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Statement on The Express Scripts/Medco Merger


Location: Unknown

Today we meet to consider a merger in an industry that is central to the way prescription drugs reach the market, and the prices health plan sponsors and ultimately consumers pay for these drugs. Express Scripts and Medco, two of the nation's three largest pharmacy benefit managers -- otherwise known as PBMs -- seek to merge, forming the nation's largest PBM. If this merger goes forward, the combined company will administer 1.14 billion prescriptions annually, and would handle 41% of all prescriptions administered by PBMs. It would be nearly two times larger than its nearest competitor, CVS Caremark.

Over the past decade, PBMs have become major players in the healthcare industry. By one estimate, 90% of individuals with prescription drug coverage receive benefits through a PBM, and PBMs handle approximately two-thirds of all prescriptions written in our country. PBMs serve as middlemen between drug manufacturers, pharmacies, and health plan sponsors. PBMs do everything from negotiating the prices health plan sponsors pay for drugs to setting the prices pharmacies are reimbursed for dispensing drugs. They also decide which specific drugs make it onto formularies eligible for reimbursement. In addition to all of these functions, Express Scripts and Medco would control about a 60% share of the mail order pharmacy business which ship drugs in bulk directly to consumers. And, finally, these two PBMs operate "specialty pharmacies" -- pharmacies that carry drugs used for the treatment of the most rare and challenging ailments. They would together control over 50% of the specialty market after the merger.

Express Scripts and Medco argue that this merger will be beneficial to health plan sponsors, and ultimately consumers. They claim that the combined company's scale would give it substantial buying power to drive down drug prices. The merger's critics, however, worry about the consequences of consolidating two major rivals in this very important industry. They question whether the drug price savings the PBMs claim they will achieve will indeed be passed along to plan sponsors and their beneficiaries, or whether they will just go into the pockets of PBM's shareholders.

This merger, its critics argue, will also reduce from three to two the number of large PBMs that serve the nation's largest employers. Currently, 42 of the top Fortune 50 companies utilize Express Scripts, Medco or CVS Caremark as their PBM. Reducing the number of competitive choices from three to two raises the dangerous possibility that these large companies will have little choice but to pay more for PBM services.

The merging companies argue that there are many other PBMs beyond the "big 3" that bid to provide PBM services to large employers. However, many large companies appear to prefer the range of services offered by the three large PBMs, and do not seriously consider smaller PBMs. In this regard, it is notable that no large employer who privately expressed concerns to us wished to testify at today's hearing, often telling us that they feared retaliation from the large PBMs with whom they must do business.

We are also aware of the concerns expressed by pharmacies-- both large chain drug stores and small community pharmacists -- of what they believe are the likely harmful effects of this deal. Pharmacists believe that the PBMs will force consumers to use mail order services, and squeeze the reimbursement rates pharmacies receive from PBMs. Will pharmacists be able to compete in this new marketplace? Will consumers suffer the loss of in person services and consultations offered by traditional pharmacists? Or, as the PBMs contend, will this merger wring inefficiencies out of the system of dispensing and paying for prescriptions, to the benefit of consumers and the health care system overall?

We have no doubt that this merger will be good for Express Scripts and Medco, and for their shareholders. It is very likely that the merging companies will be able to gain efficiencies from merging their overlapping operations. But while this merger may serve these two companies' private interests, our job on the Antitrust Subcommittee is to examine whether this merger will serve the public interest, and whether it will benefit or hurt competition and consumers. There is no question that this merger will have far reaching and long lasting effects on the way prescription drugs are paid for, sold and dispensed. So the burden will squarely be on Express Scripts and Medco to convince us that this merger will not unduly harm competition but in fact will benefit the millions of consumers who continue to face rising prescription drug costs.

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