What to watch as CVS-Aetna merger goes back to court

Starting Tuesday, U.S. District Judge Richard Leon will hear the case for and against the $70 billion merger between CVS Health and insurance giant Aetna over three days of testimony.

The case promises to touch hot-button issues in healthcare policy but it also represents an unprecedented challenge to the U.S. Justice Department’s signoff on the deal. 

Here’s what we’re watching for:

Leon picked three out of the seven witnesses whom critics pitched to testify against the merger. According to court filings, all three will home in on the effects on markets of consolidation and anticompetitive behavior. 

Dr. Neeraj Sood, a health policy professor at the University of Southern California, will testify for the American Medical Association. He is allotted two hours and will argue that Aetna’s divestiture of its Medicare Part D business “will not even come close to restoring competition to premerger levels.”

Diana Moss, president of the American Antitrust Institute, will testify for Consumer Action and the U.S. Public Interest Research Group. And 
Dr. Michael Wohlfeiler, chief medical officer for the AIDS Healthcare Foundation, will talk about how consolidation has hurt HIV/AIDS treatment. 

The trial comes as Congress wrangles over proposed reforms to the pharmacy benefit management system—with pharma support—to help bring down drug prices; and as lawmakers and the industry wait for the Trump administration to finalize its proposed ban on rebate collection by PBMs.

Leon has promised to go deep on this topic.

To “say the least, an understanding of how participants in markets for individual prescription drug plans are affected by markets for PBM services would appear to be essential to” his evaluation of the U.S. Justice Department’s approval of Aetna’s divestiture, the judge wrote last month.

Moss is also expected to address bad behavior in the PBM world, including the potential incentive the merger gives CVS-Aetna “to exclude rivals and facilitate anticompetitive coordination among health insurers served by CVS-Caremark.”

CVS Health and Aetna insist that they are now one company, although they agreed to keep some business operations separate after pressure late last year from Leon.

But this lengthy review under the Tunney Act, mandated by Congress yet often treated as a rubber stamp, has already gone on for months. The companies finalized their merger with government approval last November only to bump up against Leon’s scrutiny immediately thereafter.

According to antitrust experts, it’s still unclear whether Leon can effectively pry them apart. Earnings reports from 
CVS Health show that the two companies are very much synced.

Defending the merger are Dr. Alan Lotvin for CVS Health, Terri Swanson—who ran Aetna’s Medicare Part D business—and antitrust economist Lawrence Wu.

All three are expected to talk about what the merger means across the relevant markets. Lotvin, a direct report to CVS Health CEO Larry Merlo as executive vice president for transformation, will talk about the savings the company is projecting from the deal.

Swanson, whose experience and expertise is in the Part D business, will talk about Aetna divesting its Part D plans to WellCare Health Plans and the prospects for that market moving forward.

Wu has the longest time slot for the defense—two hours—and he will argue that the merger won’t lead to price increases to the system due to its “elimination of double marginalization and other efficiencies.”