CVS Health Corp. and Hartford-based Aetna Inc. declared their $69 billion combination complete last week, but a federal judge in Washington, D.C. on Monday tossed some cold water on the celebration.
U.S. District Court Judge Richard Leon ordered a hearing on Dec. 18, after raising questions about the U.S. Department of Justice's approval of the deal after a review for antitrust concerns, according to a transcript of the hearing.
As a condition of its approval, the Justice Department required the merger partners to sell off Aetna's Medicare prescription drug business. The business has been acquired by Florida-based Wellcare Health Plans, Inc.
Leon may order CVS to halt its integration of Aetna's businesses while he further reviews the antitrust implications of the landmark acquisition. The CVS-Aetna combination has the potential to help reshape the health care industry, bringing together a pharmacy benefits manager and a health insurance giant.
According to the transcript, Leon pointed out that Aetna sold the divested Medicare business for $50 to $100 million. The divestiture represents about "one-tenth of one percent of this $69 billion deal," raising concerns that antitrust issues may still remain.
Under federal law, a judge must sign off on antitrust approvals. But typically, deals close before that happens because a settlement has been reached with the Justice Department. Experts say the sign-off is often a formality, given the review by the Justice Department and any subsequent divestitures.
"Usually, they are not this controversial," said James Tierney, a former government antitrust regular and now a partner at Orrick, a Washington, D.C. law firm.
In a statement Tuesday, CVS said: "CVS Health and Aetna are one company, and our focus is on transforming the consumer health experience."
CVS declined further comment.
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Tierney said Leon does not have the power to block the merger. But Leon does have the authority to question whether the divestiture satisfies competitive concerns in the Medicare drug business, or whether divestitures required by the Justice Department should have been broader.
In court Monday, Leon told representatives of CVS, Aetna and the Justice Department that they must show at the Dec. 18 hearing why the two companies should be allowed to continue integrating while Leon makes a final determination on the antitrust issue.
Leon also noted the stiff opposition from the American Medical Association. This summer, the association called for the deal to be rejecting, saying it would leave consumers with fewer health care choices. In addition to Medicare prescription drug plan choices, the association also cited concerns about health insurance and retail pharmacy.
"Given that I have to decide, based on what I expect to be well-informed and thoughtful public commentary -- I specifically already mentioned the American Medical Association's lengthy concerns that they have put in writing previously," Leon said.
Acquiring Aetna was attractive for CVS because the health insurer brought 22 million medical members to the merged companies. The combination created the potential for vast databanks to spot treatment trends and drive Aetna members to CVS stores, nudged by potential discounts.
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