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 ...