Merger of CVS and Aetna Runs Into Hurdles, Hearing Set For December 18th
The proposed merger of CVS and Aetna has encountered additional obstacles. Judge Richard Leon has raised concerns about whether the merger will harm consumers and scheduled a hearing for December 18th. The two companies had declared their merger complete, but the judge disagreed, and told them that by December 14th, they must provide him with reasons why he should approve the merger.
CVS's $69 billion acquisition of Aetna was approved by the Department of Justice, but only on the condition that Aetna sell off its Medicare Part D prescription drug business. Divestitures like this are rarely, if ever, an adequate solution for mergers that harm competition. Judge Leon recognizes this; he has observed that Aetna sold its divested Medicare business for anywhere from $50 to $90 million, which is a tiny fraction of this megamerger-about one tenth of one percent of the deal!
Federal law requires a judge to sign off on antitrust approvals. Usually, mergers such as this one officially close before that approval, because a settlement has been reached with the Justice Department, and the actual approval is just a formality. But Judge Leon is not satisfied with the government's approval of the merger, and wants a further investigation. He does not have the power to fully block the merger, but he can question whether the divestiture satisfies competitive concerns in the Medicare drug business or whether the divestitures required by the Justice Department should be larger.
Consumer groups, health care providers, and elected officials have all criticized the merger as harmful to competition and consumers. David Balto testified on behalf of Consumer Action before the New York Department of Financial Services against the merger, saying "there is little evidence that past vertical acquisitions by CVS have resulted in significant benefits to consumers" and recommending strong requirements from CVS to ensure the merger does not harm consumers. Consumer Reports expressed concerns as well, as did the American Medical Association, and California Insurance Commissioner Dave Jones urged DOJ to block the merger.
The merger of CVS and Aetna is a bad deal. Just like previous mergers, it will harm competition, ensure consumers have fewer choices in health care, lead to higher premiums, drug prices, and overall costs, and worse quality of care. The divestitures required from the companies should be greatly increased, and the merger should not have been approved in the first place.