On Friday, July 19th, Judge Richard Leon of the District Court for the District of Columbia heard oral arguments from supporters and critics of the CVS-Aetna merger. The $69 billion merger of the pharmacy and pharmacy benefit manager (PBM) CVS and the health insurance company Aetna would create a gigantic entity that would harm competition and consumers. After listening to the arguments, Leon thanked the lawyers for their work and stated he would make a decision in the not-too-distant future.
The Court is currently deciding whether to accept or reject the Department of Justice's Proposed Final Judgment (PFJ). This judgment is supposed to stop the anticompetitive harm resulting from the merger, but it is woefully inadequate to protect competition and consumers. It requires that Aetna divest its prescription drug plans (PDPs) when it overlapped with CVS and give them to WellCare, another company that will hopefully be able to compete in those markets.
The hearing lasted for two hours. The Department of Justice and CVS claimed that PFJ was in the public interest and the divestiture was sufficient to restore competition. They also argued that the Court should adopt a narrow view of its power and only look at a few issues, instead of considering the merger as a whole. Leon was not amused by some of their remarks, especially the government's request for additional time to answer critics of the merger. Lawyers from CVS also argued that the PBM market was very competitive and that PBMs didn't wield that much power, and so the integration of a health insurance company and a PBM should pose little concern.
But the critics were far more persuasive. David Balto represented the consumer groups Consumer Action and U.S. PIRG and laid out how the merger raised huge concerns for consumers. "Head to head competition between CVS and Aetna benefits consumers," he remarked, "and this merger will kill it." He noted that in the past judges had rejected divestitures that they thought would not preserve competition (most notably in the Aetna-Humana merger court case) and that WellCare was not a stronger competitor, since it has lost customers in recent years.
Mr. Balto also dismantled the argument that the PBM market was competitive and the CVS-Aetna merger would not harm consumer welfare. Three PBMs-CVS, Optum, and Express Scripts-control 85% of the PBM market, which is an oligopoly that makes outsized profits. Leon asked what he thought of possible conduct remedies to reduce the harm from the merger (for example, requiring CVS-Aetna to behave in certain ways). Balto said they were interesting, but the proposed divestiture and final judgment wouldn't protect consumers at all, and they should be rejected.
Leon concluded the hearing by thanking everyone for their testimony. He said that he understood this decision will affect millions of people, and he will deliver a decision soon. We hope that he will reject the proposed final judgment from the Department of Justice and require that the CVS-Aetna merger actually benefit consumers.