Will Antitrust Review of CVS/Aetna Shed Additional Light on Vertical Theories?
According to press reports, CVS/Caremark’s proposed $66 billion acquisition of Aetna is at the Department of Justice Antitrust Division (DOJ) for antitrust review, as opposed to the Federal Trade Commission (FTC). Under our bifurcated system of antitrust review, both agencies theoretically could have made a claim for the deal. The FTC historically has reviewed transactions involving retail pharmacies (such as the transactions last year involving Walgreens and Rite-Aid), as well as deals involving pharmacy benefit management, or PBM, firms. DOJ, by contrast, historically reviews health plan transactions, as demonstrated by its recent successful challenges to the proposed combinations of Anthem/Cigna and Aetna/Humana. The current deal involves CVS/Caremark, which operates both one of the nation’s two largest retail pharmacy chains and one of the two largest PBMs in the country, and Aetna, which is a major national health plan. Given that the deal touches on industries typically reviewed by both agencies, it was unclear which agency would prevail and get the opportunity to conduct the review. It appears DOJ won out.
Assuming the deal is in fact at DOJ, it will be interesting to see whether the Antitrust Division finds an issue with the transaction. The deal apparently presents some horizontal overlaps, as both parties offer Medicare Part D plans. But the core of the deal is vertical: Aetna’s health plan and CVS’s PBM. For most of the last 50 years, a deal presenting only (or predominantly) vertical issues would be extremely unlikely to draw much interest from DOJ, much less a challenge. There’s little reason to think that under the historical approach this deal would present an antitrust concern. But given the DOJ’s recent challenge to the vertical AT&T/Time Warner transaction, one could reasonably ask whether the parties in CVS/Aetna are in for a fight. Only time will tell if DOJ’s interest in vertical theories of harm extends beyond deals involving the entertainment industry, where in the past they have partnered with the FCC to impose regulatory conditions. At a minimum, DOJ’s response to the CVS/Aetna tie-up may help give the public clarification on its thinking on vertical mergers.