This article firs appeared in the St. Louis Beacon, Sept. 22, 2011 - WASHINGTON - It's a mega-merger that could impact consumers, pharmacies and company health-care plans across the country -- not to mention a thriving St. Louis based-company and the obscure but important culture of "pharmacy benefit management."
That's why the Federal Trade Commission is taking a close look at the proposed merger of Express Scripts and Medco Health Solutions. And it's the reason that a House Judiciary panel delved into the issue this week -- hearing opposing predictions about the impact of the planned merger on the price and availability of prescription drugs.
Pharmacy benefit managers, known as PBMs, are third-party administrators of prescription drug programs of employers and insurers. By buying in large quantities, they aim to get lower prices using their leverage to negotiate with drug makers and pharmacies.
Medco and the St. Louis-based Express Scripts are two of the three largest PBMs, accounting for a combined historical share of about 30 percent of the PBM market. (The second-largest PBM is the CVS Caremark Corp., which is affiliated with the giant CVS pharmacy chain.)
The proposed $29 billion merger, first announced in July, has become a lightning rod, attracting the interest of an array of interest groups and the attention of Congress. While lawmakers have no direct role in influencing the FTC's decision on whether to grant antitrust approval to the merger, congressional hearings often influence the wider public debates about such important deals.
To the extent that it impacts Express Scripts, the FTC's decision would have an impact on the St. Louis region. An economic impact study by faculty members of the University of Missouri - St. Louis, found that Express Scripts "is providing significant economic benefits to Missouri." Aside from the 5,906 jobs and $732 million in payroll at its St. Louis headquarters, the study found that the firm and its suppliers spent about $902 million last year, paid about $25.5 million in taxes and made more than $3 million in charitable contributions in Missouri.
Would Consumers Pay More or Less After Merger?
While there are numerous side issues related to antitrust questions, the main question about the planned merger boils down to whether it would make drug prices higher or lower for the majority of consumers.
Witnesses on both sides of that debate made their points Tuesday at the House Judiciary Subcommittee on Intellectual Property, Competition and the Internet's hearing.
On the positive side, the chief executives of Express Scripts and Medco contended that the merger would lead to greater efficiencies in the health-care system and protect consumers from the rising costs of prescription medicine.
"A combined Express Scripts and Medco will be well-positioned to protect American families from the rising cost of prescription medicines," said Express Scripts chief executive George Paz in his written testimony.
His Medco counterpart, David Snow, argued that "by joining with Express Scripts and combining the complementary expertise of the two companies, we will be able to significantly accelerate efforts to reduce overall costs in the health-care system and improve the quality and efficiency of care delivery."
But many of those independent pharmacies, chain drugstores and supermarket pharmacies are joining with consumer groups in opposing the merger -- arguing that it would lead to less choice of pharmacies and perhaps higher costs for prescription drugs for consumers and the sponsors of health plans.
"If allowed, this merger would have grave consequences for consumers and the nation's community pharmacies that serve them, as well as for health plans and employers that utilize PBM services, specialty pharmacy services, and mail-order pharmacy services," said Texas pharmacy executive Dennis Wiesner, speaking on behalf of the National Association of Chain Drug Stores. Also opposing the merger is the Food Marketing Institute, which represents supermarket pharmacies.
Independent local pharmacies are also up in arms and have made their objections known to lawmakers. "These PBMs or 'middlemen' already have so much control over the marketplace that it greatly concerns me about what could happen should this merger take place," said Pennsylvania pharmacist Joseph Lech, a member of the National Community Pharmacists Association.
"Over my 25 years in pharmacy, I have seen the large pharmacy benefit managers relentlessly gobble up smaller and medium-sized PBMs to reduce competition," Lech said in his statement. "The result is a highly concentrated, consolidated marketplace." He called the planned Medco/Express Scripts merger a "mega-PBM."
Asked about such concerns, Snow of Medco said that more than 85 percent of prescriptions filled for Medco customers are now filled through retail pharmacies and "there is nothing we plan to do to change this."
Consumer groups, although not represented directly at this week's hearing, also have weighed in. Five big consumer organizations -- the Consumers Union, the Consumer Federation of America, the U.S. Public Interest Research Group, the National Consumers League and the National Legislative Association on Prescription Drug Prices -- sent a joint letter to the FTC this week expressing concerns about the merger.
"This merger will significantly reduce competition among the major PBMs," the groups wrote. "By reducing market rivalry, Express Scripts-Medco is likely to charge more for its services as well as to pass on less savings obtained through rebates to public and private payors. Ultimately, consumers will bear these price increases in the form of higher premiums."
But both Paz and Snow said competition among the nation's 40 or so PBMs is intense, and that the merger of two of the largest of those firms won't change that. "Express Scripts' fundamental mission is to make medicines safer, more affordable and more accessible," Paz said.
"PBMs make prescription drugs more affordable for clients by creating old-fashioned American competition among brand-name and generic drug manufacturers as well as among more than 60,000 chain drugstores, mass merchandisers, independent pharmacies, and grocery pharmacies."
Some critics contend that the planned merger of Medco and Express Scripts would dominate the market for mail-order prescriptions, as well as the specialty pharmacy market, which serves patients with chronic and complex illnesses. The two companies dismiss those concerns as unfounded.
With about 13,000 employees nationwide -- including the 5,900 in the St. Louis area -- Express Scripts has plenty of allies on Capitol Hill. On Wednesday, U.S. Sen. Roy Blunt, R-Mo., said he didn't think the planned merger would create antitrust concerns.
Responding to a question from the Beacon, Blunt described Express Scripts as "a great Missouri company that's produced lots of opportunity and jobs in our state." In fact, the senator said he thinks Express Scripts "would run Medco better than Medco is running Medco."