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
nation's three largest PBMs, said its proposal
submitted last month represented a 15% premium over the
all-stock purchase price in Caremark's proposed
acquisition by CVS Corp. of Woonsocket, R.I. That deal,
announced Nov. 1, 2006, would couple CVS, the nation's
largest retail pharmacy, with Caremark, another of the
nation's 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 companies -- a 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 Commission's 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. "They're known for creating margin
and then keep it in earnings or profits."
This article initially appeared in the Jan. 1 edition of Modern Healthcare magazine.What do you think? Write us with your
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