Past experience will make FTC wary of Medco deal

September 1, 2011

When the Federal Trade Commission evaluates Express Scripts' intended acquisition of Medco, it might take a more meticulous look at the PBM market than it has in the past.

The acquisition would make Express Scripts easily the largest pharmacy benefit manager in the nation with 155 million covered lives, according to Atlantic Information Services-about one-fourth of the market. In terms of dollars, analysts are predicting the PBM giant would control 30% of the market by 2013.

Even so, the Burchfield Group consulting firm puts the chance of regulatory approval at 90%. Express Scripts chief George Paz reportedly believes the deal is in the bag, reasoning that Medco tends to serve large, national clients, while Express Scripts serves smaller, local clients. But there's more to it than just the numbers on paper.

Keep in mind that FTC and 24 attorneys general are still investigating the merger that brought together drug store chain CVS with pharmacy benefit manager Caremark four years ago. The investigation has been going on since 2009.

Investors contend that CVS/Caremark would have more value as two separate entities, while at the same time, consumer groups claim a firewall to protect personal health information was never created as promised. They believe pharmacy benefit information is being inappropriately tapped to drive members to CVS drug stores and the company's own mail-order facilities.

Results of the investigation could increase FTC's sensitivity with the Medco/Express Scripts deal.

Just as one example, look at how Medco built up its mail-order penetration to 34.1% in 2010. Once combined, the new PBM would control 59% of all mail-order prescriptions, according to the National Community Pharmacists Assn. (NCPA), which could be the deal-breaker. Mail-order dollar value would total somewhere in the neighborhood of $37 billion.

NCPA is fervently against the merger, citing the mail-order dominance for one thing. The group has long maintained that in-person interaction with a local pharmacist at the dispensing location is superior to the phone contact that mail order offers (not to mention that mail-order fills take business away from local pharmacies).

Most studies of mail-order delivery focus on consumer copay costs or medication-possession rates. However, Kaiser Permanente recently released results of an outcomes study of 100,000 members that showed those receiving their statin prescriptions through a mail-service pharmacy (29%) achieved better cholesterol control compared to those who went to their local pharmacy. The plan found that 85% of those who used mail order achieved target cholesterol levels, compared to 74.2% of those using local pharmacies.

Expect that the new Medco/Express Scripts combined company-if it is able to keep all the current mail-order hubs-will push for more scripts delivered to more mailboxes nationwide. With the emerging value-based designs in pharmacy benefits, expect that the members' financial incentives to use mail order will become a little bit sweeter, too.

You might see a strategic mail-order facility divestiture from Medco or Express Scripts in order for the deal to go through. Nonetheless, more aggressive promotion of mail order seems inevitable.

Julie Miller is editor-in-chief of Managed Healthcare Executive. She can be reached at julie. miller@advanstar.com