Federal Judge Throws Wrench Into CVS/Aetna Merger Legal Settlement

April 8, 2019
On Friday, a federal district court judge insisted on hearing from witnesses who object to the Justice department’s approval last November of CVS’s nearly $70-billion acquisition of Aetna, potentially creating unprecedented legal uncertainty

Despite the fact that the Justice Department had approved the $69 billion-plus acquisition of the Hartford, Conn.-based health insurer Aetna by by the Woonsocket, R.I.-based CVS last November, a federal district court judge is insisting on hearing from organizations objecting to that business deal, including the powerful American Medical Association (AMA), regarding whether some of the terms of the legal settlement that led to the finalization of the merger had adequately protected consumers from any anticompetitive harm to them. The process that that judge is advancing could put the business deal into uncharted legal territory going forward.

As The Wall Street Journal reported on April 5, “A federal judge federal judge on Friday said he wants to hear in court from witnesses who object to the Justice Department’s decision last year to approve CVS Health Corp.’s nearly $70 billion acquisition of Aetna Inc.—a highly unusual move that threatens to shake up the already-consummated deal.”

“At issue is the deal DOJ [the Department of Justice] struck with CVS and Aetna to allow the union to proceed,” Samantha Liss of Healthcare Dive wrote, on April 5. “The two agreed to shed all of Aetna's Medicare Part D business to WellCare (itself recently acquired by rival Centene), a critical component to clearing antitrust hurdles. However, some like AMA have voiced concern about the settlement agreement,” Liss wrote, referencing the Chicago-based AMA. D.C. District Court Judge Richard Leon, “who is tasked with reviewing the settlement agreement with the DOJ under the Tunney Act, has shared his skepticism about whether the deal does enough to protect consumers from anticompetitive effects,” she wrote, adding that “CVS told Healthcare Dive the company had no comment in response to Friday's courtroom news. Meanwhile, a spokesperson for the AMA told Liss that, “Given the detrimental consequences of the merger, the AMA appreciates the detailed consideration that U.S. District Judge Richard Leon is giving to the proposed settlement.”

And Rachel Frazin wrote in The Hill on Apr. 5 that “Leon reportedly inquired in court whether the settlement sufficiently protected industry competition. A CVS lawyer argued that judges had never called for witnesses in such hearings. Leon reportedly said he foresaw a weeklong May hearing on the matter. The American Medical Association and consumer rights groups reportedly said they wanted to testify. The Justice Department and CVS would also be permitted to present witnesses. “

U.S. District Judge Richard Leon in Washington D.C., is reviewing a department settlement late last year that allowed the merger after the companies agreed to sell off assets related to Medicare drug coverage.

According to a report by Diane Bartz of Reuters on Friday, Judge Leon said during the hearing that “Healthcare is a very high priority for tens of millions of people. This is a matter of great public interest.” Bartz went on to report that, during Friday’s hearing, Jay Owen, a lawyer for the Justice Department,  urged the judge to consider avoiding further hearings, noting that the two sides as well as the deal’s critics had filed their arguments with the court. “The total record is adequate to make a ruling,” said Owen said. Further, Bartz reported, CVS attorney Enu Mainigi of the law firm Williams and Connolly LLP agreed, saying: “I would urge the court to consider whether those witnesses are appropriate.”

Judge Leon, a George W. Bush appointee, had said last December that he was concerned the department hadn't adequately addressed broader potential competitive harms raised by the merger, Kendall reported. But the judge did not halt CVS’s integration of Aetna’s assets, even while making clear that he wanted to spend additional time considering the settlement. “CVS had volunteered to Judge Leon that it would keep parts of its Aetna operations separate until he did so,” Kendall reported. A federal law called the Tunney Act requires the government to have proposed merger settlements approved by a federal court, which determines if the deal is in the public interest. If Judge Leon were to reject the settlement, the business deal could be placed in uncharted legal territory, as antitrust experts have said they couldn’t ever remember a judge forcing substantial changes in a Tunney Act review.

The Justice Department allowed a second similar health industry deal last year, Cigna Corp.’s purchase of pharmacy benefit manger Express Scripts. Since the department had challenged no part of that transaction, its decision didn’t produce a settlement requiring court approval.

The WSJ’s Kendall reported that, “In court, lawyers for the government and CVS tried in vain to persuade Judge Leon that live witnesses weren’t needed and would only complicate the court’s review, which they argued should be narrow in scope. ‘That bus has already left the station,’ he responded.”

A CVS spokesperson declined to comment, The Hill reported. The Justice Department did not immediately respond to The Hill's request for comment, Frazin wrote, noting that “The merger closed in November and CVS and Aetna have already posted earnings as one company.”

All of this activity is taking place now despite the fact that the CVS/Aetna business deal had been fully approved by federal regulators back in November. As Healthcare Innovation Managing Editor Rajiv Leventhal reported on Nov. 28, “A little more than a month after the Department of Justice (DOJ) approved a $69 billion merger between mega-pharmacy retailer CVS Health and health insurer Aetna, the acquisition has officially been completed.” And he quoted CVS Health president and CEO Larry J. Merlo as saying in a statement, “Today marks the start of a new day in health care and a transformative moment for our company and our industry. “By delivering the combined capabilities of our two leading organizations,” Merlo said back then, “we will transform the consumer health experience and build healthier communities through a new innovative healthcare model that is local, easier to use, less expensive and puts consumers at the center of their care.”