The hearing was set to last up to
three days but ended Wednesday after Wu and executives from CVS and Aetna
argued that the merger would not stifle competition.
Late November Judge Richard Leon rose to the
bench in his Washington, D.C., courtroom for what was expected to be a routine
hearing as the Justice Department sought final approval of a settlement
clearing CVS Health Corp.’s acquisition of Aetna Inc.
The hearing was supposed to address the
appointment of an outside monitor to oversee the divestiture of Aetna’s
prescription drug plan business, a condition of the Justice Department’s
approval of the $69 billion merger. But Leon apparently had more on his mind.
Leon launched into a blistering statement,
accusing the Justice Department of keeping him “in the dark, kind of like a
mushroom” about CVS and Aetna formally consummating their $69 billion deal
while his review of their settlement was pending. More than six months later,
Leon has made clear that he has no intention of serving as a “rubber stamp,” as
he put it then.
On Tuesday and Wednesday, Leon presided over
an unprecedented hearing to examine whether the Justice Department adequately
protected consumers in approving CVS’ acquisition of Aetna. The proceeding was
closely watched in antitrust circles, likened to a “mini trial” with witnesses
testifying about a deal that received the Justice Department’s blessing.
On Wednesday, as CVS and the Justice
Department called their witnesses, Leon expressed skepticism that the
settlement did enough to ensure continued competition in the health care
industry.
Leon sharply questioned former Federal Trade
Commission economist Lawrence Wu, the first witness called by CVS, about
whether the newly combined company now possesses undue market power. Wu’s
questioning was led by Dechert partner Michael Cowie, with Leon occasionally
jutting in.
Much of the testimony concerned CVS’s pharmacy
benefit management business, which administers prescription drug programs for
health plans. Pharmacy benefit managers, or PBMs, effectively serve as
middlemen between drug makers and pharmacies.
Wu, the president of NERA Economic Consulting,
dismissed concerns that the acquisition of Aetna would give CVS unfair leverage
allowing it to undercut competitors. Since 2011, Wu noted, CVS has served as
the pharmacy benefit manager for Aetna under a 12-year contract.
But Leon said the acquisition put Aetna in a “very
different” position with CVS.
“It’s different now,” Leon said. “If they
merge, they own it.”
“That’s a very different posture, is it not?”
he added.
Wu replied that many health plans use pharmacy
benefit managers other than CVS’s, which operates under the brand name “CVS
Caremark.” Early in his testimony, Wu referred to the business as only
“Caremark,” which appeared to frustrate Leon.
“Don’t disassociate it from CVS. It’s CVS’s
PBM,” he said.
Leon took a more reserved approach in his
questioning Tuesday, when the American Medical Association and other groups
opposed to the merger called witnesses. The hearing was set to last up to three
days but ended Wednesday after Wu and executives from CVS and Aetna argued that
the merger would not stifle competition.
The hearing marked Leon’s latest run-in with
the Justice Department’s antitrust division. Last year, he rejected the Justice
Department’s challenge to AT&T’s proposed acquisition of Time Warner,
dealing the antitrust division a defeat in one of the most significant
antitrust cases in decades.
During Wednesday’s hearing, Leon gave a nod to
that case when Wu drew a comparison between the AT&T-Time Warner deal and
CVS’s acquisition. At the mention of the AT&T deal Wednesday, Leon said,
“This should be very interesting. I’m all ears.”
The three witnesses called Tuesday expressed
concerns that the merger would further consolidate the health insurance market
and drive up out-of-pocket costs for consumers. The Justice Department had
asked leading up to the hearing to be allowed to cross-examine witnesses, but
Leon rejected the request.
“We are not only losing a competitor,” said
University of Southern California professor Neeraj Sood, an expert called by
the American Medical Association. In Aetna, he said, “we are losing a strong
competitor in this market.”
As a condition of approving the CVS deal, the
Justice Department required Aetna to sell off its Medicare Part D prescription
drug plan business to address antitrust concerns in that specific market. On
Tuesday, Leon appeared to wrestle with his review should center on that market
or extend more broadly.
“Should I limit myself to (prescription-drug
plans) or look at how these entities that have merged will impact the greater
market?” Leon said.
Sood demurred, saying that he wasn’t a lawyer.
But he argued that the CVS-Aetna merger raised broader issues across the health
care industry.
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