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The pending $29.1 billion merger of Express Scripts and Medco Health Solutions — a deal that, if it passes muster with government regulators, will combine two of the three largest pharmacy benefit management companies to create a dominant player in the sector — raises a host of challenges for community pharmacy operators and others involved in the prescription drug supply chain.
The stated reasons for the transaction are reasonable enough. Express Scripts chairman and chief executive officer George Paz, who will hold the same posts following the closing of the merger, cites responsibility to help eliminate waste from health care delivery while improving quality.
He asserts that by melding the complementary strengths of Medco and Express Scripts, the new entity will be able to “better protect American families from the rising costs of prescription medicine.”
One important issue is how those savings will be achieved. The combined company will certainly wield a lot of clout in negotiations with pharmaceutical manufacturers, wholesalers and pharmacies. Those organizations may well be faced with the choice of accepting Express Scripts’ terms or walking away from doing business with a company that accounts for between 30% and 40% of the PBM market.
The current confrontation between Walgreens and Express Scripts illustrates the problem.
The nation’s largest drug chain decided in June to drop out of Express Scripts’ pharmacy provider network at the beginning of 2012. Walgreens executive vice president and chief financial officer Wade Miquelon noted that the move was made because “we believe the long-term ramifications of accepting Express Scripts’ proposal with below-market rates and minimal predictability for the services we provide would have been much worse than any shortterm impact to our earnings.”
That’s saying a lot when this fiscal year the retailer will fill some 90 million prescriptions administered by Express Scripts that account for approximately $5.3 billion in sales.
Walgreens’ willingness to draw a line in the sand to protect the integrity of its pharmacy business, even when the potential financial impact is considerable, should be commended. Whether any pharmacy retailer could come to a similar conclusion if the stakes were doubled is an open question.
Leading community pharmacy groups have already voiced their strong opposition to the Express Scripts-Medco merger. Despite their concerns, the transaction very well could win the necessary approvals. Pharmacy operators would do well to begin thinking about how they will cope with a PBM of unprecedented size and influence.
