Express Scripts-Medco Merger — Antitrust?

If this merger doesn’t draw fire from the antitrust division of the U.S. Justice Department and the Federal Trade Commission, then those agencies aren’t paying attention. Express Scripts and Medco combined accounted for 1.7 billion prescriptions in 2010, worth about $110 billion in revenue. That’s about a third of the total prescription drug market.

If this merger doesn’t draw fire from the antitrust division of the U.S. Justice Department and the Federal Trade Commission, then those agencies aren’t paying attention. Express Scripts and Medco combined accounted for 1.7 billion prescriptions in 2010, worth about $110 billion in revenue. That’s about a third of the total prescription drug market.

The companies claim this merger will give them increased clout to negotiate better deals with drug companies. In theory, yes. But as we’ve seen many times in the past, prescription drug benefit managers spend more time squeezing pharmacies with their slim retail margins than they do calling questionable drug industry practices into question. They too often act as pass-through agents for drug company price increases, the same kind of cozy relationship that dominates every other nook of the health care field. They’ve played a somewhat constructive role in the high generic substitution rate in recent years, but as Matt Herper at Forbes points out this morning on the Forbes website, that behavior is now pretty much baked into drug plan and health plan behavior. That leaves PBMs without a function (except to add another layer of cost) unless they rigorously go after the drug companies on price and unnecessary use.

The only guarantee that PBMs will do that job is by the government insisting there be rigorous competition in the industry for drug and health plan business.