George Paz was named Chairman and CEO of the new Express Scripts Holdings, Inc., the largest mail order pharmacy in the United States. Listening in on the Express Scripts/Medco conference call with analysts to discuss the details of the merger, one would never know that Mr. Paz had moved Express Scripts from dead last among the Big 3 PBM-owned mail order pharmacies – with about a 20 percent market share – to top of the charts with a projected mail market share of 59 percent. This is the current combined mail order market share of ESI and Medco.
Of course, the analysts asked a couple of questions about mail order market share concentration and how it would likely impact FTC approval of the merger. Mr. Paz was understandably reluctant to discuss the topic. If the FTC isn’t concerned about the competitive and fair trade implications of a single company controlling nearly 60 percent of the mail order market share that would come as a big surprise to nearly everyone save Mr. Paz ,who confidently dismissed one analyst’s characterization of FTC approval as a “borderline” case.
Nor did Mr. Paz discuss the competitive and patient care impact of consolidating ESI and Medco’s specialty drug businesses. The specialty drug market encompasses patients with serious chronic conditions such as hemophilia, cancer, HIV/AIDS, and Multiple sclerosis. It is a vital component of pharmacist care and the Big 3 PBMs have been forcing health plan beneficiaries into their so-called “central fill” (mail order) specialty pharmacies and out of community pharmacies, where these expensive drugs can be dispensed to patients along with in-store face-to-face pharmacist counseling.
The average specialty prescription is approximately $1,900. In 2009, Medco’s Accredo Health and Express Scripts’ CuraScript Pharmacy controlled 52 percent of the specialty drug market. This share will soon be controlled by a single company.
Express Scripts identified $1B in synergies for the proposed merger, prompting analysts to remark on how “modest” the number is in comparison to other ESI acquisitions. Medco has recently lost several high-profile and lucrative clients including CALPERs, FEHP and apparently United Health Care. But, make no mistake; this merger is not about Medco’s diminishing PBM business.
This merger is about what Mr. Paz didn’t want to talk about on the conference call – domination of the mail order and specialty markets. The ramifications of this merger will immediately begin to play out. Before taking into account Medco’s recent losses, the combined companies control over 1.3B prescriptions annually.
Mr. Paz told analysts that he had called Walgreens’ CEO, Greg Wasson, to “give him a heads-up” on the deal after it was announced. Walgreens reimbursement dispute with Express Scripts will likely be settled fairly quickly. Clearly, when dealing with a corporate giant that controls the market share that the “new” ESI will control, there are few alternatives or leverage points for even a multi-billion national pharmacy chain. Should the FTC approve this merger, community pharmacy small business owners and their patients will be squeezed between Express Scripts and CVS Caremark. Neither will be a traditional PBM – instead they will both be national pharmacy operations that will compete directly for prescriptions with community pharmacies while deciding what community pharmacies will be reimbursed.
As NCPA and others raise these issues, hopefully the FTC will agree that this hardly seems to fit the definition of competition.