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September 27, 2019

District Court Approves CVS/Aetna Final Judgment After Evidentiary Hearing


On September 4, 2019, Judge Richard Leon of the US District Court of the District of Columbia granted the Department of Justice's (DOJ) motion to enter its Proposed Final Judgment approving the CVS-Aetna merger. The proposed settlement, first filed with the court in October 2018, attracted significant judicial scrutiny under the Tunney Act, which requires judicial review of proposed DOJ settlements. As part of the review process, the court held a two-day evidentiary hearing, allowing witnesses from third-party organizations to argue against the merger and proposed settlement.

This case involved a departure from typical antitrust settlement procedures under the Tunney Act. But although it is not typical for a judge to hear argument in a Tunney Act proceeding (let alone hear witnesses), the CVS/Aetna transaction is not the first DOJ settlement that has attracted Judge Leon's close attention. In 2011, Judge Leon reviewed the Comcast/NBCU merger, and at his request, DOJ modified the proposed consent decree in that case to allow the court additional oversight through the life of the decree.1 While DOJ will need to be prepared for future in-depth Tunney Act reviews, we do not expect DOJ to change its approach to merger reviews or consent decrees.

CVS/Aetna Merger Background

On December 3, 2017, CVS agreed to acquire Aetna for $69 billion. CVS offers retail pharmacy services, pharmacy benefit management (PBM) services (through its Caremark brand), and prescription drug plans (PDPs). Aetna was a health insurance and PDP provider.2 After ten months of review, DOJ conditionally approved the transaction in October 2018.3 DOJ's investigation focused on an alleged horizontal overlap between the two parties in providing individual PDPs.4 DOJ alleged that the combined company's share would range from 35-53.5% in 12 regions across the country.5 To resolve DOJ's concerns, the companies agreed to divest Aetna's individual PDP business to health insurance company WellCare Health Plans, Inc.6

The transaction also presented several potential vertical issues, as other health insurance companies used CVS's retail pharmacy and PBM services before the transaction.7 DOJ investigated these potential vertical concerns, but ultimately determined that the vertical issues were not likely to substantially lessen competition.8 

As part of the standard Tunney Act process, DOJ filed a complaint and the proposed settlement in the US District Court for the District of Columbia. The case was randomly assigned to Judge Richard Leon, who indicated that he would be taking a careful look at the transaction and proposed settlement under the Tunney Act process.9

Tunney Act Background and Notable Cases

The Antitrust Procedures and Penalties Act, more commonly known as the Tunney Act, was enacted in 1974 as a reaction to the appearance of impropriety that surrounded DOJ settlement proposals, notably claims during Watergate that the Nixon administration had settled merger challenges in return for campaign contributions.10 The Tunney Act was designed to prevent future impropriety by: (1) requiring public notification of a consent decree and supporting materials; (2) giving third parties the opportunity to comment on the proposed consent decree within 60 days of notification; and (3) requiring a court to conduct an independent review of the consent decree submitted by DOJ.11 In 2004, Congress amended the Tunney Act to mandate the reviewing court to examine the Tunney Act's enumerated factors when determining the consent decree's impact on the market and the public interest.12 The amended Tunney Act also requires courts to consider any impact the consent decree may have on "competition in the relevant market or markets."13

Courts routinely review DOJ antitrust settlements under this standard. Over the years, some antitrust settlements have attracted greater judicial scrutiny than others. Notably, in the 1990s, the DC Circuit Court of Appeals overturned the district court's denial of DOJ's motion for entry of a consent decree resolving allegations of anticompetitive conduct by Microsoft.14 The district court judge expressed concern that DOJ had failed to investigate other behavior by Microsoft, not covered by DOJ's complaint. The district court held a hearing on the settlement and allowed a trade organization and several third-party companies to participate.15 Ultimately, the district court denied DOJ's motion for entry of the consent decree, taking issue with the procedure DOJ used to investigate, the scope of the decree itself, the effectiveness of the proposed remedy, and the perceived lack of any compliance mechanism in the decree.16 The DC Circuit overturned the district court's ruling, finding that the lower court overreached in its evaluation of claims that the government did not advance in the complaint. The DC Circuit held that: "[t]he court's authority to review the decree depends entirely on the government's exercising its prosecutorial discretion by bringing a case in the first place."17 Accordingly, the court held that while a reviewing court "can and should" inquire into the purpose, meaning, and efficacy of a consent decree,18 the Tunney Act does not give authorization for a district judge to investigate DOJ's decision-making process in bringing charges. However, the court did note that a reviewing court could reject a settlement that appeared to be "a mockery of judicial power."19

Since the Microsoft review, a few antitrust settlements involving mergers have attracted close scrutiny of the reviewing court. In some cases, courts have sought additional information from DOJ and the merging parties, and even invited third parties to submit filings on the merger and proposed settlement.20 In other cases—most notably a 2011 merger, also reviewed by Judge Leon—DOJ has modified its proposed settlement to add compliance and reporting obligations to allow the court to monitor the effectiveness of DOJ's decree even after approving the settlement.21

CVS/Aetna Merger Tunney Act Review

CVS and Aetna closed their transaction soon after DOJ filed the complaint and Proposed Final Judgment (as permitted by the parties' agreement with DOJ) and the parties completed the divestiture to WellCare,22 but the court expressed concern that the parties might integrate their businesses before the Tunney Act review was completed.23 In response, CVS and Aetna proposed several steps to hold their businesses separate for the pendency of the review to attempt to address the court's concerns.24

As part of the Tunney Act review, DOJ received, and responded to, public comments on its Proposed Final Judgment and Competitive Impact Statement after publication in the Federal Register. The court's Memorandum Opinion stated that DOJ's response "left much to be desired" and was "rife with conclusory assertions that merely reiterate the Government's confidence in its proposed remedy."25 Ultimately, in his words, "rather than risk an uninformed public interest determination," Judge Leon decided to hold an evidentiary hearing on the proposed final judgment, "designed to assist the Court in evaluating the public record."26

This hearing was held in June 2019, and the court invited third parties the American Medical Association, AIDS Healthcare Foundation, U.S. PIRG, and Consumer Action to provide witness testimony.27 The witnesses raised a variety of concerns related to the transaction, including that: the combined company would raise prices to competing pharmacies or exclude them from certain insurance plans; the recent consolidation in the healthcare industry created incentives for the combined company to increase prices; and DOJ's proposed settlement (the divestiture of Aetna's PDP business to WellCare) would increase PDP market concentration, leading to higher prices. Witnesses for DOJ and the merging parties28 rebutted these concerns, touting the benefits of the proposed merger and the ability of the proposed settlement to ameliorate any alleged competitive harms. On July 19, 2019, the court concluded by allowing amici, DOJ, the parties, and representatives from plaintiff states who joined the DOJ settlement29 to reiterate their legal and substantive arguments regarding the proposed final judgment.

On September 4, 2019, Judge Leon granted DOJ's motion for entry of the Proposed Final Judgment, approving the proposed settlement.30 Ultimately, the court was satisfied that the transaction, as modified by the divestiture, was "within the reaches of the public interest."31 The court noted that "if the Tunney Act is to mean anything, it surely must mean that no court should rubberstamp a consent decree . . . simply because the Government requests it!"32 Although Judge Leon acknowledged that the Tunney Act does not permit a court to reach "beyond the complaint to evaluate claims that the government did not make,"33 he concluded that the Tunney Act did not allow DOJ to "force the Court to shut its eyes to the real-world impact of a proposed judgment," simply by drafting a narrow complaint.34


While the court's extensive review of the CVS/Aetna consent decree was not typical, the review of the proposed settlement offers several important takeaways for companies considering transactions that might raise antitrust scrutiny.

For most mergers, the CVS/Aetna decision does not signal a departure from established procedures

Judge Leon has now made clear on multiple occasions that he will not "rubber stamp" proposed merger settlements before him as part of the Tunney Act process. It remains to be seen whether other district judges will adopt the evidentiary hearing process used in CVS/Aetna. But this case has put DOJ on notice that greater judicial scrutiny is a possibility—especially if Judge Leon is reviewing the proposed settlement.

Following the CVS/Aetna decision, DOJ officials expressed concern that this type of Tunney Act review might have an effect on DOJ's review of a proposed merger. As Deputy Assistant Attorney General Barry Nigro noted, if the agency believes that it must "now have to effectively litigate a mini-trial in a case we didn't bring, you can say goodbye to the quick look because we can't not look at everything if we're going to have to defend it."35 Despite these concerns, merger reviews at the DOJ likely will not be substantially affected by the CVS/Aetna case.

DOJ will defend its settlements and would likely appeal a court's decision that rejects a proposed settlement

Through the court's review of the CVS/Aetna transaction, DOJ frequently critiqued what it described as the court's "far-ranging review" that "expanded to focus on concerns not shared by the Executive Branch and not included in the United States' complaint."36 DOJ argued that the court's process "compromised the United States' constitutionally protected prosecutorial discretion" and interfered with its "ability to manage its resources."37 As in CVS/Aetna, DOJ is likely to continue to defend its proposed settlements aggressively in court, and contest any judicial review that it views as second-guessing DOJ's prosecutorial discretion.

Courts since Microsoft have rarely attempted to modify or amend DOJ settlements. (When public comments reveal issues with a consent decree—such as assets missing from a divestiture package or other flaws in a remedy—DOJ will sometimes seek the parties' consent to an amendment to the decree.) Although, as noted above, Judge Leon added a reporting requirement in the Comcast/NBCU case, this addition technically did not change the substance of the proposed final judgment.38 Accordingly, a reviewing court's real power rests in its ability to reject a settlement. If this occurs, it seems very likely that DOJ would appeal such a decision, in an effort to preserve its discretion to investigate—and settle—merger challenges.

Even if merging parties reach a settlement with DOJ or FTC, arguments about the transaction's efficiencies and pro-competitive benefits remain important

The CVS/Aetna review also underscores the importance of developing strong themes about a proposed merger's pro-competitive benefits. At the outset of the Tunney Act proceedings, the merging parties touted the benefits of combining CVS's "healthcare services expertise and local presence" with Aetna's "medical expertise and predictive analytics" to provide better patient outcomes and lower medical costs.39 Later in the process, the parties were able to provide an update on the realization of some of these benefits, noting, for example, the launch of CVS's "hospital-readmission-prevention program" and pilot "HealthHUBs" in Houston to improve care to individuals with chronic disease.40 Companies considering mergers or acquisitions should be sure to quantify and document any pro-competitive efficiencies associated with the transaction—such arguments are often of interest to DOJ in its initial review, but might also be helpful if the reviewing court has questions about the benefits of a proposed merger settlement.

* The authors would like to thank 2019 Summer Associate Alyssa Gerstner for her research and drafting assistance.

© Arnold & Porter Kaye Scholer LLP 2019 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

  1. U.S. et al. v. Comcast Corp. et al., 808 F. Supp. 2d 145, 149-50 (D.D.C. 2011).

  2. Complaint ¶ ¶15-16, U.S. et al. v. CVS Health Corp., et al., 1:18-cv-02340 (D.D.C. Oct. 10, 2018) {hereinafter CVS Complaint}.

  3. Press Release, Dep't of Justice, Justice Department Requires CVS and Aetna to Divest Aetna's Medicare Individual Part D Prescription Drug Plan Business to Proceed With Merger (Mar. 5, 2018).

  4. CVS Complaint.

  5. CVS Complaint ¶34; Competitive Impact Statement, at 5, U.S. et al. v. CVS Health Corp., et al., 1:18-cv-02340 (D.D.C. Oct. 10, 2018).

  6. {Proposed} Final JudgmentU.S. et al. v. CVS Health Corp., et al., 1:18-cv-02340 (D.D.C. Oct. 10, 2018) {hereinafter CVS Proposed Final Judgment}.

  7. Questions and Answers for the General Public, Dep't of Justice, at 5 (Oct. 10, 2018).

  8. United States Supplemental Brief in Support of Entry of the Proposed Final Judgment, U.S. et al. v. CVS Health Corp., et al., 1:18-cv-02340 (D.D.C. June 21, 2019). DOJ determined that CVS would not be able to profitably raise prices for its pharmacy or PBM services (even if Aetna attempted to offset CVS's losses by capturing additional insurance customers). DOJ also noted that post-merger, there would still be significant competition to CVS/Aetna from other retail pharmacies and PBMs. Id.

  9. Transcript of Motions Hearing Before the Honorable Richard J. Leon, U.S. et al. v. CVS Health Corp., et al., 1:18-cv-02340 (D.D.C. Nov. 29, 2018).

  10.  See 119 Cong. Rec. 24,598 (1973) (statement of Sen. Tunney).

  11. 15 U.S.C. §§ 16(b); 16(d); 16(e) (2018).

  12. Pub. L. No. 108-237, 118 Stat. 661 (2004) (codified at 15 U.S.C. §16) (these include "the competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration of relief sought, anticipated effects of alternative remedies actually considered, whether its terms are ambiguous, and any other competitive considerations bearing upon the adequacy of such judgment that the court deems necessary to a determination of whether the consent judgment is in the public interest").

  13. Id.

  14. United States v. Microsoft Corp., 56 F.3d 1448, 1461–62 (D.C. Cir. 1995).

  15. Id. at 1453.

  16. United States v. Microsoft Corp., 159 F.R.D. 318, 332-336 (D.D.C. 2011), rev'd, 56 F.3d 1448 (D.C. Cir. 1995).

  17. United States v. Microsoft Corp., 56 F.3d 1448, 149–59 (D.C. Cir. 1995)

  18. Id. at 1462.

  19. Id. (emphasis added).

  20. See, e.g.United States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1 (D.D.C. 2007).

  21. U.S. et al. v. Comcast Corp. et al., 808 F. Supp. 2d 145, 148 (D.D.C. 2011).

  22. DOJ did not object to CVS's integration of the remaining Aetna business, as the company had already completed the divestiture to WellCare. Status Report on Merger Integration, at 1-2, U.S. et al. v. CVS Health Corp., et al., 1:18-cv-02340 (D.D.C. Dec. 2, 1018).

  23. Transcript of Motions Hearing Before the Honorable Richard J. Leon, United States Senior District Judge, U.S. et al. v. CVS Health Corp., et al., 1:18-cv-02340 (D.D.C. Nov. 29, 2018).

  24. CVS Health Corporation's Memorandum in Response to the Court's December 3, 2018 Order to Show Cause, at 15, U.S. et al. v. CVS Health Corp., et al., 1:18-cv-02340 (D.D.C. Dec. 14, 2018). These steps included: (1) operating Aetna's health insurance business as a separate and distinct unit from CVS retail pharmacy and pharmacy benefit management services; (2) allowing Aetna to maintain control over pricing and products offered; (3) retaining current compensation and benefits for Aetna personnel; and (4) implementing a firewall between CVS Health and Aetna.

  25. Memorandum Opinion, at 5, U.S. et al. v. CVS Health Corp., et al., 1:18-cv-02340 (D.D.C. Sept 4, 2019) {hereinafter CVS Memorandum Opinion}.

  26. Id. at 7.

  27. Dr. Sood, a professor of health policy and economics at the Sol Price School of Public Policy at U.S.C. spoke on behlf of AMA; Dr. Wohlfeiler, the Chief Medical Officer at the AIDS Healthcare spoke on behalf of AIDS Healthcare; and Dr. Moss, president of American Antitrust Institute, spoke on behalf of Consumer Action and U.S. PIRG.

  28. Dr. Lawrence Wu, president of NERA Consulting; Dr. Alan Lotvin, Executive Vice President and Chief Transformation Officer at CVS Health; and Ms. Terry Swanson, Vice President of Medicare Part D Business at Aetna, spoke on behalf of CVS.

  29. The states who joined DOJ's complaint and proposed settlement were California, Florida, Hawaii, Mississippi, and Washington.

  30. CVS Memorandum Opinion.

  31. Id. at 21.

  32. Id. at 2.

  33. Id. at 10.

  34. Id. at 12.

  35. Principal Deputy Assistant Attorney General Barry Nigro, "2019 Global Antitrust Enforcement Symposium" Georgetown University Law School, Washington D.C. (Sept. 10, 2019).

  36. United States Supplemental Brief in Support of Entry of the Proposed Final Judgment, U.S. et al. v. CVS Health Corp., et al., 1:18-cv-02340, (D.D.C. June 21, 2019).

  37. Id. See also, Motion of the United States to Limit the Scope of the Tunney Act Hearing and Exclude Irrelevant and Undisclosed Testimony, at 6-7,U.S. et al. v. CVS Health Corp., et al., 1:18-cv-02340 (D.D.C. Apr. 29, 2019).

  38. U.S. v. Microsoft, at 1462 ("If the decree is ambiguous, or the district judge can foresee difficulties in implementation, we would expect the court to insist that these matters be attended to.").

  39. CVS Health Corporation's Memorandum in Response to the Court's December 3, 2018 Order to Show Cause, at 15, U.S. et al. v. CVS Health Corp., et al., 1:18-cv-02340 (D.D.C. Dec. 14, 2018).

  40. CVS's Post-Hearing Brief In Support of Entry of Proposed Final Judgment, U.S. et al. v. CVS Health Corp., et al., 1:18-cv-02340 (D.D.C. June 21, 2019).