The Justice Department is standing by its defense of CVS Health’s $69 billion acquisition of Hartford insurer Aetna.
In a 38-page document filed Wednesday in the U.S. District Court for the District of Columbia, government lawyers argued that their proposed settlement of the deal, which called for Aetna to sell off its standalone Medicare Part D prescription drug business, is sufficient to ensure that the merger does not destabilize the health care marketplace or hurt consumer choice.
The filing is the latest development in an unconventional, months-long review of the CVS-Aetna deal by Judge Richard J. Leon, who in November criticized the Justice Department for not doing enough to challenge and vet the buyout. Leon has blocked CVS and Aetna from integrating some of their operations until he issues a final ruling.
The federal government’s most recent statement on the merger was intended to answer public comments submitted in the case over the last three months. Organizations like the American Medical Association and the National Community Pharmacists Association, together with business and health care industry groups, raised a variety of issues to the court, including concerns about anti-competitive consolidation and vertical integration in the health care sector.
The Justice Department responded by noting that its consent decree keeps CVS and Aetna from consolidating interests in the one business where the companies competed directly and bolsters the competitiveness of Florida-based WellCare Health Plans Inc., which absorbed Aetna’s Medicare Part D unit.
In response to charges that CVS could raise prices for drugs and services post-merger and abuse their market share by steering customers to Aetna insurance plans, government lawyers argued that neither route would prove profitable for the parent company. Customers would almost certainly abandon CVS for a lower-priced competitor, they said, and Aetna has too small a share of retail pharmacy purchases for the strategy of “customer foreclosure” to be effective.
Much of the government’s filing is spent defending WellCare, which some critics contend is too small to compete with CVS and not truly independent of the merging companies, since WellCare uses Caremark, CVS’s policy benefit manager. But there’s nothing obligating WellCare to use Caremark, the filing states, and CVS has no direct control over the policy benefit manager. Caremark’s business also has internal firewalls to prevent the improper sharing of information, according to the government’s argument.
The Justice Department also claimed that some concerns fall outside its purview. Lawyers cited a 1981 government lawsuit involving construction and engineering company Bechtel Corp. to argue that the court “is required to determine not whether a particular decree is the one that will best serve society, but whether the settlement is within the reaches of the public interest.”
CVS announced plans to buy Aetna in December 2017. State insurance regulators gradually signed off on the proposal over the following months and, in October, the Justice Department put forward its settlement plan, which included the Aetna Medicare divestiture.
Aetna completed the transfer of its Medicare Part D contracts to WellCare in late November. Under the Justice Department’s order, CVS and Aetna must continue to work with WellCare to ensure that the company can successfully absorb the new customers and accommodate their coverage plans.
