Express Scripts says its newly completed acquisition of Medco Health Solutions is about driving down health-care costs. Retail pharmacies say the deal is about putting the squeeze on them.
Both sides may be right.
Certainly the independent and chain-store pharmacies, whose trade groups are suing to overturn the deal, have reason to be fearful. Express Scripts showed last year that it's willing to play hardball, pulling $5 billion of business from Walgreens rather than pay the price the chain wanted for prescriptions.
Express Scripts now is even larger. By buying Medco, it has merged two of the three largest pharmacy benefit management, or PBM, companies, with more than $100 billion of combined revenue last year.
But will Express Scripts use its new clout for good or ill? The company itself says it has the consumer's interests at heart.
“Our merger is exactly what the country needs now,” says a statement from Chief Executive George Paz. “It represents the next chapter of our mission to lower costs, drive out waste in healthcare and improve patient health.”
Brian Henry, a company spokesman, says the company cuts health-care costs in many ways, from negotiating lower prices with drugmakers to helping patients manage chronic disease.
“The mission is to help people be healthier,” he said. “We feel like that's one of the things that goes beyond the earnings per share and financial aspects of the merger.”
The financial aspects look good for Express Scripts. The company has said the deal will add to profits this year, and it expects to find $1 billion in cost savings.
The drugstore trade groups say Express Scripts is simply lining its own pockets. They say in a news release that the company's claims about broader health-care savings “are exaggerated and highly dubious.”
The Federal Trade Commission, which approved the deal Monday, rejected the drugstore groups' concern. “Although retail pharmacies might be concerned about this outcome,” the agency said in its order, “a reduction in dispensing fees following the merger could benefit consumers by lowering health care costs.”
The FTC also said that when it asked big companies about the effects of the merger, “the overwhelming majority … view the transaction as competitively benign or even pro-competitive.”
Thomas Greaney, a law professor at St. Louis University, says the FTC is usually reluctant to intervene in a market that it views as dynamic and innovative.
“To put it bluntly, from a competitive standpoint the middlemen like the PBMs are the good guys. They're the ones who are going to exercise some discipline over the providers who are driving health care costs,” Greaney said.
Jackson Nickerson, a professor of organization and strategy at Washington University, says the FTC is right to let the PBM business keep evolving.
“If the retail pharmacies are upset about the merger, they're not upset because it's going to raise the price of drugs, they're upset because it's going to lower prices. It will put a lot of pressure on retail pharmacies,” Nickerson said.
This FTC has been no pushover on antitrust matters. It blocked AT&T's purchase of T-Mobile, and it's been investigating drugmakers' “pay for delay” deals, in which brand-name companies pay other manufacturers to keep generic drugs off the market.
Now, after what the agency says was “not an easy decision,” it has approved the Medco deal without conditions. Someone should monitor Express Scripts on its promise to reduce health care costs, but the promise itself sounds credible.