U.S. District Court Judge Richard Leon surprised many on Monday when he announced he may halt the integration of CVS pharmacy’s assets with the nation’s third largest healthcare insurance company, Aetna. Usually the judicial review of a merger already approved by the Department of Justice is a mere formality, as evidenced by the fact that the companies went ahead and closed the $69 billion deal late last month, but at a hearing Monday, Judge Leon said he has concerns about the merger’s consequences for consumers.
In 1974 the Tunney Act created a 60-day comment period and gave judges the final word on whether deals struck between the merging companies and the Department of Justice were sufficient to protect consumers. While his order is well within the letter of the law, one should consider the prudence of Judge Leon’s delay. Specifically, can he, or any lawyer, regulator, or economist predict with sufficient certainty what harms or benefits might come from this (or any) merger?
Representatives from the companies have argued that by pooling their resources they’ll be able to better serve their customers. They claim that together they’ll be better able to keep patients on track with their medications and prevent costly hospital stays. Aetna chief executive said he can envision a future where the merged company could help with transportation for customers to routine medical appointments, with nutritional counseling, and with use of wearable medical devices that could alert medical staff to potential problems before they become serious.
Critics of the deal were vocal about what they foretold as the negative consequences for consumers if the merger happened. The American Medical Association (AMA) worried about higher drug prices for Medicare Part D recipients. In response, the Department of Justice brokered a deal wherein Aetna sold off its Medicare Part D prescriptions business. But the AMA still has concerns about increases in insurance premiums and out-of-pocket costs more broadly.
So with predictions of both consumer benefits and consumer harm from the same merger, who’s right?
The real answer is that no one knows for sure—only the workings of the market will tell. Innovations come from experimentation. Federal judges, Department of Justice lawyers, or Federal Trade Commission regulators are no substitute for trial and error. And the market’s answers are far more objective than those of regulators and competitors.
Perhaps there will be some mix of consequences predicted by both sides, but who better to strike the best possible outcome than those who stand to benefit the most from innovations and efficiencies? The companies’ executives who brokered the deal have the most expertise and the most skin in the game. The are closest to the price signals and the internal business decisions that will either confirm their bet or refute it. If they’re right, they’ll reap the benefits along side their customers. If they’re wrong, they’ll face the consequences of lagging revenue, falling stock value, and perhaps even extinction of the firm.
The biggest threat of blocking the merger, and of antitrust action in general, is the innovation it prevents. Better to let business leaders experiment, combine, and cooperate without threat of antitrust action hanging over their heads. When companies innovate, consumers win. When antitrust regulators win, no one’s sure what’s been lost.