Express Scripts, Medco Tout Cost Savings Before U.S. Senate Merger Hearing

Express Scripts Inc. (ESRX) and Medco Health Solutions Inc. (MHS) save tens of billions of dollars in annual drug costs, according to a report released before today’s U.S. Senate hearing on the companies’ planned $29.1 billion merger.

While the company-funded study touts the advantages of the proposed deal, three Republican senators raised concerns the merger may reduce competition as opponents and supporters increased their debate about the transaction.

Express Scripts, of St. Louis, agreed in July to acquire Franklin Lakes, New Jersey-based Medco. The deal requires approval from the Federal Trade Commission. The pharmacy-benefit managers save health-plan sponsors and consumers as much as $87 billion in annual prescription-drug costs, according to a Compass Lexecon study released yesterday and funded by the companies.

“This study shows the economic benefits created by PBMs today, the role that PBMs should play in constraining rising health-care costs in the future and the role the merger of Express Scripts and Medco can play in accelerating those savings,” Jonathan Orszag, the study’s lead author, said in a statement that accompanied the report. Orszag, senior managing director at Washington-based Compass, served as an economic policy adviser to former president Bill Clinton.

The company-sponsored report “overlooks the considerations that should be driving the conversation” about the proposed merger, said David Balto, a Washington-based antitrust attorney representing consumer groups, business organizations and specialty pharmacies who oppose the deal.

‘Old Data’

“The report relies almost exclusively on old data and old government reports, including reports from 2002 and 2003,” Balto said yesterday in an e-mail. “The entire landscape of the PBM industry has changed dramatically since these reports were released.”

Pharmacy-benefits managers act as middlemen for drugmakers, pharmacies and health-plan sponsors, negotiating prices and managing the use of drugs by patients. Their profits are tied to cutting their clients’ drug costs.

Antitrust regulators should conduct a “thorough and complete investigation” in deciding whether to clear the purchase, Republican Senators Saxby Chambliss and Johnny Isakson, both of Georgia, and Jerry Moran of Kansas said Dec. 2 in a letter to FTC Chairman Jonathan Leibowitz. The Senate Judiciary antitrust subcommittee is scheduled to discuss the proposed deal at a hearing today.

Controlling the Market

The combined company may control 60 percent of the mail- order prescription market and 50 percent of the market for specialty drugs that treat complex illnesses, the lawmakers said. The Dec. 2 letter was released yesterday by the National Community Pharmacists Association, a trade group that opposes the merger. Chambliss, Isakson and Moran are among 27 lawmakers who have raised concerns about the deal, the group said.

“This merger would reduce patient choice and access to pharmacy services and ultimately result in higher prescription drug costs,” Douglas Hoey, chief executive officer of Alexandria, Virginia-based NCPA, said yesterday in an e-mail.

The Medco purchase has drawn support from seven members of the Congressional Black Caucus who told the FTC last week that the combined company may boost competition, drive down health- care costs and improve access to critical drug therapies.

“It is our understanding that businesses would have plenty of competitive choices post-merger, and the combined Express Scripts-Medco will be fully subject to competitive pressures that will help ensure value-based pricing and service,” the seven House Democrats, led by Representative Edolphus Towns of New York, said in a Nov. 30 letter to Leibowitz.

Anti-tax activists Grover Norquist, president of Americans for Tax Reform, and Duane Parde, president of the National Taxpayers Union, also backed the merger in letters sent last week to Senator Herb Kohl, the Wisconsin Democrat who heads the Judiciary panel’s antitrust subcommittee.

To contact the reporter on this story: Molly Peterson in Washington at mpeterson9@bloomberg.net

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net.

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