WASHINGTON — A federal judge on Tuesday doubled down on his hesitation to approve the merger settlement between CVS Health and Aetna, asking the combined companies to take steps to keep some operations distinct while he completes his review.
Judge Richard J. Leon, of the United States District Court in the District of Columbia, stopped short of an attempt to block the $69 billion merger, but he reiterated his concerns over the Justice Department’s approval of the combination. He went on to scold the government’s lawyers for being “hostile to the role of the federal courts” in looking after the public’s interest, telling them they “would do well to re-evaluate the tone with which you address this court.”
Judge Leon proposed assigning a government monitor to ensure the two companies remain separate, and he urged them to take steps to “preserve the ability to unwind CVS’ acquisition of Aetna in the event an unwinding is necessary.”
CVS Health, one of the nation’s largest pharmacy benefit managers, has pitched its acquisition of Aetna, the giant health insurance company, as a way to offer patients better coordinated and more efficient care. But consumer groups and others have criticized the deal, saying it would create a powerful entity that would stifle competition and harm consumers.
While the judge continues his review, the lawyers for the companies agreed to operate Aetna’s health insurance business separately, with Aetna retaining control over what it sells and its prices. The insurance company had agreed to sell off its Medicare drug plans.
Aetna employees will keep their compensation and benefits, and CVS will maintain a firewall to prevent the exchange of competitively sensitive information. The companies said they would respond to the judge’s request for monitoring later this week.
At the hearing, Judge Leon again emphasized his concerns that the Justice Department had not challenged the merger forcefully enough, telling government lawyers that their conduct had been “tone deaf” and “unnecessarily defensive.” He said he needed time to review public comments on the settlement, citing earlier objections from groups like the American Medical Association.
Judge Leon previously expressed concern that the government had not sufficiently explored the potential competitive harm in the deal, saying the government’s complaint addressed “about one-tenth of 1 percent” of the deal.
Exactly how far Judge Leon can go to block the merger depends on an interpretation of the Tunney Act, a federal law that requires the Justice Department to seek approval from a federal court for a settlement after it has addressed key issues with the merging companies. The Justice Department argued that the Tunney Act did not grant the judiciary the power to force the Justice Department to scrutinize aspects of the merger that it did not find troublesome.
Judge Leon balked at the notion, saying the parties involved should not expect the court to serve as a “rubber stamp” on the agreement, and that such an approach would “make a mockery of judicial power.” He expressed surprise that the two parties had prepared to integrate assets before the court had made a final ruling — a practice that experts say is relatively standard.
Legal experts say it would be very unusual for a federal judge to suspend a merger that had already been approved by the Justice Department; courts sometimes ratify the agreements even without a hearing.
But Judge Leon, who was nominated by President George W. Bush, has been outspoken in antitrust cases. In June, he rejected the government’s challenge to the merger involving AT&T and Time Warner.
In an email after the court hearing, T.J. Crawford, a spokesman for the pharmacy chain, said: “CVS Health and Aetna are one company, and our focus is on transforming the consumer health experience.”
Reed Abelson contributed reporting from New York.
