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United States v. CVS Health Corp.

United States District Court, District of Columbia

September 4, 2019

UNITED STATES OF AMERICA, et al, Plaintiffs,
v.
CVS HEALTH CORPORATION, et al, Defendants.

          MEMORANDUM OPINION [DKT. # 57]

          RICHARD J. LEON UNITED STATES DISTRICT JUDGE.

         The United States of America ("the Government") filed this lawsuit to challenge CVS Health Corporation's ("CVS's") acquisition of Aetna Inc. ("Aetna") as a violation of Section 7 of the Clayton Act, 15 U.S.C. § 18. It now moves to resolve the case through entry of a negotiated consent judgment. See U.S. Mot. & Memo, in Supp. of Entering Prop. Final J. ("Mot. for Prop. Final J.") [Dkt. #57]. When the Government seeks to settle a civil antitrust suit through a consent judgment, a court must independently "determine that. . . entry of [the proposed] judgment is in the public interest" before granting the Government's request. 15 U.S.C. § 16(e)(1) ("the Tunney Act"[1]). As such, this Court must determine whether the proposed consent judgment here is in the public interest.

         That determination in this particular case, however, is no small matter. Industry players, consumer groups, and state regulatory bodies have all raised concerns about CVS's acquisition of Aetna. The merger combines two healthcare giants. Its effects, for better or worse, will be felt by millions of consumers. As I explained to the parties near the outset of this case, with so much at stake, the congressionally mandated public interest inquiry must be thorough. Indeed, if the Tunney Act is to mean anything, it surely must mean that no court should rubberstamp a consent decree approving the merger of "one of the largest companies in the United States" and "the nation's third-largest health-insurance company," Compl. ¶¶ 15-16 [Dkt. # 1], simply because the Government requests it!

         My determination of whether the Government's proposed final judgment is in the public interest will, of course, be based on the existing record, which has been meaningfully supplemented by the briefs and testimony presented by the parties and amid curiae ("the amid'')[2]Indeed, the amid raised substantial issues that deserved serious consideration. Unfortunately for the amid, however, the record did not persuasively undermine the parties' contention that the proposed final judgment is in the public interest. Accordingly, for the following reasons, I have concluded that the Government's Motion to Enter the Proposed Final Judgment must be GRANTED.

         BACKGROUND

         On October 10, 2018, the Government, along with the States of California, Florida, Hawaii, Mississippi, and Washington, sued to enjoin CVS's sixty-nine-billion-dollar acquisition of Aetna. See Compl. ¶¶ 1, 41. According to the Government's complaint, "CVS ... is one of the largest companies in the United States." Id. ¶ 15. Indeed, it is currently listed as number eight in the Fortune 500 list, see Fortune.com, Fortune 500, CVS Health, https://fortune.com/fortune500/2019/cvs-health, and "operates the nation's largest retail pharmacy chain; owns a large pharmacy benefit manager called Caremark; and is the nation's second-largest provider of individual [Medical Part D prescription drug plans ("PDPs")], with over 4.8 million members," Compl. ¶ 15. By acquiring Aetna, CVS purchased "the nation's third-largest health-insurance company and fourth-largest individual PDP insurer." Id. ¶ 16. Both companies earn billions of dollars in annual revenue. See Id. ¶¶ 15-16. The Government alleged in its complaint that their merger would "lessen competition substantially in the sale of individual PDPs" in sixteen of the geographic regions[3] established by the Centers for Medicare & Medicaid Services ("CMS"), the agency that administers Medicare Part D. See Id. ¶¶ 1, 2, 39; United States ex rel Fox Rx, Inc. v. Omnicare, Inc., 38 F.Supp.3d 398, 402 (S.D.N.Y. 2014) (explaining that CMS "administers the Government's Medicare and Medicaid programs").

         As soon as the complaint was filed, however, the Government submitted a notice attaching a proposed consent judgment that would settle the case. See U.S. Explanation of Consent Decree Procedures at 1 [Dkt. #2]. To comply with the proposed judgment, Aetna would have to divest its individual PDP business to an independently owned competitor, WellCare Health Plans, Inc. ("WellCare"). The Government describes its proposed remedy as having five primary components:

First, CVS must divest both of Aetna's individual PDP contracts with the Centers for Medicare and Medicaid Services. . . . Second, the proposed Final Judgment required CVS and Aetna to transfer all data relating to Aetna's individual PDP business to WellCare, including information regarding the amount that Aetna pays to retail pharmacies in exchange for filling prescriptions for Aetna members and any contracts with brokers that currently sell Aetna's individual PDPs. Third, during the 60-day period following the sale to WellCare, the proposed Final Judgment gave WellCare the opportunity to interview and hire Aetna's current employees with expertise related to the individual PDP business. Fourth, CVS must, at WellCare's option, enter into an administrative services agreement to provide WellCare with all of the services required to manage the divestiture assets through the 2019 plan year, which ends on December 31, 2019, including contracting with pharmacy networks, administering the plans' formularies, and providing back-office support and claims administration functions. Finally, CVS and Aetna must allow WellCare to use the Aetna brand for the divestiture assets through the 2019 plan year.

Mot. for Prop. Final J. at 2-3.

         Because this is a civil antitrust suit brought by the Government, the proposed consent judgment is subject to the Tunney Act. See 15 U.S.C. § 16(b). That statute requires the Government to take several procedural steps before moving for entry of its proposed judgment.[4] See Id. § l6(b)-(d). The Government must publish its proposed final judgment and a competitive impact statement[5] in the Federal Register at least sixty days before the effective date of the proposed judgment. See Id. § 16(b). During the sixty-day period, the Government must receive and consider written comments about its proposed judgment. See Id. § 16(b), (d). And at the close of the sixty-day period, it must publish a response to those comments in the Federal Register and file the same response with the Court. See Id. The Government is also required to publish the proposed final judgment and competitive impact statement in a newspaper of general circulation in the district where the case is pending and to furnish the competitive impact statement to members of the public upon request. See Id. § l6(b)-(c). When the Government moved for entry of final judgment in this case, it certified that it had completed all required procedural steps. See Cert, of Compliance with Provisions of the Antitrust Procedures and Penalties Act [Dkt. # 57-2].

         In addition to these procedural steps, the Tunney Act "requires that before a proposed consent judgment" is "approved by the Court, the Court must determine that 'the entry of such judgment is in the public interest.'" United States v. Airline Tariff Pub. Co., 836 F.Supp. 9, 11 (D.D.C. 1993) (quoting 15 U.S.C. § 16(e)). To establish that its proposed judgment meets this standard, the Government incorporated its response to the comments received during the sixty-day notice and comment period into its motion for entry of final judgment. See Mot. for Prop. Final J. at 4-5. To say the least, that response left much to be desired. It is rife with conclusory assertions that merely reiterate the Government's confidence in its proposed remedy, but shed little light on the reasons for that confidence. Indeed, the Government's perfunctory response to the public comments was particularly disappointing in light of the volume and quality of the comments to which it was responding ![6]

         For example, the AMA's comments criticized the Government's proposed divestiture remedy because the buyer-WellCare-relies on CVS for pharmacy benefit management[7] ("PBM") and retail pharmacy services. See Resp. to Comments at 26-27; see also id., Ex. TC-003 at 9-12. The AMA contended that CVS has the ability to deny or restrict WellCare's access to those PBM and pharmacy services and, in so doing, threaten the success of the Government's proposed remedy. See Resp. to Comments at 26-27. In response, the Government merely asserted that "such foreclosure-whether directed at WellCare or any other insurer-is unlikely to occur." Id. at 27. This conclusion was apparently based on the Government's review of "evidence [that] showed . . . CVS is unlikely to be able to profitably raise its PBM or retail pharmacy costs post-merger." Id. at 26. But the Government did not describe the evidence it reviewed. Nor did it explain how that evidence supports its conclusion that CVS will not likely be able to profitably raise its prices. Without such a description and explanation, the Government's response to the AMA's criticism is little more than a bald assertion that it is right and the AMA is wrong.[8]

         Rather than risk an uninformed public interest determination that relied too heavily on responses like these from the Government, I decided to hold hearings on the Motion to Enter the Proposed Final Judgment. The hearings were designed to assist the Court in evaluating the public record. The parties and the amid were given the opportunity to propose up to three witnesses who could be called to testify. The Court alone would decide which of those witnesses it believed would be most helpful to its analysis and how much time would be allotted to each witness. In the end, the amid were allowed to call a combined total of three witnesses who were permitted to testify for a total of four hours. CVS and the Government were allowed the same combined total of witnesses and the same combined total number of hours of testimony. To reinforce my repeated emphasis that the hearings were not a trial, cross-examination was not permitted. Only the Court was allowed to ask follow-up questions during the direct examination of each witness.

         At the hearings, which lasted two days, the AMA examined Dr. Neeraj Sood, a college professor who is an expert on health policy. Consumer Action and U.S. PIRG jointly examined Dr. Diana Moss, an economist who is president of the American Antitrust Institute. And the AIDS Healthcare Foundation elicited factual testimony from the Foundation's Chief Medical Officer, Dr. Michael Wohlfeiler.

         After amicfs testimony, the parties to the case were permitted a rebuttal presentation. I heard testimony from Dr. Alan Lotvin, CVS's Executive Vice President and Chief Transformation Officer, and from Dr. Lawrence Wu, an expert in economics offered by CVS. Thereafter, the Government and CVS jointly designated Terri Swanson, Vice President for Medicare Part D products at Aetna, to testify about the PDP assets Aetna sold to WellCare.[9]

         The parties and amici then submitted supplemental briefing that addressed the evidence presented at the hearings. Finally, oral argument on the Government's Motion for Entry of Final Judgment was held on July 19, 2019.

         STANDARD OF REVIEW

         The Tunney Act provides that, when making a public interest, determination, "the court shall consider":

(A) the competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration of relief sought, anticipated effects of alternative remedies actually considered, whether its terms are ambiguous, and any other competitive considerations bearing upon the adequacy of such judgment that the court deems necessary to a determination of whether the consent judgment is in the public interest; and (B) the impact of entry of such judgment upon competition in the relevant market or markets, upon the public generally and individuals alleging specific injury from the violations set forth in the complaint....

15 U.S.C. § 16(e)(1).

         The public interest inquiry is "not... 'a de novo determination of facts and issues.'" United States v. Newpage Holdings Inc., No. 14-2216, 2015 WL 9982691, at *5 (D.D.C. Dec. 11, 2015) (quoting United States v. Western Elec. Co., 993 F.2d 1572, 1577 (D.C. Cir. 1993)). The Court need "only . . . confirm that the . . . settlement is within the reaches of the public interest." United States v. Microsoft Corp., 56 F.3d 1448, 1460 (D.C. Cir. 1995) (quotation marks, citation, and italics omitted).

         But neither is the inquiry a mere formality or judicial rubberstamp. If, for example, a proposed consent "decree is ambiguous, or the district judge can foresee difficulties in implementation," the decree should not be entered until the problems are fixed. Microsoft, 56 F.3d at 1462. "[I]f third parties contend that they would be positively injured by the decree, a district judge might well hesitate before assuming that the decree is appropriate." Id. And no "judge is . . . obliged to accept [a consent decree] that, on its face and even after government explanation, appears to make a mockery of judicial power." Id.

         Throughout this case, the Government has repeatedly asked this Court to dismiss out of hand many of amici's objections to its proposed final judgment. Relying for the most part on United States v. Microsoft Corporation,56 F.3d 1448 (D.C. Cir. 1995), the Government argues that consideration of harms that were not alleged in the complaint would "aggravate . . . 'constitutional difficulties that inhere'" in the Tunney Act. U.S. Resp. to Order to Show Cause at 2 [Dkt. # 32] (quoting Microsoft, 56 F.3d at 1459). To avoid this purported aggravation, the Government contends that the Court must ignore all evidence regarding "harm outside of the individual PDP market," "theor[ies] of harm that the ...


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