Express Scripts buying Medco for $29.1b, looking to limit costs
The top two US companies managing prescription drug benefits are uniting in a $29.1 billion deal they say will help achieve key goals of the health care overhaul: reining in costs and improving patients’ health.
Express Scripts Inc. announced an agreement yesterday to buy larger rival Medco Health Solutions Inc., a combination that would handle the prescriptions of about 135 million people, more than one in three Americans.
That will give them even more clout in demanding discounts from drugmakers, who are dealing with falling or stagnant revenue as blockbuster drugs taken daily by millions are getting cheaper generic competition.
Pharmacy benefit managers process mail-order prescriptions and handle bills for prescriptions filled at retail pharmacies. They act as middlemen between employers offering prescription drug benefits and drugmakers, extracting discounts, often in exchange for giving their brands preferred status over rivals’ drugs. They also hold down costs with tiered copayments that nudge patients to buy generics or the lowest-cost brand names, and by reminding patients to take medicines as scheduled to limit costly complications.
Together, Express Scripts and Medco handled more than 1.7 billion prescriptions in 2010 and reported almost $110 billion in revenue. However, Medco, the bigger company by revenue, recently lost several major contracts covering millions of people. Most of their revenue goes back out to pay for medicines, leaving the industry with razor-thin profit margins.
The combined company hopes to wring even lower prices from drugmakers, but it wasn’t immediately clear whether that would benefit just their employer and health plan clients, or if some of those savings would be passed on to consumers in the form of lower copayments.
Patients might see tougher rules for getting medicines for chronic health problems by mail order or requiring more use of generics. Patients whose prescriptions are handled by either company shouldn’t see any changes right away, as their drug benefit plans are covered under multiyear contracts.
The combination would double Express Script’s market share to 30 percent, leapfrogging ahead of rival CVS Caremark, which has a 15 percent share, according to Atlantic Information Service, a health care information publisher.
The deal will reduce pharmacy choices for customers and could create negotiating headaches for pharmacies, said pharmacist Hamid Abbaspour, founder of the independent Dr. Aziz Pharmacy in Indianapolis.
“Every time you see these conglomerates combine . . . it always brings up issues,’’ he said.
Abbaspour, who does business with both Medco and Express Scripts, said their combination means independent drug stores might have more difficult negotiations because prescription benefit managers, or PBMs, have more leverage.
“We actually have to push to be part of their provider group,’’ he said, because PBMs funnel business to their own mail-order pharmacies. “Sometimes they come to us and say, ‘Take it or leave it,’ and at some point it could put a huge financial burden on us if we say, ‘We don’t accept this unfair contract.’ ’’