trending Market Intelligence /marketintelligence/en/news-insights/trending/jS17U-5JJ5FP-dK6rrCVMQ2 content esgSubNav
Log in to other products

 /


Looking for more?

Contact Us
In This List

CVS-Aetna deal with DOJ would stifle Medicare drug competition, judge hears

Blog

Global M&A Infographic Q1 2021

Blog

COVID-19 Impact & Recovery: Private Equity

COVID-19 Impact & Recovery: Corporates

Blog

COVID-19 Impact & Recovery: Investment Banking


CVS-Aetna deal with DOJ would stifle Medicare drug competition, judge hears

A federal judge heard arguments against the U.S. Justice Department's agreement with CVS Health Corp. and Aetna Inc. June 4, including some contending that the insurer's divestiture of its Medicare business does not do enough to protect competition.

Judge Richard Leon, who sits on the U.S. District Court for the District of Columbia, heard from three witnesses, all of whom pointed to issues with the deal as approved by U.S. regulators. CVS acquired Aetna in November 2018 for about $70 billion. Central to the testimony was Aetna's December 2018 sale of its Medicare Part D prescription drug business to WellCare Health Plans Inc. — a transaction that the Justice Department indicated would help preserve competition in that market.

But in Leon's Washington, D.C., courtroom, witnesses said that the sale alone was not enough to avoid higher premiums and diminished competition among healthcare companies.

Neeraj Sood, a professor at the University of Southern California's Sol Price School of Public Policy, said that CVS' continued role as a pharmacy benefit manager to both its own patients and those covered by WellCare poses a conflict of interest, encouraging CVS to provide better prices and service through its own operations than to Wellcare, he said.

As a result, the same Medicare patients that Aetna transferred to Wellcare could bring their business back to a combined CVS-Aetna in the years following the acquisition. Even with limited attrition from Wellcare plans, Sood said, several markets in the U.S. could become concentrated enough to raise "significant competitive concerns" by the Justice Department's standards, as well as raise premiums.

"The potential for harm here is real," Sood said.

CVS did not immediately respond to a request for comment on the witnesses' testimony. The June 4 presentations kicked off the first of three days reserved for the hearing, with attorneys for CVS and the U.S. government expected to present testimony from three witnesses on June 5.

Diana Moss, president of the American Antitrust Institute, a think tank, said that the vertical structure of the combined CVS and Aetna makes competing for customers more difficult for small companies like WellCare. Having a presence in insurance, pharmacy benefit management and other rungs of the healthcare supply chain requires competitors with similar scope, Moss said.

"Scaling that wall would be very, very difficult" for a smaller company, she said.

As part of its acquisition of Aetna, CVS has rolled out pharmacies featuring expanded medical treatments, including for chronic conditions, and health-related services, such as yoga. Hours before the June 4 court hearing began, CVS said it would open 1,500 such locations, which it dubs "HealthHUBS," by the end of 2021.

But Michael Wohlfeiler, a doctor and chief medical officer at the AIDS Healthcare Foundation, or AHF, said the expanded treatment offering could pose challenges for specific groups with chronic conditions. AHF offers medical treatment for patients with HIV and AIDS, and many of its patients rely on Medicare-approved plans for insurance.

"A minute clinic is fine if you need a vaccine," Wohlfeiler said. But for patients with specific chronic conditions, receiving even routine care "would be a disaster," he said. Patients with HIV, for example, cannot receive certain vaccines due to the live viruses in them.

Judge Leon's decision to hear from live witnesses before signing off on the deal between CVS, Aetna and the Department of Justice is unusual. In similar cases, a judge's approval is typically a formality in negotiations between merging companies and U.S. regulators required under the Antitrust Procedures and Penalties Act of 1974.

But Leon has signaled that he wants a different role in approving the agreement in the CVS case. In December 2018, Leon asked CVS and Aetna to justify integrating before he had given his sign-off, eventually agreeing to let most of the combination move forward as he reviewed the deal with the Justice Department.

Leon is the same judge who approved AT&T Inc.'s merger with Time Warner, now Warner Media LLC, in June 2018 over objections from the Justice Department.