AAI Issues Statement on Opinion in Tunney Act Proceeding in CVS-Aetna Merger

The American Antitrust Institute (AAI) issued the following statement on U.S. District Court Judge Richard Leon’s opinion in the Tunney Act proceeding in the merger of CVS Health Corporation and Aetna Inc. Although the opinion highlighted the important role played by amici and gave credence to concerns raised by advocacy organizations and consumer groups, it ultimately sided with the government and the merging parties.

AAI President Diana Moss noted of the outcome, “The merger of two of the largest pharmacy benefit managers and health insurers will undoubtedly have significant adverse effects on the prices of, and access to, drugs needed by millions of consumers. The AAI will be watching closely to see how the strategies and conduct of this behemoth company unfold.”

The opinion likely closes the case on the long-contested and controversial combination that raises significant horizontal and vertical competitive concerns. AAI was the first to issue a letter to the U.S. Department of Justice (DOJ) in March 2018 urging the agency to scrutinize the incentives of a combined CVS-Aetna to foreclose rivals in retail pharmacy, PBM, and health insurer markets. Moss testified in the Tunney Act hearing on behalf of Consumer Action and U.S. PIRG, alongside witnesses for the American Medical Association and the AIDS Healthcare Foundation.

The court’s opinion accepts a proposed final judgment that contains a remedy to address horizontal overlaps in CVS’s and Aetna’s Medicare Part D prescription drug plans (PDPs) with a divestiture to WellCare Health Plans. It also accepts the government’s and CVS’s arguments as to why the merger raises no (vertical) concerns about CVS-Aetna’s stronger post-merger incentives to exclude its rivals.

“AAI strongly disagrees with the merits of the court’s opinion,” said Moss. “On most points, the court simply accepted piecemeal evidence introduced by the DOJ and CVS. The opinion discounts the showing by amici that the remedy will fail to preserve competition in PDP markets and that the merger raises significant vertical concerns ignored by the DOJ in its complaint. The opinion’s statement that ‘[N]otwithstanding CVS’s significant market share, the evidence showed that CVS must compete vigorously to retain its PBM customers’ is divorced from sound economics.”

Apart from the merits of the decision, the court’s opinion has important implications for the standard of judicial review in future Tunney Act proceedings. The court accepted AAI’s argument in comments submitted during the Tunney Act review period that courts are permitted to look beyond the claims alleged in the complaint for purposes of determining whether a settlement is in the public interest.

The DOJ argued that courts are limited to reviewing the proposed remedy in relationship to the violations alleged in the complaint. But AAI contended that analysis of harms outside the scope of the complaint can inform the court’s determination of whether a complaint is drafted so narrowly that approval would make a mockery of judicial power. The court agreed with AAI that such evidence is relevant to the court’s public interest determination. The opinion also noted that harms outside the scope of the complaint can be relevant to whether the proposed settlement may be problematic to implement or risk causing injury to third parties.

The opinion encourages courts in future Tunney Act proceedings to insist on greater transparency from the government, particularly to explain why the government has chosen to ignore theories of competitive harm when it drafts complaints in conjunction with proposed settlements.

“The opinion sends a clear message to the DOJ to take the transparency goals of the Tunney Act more seriously,” said AAI’s Vice President of Legal Advocacy, Randy Stutz. “That means giving fulsome explanations when the future victims of potential anticompetitive mergers believe merger settlements do not go far enough in protecting the public,” Stutz added.