By Elena Eyber, J.D.
The United Stated published a response to public comments on the proposed Final Judgment regarding the CVS and Aetna merger. The U.S. continues to believe that the proposed remedy will address the alleged competitive threat and is therefore in the public interest.
The United States addressed public comments about its proposed remedy to preserve competition for beneficiaries who purchase individual prescription drug plans (PDPs) following the CVS and Aetna merger. The U.S. believes the remedy fully addresses the competitive threat posed by the merger by requiring CVS to divest Aetna’s nationwide individual PDP business to WellCare Health Plans, Inc., an experienced health insurer focused on government-sponsored health plans, including individual PDPs. By requiring a nationwide divestiture, the remedy provides WellCare with the assets and scale necessary to maintain competition in the regions at issue. The remedy also provides WellCare with access to all of the records, employees, and other rights necessary to ensure that WellCare can step into Aetna’s shoes. The remedy thus preserves the competition that otherwise would be lost through the merger and ensures that WellCare will effectively replace Aetna as an independent competitor (U.S. v. CVS Health Corp. and Aetna Inc.; Response to Public Comments, 85 FR 35, February 21, 2019).
Procedural History. On December 3, 2017, CVS entered into an agreement to acquire Aetna in a merger valued at approximately $69 billion. On October 10, 2018, the United States filed a civil antitrust Complaint seeking to enjoin CVS from acquiring Aetna because the proposed acquisition would substantially lessen competition for the sale of individual PDPs in 16 regions in the United States in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18. Simultaneously with the filing of the Complaint, the United States filed a proposed Final Judgment, providing a remedy for the transaction’s likely competitive harm by requiring CVS to divest Aetna’s individual PDP business nationwide.
Proposed Final Judgment. The proposed Final Judgment has several components. First, CVS must divest both of Aetna’s individual PDP contracts with CMS. Aetna’s individual PDP business was the only portion of Aetna’s business where the merger with CVS would have caused a substantial lessening of competition. Divesting Aetna’s nationwide individual PDP business—and not just Aetna’s business in the regions identified in the Complaint—provides WellCare with the same scale and capabilities to implement a national PDP strategy as Aetna had before the merger. Second, the proposed Final Judgment requires CVS and Aetna to transfer to WellCare (1) data relating to Aetna’s individual PDP business, (2) information regarding the amount that Aetna pays to retail pharmacies in exchange for filling prescriptions for Aetna members, and (3) any contracts with brokers that currently sell Aetna’s individual PDPs. The transfer of this data, information, and contracts helps ensure that WellCare has sufficient information to negotiate with retail pharmacies and brokers on the same footing as Aetna did before the merger. Third, during the 60-day period following the sale to WellCare, the proposed Final Judgment has provided WellCare the opportunity to interview and hire Aetna’s current employees with expertise related to the individual PDP business. The transfer of data and recruiting of Aetna employees are moving forward according to the terms of the proposed Final Judgment.
Public Comments and U.S. Response. The U.S. received 173 comments that can be grouped into four categories: (1) comments about WellCare’s suitability as a divestiture buyer, including whether it will have sufficient assets, expertise, and incentives to preserve competition; (2) comments related to the vertical combination of CVS’s pharmacy and PBM businesses with Aetna’s health insurance businesses; (3) other miscellaneous comments, including questions about whether the merger will facilitate coordination, have anticompetitive effects in various healthcare markets, increase entry barriers in the PBM or health insurance markets, or reduce PBM competition by eliminating Aetna as a PBM competitor; and (4) comments in support of the merger.
Comments Regarding WellCare’s Suitability as a Divestiture Buyer and Ability to Compete Effectively. According to the U.S., WellCare has extensive experience and qualifications in the individual PDP market and, with the assets provided by the proposed Final Judgment, is a suitable divestiture buyer. Although commenters raised concerns regarding WellCare as the buyer of the divested assets, none of those concerns is valid. These commenters raised six primary objections: (1) WellCare will not compete as effectively as Aetna; (2) WellCare will not operate independently of CVS because WellCare uses CVS’s PBM, Caremark; (3) some health insurance divestitures have not been successful, indicating that the divestiture to WellCare may not be successful; (4) the divestiture creates new structural concerns in the markets for the sale of individual PDPs; (5) the divestiture raises concerns related to WellCare’s license of the Aetna brand; and (6) the divestiture sales price is too low.
The U.S. believes that WellCare has experience and qualifications in government-funded insurance programs. Although some commenters raised concerns that WellCare will not operate independently of CVS because WellCare uses Care mark (which CVS owns) as its PBM, the U.S. carefully considered this relationship in evaluating WellCare’s suitability as the divestiture buyer and ultimately concluded that WellCare will continue to be an independent competitor to CVS. Prior health insurance merger remedies do not cast doubt on the divestiture. The remedy does not create new structural concerns in the markets for individual PDPs. The licensing provisions related to the Aetna brand protect WellCare’s ability to compete using the divested assets. Lastly, the sales price does not cast doubt on WellCare’s intention to compete.
Comments Related to the Vertical Aspects of CVS’s Acquisition of Aetna. Commenters also raised vertical concerns about the merger combining CVS’s pharmacy and PBM businesses with Aetna’s health insurance businesses, alleging that the merger will enable CVS to use its assets to harm competitors. Recognizing that CVS and Aetna do not compete against each other either at the retail pharmacy level or the PBM level, commenters nonetheless raise two categories of vertical concerns relating to the merger: input foreclosure and customer foreclosure concerns. According to the U.S., input foreclosure is unlikely to occur and is beyond the scope of the Complaint. Customer foreclosure is also unlikely to occur and is beyond the scope of the Complaint. Further, vertical concerns are not addressable under the Tunney Act’s standard of review.
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