Express Scripts deal draws fire

Express Scripts' proposed $29.1 billion acquisition of rival pharmacy benefits management company Medco Health Solutions would create by far the biggest player in the business. That prospect may force smaller PBMs out of the market and quickly drew sharp criticism from retail pharmacies.

The planned deal, expected to close in the first half of 2012 and announced July 21, would leave CVS Caremark as the lone other large competitor, with the combined Express Scripts and Medco controlling nearly a quarter of the market by membership and nearly a third by prescription volume, according to 2010 figures collected by the Pharmacy Benefit Management Institute, a trade group.

Dr. Brenda Motheral, executive director of the Pharmacy Benefit Management Institute, said the acquisition could lead to other mergers and acquisitions within the PBM market. “Without other deals, it will force some PBMs out of the market,” she said.

Express Scripts and Medco executives said they expect the PBM market to remain competitive. “Massive changes are on the horizon for our industry including healthcare reform and the upcoming wave of brand-wave drugs losing patent protection,” Express Scripts Chairman and CEO George Paz said during a conference call with investors. “In this environment, we have to be nimble and we have to be smart enough to influence events and forward-thinking enough to interpret events before they occur.”

David Balto, an antitrust lawyer and senior fellow with the liberal Center for American Progress, has estimated the concentration in the business to be much higher than the industry group’s figures suggest, putting the combined market-share of the big three at 80% in a white paper critical of Express Scripts’ 2009 acquisition of WellPoint’s PBM division.

“It’s going to be essential as we go forward in healthcare reform for healthcare plans and large employers to be able to turn to a robustly competitive PBM market,” Balto said. “Allowing firms to have a stranglehold on that market will really harm the efforts to control healthcare costs.”

The National Community Pharmacists Association, a persistent critic of PBMs because they view the industry as siphoning money from retail pharmacies, said in a news release that further consolidation among PBMs will be bad for patients.

“Today’s announcement that Express Scripts will buy Medco creates a middle man that is too big to play fair and will have immense power to unfairly dominate the market,” the trade group said.

The group previously pressed the Federal Trade Commission to review Express Scripts’ deal with WellPoint. The FTC, however, in testimony presented to a Senate subcommittee in 2009, said the commission has judged competition among PBMs to “vigorous,” citing a 2004 investigation of Caremark’s acquisition of AdvancePCS.

Express Scripts Holding Co., the newly formed company, will be based in St. Louis. Express Scripts shareholders will own 59% of the new company and Medco shareholders will own about 41%, according to a news release. Medco, based in Franklin Lakes, N.J., has 20,000 employees and reported $66 billion in revenue in 2010. Express Scripts reported $44.9 billion in revenue in 2010.