UPDATE: Express Scripts, Medco Rebut Antitrust Concerns In US House Hearing

WASHINGTON (Dow Jones)--The chief executives of pharmacy benefit managers Express Scripts Inc. (ESRX) and Medco Health Solutions Inc. (MHS) told Congress Tuesday that the companies' proposed merger would not threaten competition in the PBM sector.

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.

Appearing before 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.

One issue raised at the hearing focused on whether a combination of Express Scripts and Medco would be particularly dominant in the market for mail-order prescriptions and in the specialty pharmacy market, which provides services to patients with chronic and complex conditions.

Rep. Mel Watt (D., N.C.) asked whether the merger would remain desirable for the companies if the FTC demands that they divest their mail-order or specialty-market assets to address any possible antitrust concerns.

"It would not," said Express Scripts's Paz. He said Express Scripts's mail-order business was a very important component of the company's offerings.

Several lawmakers expressed particular concerns about how the merger would affect independent community pharmacies, which don't have the volume and negotiating power of chain stores.

Independent pharmacies have been vocal critics of the deal, and a member of the National Community Pharmacists Association expressed these objections during Tuesday's hearing, saying the merger would create a "mega PBM" that could dictate unfavorable terms for local drug stores.

"They say they want to work with me and they need me, but I have not seen that. It's just talk," Pennsylvania independent pharmacist Joseph Lech said of his relationship with Express Scripts and Medco.

Medco's Snow said he recognized the plight of independents and would like to see them survive. He also responded to worries that the combined company would have more leverage to steer customers to fill prescriptions by mail order instead of going into retail stores.

More than 85% of prescriptions filled for Medco customers are filled through retail pharmacies, Snow said. "There is nothing we plan to do to change this," he said.

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.

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.

The National Association of Chain Drug Stores also is opposing the merger.

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

Catalyst Health Solutions, (MM) (NASDAQ:CHSI)
Historical Stock Chart
From Jun 2024 to Jul 2024