On Monday, The Federal Trade Commission approved a $29.1 billion merger between two of the nation's largest pharmacy benefits management firms, citing fierce competition from smaller companies as evidence that the deal would not risk creating a monopoly.
Following an eight-month investigation, the FTC voted 3-1 to close its probe and approve the deal, in which Express Scripts, Inc. will take control of Medco Health Solutions, Inc. Before the acquisition, Medco led the pharmacy benefits management market while Express Scripts ranked third behind CVS Caremark. Pharmacy benefits managers are third party administrators of prescription drug programs that process and pay claims.
In a nine-page, unsigned majority statement, the Commission acknowledged the perceived dangers in allowing a merger among the top three companies, especially one that would control roughly 40 percent of the market.
"The investigation revealed that the high market shares of the parties do not accurately reflect the current competitive environment" and is not likely to cause "unilateral anticompetitive effects, enhance the likelihood of successful coordination, or facilitate the exercise of monopsony power," according to the statement.
FTC Commissioner Julie Brill cast the lone dissenting vote. In a statement, Brill argued that the Commission should have filed suit in federal district court, citing a U.S. Court of Appeals for the District of Columbia Circuit decision that found a merger is suspect if it creates an "appreciable danger" of higher prices even if no hard evidence exists.
"While I sincerely hope that I am wrong about the effects of this merger, I believe – with deep sadness and concern – that will not prove to be the case," Brill wrote.
In particular, the decision referenced the rise of health plan-owned pharmacy benefits management firms and others outside of the big three as evidence that the merger would not unduly affect the market. With the passage of federal health care reform legislation and the creation of Medicare Part D, several insurers have shifted away from the top three firms and opened their own in-house services.
In July 2011, United HealthCare said it would be leaving Medco at the end of 2012 in favor of an in-house operation. The loss is a huge blow to Medco's client base, as United's $11.7 billion in expenditures accounted for 17 percent of Medco's net revenue in 2011.
One concern for smaller companies, according to the FTC majority statement, was that the merged company would be able to outbid the competition due to a sheer numbers advantage.
According to the Commission's statement, "after examination of the actual cost data submitted by various PBMs, those cost advantages were not as significant as hypothesized and, for many inputs, may not exist at all."
A statement released by Sen. Herb Kohl, chairman of the Antitrust, Competition Policy and Consumer Rights Subcommittee, supported the decision but called on the FTC to keep an eye on the market to help protect smaller pharmacies and keep drug costs down.
"We are also aware of the vital role of local, community pharmacists in serving consumers, and will continue to monitor this industry to ensure that consumers continue to have access to their local pharmacists to serve their prescription drug needs," Kohl wrote.
In an interview, former FTC Competition Director Richard Parker supported the decision, characterizing the Commissioners as "vigorous enforcers" who are "not afraid to bring a case when they feel there is reason to do so."
Some are not so ready to accept the Commission's findings. For example, five states – New York, Ohio, Pennsylvania, Texas and California – have said they would consider challenging the FTC if it did not impose what they consider to be adequate safeguards against inflated drug prices and decreased pharmacy service.