Express Scripts and Medco combined to form the country's largest pharmacy benefits manager, but pharmacy associations continue their fight against the merger.
Express Scripts and Medco combined to form the country’s largest pharmacy benefits manager, but pharmacy associations continue their fight against the merger.
Express Scripts Inc completed its $29.1 billion acquisition of Medco Health Solutions yesterday after winning unconditional approval from the Federal Trade Commission (FTC), which had conducted an 8-month investigation into the proposed merger of 2 of the country’s 3 largest pharmacy benefits managers (PBMs).
"Our merger is exactly what the country needs now," George Paz, chairman and chief executive officer of Express Scripts, said in a statement. "It represents the next chapter of our mission to lower costs, drive out waste in health care and improve patient health.”
The FTC approved the merger despite intense opposition from organizations representing pharmacists and pharmacies, which argued that it would reduce patient access to community pharmacies and reduce competition for a number of services provided by PBMs. In fact, the National Association of Chain Drug Stores (NACDS), the National Community Pharmacists Association (NCPA), and 9 retail pharmacy companies filed a federal lawsuit last week to block the merger. This suit and other efforts opposed to the merger are expected to continue.
FTC: Merger Unlikely to Have Anticompetitive Effects
The FTC voted 3 to 1 to end its investigation into the merger. The majority concluded that, although the merged company would become the largest PBM in the country with a market share of just over 40%, the merger is unlikely to hinder competition and may actually increase it. It rejected the argument that the merger would effectively produce a duopoly, with Express Scripts-Medco and CVS Caremark dominating the PBM market, pointing out that there are at least 10 other significant competitors. It also observed that Express Scripts and Medco serve different segments of the PBM market, so their merger is unlikely to produce anticompetitive effects.
The majority also found little likelihood that the merged company would attain monopoly power in negotiating dispensing fees with retail pharmacies. The merged company, it noted, would control 29% of retail pharmacy prescription sales, below the threshold considered necessary for the exercise of monopoly power. In addition, the majority found little relationship between PBM size and reimbursement rates paid to retail pharmacies. Moreover, the majority noted that if reimbursement rates were reduced, there was little evidence this would result in reduced pharmacy services and a high likelihood that savings would be passed on to customers, resulting in lower health care costs for consumers. The majority also rejected arguments that the merged company, which would have a specialty pharmacy market share of approximately 30%, would demand more exclusive distribution arrangements from manufacturers of specialty pharmacy products.
In a dissent from the majority, FTC Commissioner Julie Brill argued the commission should have blocked the merger and taken it to a federal court to conduct a full trial and rule on its merits. Brill pointed out that the sheer size of the merged company—more than 5 times larger than the third largest firm after the merger— and the danger that the merger will produce higher prices in the future provided enough reason to take action against it. She was unconvinced that new PBMs will be able to enter the market and pose appreciable competition to Express Scripts-Medco and CVS Caremark. Along with FTC Chairman Jon Leibowitz, Brill proposed some limitations on the merged company’s ability to “engage in certain forms of exclusionary conduct,” but these did not win the support of other commissioners. In closing, Brill proposed that the FTC conduct an analysis in 3 years to determine whether the merger does in fact lead to lower prices.
NACDS, NCPA Vow to Continue Fight Against Merger
In a joint statement, the NACDS and NCPA expressed their disappointment at the FTC’s decision to allow the merger without conditions. They vowed to continue the lawsuit that they filed against it on March 29, 2012, in the US District Court for the Western District of Pennsylvania, announcing plans to file a motion requesting that Express Scripts and Medco be required to keep their assets separate pending the outcome of the lawsuit or that the case be expedited.
“This merger would create a huge new middle man that stands between patients and their pharmacies, between patients and the medications they need,” said Don Bell, NACDS senior vice president and general counsel, in a conference call with reporters announcing the lawsuit last week.
The complaint in the suit identifies a number of ways in which the merged company could abuse its power: It could use its control over prescriptions for a large portion of patients to force community pharmacies to accept reimbursement levels below a competitive level. It could force insurance plans to accept terms that drive patients to use its proprietary mail-order and specialty pharmacies rather than community pharmacies. It could push patients to use brand-name drugs (due to arrangements with their manufacturers), whereas community pharmacies favor generic drugs, which help control costs. It could define certain drugs that community pharmacies are capable of providing as specialty drugs and require patients to get them from the PBM’s specialty pharmacy. And, ultimately, it could raise prices and reduce quality of service and choice for patients.
The complaint also describes the effect the merger could have on the retail pharmacy companies that have joined it. For example, it notes that a combined Express Scripts-Medco would control approximately 60% of the prescriptions filled in the 5 Western Pennsylvania retail pharmacies owned by Professional Specialized Pharmacies. If the merged PBM offered noncompetitive or below-cost prices for its retail pharmacy services, the complaint notes, Professional Specialized Pharmacies would be forced to agree or lose access to the majority of its consumer base. As a result of the reduced reimbursement, the company would be forced to reduce its services or even close down.
Check out our previous coverage of the Express Scripts—Medco merger: