are expressly granted in the Tunney Act ... to ensure that its public interest determination will be well and accurately informed.” The court also noted its view that the public interest inquiry could go beyond the four corners of the complaint (U.S. v. CVS Health Corp., May 13, 2019, Leon, R.).

The court decided to hold hearings in the matter in light of concerns raised about the sufficiency of the government’s proposed remedy in the case. The court noted that the hearing was not a trial. It was “merely an opportunity for the parties and amici to provide the court with whatever additional information and analysis they believe will aid the Court.” The witnesses will not be subject to cross-examination. There will not be closing arguments at this hearing.

The Department of Justice Antitrust Division and five states filed a complaint in October 2018, seeking an injunction against the merger of the nation’s largest retail pharmacy chain and the nation’s third-largest health-insurance company. As the parties were significant competitors in the sale of Medicare Part D prescription drug plans to individuals, the government proposed a settlement, requiring Aetna to divest its Medicare Part D prescription drug plan business for individuals. According to the Department of Justice, the proposed divestiture to WellCare Health Plans, Inc. would alleviate concerns that the merger would cause anticompetitive effects, including increased prices, inferior customer service, and decreased innovation in sixteen Medicare Part D regions covering 22 states.

Questions about the remedy. The American Antitrust Institute (AAI) questioned why the consent decree did not address the risk that “the combination of CVS and Aetna would create stronger incentives to foreclose rival pharmacies, pharmacy benefits managers and health insurers, raise two-level entry barriers, and lead to other exclusionary anticompetitive effects.”

In addition, the American Medical Association (AMA) and the AIDS Healthcare Foundation (AHF) filed amicus briefs in the case. The AMA contended 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. The AHF, the largest non-profit provider of care and treatment to people with HIV and AIDS in the world, contended 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.

Witness list. AAI President Diana L. Moss is among the witnesses who will testify at the hearing. In addition, the court has agreed to hear from Dr. Neeraj Sood and Dr. Michael B. Wohlfeiler, testifying for the amici. Sood is a professor at the University of Southern California and is an expert in health policy and economics. Wohlfeiler is Chief Medical Officer for AHF.

For the government and CVS, Terri Swanson, the Vice President of Medicare Product and Part D business at Aetna, will appear as a fact witness at the hearing. Dr. Alan Lotvin and Dr. Lawrence Wu also will testify. Lotvin is a vice president and chief transformation officer for CVS Health. Wu of NERA Economic Consulting is an expert antitrust economist and a former member of the staff of the FTC Bureau of Economics.

The court limited the number of witnesses. The government had asked that the court also hear from Michael Radu, Executive Vice President of Clinical Operations and Business Development for WellCare. Radu would have spoken to WellCare’s individual PDP business, the company’s decision to purchase Aetna’s individual PDP assets, and its integration of those assets. The government also had sought to have Dr. Nicholas Hill, an expert in antitrust economics, testify about competition and consumer welfare in the sale of individual PDPs, including that the divestiture to WellCare is likely to maintain the competitiveness of individual PDP markets.

The case is No. 1:18-cv-02340-RJL.

Attorneys: Andrew James Robinson, U.S. Department of Justice, for the United States. Emilio Eugene Varanini, Office of Attorney General, for State of California. Christopher R. Hunt, Office of Attorney General, for State of Florida. Rodney I. Kimura, Office of Attorney General, for State of Hawaii. Craig D. Singer (Williams & Connolly LLP) and Michael G. Cowie (Dechert, LLP) for CVS Health Corp. Jesse Solomon (Davis Polk & Wardwell LLP) for Aetna Inc.

Companies: Aetna Inc.; CVS Health Corp.

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