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.”

Highlight on Massachusetts: Will the CVS painkiller settlement be the first of many?

CVS Pharmacy, Inc. must essentially admit that it contributed to the opioid epidemic by filling forged prescription painkillers during what some consider to be the height of the epidemic. CVS has agreed to pay $3.5 million to resolve allegations that 50 of its stores violated the Controlled Substances Act by filling forged prescriptions for prescription painkillers more than 500 times between 2011 and 2014, which is currently one of the largest settlements of its kind.  The pharmacy has also entered into a three-year compliance agreement with the Drug Enforcement Administration (DEA) requiring it to maintain and enhance the programs it has developed in recent years for detecting and preventing diversion of controlled substances.

The allegations came after the federal government conducted two DEA investigations into CVS’ activities after receiving calls reporting forged oxycodone prescriptions. The first investigation involved CVS pharmacies throughout Massachusetts and New Hampshire and identified 403 instances at 40 CVS stores where forged prescriptions were filled. The second investigation, which focused solely on the Boston area, found over 120 filled forged prescriptions at 10 CVS locations. A handful of people were involved in nearly all of the forgeries involving an estimated street value of over $1 million.

Although the company had some protections in place, the government spent time looking into whether CVS pharmacists continually ignored red flags such as computer system band on individuals receiving addictive painkillers. “When pharmacies ignore red flags that a prescription is fraudulent, they miss a critical opportunity to prevent prescription drugs from entering the stream of illegal opiates on the black market…Although CVS is currently undertaking corrective steps to curb the tide of diversion, this settlement pushes CVS to go further and holds the company accountable for its past conduct,” said United States Attorney Carmen M. Ortiz commented on the settlement.

DEA regulations indicate that pharmacists have a responsibility to ensure that he or she is filling only valid prescriptions that were written for a legitimate medical purpose by a practitioner who is managing the care of that individual. The responsibility requires that pharmacists identify and resolve any red flags which may indicate that a prescription could be forged or is otherwise invalid.

“DEA registrants like CVS have a corresponding responsibility to dispense controlled substances in accordance with the Controlled Substance Act.  When pharmacies fail to adhere to these responsibilities, it allows for the diversion of prescription pain medication, which contributes to the widespread abuse of opiates, is the gateway to heroin addiction, and is devastating our communities,” said DEA Special Agent in Charge Michael J. Ferguson.

What this investigation makes clear is that authorities aren’t just looking at the forgers themselves. Pharmacies will need to ensure that they are complying with the DEA regulations and that they are keeping a lookout for any red flags. As is the case with CVS, pharmacists who look the other way will be forced to face stiff penalties for their failures to keep their eyes open.