Express Scripts, Medco Rebut Antitrust Concerns In US House Hearing

The chief executives of pharmacy benefit managers Express Scripts Inc. (ESRX) and Medco Health Solutions Inc. (MHS) sought to ease concerns that the companies' proposed merger could hurt competition in the PBM market at a congressional hearing Tuesday.

Express Scripts and Medco are two of the three biggest players in the industry, the other being CVS Caremark Corp. (CVS). The proposed $29 billion deal has raised concerns about industry consolidation, and the U.S. Federal Trade Commission is taking a close look at the merger before it decides whether to grant antitrust approval.

In written testimony submitted to a House antitrust subcommittee, Express Scripts Chief Executive George Paz and Medco Chief Executive David Snow said the market for PBMs was rapidly evolving, with far more competitors than the current big three.

Paz said more than 20 PBMs provide service to Fortune 500 employers.

Snow pointed to the emergence of UnitedHealth Group Inc. (UNH), a major Medco customer that is ending its relationship with Medco and instead will run its own in-house PBM. "We now have another major competitor in the marketplace, one that is widely regarded to be a significant force in the market going forward," Snow said in his written remarks.

Snow also said other competitors were making major investments. As an example, he cited Catalyst Health Solutions Inc.'s (CHSI) recent acquisition of Walgreen Co.'s (WAG) PBM business.

PBMs administer prescription-drug coverage for employers and insurers, promising to fetch lower prices with drug makers and pharmacies by buying in large quantities.

Tuesday's hearing was before the House Judiciary Subcommittee on Intellectual Property, Competition and the Internet. Lawmakers are set to question the executives later in Tuesday's hearing.

Members of Congress have no role in deciding whether the proposed merger is granted antitrust approval, but they can shape the public debate about the deal.

In the run-up to the hearing, several groups voiced opposition to the proposed merger.

Five consumer-advocacy groups, including Consumers Union and the Consumer Federation of America, said in a letter to the FTC that the merger would lead to higher costs and restrictive pharmacy networks that would limit patient choice.

They also expressed concern that the combined companies would dominate the specialty pharmacy market, which provides services to patients with chronic and complex conditions.

The Food Marketing Institute, which represents supermarket pharmacies, voiced its opposition in a letter to the House subcommittee, saying the merger would likely lead to lower reimbursement rates for pharmacies, which could mean reduced services for consumers.

-By Brent Kendall, Dow Jones Newswires; 202-862-9222; brent.kendall@dowjones.com

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