CVS, government urge federal judge to bless settlement pact

By | June 25, 2019

Dive Brief:

  • The government, CVS and interested parties including the American Medical Association, the AIDS Healthcare Foundation, Consumer Action and U.S. PIRG filed briefs Friday seeking to sway a federal judge’s thinking on whether the government’s proposed settlement of CVS’ acquisition of Aetna is in the public interest.
  • Judge Richard Leon of the U.S. District Court for the District of Columbia has set oral argument in the matter for July 17. The $ 69 billion union still requires the judge’s final sign-off and he could impose additional conditions or, less likely, force the parties to go back to the drawing board.
  • The court’s review of the proposed settlement of the merger has been unusually prolonged. The two companies have essentially been operating as one company since November 2018.

Dive Insight:

The judge is tasked with reviewing the settlement under the Tunney Act, which gives courts the power to review DOJ decisions. That law gives Leon significant discretion to determine whether the settlement is in the public interest.

Leon has been skeptical of the CVS-Aetna deal struck with DOJ. He has said the settlement addresses only “about one-tenth of 1%” of the megamerger.

The government urged Leon to “end the uncertainty for consumers and the market” and find the government’s proposed settlement in the public interest. It said the divestiture it required in the case — Aetna selling its entire individual Medicare Part D prescription drug plan business to WellCare — more than remedies any anticompetitive concerns stemming from the deal.

And CVS said extensive briefing in the case, along with the first-ever evidentiary hearing under the Tunney Act, ensured that multiple groups opposing the merger and the proposed settlement were able to have their voices heard. But the written record and the testimony in the case only confirm the settlement is in the public interest, the company told Leon in its brief.

CVS argues the merger will create efficiencies in the healthcare market by cutting sales and distribution costs, facilitating information flow and creating economies of scale. Arguments by groups opposing the settlement fail to rebut these efficiencies, the company said. It said some of the groups’ witnesses provided inaccurate testimony about Medicare Part D and pharmacy benefit management markets, based their testimony on flawed underlying assumptions or were biased.

The groups opposing entry of the settlement told the judge the government’s proposed divestiture remedy in the case doesn’t sufficiently address competitive concerns DOJ raised in its initial challenge of the merger.

For example, AMA argued Leon should reject the proposed settlement because it will likely reduce competition and increase premiums in the PDP market. Consumer Action and U.S. PIRG argued CVS’ purchase of Aetna increases the risk it will engage in exclusionary tactics in contravention of consumers’ interests. AHF is asking Leon to either reject the proposed settlement or impose conditions on the merger to protect consumers.

If Leon views the transaction as problematic, he can dissolve the settlement, James Kovacs, an antitrust attorney with Constantine Cannon, told Healthcare Dive earlier this month.

Although Leon’s “role is not to ‘require something more’ than the proposed settlement, one could imagine that any order finding against the proposed settlement could indicate other competitive concerns outside the overlap of the Medicare Part D assets,” Kovacs said.

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