The acquisition of Aetna by CVS Health, which came at a price tag of $69 billion and brought together the nation’s third-largest health insurance provider with one of the biggest pharmacy retailers and pharmacy benefit managers (PBMs), is at risk as the transaction is still under review by a court.
U.S. District Court Judge Richard Leon scheduled a couple days of hearings at the beginning of June to hear oral arguments from industry groups that have opposed the deal, including representatives from the American Medical Association (AMA), as well as CVS Health and Aetna.
While earlier predictions noted that the judge was unlikely to unravel the deal, new reports have hinted he could spell trouble for CVS and Aetna, which have already integrated their operations. While the DOJ and other regulators approved the deal, it is still subject to review from the court under the Tunney Act, which was approved by Congress in 1974. After the hearings in the first week of June, Leon scheduled more oral arguments for July 17, after which he is likely to make a ruling.
In fact, the judge warned lawyers to cancel their summer plans, as they could be working on this case for a while, The New York Post reported, citing sources close to the healthcare companies. The sources also stated that Leon appears to be setting up to block the deal.
Leon would have to accept the settlement agreed upon by CVS Health, Aetna and the DOJ. Aetna was required to sell its Medicare Part D business to WellCare Health Plans prior to gaining approval from the DOJ, which argued the move would quell antitrust fears, as CVS has its own large Part D business. The DOJ has since recommended that the deal be approved in court, and will likely appeal if Leon ends up rejecting the settlement, according to The Post.
Leon has taken issue with the DOJ over the past few months, accusing the agency of giving the megamerger the “rubber-stamp” treatment without much consideration of the transaction’s overall impact on the healthcare market and consumers.
Those in opposition to the deal argue it will lead to too much consolidation in the healthcare space, higher prices and fewer options for patients. At the end of 2018, Leon warned Aetna and CVS Health to keep the businesses separate amid the ongoing court review
The report from The Post also comes after The Wall Street Journal editorial board published an opinion article June 4 that argued the CVS–Aetna merger will actually increase hospital competition and admonished physician groups for opposing it. The article noted that CVS Health CEO Larry Merlo has stated the company’s goal under the newly-combined entity is to lower healthcare spending by bringing in more patients to low-cost settings like its retail stores, which are ramping up new services options.
These new patient options would actually compete with hospitals, incentivizing them to bring down their prices, the article stated. The board also took a swipe at the AMA by arguing the group only opposes the merger because it represents physicians based in hospitals who benefit from higher healthcare costs in those settings.
The American Hospital Association clapped back at the article, saying it “misses the mark in its criticism” and noting that hospital price growth has been under 2% in recent years. AHA CEO Rick Pollack called the board’s stance “surprising, as the merger is anticompetitive."
The review has also sent fear into investors, with shares of CVS Health sliding Tuesday following the New York Post’s report, according to Barron’s.