This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
The FTC announced yesterday that it had closed its investigation into the proposed combination of two of the country’s three largest pharmacy benefit managers (PBMs) without taking action to challenge the transaction. On the same day, Express Scripts, Inc. announced that it had completed its acquisition of Medco Health Solutions.
Three of the four commissioners concluded that a violation of Sec. 7 of the Clayton Act neither had occurred nor was likely to occur as a result of Express Scripts’ acquisition of Medco. “While this transaction appears to result in a significant increase in industry concentration, nearly every other consideration weighs against an enforcement action to block the transaction.”
The transaction was not likely to produce unilateral or coordinated anticompetitive effects in the market for the provision of full-service PBM services to health care benefit plan sponsors, including public and private employers and unions, according to the Commission.
In addition to Express Scripts and Medco, competitors in the market included CVS Caremark—the nation’s second-largest PBM—as well as PBMs owned by large national health plans and some smaller standalone PBMs.
After analyzing the market, the Commission concluded that Express Scripts and Medco were not such close competitors that the elimination of one of these firms would allow the merged entity to unilaterally impose anticompetitive price increases. Medco and CVS Caremark focused on serving the nation’s largest employers, while Express Scripts’ customer base was more heavily skewed towards health plans and mid-size plan sponsors. Changes in the industry also meant that smaller PBMs and those owned by health plans were growing competitors for employer business.
Coordinated interaction among competitors in the market also was unlikely following the merger. The PBM industry was not necessarily conducive to coordination, it was noted.
The Commission also considered the concerns of retail and specialty pharmacies and concluded that there was little risk of the merged company exercising monopsony power. According to the Commission, there was no reason to believe that the merger would lead to lower reimbursement rates to retail pharmacies. Even if the transaction enabled the merged firm to reduce the reimbursement it offers to network pharmacies, there was no evidence that this would result in reduced output or curtailment of pharmacy services generally.
Moreover, evidence did not support concerns that the merged entity would exercise market power to demand more exclusive distribution arrangements from manufacturers of specialty drugs used to treat complex and rare conditions.
Dissent
Calling the transaction a “game changer,” Commissioner Julie Brill issued a dissent from the Commission’s decision to close the investigation. While Commissioner Brill expressed “some discomfort about unilateral effects” from the merger, she reserved her sharpest criticism of the transaction for the likelihood of coordinated effects. Pointing to statements of the parties, Commissioner Brill said: “[I]t is not difficult to conceive how the post-merger duopoly could pull its competitive punches when it comes to bidding for one another’s customers.” The commissioner called on the agency to conduct an analysis of the industry in three years to determine the transaction’s impact on prices to employers.
Reaction
Separately, Senator Herb Kohl (Wisconsin) issued a statement on April 2, saying that he expected the FTC “to carefully monitor the market to ensure that consumers are not harmed by loss of community pharmacies.” Kohl, Chairman of the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy, and Consumer Rights, had sent a letter to FTC Chairman Jon Leibowitz on February 2, expressing his concerns about the proposed transaction.
Showing posts with label Express Scripts-Medco merger. Show all posts
Showing posts with label Express Scripts-Medco merger. Show all posts
Tuesday, April 03, 2012
Tuesday, February 07, 2012
Senator Kohl Warns FTC About Proposed Express Scripts-Medco Merger
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.
The proposed combination of Express Scripts and Medco, two of the nation’s largest pharmacy benefits managers (PBMs), “has the potential to have profound effects on the ability of both community and chain drug stores to compete,” according to Senator Herb Kohl (D-Wisconsin).
Kohl, Chairman of the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy, and Consumer Rights, sent a letter to FTC Chairman Jon Leibowitz on February 2 expressing his concerns. The FTC is currently reviewing the merger.
The letter summarizes findings of a subcommittee investigation that included a December 6, 2011, hearing. Kohl said that the subcommittee received extensive testimony from both independently owned community pharmacies and chain drug stores regarding what they believe to be the dangers to competition from the merger.
Community pharmacies asserted that their ability to stay in business was seriously threatened by the danger of the combined Express Scripts/Medco reducing reimbursement rates. PBMs set the reimbursement rates that pharmacies receive when they dispense drugs to patients covered by health plans administered by those PBMs.
Kohl urged the FTC to carefully evaluate whether it was likely that the combined PBM would pass on to plan sponsors any reduction in reimbursements paid to pharmacies as a result of the deal.
“In brief, without reaching any final judgment as to the legality of this proposed merger under the antitrust laws, I believe this proposed merger presents serious competition concerns which should be examined carefully by the FTC, and that your agency should approve this merger only if you find that it is not likely to substantially harm competition in the markets affected,” Kohl said.
The proposed combination of Express Scripts and Medco, two of the nation’s largest pharmacy benefits managers (PBMs), “has the potential to have profound effects on the ability of both community and chain drug stores to compete,” according to Senator Herb Kohl (D-Wisconsin).
Kohl, Chairman of the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy, and Consumer Rights, sent a letter to FTC Chairman Jon Leibowitz on February 2 expressing his concerns. The FTC is currently reviewing the merger.
The letter summarizes findings of a subcommittee investigation that included a December 6, 2011, hearing. Kohl said that the subcommittee received extensive testimony from both independently owned community pharmacies and chain drug stores regarding what they believe to be the dangers to competition from the merger.
Community pharmacies asserted that their ability to stay in business was seriously threatened by the danger of the combined Express Scripts/Medco reducing reimbursement rates. PBMs set the reimbursement rates that pharmacies receive when they dispense drugs to patients covered by health plans administered by those PBMs.
Kohl urged the FTC to carefully evaluate whether it was likely that the combined PBM would pass on to plan sponsors any reduction in reimbursements paid to pharmacies as a result of the deal.
“In brief, without reaching any final judgment as to the legality of this proposed merger under the antitrust laws, I believe this proposed merger presents serious competition concerns which should be examined carefully by the FTC, and that your agency should approve this merger only if you find that it is not likely to substantially harm competition in the markets affected,” Kohl said.
Friday, December 02, 2011
FTC Should Attempt to Block Express Scripts’ Acquisition of Medco: Antitrust Institute
This posting was written by John W. Arden.
The American Antitrust Institute (AAI) has asked the Federal Trade Commission to seek an injunction against Express Scripts’ acquisition of Medco Health Solutions, which “poses a threat to substantially lessen competition in the provision of pharmacy benefit manager services throughout the United States.”
In a November 30 letter addressed to FTC Chairman Jon Leibowitz, the AAI stated that the combination of two of the three largest national pharmacy benefit management services (PBMs)—and the additional vertical integration that such a combination fosters—would threaten competition and raise prices to large plan sponsors and, ultimately, consumers.
The three largest providers of PBM services control more than 80 percent of the “large plan sponsor market,” and the combined Express Scripts-Medco firm would control approximately 50 percent of that market, according to AAI President Albert A. Foer and Advisory Board Member Dan Gustafson. The third of the “big three” PBMs is CVS Caremark.
This market share is particularly concerning because of the structure of the market and the substantial barriers to entry and expansion, the letter said. The three major PBMs already have significant cost advantages from economies of scale and from vertical integration in mail order and specialty pharmacy distribution.
“When faced with these difficult entry and expansion barriers, the remaining second tier PBMs cannot adequately constrain potential anticompetitive conduct because of their smaller size, geographic limitations, lack of buyer power, and, in some cases, perceived conflicts regarding their corporate affiliation with plan sponsors.”
Large Plan Sponsors
More than 40 of the “Fortune 50” corporations rely on the three largest PBM providers. “Not surprisingly, when one of the big three PBMs loses a large plan sponsor, it almost inevitably [goes] to another one of the big three.”
Smaller competitors typically lack adequate claims-processing capabilities to serve national accounts and have only limited ability to secure discounts and rebates from drug suppliers and to provide lower dispensing fees from pharmacies.
Specialty and Mail Order Distribution
The proposed combination of Express Scripts and Medco is likely to lead to the merged entity’s exercise of enhanced buyer market power in the market for specialty and mail order pharmacy distribution, according to the letter.
“The proposed merger would heighten the risk that these major PBMs would push compensation to many retail pharmacies below what would be competitive levels, ultimately leading to higher prices and lost jobs. An adverse impact on the delivery of pharmaceutical services at the retail level should be sufficient by itself to raise serious concerns about the proposed merger.”
Exclusion of Rivals in Specialty Pharmacy Services
The merged firm would have the ability and incentive to exclude rivals in the provision of specialty pharmacy services, it was alleged. All of the big three PBMs have acquired specialty pharmaceutical companies recently, reducing the number of independent specialty pharmacies and giving the big three power over the downstream specialty pharmacy distribution chain.
Exclusion of Rivals in Mail Order Pharmacy Services
The merger would create the largest mail order pharmacy in the country, accounting for nearly 60 percent of all mail order prescriptions processed, according to the AAI.
“This poses several potential competitive threats. First, further consolidation of the PBM market would exacerbate the competitive disadvantages that smaller, second tier PBMs without vertically integrated mail order operations already face. Second, consolidation of mail order pharmacies threatens to lead to anticompetitive self-dealing. A vertically integrated PBM can channel prescriptions to its own mail order facilities instead of to retail pharmacy competitors, even if the cost of filling the prescription is more than it would be at a local pharmacy.”
Small community pharmacies may also be threatened by this mail order business, the letter maintained.
In light of these competitive threats, the AAI urged the FTC to seek to enjoin the merger.
Text of the letter appears here on the American Antitrust Institute’s website.
The American Antitrust Institute (AAI) has asked the Federal Trade Commission to seek an injunction against Express Scripts’ acquisition of Medco Health Solutions, which “poses a threat to substantially lessen competition in the provision of pharmacy benefit manager services throughout the United States.”
In a November 30 letter addressed to FTC Chairman Jon Leibowitz, the AAI stated that the combination of two of the three largest national pharmacy benefit management services (PBMs)—and the additional vertical integration that such a combination fosters—would threaten competition and raise prices to large plan sponsors and, ultimately, consumers.
The three largest providers of PBM services control more than 80 percent of the “large plan sponsor market,” and the combined Express Scripts-Medco firm would control approximately 50 percent of that market, according to AAI President Albert A. Foer and Advisory Board Member Dan Gustafson. The third of the “big three” PBMs is CVS Caremark.
This market share is particularly concerning because of the structure of the market and the substantial barriers to entry and expansion, the letter said. The three major PBMs already have significant cost advantages from economies of scale and from vertical integration in mail order and specialty pharmacy distribution.
“When faced with these difficult entry and expansion barriers, the remaining second tier PBMs cannot adequately constrain potential anticompetitive conduct because of their smaller size, geographic limitations, lack of buyer power, and, in some cases, perceived conflicts regarding their corporate affiliation with plan sponsors.”
Large Plan Sponsors
More than 40 of the “Fortune 50” corporations rely on the three largest PBM providers. “Not surprisingly, when one of the big three PBMs loses a large plan sponsor, it almost inevitably [goes] to another one of the big three.”
Smaller competitors typically lack adequate claims-processing capabilities to serve national accounts and have only limited ability to secure discounts and rebates from drug suppliers and to provide lower dispensing fees from pharmacies.
Specialty and Mail Order Distribution
The proposed combination of Express Scripts and Medco is likely to lead to the merged entity’s exercise of enhanced buyer market power in the market for specialty and mail order pharmacy distribution, according to the letter.
“The proposed merger would heighten the risk that these major PBMs would push compensation to many retail pharmacies below what would be competitive levels, ultimately leading to higher prices and lost jobs. An adverse impact on the delivery of pharmaceutical services at the retail level should be sufficient by itself to raise serious concerns about the proposed merger.”
Exclusion of Rivals in Specialty Pharmacy Services
The merged firm would have the ability and incentive to exclude rivals in the provision of specialty pharmacy services, it was alleged. All of the big three PBMs have acquired specialty pharmaceutical companies recently, reducing the number of independent specialty pharmacies and giving the big three power over the downstream specialty pharmacy distribution chain.
Exclusion of Rivals in Mail Order Pharmacy Services
The merger would create the largest mail order pharmacy in the country, accounting for nearly 60 percent of all mail order prescriptions processed, according to the AAI.
“This poses several potential competitive threats. First, further consolidation of the PBM market would exacerbate the competitive disadvantages that smaller, second tier PBMs without vertically integrated mail order operations already face. Second, consolidation of mail order pharmacies threatens to lead to anticompetitive self-dealing. A vertically integrated PBM can channel prescriptions to its own mail order facilities instead of to retail pharmacy competitors, even if the cost of filling the prescription is more than it would be at a local pharmacy.”
Small community pharmacies may also be threatened by this mail order business, the letter maintained.
In light of these competitive threats, the AAI urged the FTC to seek to enjoin the merger.
Text of the letter appears here on the American Antitrust Institute’s website.
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