Proposed CVS Health-Aetna Acquisition Holds Strong in Congressional Hearing

by Sheppard Mullin Richter & Hampton LLP

Last Tuesday, February 27, 2018, representatives of CVS Health and Aetna went before the House Judiciary Committee Subcommittee on Regulatory Reform, Commercial, and Antitrust Law (“Subcommittee”) to argue in favor of CVS Health’s recently proposed acquisition of Aetna.[1] The Hearing, “Competition in the Pharmaceutical Supply Chain: the Proposed Merger of CVS Health and Aetna,” has drawn significant attention from stakeholders in the healthcare marketplace who are looking at the testimony and questions as an indicator of the current Congressional mood regarding (i) the antitrust/anticompetitive concerns raised by the transaction’s detractors, and (ii) the pro-consumer benefits (e.g., reduction in healthcare care costs and the transformation of the CVS Pharmacy locations into community medical hubs for primary care and basic procedures) identified by the transaction’s supporters.

In short, the headlines and summaries published by multiple healthcare news outlets that reported on the Hearing are best exemplified by an article from the Competitive Policy International’s online journal under the headline, “US: CVS, Aetna unscathed through congressional hearing,” by CPI (March 1, 2018) here.[2]

On December 3, 2017, CVS Health, the parent of CVS Pharmacy – the largest pharmacy chain in the United States by total prescription revenue of $98.1 billion (the closest competitor being Walgreens Boots Alliance at $64.3 billion)[3] – announced plans to acquire Aetna.[4] Aetna is one of the largest health care insurers in the nation with, as of December 31, 2017, total membership of approximately 49.4 million people.[5]

The February 27th hearing was comprised of two witness panels, including the following individuals: (i) Thomas Moriarty Esq., Executive Vice President, Chief Policy and External Affairs Officer, and General Counsel of CVS Health, (ii) Thomas Sabatino, Jr., Executive Vice President and General Counsel of Aetna, Inc., (iii) Craig Garthwaite, Ph.D., Associate Professor of Strategy and Director of the Health Enterprise Management Program of Kellogg School of Management, Northwestern University, (iv) Lawrence Wu, Ph.D., President of NERA Economic Consulting, (v) George Slover, Esq., Senior Policy Counsel of Consumer Union, and (vi) Geoffrey Manne, Esq., Executive Director of International Center for Law and Economics.[6]

The Subcommittee and the witness panels illustrated both the potential problems and benefits of the proposed CVS Health-Aetna transaction. The questions posed by the Subcommittee focused primarily on two concerns that Rep. Jerrold Nadler expressed in his opening remarks:

(i) In concentrated marketplaces, such as the pharmacy benefit management (PBM) and health insurance marketplaces, dominant businesses have the ability and incentive to use their dominance to exclude potential competitors, potentially resulting in higher consumer costs.

(ii) It is unclear why the proposed transaction is necessary to accomplish the goals expressed by CVS Health and Aetna, such as lowering consumer costs and innovating the healthcare industry.

The first witness panel consisted of Mr. Moriarty and Mr. Sabatino. Mr. Moriarty and Mr. Sabatino’s opening remarks focused primarily on the claim that the proposed transaction would allow the companies to put consumers at the center of healthcare, and provide more efficient preventative care on a local, community-based level.

The Subcommittee’s questions for the first panel focused on the overall effect of the proposed transaction, such as the effect on competition in the marketplace, the opioid epidemic, consumer access to preventative care, and consumer costs. The panel claimed that the proposed transaction would be an open source model, and neither CVS Health nor Aetna would be the exclusive provider of services for the other. The panel supported its position by explaining that for the companies to have the breadth of services over a large geographical area, exclusivity would not be beneficial. Additionally, the panel claimed that the proposed transaction would lower healthcare costs for consumers because CVS MinuteClinics, through Aetna, would be able to expand the services being offered, and give consumers without primary care physicians an alternative to expensive emergency rooms. However, when the Subcommittee expressed concern about CVS MinuteClinics replacing hospitals, the panel explained that MinuteClinics lack such ability because they are unable to provide all emergency room services. The panel further explained that the proposed acquisition could potentially cut healthcare costs for consumers by lowering health insurance premiums and copays through a more efficient use of generic drugs over brand names. Finally, the panel explained that the proposed transaction could potentially help the opioid epidemic by further limiting the quantity of opioids being prescribed at any one time, and helping to provide better education to high-prescribing physicians of the opioid epidemic.

Following the first witness panel, the second witness panel consisted of Dr. Garthwaite, Dr. Wu, Mr. Slover and Mr. Manne, each an expert in economics and health policy. The Subcommittee’s questions to the second panel focused on what potential effects the proposed transaction would have on consumer costs and anti-competitive activities of the companies. The opening remarks of the majority of the witnesses focused primarily on explaining that the proposed transaction is an attempt by the companies to address the ever-evolving healthcare marketplace. However, Mr. Slover’s opening remarks expressed skepticism of the benefits that consumers would receive from the proposed transaction.

When asked whether the proposed transaction would help drive down drug prices, the panel explained that such an effect is possible because the companies would no longer have the incentive to artificially inflate the list price of prescription drugs, and drug delivery costs would decrease.

When asked whether there may be antitrust problems with the proposed transaction, the majority of the second panel explained that it did not expect any antitrust issues to arise. The second panel further explained that the proposed transaction is merely an option by the companies to combat the emerging healthcare marketplace. Mr. Slover did explain that, in his opinion, it is possible for antitrust issues to arise if the companies favor in-house operations by granting exclusivity to each other. Additionally, Mr. Slover also explained that he believes that if the proposed transaction fails to survive the antitrust probe, Aetna will most likely attempt to enter the PBM marketplace on its own and become an additional competitor.

Although the hearing has shed some light on the many aspects of the proposed CVS Health-Aetna acquisition that are under legislative consideration, it is still unclear whether the proposed transaction will survive antitrust scrutiny. However, if we are to believe what appears to be a developing common belief amongst the healthcare news media[7], it appears that the conventional wisdom is predicting green lights ahead.

[1] House of Representatives, Judiciary Committee (;

[2] Others include: (i) “CVS/Aetna Merger Received Warmly at House Hearing” by Joyce Frieden, News Editor, MedPage Today, February 28, 2018 (; and (ii) “House Antitrust Chair Encouraged by CVS/Aetna Testimony,” by Charles McConnell, Global Competition Review, February 28, 2018 (

[3] Drug Channel Institute, “The Top 15 U.S. Pharmacies of 2017: Market Shares and Key Developments For The Biggest Companies,” by DCI, February 21, 2018 (

[4] CVS Health-Aetna Acquisition Announcement (

[5] Aetna Facts (

[6] House of Representatives, Judiciary Committee (;

[7] This observation is exclusively based upon the editor’s general impressions of news reporting and commentary unscientifically sampled through search results derived through multiple internet search engines.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sheppard Mullin Richter & Hampton LLP | Attorney Advertising

Written by:

Sheppard Mullin Richter & Hampton LLP

Sheppard Mullin Richter & Hampton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.