NCPA Executive Update

NCPA Executive Update delivers insights on legislative, regulatory, policy, and industry developments from NCPA CEO B. Douglas Hoey, Pharmacist, MBA, to NCPA members and pharmacy leaders every Friday.

A sure thing? Not so fast

by NCPA | Dec 07, 2018

Dear Colleague,

Doug Hoey

Earlier this year, the University of Virginia Cavaliers basketball team became the first No. 1 seed to lose to a No. 16 seed since the NCAA expanded the championship tournament to 64 teams in 1985. No. 1 seeds had been undefeated – 135-0 – and UVA had a 98.5 percent chance of winning the game. Even a “sure thing” can't be taken for granted.

Last week, CVS and Aetna received its final state approval, enabling the parties to consummate their merger, which they did two days later. The Department of Justice had cleared the deal back in October so long as Aetna divested its Part D business, a move that had been expected given the reluctance of federal regulators to challenge vertical mergers. However, the companies closed the deal without U.S. District Judge Richard Leon's required approval. He was not pleased. “This court's not a rubber stamp,” he said.

The merger between CVS and Aetna was thought to be likely because it was a vertical merger (other than in the Part D space, they do not typically compete directly as horizontal competitors) touted to create efficiencies and lower costs which, in theory, are supposed to be passed along to consumers. NCPA had significant doubts and concerns from the beginning and expressed those as soon as the deal was announced. In a statement released last December, we said, among other things:

“For all of the talk about cost savings, prescription drug costs have clearly continued to rise despite previous vertical mergers like UnitedHealth's 2015 acquisition of Catamaran.”

This summer, most commentators stated that the likelihood that this deal would be successful increased when AT&T and Time Warner won a sweeping victory over the Department of Justice's lawsuit to block its vertical merger. The judge put no conditions on the transaction and encouraged the DOJ not to appeal his decision. Ironically, that judge was U.S. District Judge Richard Leon and DOJ did, indeed, file an appeal.

Some readers may wonder why this process hasn't come up before with other pharmacy industry mergers. One reason is because mergers like ESI-Medco are reviewed by the Federal Trade Commission, not the DOJ. FTC deals require approval of the majority of FTC Commissioners but not the approval of a federal judge. A second reason is because Judge Leon's actions are extremely rare. The Tunney Act requires a federal judge to sign off on DOJ consent decrees. Most of the time, such settlements are, well, rubber stamped. Not this time.

The Tunney Act was passed by Congress in 1974 to provide meaningful judicial review of consent decrees to ensure they are in the public interest. There were other things going on in our country around 1974 (Watergate, Vietnam) that perhaps spurred a desire for more government checks and balances. The law has been on the books for more than 40 years but has never been used to effectively block a merger.

Judge Leon has told CVS and Aetna not to begin integrating their companies and has called a hearing for Dec. 18. The public comment period is still open and NCPA will be weighing in to let the judge know why the consent decree is inadequate to address the significant unaddressed competitive concerns. You, too, can send comments to:

Peter Mucchetti, Chief
Healthcare and Consumer Products Section
Antitrust Division
Department of Justice
450 Fifth Street NW, Suite 4100
Washington, DC 20530

A No. 16 seed's chance of beating a No. 1 seed in college basketball is still a long shot. And, likewise, the Tunney Act being used to stop a merger is an even longer shot and should not be counted on to scrap the CVS-Aetna merger. However, as UVA proved this year, there is a first time for everything.

Best,
Doug Hoey

P.S. If you're an NCPA owner/manager member, you recently received an email from us asking for your thoughts on Amazon-PillPack. Please complete that online survey as soon as you can. It will take about three minutes and your feedback will help us equip our members to compete in an Amazon-PillPack world.