The already highly concentrated market shared by pharmacy benefit managers could consolidate into two powerhouses if Caremark Rx yields to Express Scripts hostile takeover bid of $26 billion.
If so, a superconcentrated PBM market could further weaken what little control providers maintain over drug formularies, an expert said.
Express Scripts of Maryland Heights, Mo., one of the nations three largest PBMs, said its proposal submitted last month represented a 15% premium over the all-stock purchase price in Caremarks proposed acquisition by CVS Corp. of Woonsocket, R.I. That deal, announced Nov. 1, 2006, would couple CVS, the nations largest retail pharmacy, with Caremark, another of the nations three largest PBMs. Medco Health Solutions is the third national player.
PBMs manage prescription drug benefits for private health plans, earning much of their revenue by negotiating rebates on large volume orders with pharmaceutical companiesa relationship that has generated much criticism in recent years.
On Dec. 20, Nashville-based Caremark announced that the waiting period required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 expired without a request for additional information, effectively giving the Federal Trade Commissions green light to the deal, which was expected to close as early as the first quarter of this year. The agreement includes a $675 million breakup fee.
Express Scripts responded in a news release that it expected a deal with Caremark would close in the third quarter of 2007. The superior value of the Express Scripts offer for Caremark is clear as evidenced by the strong support of both Express Scripts and Caremark stockholders, officials said in the release.
Previously, Caremark said it was bound by the terms of the CVS merger agreement, while CVS officials said they had not yet had an opportunity to review the Express Scripts offer. At deadline, Caremark officials had not responded to a request for an interview.
In announcing the bid, Express Scripts said the offer would generate annual cost synergies of approximately $500 million. Company officials also maintained that the acquisition would benefit health plans and patients through greater use of cost-effective generic and lower-cost brand drugs, specialty pharmacy, home delivery and flexible retail networks.
The combination of Express Scripts with Caremark would narrow the market to two players sharing better than 80% of the market, said Stephen Schondelmeyer, director of the PRIME Institute at the University of Minnesota at Minneapolis. Either way Caremark goes, retail pharmacies probably will be on the losing end, getting squeezed over the distribution of drugs to patients, he said.This concentrates more power in the hands of PBMs, which are not known for passing on (savings) to consumers, he said. Theyre known for creating margin and then keep it in earnings or profits.