After speculation that federal Judge Richard Leon could require CVS Health to have a court-appointed monitor to make certain that the company and Aetna keep their businesses separate until he issues a final judgement in the merger case, he has decided that no such monitor is required.
Instead, with the order issued late Friday, December 21, Leon ordered CVS and Aetna to operate as a separate and distinct unit from CVS retail pharmacy and pharmacy benefit manager CVS Caremark; that Aetna maintain its historical control over its pricing and product offerings; that Aetna personnel retain their current pay and benefits; and that CVS Health maintain a firewall to prevent the exchange of competitively sensitive information between the two companies.
Starting Friday, Jan. 4, CVS is required to file with the court, on a quarterly basis, a declaration certifying compliance. The judge also ordered CVS not deviate from these four measures without first providing 30 days notice and a written explanation of the reasons for the desired change.
WHY THIS MATTERS
Judge Leon's order basically follows the four steps CVS Health said it would take while the $69 billion merger is under review.
Also, CVS Health previously said that post merger, it would keep certain aspects of the companies separate, such as maintaining a firewall between its pharmacies and its PBM, CVS Caremark. Aetna would continue to operate as a stand-alone business, CVS said.
But, after the closing between the two companies on November 28, Aetna's medical information and analytics were already becoming fully integrated with CVS Health's pharmacy data for what CVS called a new model of care delivery.
The judge's order and review is not expected to affect these integration efforts. The judge said that he was satisfied that as long as the four measures remained in placed, the assets involved in the challenged acquisition will remain sufficiently separate.
The length of time it will take for the court review is unclear.
The judge's involvement adds an unexpected layer to merger proceedings.
While a federal judge has the right to review the merger under Tunney Act proceedings, exercising this right through such a rigorous process is usually procedural after the Department of Justice has approved the merger, as is the case here.
Leon has the authority to question the settlement agreement in the merger - in this case the DOJ stipulation that Aetna divest of its Part D business - but the judge cannot deny the merger outright.
Leon has expressed antitrust and anti-competitive concerns from independent pharmacies and the American Medical Association, among others.
CVS Health and Aetna have received federal and state approvals to merge and closed the $69 billion deal on November 28.
At a Tuesday, Dec. 18 hearing in the case, Judge Leon said the four steps outlined by CVS Health to keep the companies separate were appropriate.
"I therefore inquired as to whether the monitor I had already appointed in this case should additionally monitor CVS's ongoing compliance with these four steps," Leon said.
CVS Health came back with a definitive no, saying a monitor was unnecessary and that the cost would outweigh any benefits.
The court did not impose a monitor in the AT&T and Time Warner merger case, and one is not necessary here, CVS added.
"CVS reiterates that it is fully committed to assisting the court in the Tunney Act process, and it has demonstrated that commitment through its voluntary undertakings. In these circumstances, the court should accept CVS's assurances, bolstered by quarterly sworn declarations, without issuing a formal order or imposing the burdens of a monitor."
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