CVS-Aetna merger approved, subject to divestiture of PDP business

The federal district court in the District of Columbia has concluded that the proposed consent judgment allowing the merger of CVS Health Corporation and Aetna, Inc. is in the public interest. The merger may go forward under the condition that CVS divest Aetna’s individual Medicare prescription drug plan (PDP) business to WellCare Health Plans, Inc. The court considered objections to the merger raised by industry, consumers, and states, and concluded that the divestiture will effectively remedy the harm to the PDP market and will not be rendered ineffective due to the proposed judgment’s failure to address effects in markets adjacent to the PDP market (U.S. v. CVS Health Corporation, September 4, 2019, Leon, R.).

In response to the proposed merger between CVS and Aetna, the United States simultaneously filed a complaint and a proposed consent judgment in 2018. Under the terms of the proposed consent judgment, CVS would divest Aetna’s individual Medicare prescription drug plan (PDP) business to WellCare Health Plans, Inc. A number of parties including members of industry, consumer groups, and state regulatory bodies (amici) opposed the proposed consent judgment and filed briefs stating their concerns. As part of its review under the Tunney Act, the court conducted a hearing with witnesses from parties and amici.

The court concluded that the proposed consent judgment is in the public interest, although it did reject the government’s assertion that the court may only consider harms alleged in the complaint. The amici briefs raised three primary objections to the merger. First, that Aetna’s divestiture to WellCare will not effectively remedy the harm to the PDP market, because the divestiture leaves the PDP market overly concentrated and WellCare will not be as strong a competitor in the PDP market as Aetna was. On this point, the court found the evidence from CVS and the Government to be more persuasive. That evidence included testimony that the PDP market is already highly competitive, because plans can be easily compared, and the market is only moderately concentrated. The moderate concentration in the PDP market has neither prevented WellCare from competing in the market, nor prevented price competition from driving premium prices down, in recent years.

Amici also argued that the proposed final judgment’s failure to address effects in markets adjacent to the PDP market will undercut the effectiveness of the divestiture remedy and harm the public. For example, CVS could raise the price of its pharmacy benefit manager (PBM) services when selling the services to health insurance competitors. Such an action could threaten the success of the proposed divestiture remedy because WellCare, which both competes against CVS in the PDP market and contracts with CVS for PBM services, would be vulnerable to such a tactic. But CVS presented more persuasive evidence that substantially undermines this theory. Rival PBMs try to underbid CVS and CVS’s PBM oftentimes competes against its own customers because health insurance companies can move PBM services in house if they consider CVS’s price for contract services too high. That evidence strongly suggests that, if CVS were to raise its PBM prices, customers like WellCare could simply switch to a less expensive PBM or stop contracting for those PBM services altogether.

Finally, amici argued that the proposed final judgment without modification will harm HIV and AIDS patients in need of affordable, quality healthcare. But the court concluded that the record did not establish that the judgment will likely result in CVS gaining the ability to steer patients away from their current healthcare providers (such as the AIDS Healthcare Foundation). The Foundation uses a different PBM and maintains its own pharmacies, therefore it is unlikely that CVS will be likely to steer patients away from the Foundation.

In the Department of Justice press release announcing the settlement, Assistant Attorney General Makan Delrahim of the Antitrust Division expressed pleasure with the decision, noting that the judgment provides a “comprehensive remedy” that “protects seniors and other vulnerable customers of individual PDPs from the anticompetitive effects that would have occurred if CVS and Aetna had merged their individual PDP businesses.”

American Antitrust Institute (AAI) statement. “AAI strongly disagrees with the merits of the court’s opinion,” said AAI President Diana Moss. “On most points, the court simply accepted piecemeal evidence introduced by the DOJ and CVS. The opinion discounts the showing by amici that the remedy will fail to preserve competition in PDP markets and that the merger raises significant vertical concerns ignored by the DOJ in its complaint. The opinion’s statement that ‘[N]otwithstanding CVS’s significant market share, the evidence showed that CVS must compete vigorously to retain its PBM customers’ is divorced from sound economics.”

Court imposes 10-month deadline for pre-market tobacco applications

A federal district court in Maryland has set a deadline of 10 months for tobacco product manufacturers to submit pre-market applications and a one year deadline for FDA approval. The court previously concluded that the FDA violated the Administrative Procedure Act (APA) when it released guidance in 2017 extending the compliance deadline for the “Deeming Rule” which brought new tobacco products under the purview of the Family Smoking Prevention and Tobacco Control Act. Rather than remanding the issue to the FDA to determine a timeline for compliance or accepting the plaintiffs’ request of a four-month deadline for applications, the court accepted the FDA’s recommendation of a 10-month deadline. The court found that it has the authority to impose such a deadline under the extraordinary circumstances of the case, in which prompt action is necessary to combat the public health crisis caused by the rise in youth e-cigarette use (American Academy of Pediatrics v. FDA, July 12, 2019, Grimm, P.).

FDA tobacco rule compliance extensions

On May 10, 2016, the FDA issued the “Deeming Rule,” bringing approximately 25,000 new tobacco products, including various cigars, e-cigarettes, pipe tobacco products, and hookah within the purview of the Family Smoking Prevention and Tobacco Control Act. The Deeming Rule went into effect 90 days after its publication (see FDA clears the air, ‘deems’ e-cigarettes, hookah tobacco, cigars worthy of regulation, Health Law Daily, May 10, 2016). In May 2017, the FDA extended the compliance deadline by three months. In August 2017, the FDA extended the timelines to submit tobacco product review applications for deemed tobacco products that were on the market as of August 2016. In May 2019, the district court ruled that the FDA’s August 2017 compliance deadline extension violated the Administrative Procedure Act, as it was done without following notice and comment requirements. The court vacated the August 2017 Guidance and asked the parties to brief the court on potential remedies, given that the application deadlines in the Deeming Rule and May 2017 Guidance had passed.

Remedy

The court concluded that the case presented “extraordinary circumstances” that called for more than simply vacating the guidance and remanding the issue to the FDA (as was requested by manufacturers). It imposed a 10-month deadline for submissions and a one-year deadline for approvals, as suggested by the FDA. The plaintiffs had requested a four-month deadline for submissions, but the court rejected that solution because of the record from the FDA demonstrating that a four-month deadline would prevent them from timely approving or denying applications and could clear the market of e-cigarette products, thus creating a risk that adult smokers would switch from e-cigarettes to combustible tobacco products. The FDA also presented evidence that it plans to accelerate the premarket review requirements for the products that are most attractive to youth, such as flavored products.

The court concluded that without a deadline for filing, manufacturers would be unlikely to move forward with applications, because the record showed a purposeful avoidance by the industry of complying with the premarket requirements despite entreaties from the FDA that it can do so, and it establishes a shockingly low rate of filings.

States likely to succeed in lawsuit challenging contraceptive exemption regulations

Pennsylvania and New Jersey are likely to succeed in proving that the agencies did not follow the Administrative Procedure Act (APA) in creating the contraceptive mandate exemption regulations and that the regulations are not authorized under the Affordable Care Act (ACA) or required by the Religious Freedom Restoration Act (RFRA), held the Third Circuit Court of Appeals. The court also concluded that the States will suffer a concrete and imminent financial injury from the increased use of state-funded services were the regulations to go into effect, and that an injunction would redress that injury. Therefore, it affirmed the district court’s order preliminarily enjoining the rules’ enforcement nationwide (Commonwealth of Pennsylvania V. Trump, July 12, 2019, Shwartz, P.).

State challenges to regulations

As previously reported, the Health Resources and Services Administration determined that health plans covered by the Affordable Care Act (ACA) (P.L. 111-148) must provide contraceptive services. This mandate included a narrow exemption for certain religious organizations. In 2017, President Trump issued an executive order directing the relevant agencies to consider amending regulations to address conscience-based objections to the contraception mandate. These agencies promulgated two interim final rules (IFRs) which expanded the religious exemptions authorizing employers with religious objections to limit employees’ access to health insurance coverage for contraception (see Contraception coverage exemptions extended for objecting employers on religious, moral grounds, Health Law Daily, October 11, 2017).

Pennsylvania and New Jersey (the States) sued seeking to enjoin enforcement of these two new rules. Both have state-funded programs that provide family planning and contraceptive services for eligible individuals and argued that when women lose contraceptive insurance coverage from their employers, they will seek out these state-funded programs and services. The district court granted a preliminary injunction, enjoining the rules’ enforcement nationwide. While the appeal of the order preliminarily enjoining the IFRs was pending, the agencies promulgated two final rules, virtually identical to the interim final rules.

States have standing

The court concluded that the States will suffer a concrete and imminent financial injury from the increased use of state-funded services, and that an injunction would redress that injury. The States are not required to define a specific woman who will be affected by the final rules.

Preliminary injunction granted 

The court held that the States are likely to succeed on their procedural APA claims because the agencies failed to comply with the notice-and-comment requirement and this defect tainted the final rules. The regulation provision of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) does not grant the agencies discretion to proceed by IFR in lieu of notice-and-comment rulemaking and the agencies lacked good cause for dispensing with notice of and comment to the IFRs. The court rejected the agencies’ argument that there was an urgent need to alleviate harm to those with religious objections to the current regulations. It also held that previous notice and comment does not allow agencies to forego notice and comment for a later regulation on similar matters. In addition, the notice and comment provided for the final rules suggest that the opportunity for comment was not a meaningful because the final rules are virtually identical to the IFRs and the IFRs impaired the rulemaking process by altering the agencies’ starting point in considering the final rules.

The court also held that the States were likely to succeed on their substantive APA challenges because neither the ACA nor RFRA authorized the agencies to create exemptions. The unambiguous language of the ACA’s Women’s Health Amendment only authorized the agencies to decide what services would be covered, not who provides them, and RFRA did not require or authorize such broad exemptions, particularly given RFRA’s remedial function that places the responsibility for adjudicating religious burdens on the courts, not the agencies. In addition, the final rules would impose an undue burden on nonbeneficiaries—the female employees who will lose coverage for contraceptive care. The public interest favors minimizing harm to those third parties. Because the current accommodation does not substantially burden employers’ religious exercise and the exemption is not necessary to protect a legally-cognizable interest, the States’ financial injury outweighs any purported injury to religious exercise. Finally, a nationwide injunction is appropriate to provide complete relief (for example, 14 percent of the New Jersey workforce works out of state).

No relief; EMTALA doesn’t cover medical malpractice claims

A U.S. District Court in Alabama has dismissed a claim brought by a patient against the Health Care Authority of the City of Huntsville (the Hospital). The patient, a woman who came to the emergency room, alleged the hospital violated EMTALA by failing to conduct an appropriate screening exam and stabilize her after her admission to the hospital. The hospital moved to dismiss the lawsuit claiming they screened her appropriately and stabilized her after she arrived. The court held that the hospital met EMTALA requirements and granted motion to dismiss under Federal Rules of Civil Procedure 12(b)(6) (Baker v Health Care Authority of the City of Huntsville, July 9, 2019, Kallon, A.).

The court looked to the EMTALA requirements to determine whether the patient stated a claim for which relief could be granted. The court noted that congress enacted EMTALA to prevent hospitals from turning away or transferring indigent patients without evaluation or treatment. The court noted that to prevail on the patients EMTALA claim she must plead facts showing that the hospital violated the appropriate medical screening or stabilization requirements.

Screening requirement

EMTALA requires that when a person goes to the emergency room for an exam or treatment, the hospital must provide for an appropriate medical screening exam. The screening must be within the capability of the emergency room to determine whether or not an emergency medical condition exists. It also requires that indigent patients receive similar care to anyone else that would be screened in the emergency room with similar symptoms.

Under the facts of this case, the woman was given four screenings within an hour of arrival in the emergency room. She was diagnosed with a hypertensive emergency and admitted to the hospital. Several hours later she was examined again and properly diagnosed with a stroke. The woman argues that because she was not diagnosed with a stroke earlier, the hospital did not conduct a proper screening. The woman did not allege any facts to show that she was screened differently from any other patient. The court held that as long as the hospital screened her similarly to any other patient with the same symptoms there is no liability under EMTALA.

Stabilization requirement

Under EMTALA the stabilization requirement has to do with transferring the patient to another facility. The statute requires that the hospital treat the emergency condition as necessary to assure with reasonable medical probability that no material deterioration of the condition occurs during transfer of the patient. The court found that the EMTALA obligation to stabilize ends when the patient is admitted to the hospital and not transferred. In this case the woman was admitted to the Huntsville Hospital and therefore the woman would have had to plead facts to show that the hospital admitted her with intention to subterfuge to avoid EMTALA liability. Since she did not allege any facts to support that allegation the court holds that she has not alleged a plausible claim for violations of EMTALA’s stabilization requirement.

Holding

The court found that the woman’s allegations against the hospital for failure to provide her with timely and necessary treatment may support a malpractice claim but do not fall under a violation of the EMTALA statute. The woman would have had to show that the hospital treated her differently than other patients who presented with similar symptoms. The claim was dismissed under Rule 12(b)(6) and the court declined to exercise supplemental jurisdiction over her state law claims.