Express Scripts' proposed acquisition of Medco Health Solutions came under increasing criticism last week over the impact the megadeal could have on competition in the pharmacy benefit management market.
Express Scripts-Medco deal called anti-competitive
In a letter last week to Federal Trade Commission Chairman Jon Leibowitz, the National Association of Chain Drug Stores and National Community Pharmacists Association said the combined companies would have the clout to raise prices on plans and with patients, and could limit patient access to pharmacy care.
“The merger would result in a consolidated pharmacy benefit manager with excessive market power that will have anti-competitive effects on patients and the healthcare delivery system,” the trade groups contend.
The planned $29.1 billion deal would combine market-leader Express Scripts with Medco, the third-largest PBM company, based on membership, according to statistics published by the Pharmacy Benefit Management Institute, the industry’s trade group. Medco is the largest company based on prescription volume, followed by CVS Caremark Corp. and then Argus Health Systems, according to the PBMI.
“Having a single firm with this kind of market share is really going to force plans to pay more for PBM services,” said David Balto, an antitrust lawyer and senior fellow with the liberal Center for American Progress.
PMBI data for prescription volume shows that Medco, CVS Caremark, Argus and Express Scripts control roughly 60% of the market. While the top 25 PBM companies make up nearly 100% of the market in terms of prescription volume, 11 of those companies each handle less than 1% of the market.
Five of those companies, including Express Scripts and Medco, have been involved in deals in recent months.
PBM deal activity continued apace last week. SXC Health Solutions Corp. said it plans to acquire PTRx, a pharmacy benefit manager, and SaveDirectRx, a mail-order pharmacy provider, for $77 million in cash and an additional $4.5 million in payments tied to performance. Catalyst Health Solutions said in June that it had completed its acquisition of Walgreens Health Initiatives, the PBM subsidiary of Walgreen Co.
The 2010 data from the PBMI shows that Lisle, Ill.-based SXC Health Solutions had 0.6% of the PBM market, while Catalyst and Walgreens Health Initiatives control a combined 3.9% of the PBM market.
Brenda Motheral, executive director of the PBMI, said changes stemming from the healthcare reform law—including the possibility that employers may reduce coverage, which would create a smaller market for PBMs, and continued pressure on generic drug margins—are cause for concern.
Yet she noted that the industry’s business in specialty drugs, which are used to treat complex diseases or conditions such as multiple sclerosis or rheumatoid arthritis, is strong. “The one thing that’s helping is the specialty pipeline” Motheral said. “It’s keeping the margins up.”
Specialty drugs are one of the reasons the year-old Independent Specialty Pharmacy Coalition opposes the Express Scripts’ deal with Medco. It said last week that the combined companies will be able to drive up costs for consumers and create conflicts of interest in their specialty-drug businesses. CVS Caremark estimates that specialty drugs, which generated 13% of the prescription spending distribution in 2005, will make up 27% of the market by 2015.
Kevin Schweers, a spokesman for the National Community Pharmacists Association, said that Express Scripts Holding Co.—the proposed name of the combined company—will control 52% of the specialty drug market. According to the NCPA, the average price for a specialty drug is $1,867. “We work closely with retail pharmacies of every size to negotiate contracts that are beneficial to all parties,” Express Scripts said in a statement. “We will continue to support the growth and expansion of independent pharmacies in our networks.”
The NCPA opposed Express Scripts’ $4.7 billion acquisition of NextRx, WellPoint’s PBM division, in 2009, Schweers said. Yet it may have been that deal that gave Express Scripts the insight it needs now into the regulatory process.
“They recently went through the FTC for the WellPoint/NextRx acquisition,” said Jesse Juliano, an analyst for Standard & Poor’s. “My guess is that they have a very good feel for how the market is viewed and that the FTC views the market as being bigger than just the big three if they’re looking at total” prescriptions.
Even with approval, Express Scripts Holding Co. still faces challenges. Medco reported this year that it lost contracts with UnitedHealthcare, the California Public Employees’ Retirement System and Blue Cross and Blue Shield of North Carolina. And, under the healthcare law, PBMs that offer services under an exchange health plan will be required to disclose information such as the percentages of prescriptions provided through retail pharmacies and mail order services, the types of rebates, discounts and price concessions that they negotiate on behalf of the plan and the difference between the amount paid by the plan and the amount the PBM pays the retail and mail-order pharmacy.
“It’s quite clear that PBMs are undergoing intense scrutiny,” Balto said.
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