The great thing about opinions is that everybody has one. And in the case of
the proposed acquisition of Medco (NYSE: MHS ) by its smaller rival Express
Scripts (NASDAQ: ESRX ), multiple views about the wisdom of the deal and its
likelihood of success dominate the conversation. The questions surrounding the
proposed $29 billion deal between the prescription benefit management companies
have broad implications for investors. One big unknown is whether the U.S.
government will OK the deal. After all, combining the two would create a company
involved in about a third of U.S. prescriptions worth more than $100 billion in
spending, according to Atlantic Information Services, a health care data firm.
As middlemen in the drug-supply chain, pharmacy-benefit managers (PBMs) play a
huge role in the countrys $300 billion-plus yearly spending on drugs. The U.S.
Federal Trade Commission is likely to put the deal under a microscope because of
concerns about anything that stands to drive up the cost of health care. The
third big PBM, CVS Caremark (NYSE: CVS ), already is under scrutiny as the FTC
is taking a close look at the company's business practices. This investigation
indicates the agency already is skeptical about the level of competition in the
PBM market, according to David Balto, a Washington antitrust lawyer and former
policy director at the FTC. Balto said Express Scripts and Medco "are in for a
big fight." Two pharmacy industry groups hope the FTC kills or modifies the
deal. The National Association of Chain Drug Stores and the National Community
Pharmacists Association are concerned the combined company would be too big to
play fair, and will have immense power to unfairly dominate the market. Health
care analyst John R. Graham thinks the government will bless the acquisition.
Graham, the Director of Health Care Studies at the Pacific Research Institute in
San Francisco, doesn't think the takeover will come close to the FTC's and
Department of Justice's threshold for concern. Graham also thinks the Obama
administration doesn't like competition and fragmentation in health care and
that a more concentrated PBM sector can be used to
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