December 19, 2018

Report: CVS airs concessions for judge questioning $69B Aetna purchase

Photo | CNN
Photo | CNN
A CVS storefront.
Photo | Flickr via Chez Julius Livre
Aetna headquarters in Hartford.

CVS Health on Tuesday reassured a federal judge, who threatened halt the pharmacy giant's combination with Aetna, that its $69 billion acquisition of the Hartford health insurer warrants his approval.

U.S. District Judge Richard Leon last month railed against the companies for treating him as a "rubber stamp," and doubted whether its settlement with Justice Department antitrust enforcers benefits consumers.

Federal courts often settle antitrust concerns for deals the Department of Justice (DOJ) signs with merging companies, although companies rarely wait for court backing before closing their deals. Plus, under the Tunney Act, companies are not barred from integrating prior to the settlement review.

On Nov. 28, CVS announced the completion of its historic buyout of Aetna before receiving Leon's signature on DOJ's agreement with the companies, which mandates that Aetna sell off its Medicare Part D prescription drug plans to a subsidiary of WellCare Health Plans Inc.

But Leon questioned the validity of DOJ's settlement days after the deal closed, citing competitive concerns raised by the American Medical Association and others.

During Tuesday's brief hearing in Washington, D.C., Leon took a softer tone with the companies, as CVS said it would keep certain aspects of Aetna separate for now, rolling out several pledges to ease his antitrust concerns, the Wall Street Journal reported.

According to the report, CVS said it would maintain Aetna's control over pricing of products and services for its insurance customers and that the companies will hold off on sharing competitively sensitive information.

Leon commended the Rhode Island-based company's proposal, suggesting he may still order a court-appointed monitor to ensure the company keeps its promises.

The handling of the CVS-Aetna deal is not Leon's first disconnect with DOJ antitrust lawyers, who said Aetna's divestiture would preserve market competition.

In June, the judge rejected the Justice Department's opposition to AT&T Inc.'s $85 billion acquisition of Time Warner by approving the deal. DOJ is appealing Leon's ruling, claiming he committed "fundamental errors of economic logic and reasoning."

But despite Leon's trepidation of CVS' acquisition, the pharmacy giant has maintained it and Aetna "are one company" and that their focus "is on transforming the consumer health experience."

Leon said his review of the settlement could take several months to complete. CVS on Tuesday said it will stand by their commitments for six months, but may reconsider if the review goes beyond that point.

Until then, the companies are reshuffling Aetna's C-suite, with Karen S. Lynch serving as the insurer's top executive in place of CEO Mark Bertolini, who is joining CVS' board of directors.

CVS CEO Larry J. Merlo has said his company will exceed its goal of saving $750 million in overhead costs by integrating its corporate expenses and its existing assets under the combined company.

Merlo said the company will lower medical costs by increasing adherence to prescriptions and expanding its membership and increasing its use of storefronts to reduce emergency room visits or costly therapy services.

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