Monday, April 09, 2012

F.T.C. Approves Merger of 2 of the Biggest Pharmacy Benefit Managers

This article is from the New York Times and deals with oligopoly.

Medco and Express Scripts (two large P.B.M. companies) decided to merge in September of 2011 and were subsequently approved in April 2012 totaling a $29.1 billion merger. P.B.M. companies are “pharmacy benefit managers”, and manage prescription plans for employers and insurers. The reason this is a big deal is the consequences of letting two large firms, such as these, merge. The Federal trade commission usually prevents these types of merges from happening; however, (unlike with AT&T and T-Mobile) the FTC let this one slip through the cracks.

The effects of the FTC’s decision to allow the companies to merge are as follows: they now have more influence over prices than before, which could create entry barriers; rebates pharmacies contract for will become even smaller (profit loss). (The reason why Walgreens stopped accepting Express Scripts in the first place), and consumers will be forced to join a mail order service instead of being allowed the freedom to choose a pharmacy to receive services. The consequence for opting out of this mail-order service is the consumer will pay the entire cost of the drug, which can be very expensive.

With lower rebates and less consumers coming to pharmacies for their needs, there is not a very high chance that this will lower prices as the Express Scripts spokesperson claims. It will make it more difficult for pharmacies to earn any profit, decrease an already limited competition and force the drug industry wherever the merged company takes it, hence the reason why anti-trust laws are in place.

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