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Proposed CVS Health-Aetna Acquisition Holds Strong in Congressional Hearing

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).[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.

Copyright © 2018, Sheppard Mullin Richter & Hampton LLP.


About this Author

Jeralin Cardoso, Sheppard Mullin Law Firm, San Diego, Corporate Law Attorney

Jeralin represents public and private companies in a variety of industries.  Her practice encompasses general corporate and securities matters, including mergers and acquisitions, debt and equity financing, venture capital, business formation and structuring, public securities offerings and general corporate governance.

Jeralin has experience representing a wide variety of healthcare-related clients in California and nationally.