Who'll Benefit From Express Scripts-Medco Merger?

Let me get this straight: The gobbling-up of Medco Health Solutions ($66 billion in revenue) by the somewhat smaller Express Scripts ($45 billion) is part of a broader trend in the health care industry to control costs and will result in lower prices for consumers because the larger entities will be inclined to use their increased power to negotiate better prices with Big Pharma and other price gougers.

Among similar developments, "some health plans have been stepping into the business of providing care, generally buying doctor practices and clinics, but most notably with the recent plan by Highmark Inc. to buy West Penn Allegheny Health System," the Wall Street Journal's Anna Wilde Matthews and Jonathan D. Rockoff report in their article about yesterday's announcement of the mega deal for $29.1 billon. "Amid intensifying pressure by government policy makers and employers to trim expenses, the companies want to reduce their own costs, and to improve their leverage in negotiating with suppliers and customers."



Why doesn't that smell right? Why does the consumer in me keep thinking that less competition will result in higher prices at the cash register or on the Online Banking with Bill Pay device near me? Others may say, why can't we get with the program and let consenting corporations do what they want to do in the privacy of their own deals? And why is a duopoly so much worse than a triopoly?

Case in point: Why is the government even thinking about stifling the "innovation" that the folks at AT&T and T-Mobile assure us is sure to result from their union? Why would the FCC "stop the shot clock" on their merger? Shouldn't it be enough that AT&T says it "has developed additional economic evidence that further confirms the tremendous efficiencies and consumer benefits resulting from this transaction," as the Washington Post's Cecilia Kang reports.

Most consumers think of prescription benefit administrators as black boxes. Your doc's Rx goes in; one of three progressively painful co-pay rates comes out. You've got a feeling that generics are always cheaper than proprietary drugs. The actual co-pays seem to be determined the way the state determines its daily lottery winners, with some bureaucratic version of Yolanda Vega running the show, even though you know, deep down, that they are really based on the principle of "the more you desperately need it, the more it will cost."

But that's not the way it really works, the pharmacy-benefits companies would have you believe. They are there to drive consumer prices down. They negotiate tough deals with the drug companies. And they must squeeze from the other direction, too, because the two major trade groups represent the retail emporiums formerly known as drug stores don't like the smell of it either.

The deal would create "a middle man that is too big to play fair and will have immense power to unfairly dominate the market," according to a joint statement by National Community Pharmacists Association evp and CEO Douglas Hoey and National Association of Chain Drug Stores president and CEO Steve Anderson, Drug Store Newsreports.

The increased clout of a merged entity "could hurt store margins or charge them artificially high prices to attract consumers to its mail-order pharmacy, where products are often cheaper," the WSJ's John Jannarone points out in an analysis of the hurdles the proposed deal faces.

But there is a billons-of-dollars question. Analysts and industry experts assure the New York Times' Reed Abelson and Michael J. de la Merced that a combined company will have more clout with Big Pharma, making it easier to demand lower prices. "The question is, 'Will they pass it on to the buyer or will they keep it for earnings?'" Edward A. Kaplan, a benefits consultant with the Segal Company, tells them.

"The combined company hopes to wring even lower prices from drug makers, 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," writes the AP's Linda A. Johnson, who points out that margins for pharmacy benefit managers are "razor thin." Further, "patients might see tougher rules for getting medicines for chronic health problems by mail order or requiring more use of generics."

One thing is becoming much clearer as the health care landscape is radically altered: The impact on consumers just gets murkier. There's a huge opportunity, it would seem, for communications firms to clearly -- and accurately -- articulate what is happening on behalf of their clients.

Note: If you'd really like to settle in for a comprehensive read on the subject, and have ponied up your subscription fee, the Wall Street Journal has a comprehensive package on the deal this morning.

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