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Congressmen: Merged PBM might be too big
December 12th, 2011
WASHINGTON – More congressmen have called on the Federal Trade Commission to take extra care in its review of the merger deal between pharmacy benefit managers Express Scripts Inc. and Medco Health Solutions Inc.
Reps. Bill Huizenga and Candice Miller, both Republicans from Michigan, have sent a letter to FTC chairman Jon Leibowitz to highlight their concerns about the leverage that such a large PBM would have in the prescription drug market if the merger is approved. The letter was posted Friday by the National Community Pharmacists Association.
"We ask that the Federal Trade Commission closely examine this merger and ensure that it truly is in the best interest of patients, employers and local pharmacies," Huizenga and Miller stated in the letter.
"While we understand that the business model of PBMs was originally designed to help patients realize cost savings, it is of great concern that a consolidated PBM of such great size will simply dominate the market and will use this tremendous market power to squeeze the health care system for greater profits at the expense of the consumer," the two congressmen explained.
Huizenga and Miller expressed particular concern about the merger's potential impact on community pharmacies. "Any potential for diminished choice and access to local pharmacies as a result of this merger is quite alarming," they stated. "Please address any antitrust concerns that may arise as well as make recommendations to avoid the potential for diluted patient care, higher costs and restricted access to critical pharmacy care."
Thus far, about 30 members of Congress have formally questioned the Express Scripts-Medco merger deal. Early last week, ahead of a Senate Judiciary subcommittee hearing on the proposed merger, Sens. Saxby Chambliss (R., Ga.), Johnny Isakson (R., Ga.) and Jerry Moran (R., Kan.) sent a letter to Leibowitz urging the agency to make a "thorough and complete investigation" of the deal. Nearly 30 state attorneys general also have formed a working group to do their own review of the merger proposal, according to NCPA.
The merger agreement is expected to close in the first half of next year, pending review by the FTC.
"Express Scripts will have a greater ability to drive down reimbursement to pharmacies below competitive levels resulting in diminished access to valuable pharmacy services."
— David Balto, antitrust attorney
Although opponents and supporters of the PBM merger have debated over its purported benefits — especially the promise of lower prescription drug costs — the sheer size of the combined PBM is the chief concern of the deal's critics.
At the Dec. 6 Senate hearing, titled "The Express Scripts/Medco Merger: Cost Savings for Consumers or More Profits for the Middlemen?", a prominent Washington antitrust attorney testified that the potential for anticompetitive behavior exceeds the potential for cost savings if regulators approve the Express Scripts-Medco merger.
"The loss of competition caused by this merger will make it more likely for Express Scripts to charge more for its services and to pass along less of the savings they obtain to their customers, the plan sponsors, ultimately harming the millions of consumers who need these services," said David Balto, who spent most of his 25 years as an antitrust lawyer as a trial attorney in the antitrust division of the Department of Justice. He also has served as a policy director at the FTC.
"Although the merging parties assert various efficiencies as justification for this merger, these proffered efficiencies do not outweigh the anticompetitive effects and consumer harm that is likely to result from this transaction," Balto stated in his testimony. "All consumers will suffer as service and access to their retail pharmacies declines and they are increasingly denied a choice and service. Express Scripts will have greater power to steer plan participants to its own captive mail-order and specialty pharmacy operations, reducing choice for all plan participants and quality for many. Additionally, Express Scripts will have a greater ability to drive down reimbursement to pharmacies below competitive levels resulting in diminished access to valuable pharmacy services, higher prices and lost jobs."
Community pharmacists also voiced concern about the merger's size. Michael Bettiga, Shopko Stores Operating Co. chief operating officer and a pharmacist, told the Senate subcommittee that Express Scripts and Medco currently control 50% to 60% of the nation's overall prescription drug volume. If the merger is approved, he said, over a third of all Americans, or about 135 million people, would rely on the combined PBM to manage their prescription benefits, with the "mega PBM" controlling more than 40% of the national prescription drug volume.
"Specifically, the merged PBM will have an incentive to use its increased market power as both a seller and a purchaser of pharmacy services to impose unfavorable contract terms on community pharmacies," Bettiga testified. "Consequently, this 'mega PBM' would have the ability to raise prices for health plans and patients, limit access to pharmacy patient care and force patients to use the PBM's mail order pharmacies rather than their trusted community pharmacies."
For consumers, declining compensation to pharmacies is a big deal, even though it may not seem so on the surface, according to Balto. "Why should consumers care? Because their community pharmacist is the most trusted professional they deal with. Because retail pharmacies provide consumers with valuable clinical services and counseling, often free of charge. Because some pharmacies ... offer drugs at lower prices than the PBMs, such as through $4-per-month generic programs. Anticompetitive cuts to reimbursement jeopardize these types of programs that consumers highly value," he said in his testimony.
"The merged PBM will have an incentive to use its increased market power as both a seller and a purchaser of pharmacy services to impose unfavorable contract terms on community pharmacies."
— Michael Bettiga, Shopko
Balto also pointed out that consumers may already have relationships with a community pharmacy and "may not wish to leave the pharmacist they know and trust" or, in the case of supermarket pharmacy patients, may like the convenience of one-stop shopping for prescriptions and groceries. "The bottom line is that patients have a whole array of preferences when it comes to pharmacy care, and consumers are left worse off when they are unable to choose the level of service they desire," he said.
Sue Sutter, co-owner of Marshland Pharmacies in Wisconsin, testified that independent pharmacies already have little leverage in negotiations with large PBMs and that a combined Express Scripts-Medco "could single-handedly put [independent] pharmacies out of business."
"Small community pharmacies are faced with take-it-or-leave-it contracts from the PBMs. PBMs directly set the ever-shrinking reimbursement rates for community pharmacies. These are the same pharmacies that stand in direct competition to the PBM-owned mail order pharmacies. Therefore, it is no surprise then when these PBMs try to shift patients to their own mail order pharmacies, many against their wishes. There is no negotiating," Sutter explained to lawmakers. "If Walgreens, the largest pharmacy in the country with 7,000 pharmacies, had to drop out of the Express Scripts network because they couldn‘t negotiate fair terms, how can a one- or two-store independent pharmacy have any chance against these corporate giants?"
Medco chairman and chief executive officer David Snow, however, told the Senate subcommittee that the PBM market "is characterized by robust competition," with more than 40 PBMs targeting public and private payers of all sizes.
"Today, no fewer than 10 PBMs serve Fortune 50 companies, seven PBMs each process more than 150 million prescriptions annually, 12 PBMs serve more than 5 million members each and at least nine PBMs serve large state accounts. Additionally, nine Fortune 500 companies operate PBMs directly for their employees," Snow testified.
He added, "Retail chain pharmacies remain powerful — for every single prescription filled by mail order, eight are filled by large chain stores."
Snow downplayed concerns that a merged Express Scripts-Medco would mitigate the role of retail pharmacies in providing prescription drug services.
"We recognize that some have voiced concern about the effect of an Express Scripts-Medco merger on retail pharmacies — particularly on independent community pharmacies. The facts are that more than 85% of prescriptions filled for Medco customers are filled through our networks of more than 60,000 retail pharmacies representing about 95% of all retail pharmacies nationwide. Even as our companies seek to drive efficiency in the health care system, retail pharmacies of all sizes will continue to play a crucial, complementary role to the mail order pharmacies operated by PBMs," Snow said in his testimony.
"PBMs and independent pharmacies both benefit from a growing demand for more and better prescription care," he added. "It is our expectation that a successful Express Scripts-Medco — far from being a threat to independent pharmacies — will actually be a driver of improved care for our mutual customers and improved economics for their businesses."