Express Scripts: The new 800-lb gorilla of pharmacy benefits management

Prescription Benefits ManagementExpress Scripts’ $29 billion acquisition of rival pharmacy benefits management (PBM) firm Medco Health Solutions was just approved by the FTC amid controversy and after eight months of review by federal regulators.

Combined, the company’s 2011 revenues are $116 billion, making the newly merged company the top PBM in the US, with about 40% of the market share. Express Script’s biggest rival now is CVS Caremark, with 2011 revenues of $107 billion (although about half of that figure is from retail store operations).

The majority of regulators found that there was enough competition to allow for the Express Scripts’ deal, although controversy will no doubt continue. Such groups as the National Community Pharmacists Association and the National Association of Chain Drug Stores still oppose the merger and have litigation in process. Also, some regulators have concerns related to the handling of specialty drugs for HIV infections, hemophilia, and other conditions. In the vote to close the investigation, Commissioner Julie Brill cast the only dissenting vote and issued her own statement:

This $29 billion merger — between two of the largest three pharmacy benefit management providers — is a game changer. I have reason to believe that this merger is, in fact, a merger to duopoly with few efficiencies in a market with high entry barriers — something no court has ever approved. I therefore respectfully submit that the Commission should have filed a complaint in Federal district court seeking to enjoin the transaction pending a full trial on the merits here at the Commission.

From the companies’ perspective, savings for consumers will be an advantage of the merger, or as Express Scripts chairman and CEO George Paz states in the company’s announcement, “It represents the next chapter of our mission to lower costs, drive out waste in health care and improve patient health.”  But for those opposed, including anti-competitive and consumer groups, the claims are not so convincing. Hoover’s editor Anne Law discussed the debate in her recent Bizmology post about the merger.

Express Scripts doesn’t have to look very far to find another giant (and controversial) health care acquisition that also promised more efficient operations and consumer savings — CVS Caremark. The product of a $26.5 billion merger between drug store chain CVS and prescription benefits manager Caremark Rx in 2007, CVS Caremark is still dealing with critics, including consumer groups and shareholders, who want the merger undone.

It remains to be seen if there will be parallels between CVS Caremark and the new Express Scripts. Whatever the outcome, there is little doubt that the health care industry will be facing more consolidation as companies struggle to address reforms in the industry and compete for the dollars connected to caring for the health needs of a growing population that is living longer.

Melanie Hall

Melanie Hall is currently an editor for Hoover's, having served in a variety of roles since she first joined the company in 1995.

Read more articles by Melanie Hall.

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