Leading Antitrust Senator Raises Serious Doubts About Proposed Express Scripts-Medco PBM Merger



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Alexandria, Va. - Feb. 2, 2012

The head of the Senate's antitrust subcommittee voiced major concerns today over the proposed mega-merger of prescription drug middlemen Express Scripts and Medco, and the National Community Pharmacists Association (NCPA) saluted the lawmaker's efforts.

Senator Herb Kohl (D-Wis.), chairman of both the Senate Judiciary subcommittee on antitrust, competition policy and consumer rights as well as the Senate Aging Committee, sent a cautionary letter to the Federal Trade Commission (FTC) expressing doubts about the merger of the two enormous pharmacy benefit managers (PBMs). The FTC is currently reviewing the proposed merger, which is opposed by several of the nation's leading consumer advocates.

"Express Scripts' proposed merger with Medco will unquestionably create a giant PBM that is substantially larger than any competitor, and will result in the combined entity having a dominant market share in mail order and specialty pharmacies," Chairman Kohl wrote. "It will reduce choices for PBM services to health plan sponsors, especially large employers. And it has the potential to have profound effects on the ability of both community and chain drug stores to compete."

"We sincerely appreciate Chairman Kohl's leadership in standing up for pharmacy competition and patient access to local pharmacists," said NCPA CEO B. Douglas Hoey, RPh, MBA. "On behalf of small business community pharmacists and their patients, NCPA has opposed this merger from day one and will continue to fight against its approval. This merger is the wrong prescription for the country because it will reduce patient access to pharmacy services, undermine competition and lead to higher drug costs for patients, the government and employers."

On Dec. 6, 2011, Chairman Kohl's subcommittee held a hearing on the matter, entitled "The Express Scripts/Medco Merger: Cost Savings for Consumers or More Profits for the Middlemen?" and at which NCPA member Sue Sutter, RPh, testified. At the outset of the hearing, Chairman Kohl noted that the subcommittee had heard concerns about the merger from a number of large employers, who declined to testify for fear of retaliation by Express Scripts or Medco.

Additional key points from Chairman Kohl's letter include the following:

On competition from smaller PBMs: "In sum, it seems unlikely that there are significant competitive alternatives to the big three PBMs for large plan sponsors. Indeed, even Medco's CEO admitted as much in an investor phone conference in July 2010. When asked if 'everyone's always focused on your two primary competitors [that is, Express Scripts and CVS/Caremark],' Mr. Snow replied that '[at] the best and finals I go to, I'm not seeing a lot of secondary PBMs in the mix at all. I'm really not. You may see a name pop up here and there, but that's not really common at all.'"

On the cost savings claims of pro-merger advocates: "It seems highly unlikely that the merger will result in any substantial increase in buying power to attain such cost savings. The merging parties admitted as much at our antitrust subcommittee hearing...So it is clear that obtaining greater drug price discounts from manufacturers cannot be an argument to justify this merger."

On high-cost, specialty pharmacy: "This merger may give the combined PBM increased market power to demand exclusive distribution arrangement with large manufacturers, freezing out other competitors. In the alternative, the concern exists that its competitors will have to contract with the combined PBM to gain access to these specialty drugs. Given the high prices and profits to be made from specialty drugs—estimated to be 2% of all prescriptions, but 20% of pharmaceutical spending and growing—the FTC should scrutinize this issue very closely."

On lower reimbursement rates and impact on patient access to community pharmacies: "[S]ubstantial doubt exists as to whether any declines in reimbursement rates would in fact be passed on to plan sponsors. First, the decline in competitor PBMs for large plan sponsors discussed above will significantly reduce the competitive pressure on the combined Express Scripts/Medco PBM to pass on such savings. Second, there is considerable doubt that PBM mergers in the past have resulted in any savings being passed on to plan sponsors. While the promise that reduced reimbursement payments will in fact be passed on to plan sponsors is very speculative, the evidence we received at our hearing is that the threat to pharmacies is very real. I urge the FTC to carefully evaluate whether it is likely that the combined PBM will pass on to plan sponsors any reduction in reimbursements paid to pharmacies as a result of this deal."

The National Community Pharmacists Association (NCPA®) represents the interests of America's community pharmacists, including the owners of more than 23,000 independent community pharmacies. Together they represent a $93 billion health care marketplace, dispense nearly 40% of all retail prescriptions, and employ more than 315,000 people, including 62,400 pharmacists. Independent community pharmacists are readily accessible medication experts who can help lower health care spending. They are committed to maximizing the appropriate use of lower-cost generic drugs and reducing the estimated $290 billion that is wasted annually by improper medication use. To learn more go to www.ncpanet.org or read NCPA's blog, The Dose, at http://ncpanet.wordpress.com.

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