Less than a week after CVS and Aetna finalized their $69 billion megamerger, a D.C. judge is throwing cold water on the arrangement, indicating that the two businesses should remain separate.
In court on Monday, Richard J. Leon of the U.S. District Court for the District of Columbia said he was concerned about the rush to conclude the deal. He requested that prosecutors provide additional information about the terms of the deal and why he should not make the two companies operate separately.
The Department of Justice (DOJ), which sought to prevent the merger for being anti-competitive, filed a status update (PDF) on Sunday that said CVS and Aetna should not have to keep their assets separate until the court determines the case is “in the public interest,” as required by law.
As part of its approval, the DOJ required Aetna to sell off its Part D business to WellCare. Prosecutors argued anti-competitive concerns around the merger had been resolved and that transferring the plans to WellCare expeditiously would allow the insurer to begin planning for coverage year 2020.
“Divesting the assets now … is the only way to ensure that the assets remain competitive … by ensuring that the competing businesses are not in the hands of one company,” DOJ wrote.
"The government is going to explain to the court it did a thorough investigation, considered potential competitive harms in numerous markets, and at the end of the investigation, concluded there was only harm in one market," James Tierney, a partner with Orrick and the former chief of the DOJ's Networks and Technology Enforcement Section, told FierceHealthcare.
But he also said it was unusual for the court to go to such lengths after a merger had been finalized.
"I'm not aware it's happened in other cases," he said.
But District judges must consider whether a plaintiff has presented its argument too narrowly, and DOJ seems “to have left something out,” Leon said. He noted the divested business constitutes only 0.1% of the $69 billion deal.
Leon did not order the companies to halt their integration process, nor can he block the merger outright. In fact, he has already signed an order allowing the two companies to proceed with their integration.
However, he could say the current divestiture plan does not adhere to the law if he believes that complaint was drafted so narrowly it made "judicial mockery" of the Tunney Act, a federal law that requires a court to review Justice Department decisions around mergers and acquisitions.
The hearing was in line with Leon's other statements, including one last week where he objected to being treated as a "rubber stamp" for the deal.
Attorneys from both sides declined to comment on the hearing.
“CVS Health and Aetna are one company, and our focus is on transforming the consumer health experience," CVS said in a statement.
The parties have until Dec. 14 to respond to Leon’s order, and there will be a hearing on Dec. 18 where they will address the court’s remaining questions.