- Neeraj Sood made the American Medical Association’s case against the CVS-Aetna merger on Tuesday as the first witness to testify at an evidentiary hearing before Judge Richard Leon of the U.S. District Court for the District of Columbia. Nood is health policy professor and vice dean for research at the University of Southern California Sol Price School of Public Policy.
- The AMA has filed papers objecting to the union of the two companies. On Wednesday, Leon will hear from witnesses for CVS and the government. The hearing is set to wrap up Thursday.
- Though the CVS-Aetna deal closed last year, Leon has yet to give his blessing to the settlement agreement and has said he has significant concerns about the merger’s effects on competition. This hearing will help him decide. It is the first time witness testimony will be taken in Tunney Act proceedings.
The government’s settlement agreement with CVS over its merger with Aetna required Aetna to sell off its Medicare Part D prescription drug plans (PDP) to rival WellCare. But Sood told the judge the divestiture won’t solve the anticompetitive concerns raised by the merger.
Leon is tasked with reviewing the settlement under the Tunney Act, which gives courts the power to review DOJ decisions. That law gives him significant discretion to determine if the settlement is in the public interest.
Leon has been skeptical of the CVS-Aetna deal struck with DOJ. He previously said the settlement addresses only “about one-tenth of 1%” of the nearly $70 billion mega-merger.
“In assessing whether or not the merger is in the public interest or not, which is my job, should I limit myself to the PDP market or should I look to the entities that are going to impact the greater market?,” the judge asked Sood, the first of six witnesses to testify at the hearing.
“That is a very loaded question,” Sood told the judge. But he told Leon the effects of the merger would go beyond the PDP market and affect the broader healthcare market. Among the likely effects he said would be increased premiums and increased government subsidies to enrollees’ Part D premiums.
The sell-off of the Aetna PDPs to WellCare won’t solve the anti-competitive effects of the deal as the government contends, Sood told the judge.
The merger means the loss of Aetna, “a very strong competitor” from the PDP market and the resulting loss of head-to-head competition between Aetna and CVS, Sood told the judge. And, Sood said, WellCare is not equipped to step into Aetna’s shoes.
“WellCare is a much weaker competitor than Aetna,” lacking Aetna’s brand recognition, economies of scale and larger subscriber base, Sood testified. Aetna’s total PDP subscribers totaled approximately 2.2 million, Sood said. WellCare has half that with approximately 1.1 million standalone Medicare Part D PDP members.
“No matter how strong WellCare gets, there will still be significant competitive concerns,” Sood said, noting WellCare gets its pharmacy benefit management (PBM) services from CVS itself. This means CVS has the ability to increase costs or otherwise disadvantage WellCare. In addition, he said, WellCare is unlikely to be able to retain all of Aetna’s customers, he said.
Witnesses for the AIDS Healthcare Foundation and U.S. PIRG and Consumer Action were also scheduled to testify about the negative effects of the merger on Tuesday. Witnesses for the government and CVS are scheduled to testify Wednesday.
Meanwhile, WellCare may itself be the subject of an antitrust probe as it is planning to merge with Centene, the leader in Medicaid managed care plans in the country. The American Hospital Association wrote to the U.S. Department of Justice asking for a thorough review of the deal, which it said “threatens to reduce competition in delivery of Medicaid Managed Care and Medicare Advantage services to tens of millions of consumers across broad swaths of the country.”
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