Business/Express Scripts merger
11:56 am
Mon April 2, 2012

Express Scripts-Medco merger approved

Updated at 4:26 p.m. to correct name of Jennifer Mallon's association. It is the National Community Pharmacists Association, not the National Association of Community Pharmacies.

Federal regulators have approved the $29.1 billion merger between pharmacy benefit managers Express Scripts and Medco.

The Federal Trade Commission announced this morning that it had closed an eight-month investigation into the merger between two of the country's largest PBMs. The vote to close the investigation was 3-1.

In a statement, the three FTC members supporting the merger said the prescription management business would remain competitive despite the merger. The commission also declined to put any restrictions on the merger, which analysts had expected.

There are "numerous, vigorous competitors who are expanding and winning business from traditional market leaders," the FTC statement said. "The acquisition of Medco by Express Scripts will likely not change these dynamics: the merging parties are not particularly close competitors, the market today is not conducive to coordinated interaction, and there is little risk of the merged company exercising monopsony power."

But Pete Levitas, the deputy director of the FTC's Bureau of Competition, says the agency will keep an eye on the new company, which will be known as Express Scripts Holding Company and be headquartered in St. Louis.

"It's always the case that the commission is very concerned about competition in health care markets and the PBM market in particular, so we will continue to be watching this space, and if we see any evidence of anti-competitive conduct between the merged company or any others, we'll be sure to be looking at that."

In a dissenting statement, FTC commissioner Julie Brill called the decision a "merger to duopoloy ... with few efficiencies and high entry barriers - something no court has ever approved." She called on the FTC to study the merger again after three years. The merged company will be so large that it's expected to handle the prescriptions of about one in three Americans.

In his own statement, George Paz, the CEO of St. Louis-based Express Scripts, called the merger "exactly what the country needs."

"It represents the next chapter of our mission to lower costs, drive out waste in healthcare and improve patient health. We remain focused on formulary management, channel management and closing gaps in care, which will allow us to further improve the health of people with chronic and complex medical conditions. Our clients are challenged to provide robust health benefits to American families. We have an unprecedented opportunity to help them by making the use of medicine safer, more affordable and more accessible."

Express Scripts says the merger with New Jersey-based Medco will lead to about $1 billion in cost savings.

"Starting today, we'll start looking at the different contracts the companies hold with the pharmaceutical companies, the retail pharmacies, etc., to see where there are opportunities to take waste out of health care," said Express Scripts chief medical officer Steve Miller. "The most important thing, though, in the short run is stability. We will do nothing that disrupts that. It's going to be after a really thorough evaluation that we start adjusting the company to gain those efficiencies."

The Medco acquisition will be the ninth for Express Scripts in its 26-year history, and Miller says the company has perfected the process.

The client and patient care teams at both companies will "continue to do today what they were doing yesterday, and that is to provide great patient care and stability for the clients," Miller said. "We have a whole different team that's tasked to actually look at the contracts, look for the efficiencies, and develop a plan forward for bringing the companies together." He said the $1 billion in savings will be achieved gradually over 18 months.

Miller could not rule out layoffs  - he said Express Scripts CEO George Paz is in New Jersey today at a town hall meeting at Medco's headquarters to discuss the merger.

Two drugstore associations sued to block the merger in March. Jennifer Mallon, the attorney for the National Community Pharmacists Association, one of the parties to the suit, said she was "disappointed" that the FTC green-lighted a merger that she said would have serious consequences for competitiveness.

PBMs control their contracts in so many ways, Mallon said, from setting the drugs that patients can access at certain prices to the amount that pharmacies are reimbursed for filling prescriptions.

"Walgreen's ultimately decided when it was just dealing with ESI (Express Scripts) that it was not willing to contract on the terms that they were forcing down their throat," Mallon said. "If Walgreen's with in excess of 7,000 stories felt they could not accept those terms, you can imagine what my members, who are typically small independent pharmacies that may represent  just a handful of stores, what negotiating power they would have" against a combined Express Scripts-Medco.

Miller declined to comment on the lawsuit. Officials at Medco declined to comment on the merger.