Pharmacy Benefits Merger Forms Management Powerhouse

Express Scripts (St. Louis, MO, USA) is set to buy rival Medco Health Solutions (Franklin Lakes, NJ, USA) for US$29.1 billion, which would create the largest pharmacy benefit management (PBM) company in the United States.

The combined company would be the industry's largest, with 1.6 billion annual prescription claims, while CVS Caremark (Woonsocket, RI, USA) would be second at 940 million. The merger between two of the three largest PBMs will create a clear industry leader and could encounter antitrust hurdles, since the combined company would have an estimated 30% of the market for prescription claims. As a result, a US Senate antitrust subcommittee plans to hold a hearing on the proposed merger of the PBMs, since the merger would create a company with more than $100 billion in annual revenue.

Healthcare market analysts say the deal could fundamentally change the dynamics of the market for overseeing prescription drug use for health plans and employers. The US Federal Trade Commission (FTC; Washington DC, USA) is also reviewing the deal, following concerns previously raised by consumer groups regarding whether CVS Caremark, the result of a merger between a large drug store chain and a PBM, is hurting competition, and regulators are likely to want to prevent the merger if they have similar worries that it will stifle competition.

“The cost and quality of health care is a great concern to all Americans. We’re going to take a lot of costs out of health care,” said George Paz, chairman and CEO of Express Scripts. “This is the right deal at the right time for the right reasons; we wouldn’t be doing this if we didn’t think we could get it through.”

Upon completion of the transaction, Express Scripts shareholders are expected to own about 59% of the combined company, with Medco shareholders owning about 41%. The combined company's corporate headquarters will be in St. Louis (MO, USA); Express Scripts chief George Paz will serve as chairman and CEO of the combined organization. Express Scripts projected $1 billion in cost savings and other synergies--about 1% of the combined company's costs--and that the deal would slightly add to earnings in the first full year after closing. The merger is expected to close in the first half of 2012.

Related Links:
Express Scripts
Medco Health Solutions
CVS Caremark