District Judge Criticizes Pace of Aetna – CVS Merger
After two hearings over the last week, Judge Richard J. Leon of the District Court for the District of Columbia seems to have put the brakes on the well-publicized merger between health care giants CVS and Aetna. The merger obtained conditional approval from the DOJ’s Antitrust Division on October 10, 2018, and the parties seemed poised for court approval when they appeared before Judge Leon on November 29, 2018.
Judge Leon had other ideas. The court’s review of consent judgments in antitrust cases is governed by the Tunney Act, which requires the court to determine that the judgment is in the public interest, considering the impact on both competition and on the relevant market and “the public generally.” Judge Leon emphasized at a second hearing, on December 3, that he was not “making an decision about the proposed final judgment or the public interest now.” But he chastised the parties for keeping him “in the dark, kind of like a mushroom.”
The court’s frustration with the parties stemmed from the fact that, with the merger closed, CVS and Aetna planned to begin integrating their operations in short order. According to the court, “that’s where the rubber is going to hit the road,” because “the very practical problem” arises of how the companies can unwind their business in the event that the court rejects the proposed consent judgment on public interest grounds. As a counter-example, the court cited the merger between AT&T and Time Warner, which Judge Leon approved earlier this year and is pending review in the D.C. Circuit. There, Judge Leon noted, the parties completed the merger but did not begin integration, since it will be “easier to unwind it if the companies haven’t been integrated.”
Here, the specific aspect of the merger under review is Aetna’s plan to divest its Medicare Part D prescription drug plans to WellCare. The Antitrust Division’s complaint focused on the potential anticompetitive effects of this divestiture, and last week the Government pointed out that Aetna will bear the risk that the court does not approve the consent judgment.
But Judge Leon’s doubts were not assuaged. He raised a concern that DOJ might have “draft[ed] its complaint so narrowly as to make a mockery of judicial power”—which is not permitted under the D.C. Circuit’s US v. Microsoft precedent. While a court’s Tunney Act review “cannot be interpreted as an authorization for a district judge to assume the role of Attorney General,” the district court nevertheless can refuse to order a consent judgment when the parties “make a mockery” of its authority. Here, because the sales price of the divestitures is $50 to $100 million, which the court noted is only “one-tenth of one percent of this $69 billion deal,” the proposed consent judgment may not meet even the permissive Tunney Act “public interest” standard.
The court sharply cautioned against “treating [the approval process] like this is some rubber-stamp operation.” On December 3, Judge Leon informed the parties that he expected to hear and consider “well-informed and thoughtful public commentary” in order to determine whether the merger of Aetna and CVS is in the public interest, as the Tunney Act provides. In the meantime, the court issued an Order to Show Cause why he should not issue a “Hold Separate” order—that is, an order requiring CVS to isolate the business acquired from Aetna until he reaches a conclusion on whether the consent judgment is in the public interest.
This week’s hearings are a reminder that federal agency approval under the Hart-Scott-Rodino Act is not necessarily the last step in clearing a merger. While the Tunney Act is typically not a high hurdle, there is precedent for substantial judicial review and even vehement judicial opposition to consent decrees resolving an antitrust dispute with the federal government.
The parties have until December 14 to respond to the Order to Show Cause in writing, and a hearing will follow on December 18 at 3 PM.