Express Scripts and Medco Merger

By: Mahdieh Danesh Yazdi

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Express Scripts Inc., one of the nation’s top pharmacy benefit managers (PBMs), has announced a $29 billion deal to take over one of its top competitors, Medco Health Solutions Inc.  Medco shareholders re-approved the merger on December 21.  For finalization, it needs the approval of Express Scripts’ shareholders and the federal government.  The deal had raised concern in some corners, which saw it as stifling competition and potentially leading to higher prescription drug prices for consumers.  In fact, it raised legal issues as some thought it might even be in violation of antitrust legislation, as the combined force of both PBMs may lead to 41% control of the PBM market.  On Tuesday, December 6, 2011, the United States Senate held a hearing in the antitrust subcommittee of the judiciary committee to address the issue.  It asked experts who oppose and support the measure to offer their sides of the story.

The opponents of the bill, which include several consumer groups and pharmacy organizations, say that the merger would result in a super-powered conglomerate that would dictate prices and the types of medications that patients could receive (while leaving little room for other alternatives).  They point to the fact that, besides Medco and Express Scripts, the only PBM with a major customer base is CVS Caremark.  They argue that it would also further limit patients’ choices, as PBMs would force many of their members to use mail-order pharmacies (as opposed to traditional community pharmacies), in order to avoid additional fees and increased costs.  This will give these PBMs a greater advantage in negotiating contracts with community pharmacies that might not be able to survive further cuts in their reimbursement rates.  This would particularly hurt independent pharmacies, which do not have the same financial resources as their chain pharmacy counterparts.

The proponents of the deal argue that there would be no lack of competition once the merger happens.  They also claim that prices would not increase from their current levels (as they expect drug prices to drop), and the merger would lead to greater efficiency in the dispensing chain.  The companies also dispute the claim that consumers would no longer be able to use their neighborhood community pharmacies; they point out that, for Medco alone, 85% percent of consumers rely on community pharmacies for their medications.

The Federal Trade Commission (FTC) is also reviewing the case to determine whether it is in violation of any antitrust legislation.  Thus far, it has asked both companies to provide more information about the deal.  The Department of Justice has recently been more adamant in going after such mergers that it perceives might interfere with competition in the free market, with the prime example being AT&T’s failed bid to procure T-Mobile.  Therefore, depending on further clarification by Express Scripts and Medco, it is unknown if this merger will be approved or not.  Upon approval by the Express Scripts shareholders and the FTC, the deal will be completed by early 2012.

SOURCES:

1. Abelson, Reed and Natasha Singer. “Express Scripts-Medco Merger Raises Antitrust Concerns.” 5 December 2011. The New York Times. 25 December 2011 <http://www.nytimes.com/2011/12/06/business/tough-questions-for-express-scripts-medco-merger.html?pagewanted=all>.
2. Matthews, Anna Wilde and Thomas Catan. “FTC Presses Express Scripts on Merger with Medco.” 2 September 2011. The Wall Street Journal. 25 December 2011 <http://online.wsj.com/article/SB10001424053111904583204576546991138106086.html>.
3. PR Newswire. “NCPA Warns of Dangers of Express Scripts-Medco Merger at US Senate Hearing.” 6 December 2011. PR Newswire: United Business Media. 25 December 2011 <http://www.prnewswire.com/news-releases/ncpa-warns-of-dangers-of-express-scripts-medco-merger-at-us-senate-hearing-135112988.html>.
4. Weigley, Samuel. “Medco Shareholders Approve Merger with Express Scripts.” 21 December 2011. International Business Times. 25 December 2011 <http://www.ibtimes.com/articles/270954/20111221/medco-express-scripts-merger-shareholders-pharmacy-benefit.htm>.