Federal Court Extends Tunney Act Review to Embrace Mini-Trial on DOJ Settlement of CVS-Aetna Merger

In a rather extraordinary move, United States District Court Judge Richard J. Leon has ordered a mini-trial to determine whether the  U.S. Department of Justice (“DOJ”) settlement green-lighting the merger of CVS Health and Aetna is in the public interest.

To date, no federal court has ordered a Tunney Act hearing with testimony from various concerned non-parties.  While it remains to be seen whether the Judge Leon’s hearing in the U.S. District Court for the District of Columbia will derail the proposed settlement of the CVS-Aetna merger, the court’s active review may pave the way for more aggressive challenges of DOJ settlements.

Background on the Tunney Act

Passed in 1974 and then amended in 2004, the Antitrust Procedures and Penalties Act, commonly referred to as the Tunney Act, requires that the United States government file any proposal for a consent judgement of any antitrust matter within 60 days with the district court where the matter is presiding.  During that 60-day period, in addition to a public comment period through the Federal Register, a federal court must review and consider if the consent judgement is “in the public interest.”  In making that determination, the court shall review any “competition consideration bearing upon the adequacy of such judgment,” including “competitive impact,” “provisions of enforcement and modification,” and “duration of relief sought.”

Importantly, the Tunney Act provides the court significant discretion on the procedural review.  Under the law, a court can:  (1) take testimony of Government officials or non-party experts; (2) appoint a special master to review the settlement; (3) authorize participating in proceedings by amici curiae or allow intervention by a party; (4) review all comments and objections that were filed; or (5) “take such other action in the public interest as the court may deem appropriate.”

There has been limited meaningful review under the Tunney Act.  Prior to the law being amended, Judge Stanley Sporkin of the D. C. District Court reviewed and analyzed a settlement between DOJ and Microsoft concerning various alleged antitrust violations.  In rejecting the settlement, Judge Sporkin noted that DOJ failed to provide “essential information” to assist the court in making “its public interest finding.”  Ultimately, the United States Court of Appeals for the District of Columbia reversed that decision and remanded the case to a different district court judge.  On the other hand, third parties, including the American Antitrust Institute, were able to persuade a Massachusetts state court judge to block a settlement agreement involving the merger of two hospitals in Boston.  While the matter did not fall under the Tunney Act, commenters invoked its “public interest” standard to the state court.

CVS and Aetna Settlement

At the end of 2018, DOJ approved the $69 billion merger of CVS and Aetna—creating a healthcare entity that combines CVS’s pharmacies, clinics, and pharmacy benefit manager (“PBM”) with a leading national health insurer.  As a condition to its approval, DOJ required that Aetna divest its Medicare Part D Prescription Drug Plans to a rival, WellCare Health Plans, to ensure continuing competition in the Part D space.

In response to the proposed settlement, numerous groups raised concerns, including the American Medical Association, U.S. Public Interest Research Group, and the AIDS Healthcare Foundation.  In particular, the AMA not only alleged harm to competition due to consolidation in the Part D space, but also argues that the merger will further consolidate the PBM services market and could cause vertical harm by increasing barriers to market entry and foreclosing competitors.  Judge Leon appears to have been persuaded by the public comments and concerns raised by various parties.  When pushed by DOJ to approve the settlement, Judge Leon even indicated that the “court is not a rubber stamp.”  As a result, Judge Leon has ordered a Tunney Act hearing in mid-May and has permitted various third parties to testify on the impact of the merger.  The DOJ and the merging parties are currently seeking to limit that testimony, but it remains likely that Judge Leon will allow some of the parties’ expert witnesses to testify.

Conclusion

Judge Leon’s embracement of the full power of the Tunney Act’s review provisions may create a future opening for concerned third-parties to challenge antitrust settlements by the federal government.  While impacted parties typically discuss their concerns with the reviewing antitrust enforcer, the Tunney Act provides an additional path for parties to consider when challenging a merger.

Edited by Gary J. Malone

Tagged in: Antitrust Enforcement, Antitrust Litigation,