A key House Judiciary subcommittee rightly convened a hearing recently to examine a pharmaceutical megamerger that carries enormous risks for patients, the government and other health plan sponsors.
Unless the Federal Trade Commission rejects the union of giant pharmacy benefit managers (PBMs) Express Scripts and Medco, it will almost certainly harm patients by reducing choice, increasing prescription drug costs and decreasing access to high-quality pharmacy services.
While community pharmacists have felt that way since the deal was announced July 21, just hours before Subcommittee on Intellectual Property, Competition, and the Internet Chairman Bob Goodlatte (R-Va.) opened his hearing, five of the nation's top consumer groups announced their opposition to the proposal.
Consumers Union (the publisher of Consumer Reports), Consumer Federation of America, U.S. Public Interest Research Group (or PIRG), National Consumers League and the National Legislative Association on Prescription Drug Prices (or NLARx) oppose the merger due to its potential for "significant consumer harm," as they put it.
"This merger will significantly reduce competition among the major PBMs," the groups wrote in a letter to the FTC. "By reducing market rivalry, Express Scripts-Medco is likely to charge more for its services as well as to pass on less savings obtained through rebates to public and private payers. Ultimately, consumers will bear these price increases in the form of higher premiums."
As two of America's three largest PBMs, Express Scripts and Medco would combine to control more than 50 percent of the prescription volume of the largest U.S. health plans, more than 50 percent of the high-cost "specialty" prescriptions and almost 60 percent of mail-order volume. Those staggering numbers only tell part of the story.
Even before the proposed merger's announcement, the nation's largest employers, including the federal government, have been limited in their pharmacy benefit management options. This merger will reduce their choices from three to two.
Consider the recent experience of the California Public Employees' Retirement System (CalPERS), which is the largest purchaser of health care services after the federal government. In selecting a PBM, CalPERS' leadership was reduced to choosing between one company (CVS Caremark), which was being sued for previously defrauding CalPERS, and its incumbent, Medco, which was accused of paying about $4 million in bribes to win the CalPERS contract.
Indeed, in recent years, the "big three" PBMs have faced repeated accusations of fraud and deceptive practices in litigation filed by state attorneys general, unions and other plaintiffs. The PBMs have paid more than $370 million to date to make these cases go away. However, this merger would give these PBMs even more leverage in dealing with customers and very well could exacerbate existing problems in the industry.
The merger's anticompetitive impact on the increasingly important specialty and mail-order segments is particularly troublesome.
Specialty drugs cost $1,867 on average, and experts forecast that in 2016, eight of the top 10 drugs will be specialty drugs. This merger would entrust more than 50 percent of specialty volume to one dominant company.
With a combined share of almost 60 percent, the proposed merger's effect on the mail-order segment would also be significant. When compared with local pharmacies, PBM-owned mail-order facilities consistently dispense fewer lower-cost generic drugs and more brand-name medicines, thus driving up overall health care expenses. PBM strong-arm tactics to push their mail-order business will only get worse if Express Scripts and Medco are allowed to merge.