Witnesses in favor of the CVS-Aetna merger appeared to make headway on Wednesday in convincing a federal judge that at least one concern raised about the $70 billion deal doesn't pose an anticompetitive threat.
While U.S. District Judge Richard Leon still voiced concerns that the merger could bring anticompetitive advantages for CVS Health, he appeared sympathetic to the testimony from company witnesses about the likely effect on insurer WellCare's Medicare prescription drug business.
It's a key contention in the antitrust battle. Aetna divested its Medicare Part D business to WellCare to alleviate Justice Department competition concerns. But CVS still serves as WellCare's pharmacy benefit manager and could have an incentive to undermine the insurer because it owns its competitor.
Dr. Alan Lotvin, executive vice president and chief transformation officer for CVS, said such a strategy would be "economic suicide" since the CVS PBM's success depends on how many insurers it serves.
Lawrence Wu, an antitrust economist and consultant retained by CVS, said undermining WellCare would jeopardize $36 billion of the company's PBM business. Aetna's former Part D business, which WellCare bought for $107 million, represented 2.2 million people out of Aetna's 21 million enrollees.
Judge Leon appeared to agree.
"That would be cutting off your nose to spite your face," he said.
But the judge, whose reluctance to sign off on the Justice Department's approval has made waves even as CVS and Aetna have begun operating as a single company, indicated he is still uncomfortable with elements of the overall deal. He questioned witnesses several times about the fact that CVS through the acquisition now owns Aetna's 21 million enrollees and could potentially steer them to the company's other business offerings.
He also pressed Wu and Lotvin on whether the merger boosts CVS' leverage as a PBM to negotiate drug prices with the pharmaceutical industry.
Wu conceded that Aetna's enrollees do represent leverage, but he argued the merger didn't technically change that leverage since the company already served as Aetna's PBM.
Judge Leon demanded a CVS official to submit in writing whether the acquisition will strengthen the PBM business.
A separate thread of Lotvin's testimony focused on why CVS wanted to acquire Aetna, and what the merged company plans to do with so-called HealthHUBS, which expand on the retail Minute Clinics. CVS announced on Tuesday that it plans to roll out 1,500 HealthHUBS across the country by the end of 2021.
Lotvin said that CVS wanted to use analytics and provider networks to build on the existing infrastructure of pharmacies and retail clinics, expanding care into places with a scarcity of primary physicians. CVS' goal with the merger is to change chronic care in the U.S., he said.
Wu hinted in his testimony that the AMA's opposition to the merger could be due to these plans. The AMA in a statement pushed back on "attempts to mischaracterize the AMA as a competitor to CVS's retail health clinics."
"In addition to having no basis in fact, this claim is a smokescreen from the true competitive harm that is the focus of the CVS-Aetna settlement hearing," the association said. "The AMA does not contend that the merger is anticompetitive in retail health clinic or primary care markets in which CVS claims that the AMA's members are its competitors."
Wednesday capped off the two-day hearing. Additional oral arguments for the case will be held in July, Judge Leon said. If he doesn't sign off on the DOJ agreement with CVS and Aetna, it's unclear if his ruling could unwind the merger.