Healthcare groups warn against Express Scripts/Medco merger

July 22, 2011

The merger of 2 of the biggest pharmacy benefit managers (PBMs), Express Scripts and Medco Health Solutions, has been top of mind with industry stakeholders who are wondering how the PBM space will shake out moving forward.

The merger of 2 of the biggest pharmacy benefit managers (PBMs), Express Scripts and Medco Health Solutions, has been top of mind with industry stakeholders who are wondering how the PBM space will shake out moving forward.

Express Scripts and Medco announced July 21 that they have entered into a definitive merger agreement for $29.1 billion in cash and stock. The merger will combine the expertise of 2 PBMs to accelerate efforts to lower the cost of prescription drugs and improve the quality of care for Americans, according to the 2 companies.

Express Scripts and Medco believe the transaction will deliver value to clients and their members, shareholders, and other stakeholders by creating more efficiency in the supply chain, enhancing mail pharmacy technology to optimize patient care and satisfaction, and continuing to advance evidence-based and safety solutions for innovation.

This deal surpasses the $21-billion CVS/Caremark merger in 2007. CVS/Caremark has been under fire by federal agencies and consumer groups accusing the industry giant of anticompetitive behavior.

The National Community Pharmacists Association (NCPA) and National Association of Chain Drug Stores (NACDS) want the Express Scripts/Medco merger blocked.

In an NCPA statement, Executive Vice President and CEO B. Douglas Hoey, RPh, MBA, said that Congress and the Federal Trade Commission "should reject this proposed merger . . . and should not overlook the near-monopoly it would establish in certain regions of the country and in the national mail-order market-both for traditional and specialty drugs."

Hoey called the combination of 2 of the top 3 PBMs "troubling enough" and said that an Express Scripts/Medco company would dominate the market in certain parts of the country and effectively eliminate competition.

However, Express Scripts spokesman Brian Henry told Drug Topics that independent pharmacies manage 25% of its overall volume. "They are a critical component of the delivery of care, especially in rural markets. We will continue to support the growth and expansion of independent pharmacies in our networks," Henry said. "We currently allow independent pharmacies to negotiate group agreements."

Henry added that more than 80% of independent pharmacies provide to provider series administrative organizations, which collectively contract on behalf of their members. "These organizations operate within the safe harbors of federal and state antitrust laws that prohibit anticompetitive behavior by pharmacies," he said.

While NCPA believes that the choice between a community pharmacy and mail order should reside with the patient, those who opt for mail order deserve choice and competition, too, Hoey said in the statement. He cited 2011 Atlantic Information Systems data that showed that combining their mail-order facilities would concentrate 59% of the mail-order market in 1 company.

In 2009, the combined specialty drug market share for Express Scripts and Medco was 52%.

"My biggest concern as a person that represents employers is that the merger decreases competition in the PBM market, which usually isn't good for employers looking to get the most value from their PBM," said Laurel Pickering, MPH, executive director of the Northeast Business Group on Health, a network of employers, health providers, and insurers in New York, New Jersey, Connecticut, and Massachusetts.

"Anytime you decrease competition in the market, it reduces the incentives companies have to provide better prices," Pickering told Drug Topics. "Hopefully the merger of the 2 companies will create an organization that takes strengths from both and delivers a best-in-class organization which serves employers better, which I am sure is one of their goals."

Another challenge that experts have discussed is the potential for service issues that could occur with the merger of 2 companies, including integration of unrelated platforms and different claims processing systems used between the 2 PBMs.

While these are legitimate reasons for concern, according to Roy Wilkinson, president of WBC, a Baltimore-based PBM consulting firm, this union could be favorable by potentially opening the door to smaller players in the PBM space.

"Some plan sponsors will now consider second-tier PBMs, such as Invision Rx [Twinsburg, Ohio], HealthTrans [Greenwood Village, Colo.], MedImpact [San Diego], and ProCare Rx [Duluth, Ga.]," Wilkinson told Drug Topics. "They will have an honest shot at what they can do and tell the marketplace that 'we're big enough to serve you and small enough to care.'"

The powerhouse merger also has industry experts mulling over what will become of Express Scripts' and Medco's respective specialty pharmacy businesses. CuraScript is a wholly owned subsidiary of Express Scripts and Accredo Health Group is a wholly owned subsidiary of Medco.

"There’s a potential for them to fold one into the other where they can cut costs through duplicated services or overhead," Wilkinson said.

In addition, the Express Scripts/Medco merger may invite Walgreens back to the negotiation table with Express Scripts. In June, the largest drugstore chain in America announced that, as of 2012, it did not intend to be a part of the Express Scripts provider network.

"With Medco in Express Scripts' fold, it could have a different dynamic in the Walgreens strategy," Wilkinson said.