[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]






         THE PROPOSED MERGER BETWEEN EXPRESS SCRIPTS AND MEDCO

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         INTELLECTUAL PROPERTY,
                     COMPETITION, AND THE INTERNET

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 20, 2011

                               __________

                           Serial No. 112-58

                               __________

         Printed for the use of the Committee on the Judiciary







      Available via the World Wide Web: http://judiciary.house.gov



                                _____

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                       COMMITTEE ON THE JUDICIARY

                      LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina         JERROLD NADLER, New York
ELTON GALLEGLY, California           ROBERT C. ``BOBBY'' SCOTT, 
BOB GOODLATTE, Virginia                  Virginia
DANIEL E. LUNGREN, California        MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio                   ZOE LOFGREN, California
DARRELL E. ISSA, California          SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana                  MAXINE WATERS, California
J. RANDY FORBES, Virginia            STEVE COHEN, Tennessee
STEVE KING, Iowa                     HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona                  Georgia
LOUIE GOHMERT, Texas                 PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio                     MIKE QUIGLEY, Illinois
TED POE, Texas                       JUDY CHU, California
JASON CHAFFETZ, Utah                 TED DEUTCH, Florida
TIM GRIFFIN, Arkansas                LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania             [Vacant]
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
[Vacant]

      Sean McLaughlin, Majority Chief of Staff and General Counsel
       Perry Apelbaum, Minority Staff Director and Chief Counsel
                                 ------                                

  Subcommittee on Intellectual Property, Competition, and the Internet

                   BOB GOODLATTE, Virginia, Chairman

                   BEN QUAYLE, Arizona, Vice-Chairman

F. JAMES SENSENBRENNER, Jr.,         MELVIN L. WATT, North Carolina
Wisconsin                            JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
STEVE CHABOT, Ohio                   JUDY CHU, California
DARRELL E. ISSA, California          TED DEUTCH, Florida
MIKE PENCE, Indiana                  LINDA T. SANCHEZ, California
JIM JORDAN, Ohio                     JERROLD NADLER, New York
TED POE, Texas                       ZOE LOFGREN, California
JASON CHAFFETZ, Utah                 SHEILA JACKSON LEE, Texas
TIM GRIFFIN, Arkansas                MAXINE WATERS, California
TOM MARINO, Pennsylvania             [Vacant]
SANDY ADAMS, Florida
[Vacant]

                     Blaine Merritt, Chief Counsel

                   Stephanie Moore, Minority Counsel










                            C O N T E N T S

                              ----------                              

                           SEPTEMBER 20, 2011

                                                                   Page

                           OPENING STATEMENTS

The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Chairman, Subcommittee on 
  Intellectual Property, Competition, and the Internet...........     1
The Honorable Melvin L. Watt, a Representative in Congress from 
  the State of North Carolina, and Ranking Member, Subcommittee 
  on Intellectual Property, Competition, and the Internet........     3
The Honorable Tom Marino, a Representative in Congress from the 
  State of Pennsylvania, and Member, Subcommittee on Intellectual 
  Property, Competition, and the Internet........................     4
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, Ranking Member, Committee on the 
  Judiciary, and Member, Subcommittee on Intellectual Property, 
  Competition, and the Internet..................................     6

                               WITNESSES

George Paz, Chairman and Chief Executive Officer, Express 
  Scripts, Inc.
  Oral Testimony.................................................    15
  Prepared Statement.............................................    17
David B. Snow, Jr., Chairman and Chief Executive Officer, Medco 
  Health Solutions, Inc.
  Oral Testimony.................................................    42
  Prepared Statement.............................................    43
Joseph Lech, R.Ph., Owner, Lech's Pharmacy, Member, National 
  Community Pharmacists Association
  Oral Testimony.................................................    48
  Prepared Statement.............................................    51
Dennis Wiesner, R.Ph., Senior Director of Privacy, Pharmacy, and 
  Governmental Affairs, H-E-B Grocery Company, LP
  Oral Testimony.................................................    79
  Prepared Statement.............................................    81
Dan E. Gustafson, Partner, Gustafson Gluek PLLC
  Oral Testimony.................................................    84
  Prepared Statement.............................................    86
Stephanie Kanwit, Counsel, Manatt, Phelps & Phillips, LLP
  Oral Testimony.................................................    92
  Prepared Statement.............................................    93

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Letter from Matthew E. Baker, Chairman, Health Committee, 
  Pennsylvania House of Representatives submitted by the 
  Honorable Tom Marino, a Representative in Congress from the 
  State of Pennsylvania, and Member, Subcommittee on Intellectual 
  Property, Competition, and the Internet........................     6
Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, Ranking 
  Member, Committee on the Judiciary, and Member, Subcommittee on 
  Intellectual Property, Competition, and the Internet...........     8
Pharmaceutical Care Management Association (PCMA) study submitted 
  by George Paz, Chairman and Chief Executive Officer, Express 
  Scripts, Inc...................................................    23
National Community Pharmacists Association (NCPA) document 
  submitted by Joseph Lech, R.Ph., Owner, Lech's Pharmacy, 
  Member, National Community Pharmacists Association.............    55

                                APPENDIX
               Material Submitted for the Hearing Record

Responses to Post-Hearing Questions from George Paz, Chairman and 
  Chief Executive Officer, Express Scripts, Inc..................   128
Prepared Statement of Adam J. Fein, President, Pembroke 
  Consulting, Inc................................................   131

 
         THE PROPOSED MERGER BETWEEN EXPRESS SCRIPTS AND MEDCO

                              ----------                              


                      TUESDAY, SEPTEMBER 20, 2011

              House of Representatives,    
         Subcommittee on Intellectual Property,    
                     Competition, and the Internet,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 3:37 p.m., in 
room 2141, Rayburn House Office Building, the Honorable Bob 
Goodlatte (Chairman of the Subcommittee) presiding.
    Present: Representatives Goodlatte, Coble, Chabot, Issa, 
Chaffetz, Marino, Adams, Watt, Conyers, Chu, Deutch and Nadler.
    Staff Present: (Majority) Holt Lackey, Counsel; Olivia Lee, 
Clerk; and (Minority) Stephanie Moore, Subcommittee Chief 
Counsel.
    Mr. Goodlatte. Good afternoon. The Subcommittee will come 
to order. I have an opening statement.
    This hearing will examine the proposed $29.1 billion 
acquisition of Medco Health Solutions by Express Scripts. 
Express Scripts and Medco are both pharmacy benefit managers, 
or PBMs. PBMs are probably among the least known and least 
understood big businesses in America. Essentially PBMs act as 
middlemen between health insurance plans that offer 
prescription drug benefits and the pharmaceutical companies and 
pharmacists who manufacture and dispense prescription drugs to 
the plan's beneficiaries. But just because most Americans may 
not have heard of PBMs does not mean that they are anything 
less than enormous businesses with a significant impact on 
prices and competition in the market for prescription drugs in 
America.
    When a person with health insurance fills a prescription, 
it is likely that a PBM was involved in setting the copay, 
determining the pharmacist's compensation, negotiating rebates 
and discounts with the drug manufacturer, and billing the 
health insurance plan for the drugs. For a growing number of 
prescriptions, the PBM also acts as the pharmacist. PBMs now 
control a majority of the mail-order pharmacy business.
    PBM's position in the center of the American prescription 
drug market has proven very lucrative. In 2010, Express Scripts 
and Medco earned a combined profit of about $2.5 billion, with 
revenue over $100 billion. The proposed merger we examine today 
would combine two of the three largest PBMs and create a 
company that would be involved in about a third of all 
prescription drugs sales in America.
    The combined company would control about 60 percent of the 
mail-order pharmacy market and a majority of the specialty 
pharmacy market. The combined company would be the incumbent 
holding the PBM contract for a majority of the companies on the 
Fortune 50. This consolidation would come in a market that has 
already come under considerable scrutiny for alleged abuses of 
market power. Small pharmacists have long complained that PBMs 
leverage market power to force pharmacies into unfavorable and 
unfair contracts.
    My colleague Mr. Marino of Pennsylvania has led efforts to 
even bargaining power between PBMs and pharmacies and 
introduced H.R. 1946, the Preserving Our Own Hometown 
Pharmacies Act, to empower small pharmacies to negotiate with 
PBMs on more even terms.
    In addition to pharmacies, PBMs enter contracts with 
essentially every major player in the supply and payment system 
for prescription drugs. A PBM with too much market power could 
demand ever larger rebates and discounts from drug companies, 
capturing more of their profits and perhaps leading to a 
decrease in competition and innovation to bring new drugs to 
market.
    A PBM exercising unlawful market power could decrease the 
reimbursement rates for pharmacies filling prescription drugs 
to levels that make traditional pharmacies unprofitable and 
push more pharmacy business to the PBMs' own mail-order 
pharmacy business.
    And a PBM unchecked by competition could potentially raise 
the prices that it charges employers and other health insurance 
plan sponsors for administering their prescription drug 
benefits. If this merger leads to a decrease in the supply of 
prescription drugs and pharmacy services or raises their 
prices, then America's prescription drug consumers will bear 
the burden.
    It is by no means clear that today's merger will have any 
of these negative effects. The merging parties argue that far 
from raising prescription drug prices, PBMs are essential to 
controlling medical costs by negotiating the best possible deal 
for health insurance plans and the consumers who are covered by 
those plans.
    There is evidence that PBMs actually do save health care 
costs, and that PBM mergers can help PBMs realize efficiencies 
and skills that empower them to save even more money for their 
clients. One study released just yesterday estimates that PBMs 
would save their clients almost $2 trillion of health care 
costs over the next decade.
    Another fact to consider is that nearly every major plan 
sponsor who is responsible for administering a health insurance 
plan hires a PBM to administer the prescription drug benefit 
under that plan. If PBMs did not save money for plan sponsors, 
then presumably plan sponsors would not continue to engage 
them.
    This hearing will examine all of the issues surrounding 
this merger. I look forward to hearing from our expert witness 
panel today. But I would like to conclude my opening remarks by 
raising a larger concern that goes beyond the details of this 
merger and has to do with our health care economy as a whole.
    In the investor call announcing this merger, both Express 
Scripts CEO George Paz and Medco CEO David Snow, who are here 
today as witnesses, mention the President's health care reform 
as a major factor motivating the merger. Mr. Snow said that, 
quote, ``I believe you are going to see all sorts of 
combinations across the spectrum of health care as everyone 
realigns to the new imperatives related to health care reform 
and the demands the government is making,'' end quote. I am 
concerned that Mr. Snow may have been right. In the 18 months 
since the President's health care bill became law, we have seen 
a wave of mergers in various levels of the health care economy. 
I am concerned that this wave of mergers may be a symptom of a 
deeper dysfunction in our health care economy created by the 
ill-conceived health care bill.
    I hope that today's hearing sheds light on the continuing 
debate in Congress over whether last year's government takeover 
of health care will have the effect of favoring regulation over 
free market, government mandates over competition, and big 
businesses over small.
    At this time it is my pleasure to yield to the Ranking 
Member of the Subcommittee, the gentleman from North Carolina, 
Mr. Watt.
    Mr. Watt. Thank you, Mr. Chairman. And it will come as no 
surprise to the Chairman my attitude about hearings about 
mergers. I have expressed them before, and I want to try to be 
consistent on this occasion.
    To be clear, the Committee on the Judiciary has 
jurisdiction over all laws related to antitrust. Federal 
antitrust laws concern the functioning of the marketplace and 
competition and are enforceable by the Antitrust Division of 
the Department of Justice, the Federal Trade Commission and 
private persons.
    The proposed merger between pharmacy benefit managers 
Express Scripts and Medco Health Solutions is currently under 
examination by the Federal Trade Commission, which recently 
requested additional information from the companies, signaling 
that the FTC is paying attention to us knitting, and that the 
deal has raised antitrust concerns with the regulators.
    The FTC's so-called second request demonstrates that the 
merger will receive close scrutiny, and that the agency stands 
ready to fulfill its mission to prevent anticompetitive mergers 
and business practices in the marketplace.
    In aid of this investigation, the FTC has the authority to 
compel detailed, confidential information to which we as 
legislators simply do not have access, making it far more 
likely that an appropriate determination will be made based on 
the facts and not on political pressure.
    It should come as no surprise that I believe, as I 
indicated in prior hearings before the Committee, that our 
oversight function is best reserved to address legitimate 
concerns; for example, agency impropriety, incompetence or 
inexplicable inaction, or if, as is more likely in this budget-
cutting fiscal environment, the agency is so understaffed or 
underfunded that it is ill-equipped to discharge its 
responsibilities at all. Fortunately no such claims have yet 
been raised with respect to this merger.
    In the area of pharmacy benefit managers, this Committee in 
prior sessions of Congress has considered whether a limited 
antitrust exemption is appropriate to permit independent 
community pharmacies to collectively negotiate the terms and 
conditions of insurance contracts in order to produce plans 
that would arguably protect the patient's choice of pharmacy. 
To the extent that this hearing sheds light on whether we 
should revisit that question, I believe it could be helpful to 
the Committee.
    Now, also, other legislative issues, for example, the lack 
of transparency of the PBM call structures, that the Ways and 
Means Committee could appropriately consider.
    I look forward to hearing from the experts assembled here 
today. I know that their testimony will provide the public with 
a fuller understanding of the issues at hand. But let me be 
clear: The ultimate determination as to whether this merger 
impermissibly restrains competition or otherwise violates the 
antitrust laws lies with the FTC and not with the House of 
Representatives or the Judiciary Committee on which we sit 
today.
    Mr. Chairman, I yield back, and thank you to the Chairman.
    Mr. Goodlatte. I thank the Ranking Member.
    The Chair will now recognize the gentleman from 
Pennsylvania, Mr. Marino, for an opening statement.
    Mr. Marino. I thank the Chairman.
    Chairman Goodlatte, Ranking Member Watt, I would like to 
thank you for holding this hearing today on the proposed merger 
between Express Scripts and Medco, and particularly for 
inviting my constituent Mr. Joseph Lech to testify.
    I believe that this hearing gives us the unique opportunity 
not just to discuss the merits of this particular merger, but 
to discuss the broader challenges that many community 
pharmacists are facing.
    In the 10th Congressional District of Pennsylvania, local 
pharmacies are the foundation of many communities. People know 
their pharmacists and have trusted their advice and guidance 
for years. My daughter takes a great deal of medication on a 
daily basis. My pharmacist is always there; he knows us on a 
first-name basis. There have been situations where we have gone 
away and either forgotten or ran out of a prescription. We just 
call our pharmacist, and he makes the arrangements, and we are 
taken care of wherever we are.
    It is personal service like this that makes community 
pharmacies so valuable. In fact, nothing has highlighted the 
importance of local pharmacies and the role they play in the 
community more than the recent events that occurred in 
northeastern Pennsylvania over the past few weeks. It is my 
understanding that Mr. Lech is prepared to discuss in more 
detail a personal story about this. But I can tell you that 
without community pharmacies like Mr. Lech's, a horrible 
situation for our friends and neighbors could have been much 
worse.
    Community pharmacies are now facing a number of challenges 
that are threatening their ability to continue to provide 
personal services to communities and neighborhoods that need 
them the most. As a result, we have seen the number of 
community pharmacies decline nearly 50 percent since 1980. This 
is a disturbing trend, especially because it is small 
businesses such as Lech's Pharmacy that will lead us out of 
these difficult economic times.
    As policymakers it is our job to focus on laws and policies 
that empower small businesses to grow and create jobs right 
here in the United States. I have serious questions and 
concerns that the merger we are discussing today could worsen 
the climate for independent pharmacies and could lead to excess 
access and higher costs for patients.
    I am especially concerned about the consolidation this 
merger would cause in the mail-order and specialty drug 
markets. According to 2011 Atlantic Information Systems data, 
the combined mail-order facilities would concentrate 59 percent 
of the mail-order market, and in 2009 the combined specialty 
drug market share for Express Scripts and Medco was 52 percent. 
There have already been a number of reports where patients are 
being directed away from local specialty pharmacies to ones 
that may be much farther away and are owned by the PBMs.
    While I am concerned about the effects of this merger, it 
is important to recognize that regardless of the outcome of the 
Federal Trade Commission review, independent pharmacies will 
still face substantial difficulties. For this reason I have 
introduced H.R. 1946, the Preserving Our Hometown Independent 
Pharmacies Act, that would be one step toward leveling the 
playing filed for community pharmacies. This legislation would 
allow independent pharmacies to join together to negotiate the 
terms and conditions of insurance contracts, to produce plans 
designed that would better protect the patient's access to 
their pharmacy of choice and are fair to the pharmacies. This 
legislation would put an end to the ``take it or leave it'' 
tactics that small pharmacies are currently forced to accept. 
Many of my colleagues from the Committee and Subcommittee have 
already joined me in these efforts by cosponsoring this 
legislation.
    In conclusion, I would like to enter into the record a 
letter I received from the Pennsylvania House of 
Representatives chairman of the Health Committee, Matthew 
Baker, in opposition to the merger. In the letter he stated, 
PBMs' record of controlling costs is questionable, and the 
proposed merger would limit the ability of both the private and 
public sector to control health care costs, thus resulting in a 
significant reduction of competition.
    Again, I would like to thank the Chairman for holding this 
important hearing. As the FTC commits its review and continues 
of this proposed merger, I would ask that they pay special 
attention to what it would do to patient access to the local 
pharmacies and the personal care these pharmacies provide. I 
look forward to working with you, Chairman Goodlatte and 
Ranking Member Watt, to ensure that we are doing everything we 
can to give hometown pharmacies the opportunity to grow and 
create jobs, while providing the best care for our families.
    Mr. Goodlatte. I thank the gentleman, and, without 
objection, the letter from Mr. Baker will be made a part of the 
record.
    [The information referred to follows:]
    

    
                               __________

    Mr. Goodlatte. We are pleased to be joined by the Ranking 
Member of the full Judiciary Committee, the gentleman from 
Michigan, Mr. Conyers, and I am pleased to recognize Mr. 
Conyers.
    Mr. Conyers. Thank you, Chairman Goodlatte and Mel Watt, 
our Ranking Member.
    I had said before that I have rarely met a merger that I 
liked, but this is one that I like more than the ones that I 
don't like. And so the biggest problem I have here is that the 
small pharmacies and independents are urging me not to support 
it, and I hope I hear persuasive discussion that will lead me 
to go along with this circumstance.
    Now, this is a case of a small company taking over a bigger 
company, isn't it, which is also quite unusual. So here we come 
with these intermediaries, these folks that work in between the 
pharmacy benefit managers. How did they get into the picture? 
Where did they come from? What created them? I understand there 
are more than 40 floating around, and I think--and I hope I 
heard my leader Mel Watt say that we determine what is--what 
violates antitrust, not the FTC. But that is what is in our 
jurisdiction anyway.
    So I come here thinking that in the long run somebody is 
going to go out of business if they don't merge. I don't want 
to try to tell you I have looked at the books of anybody, but 
what I am hearing is if this merger doesn't take place, it is 
not unlikely that somebody will go out of business, so that 
from a jobs perspective this is a strong case for the merger.
    And so I will introduce into the record my complete 
statement and ask that all of you expect me to discuss Chairman 
Goodlatte's observation that the wave of mergers were the 
result of the ill-conceived health care bill. I hope that you 
are all prepared to answer that question.
    And I thank you, Chairman Goodlatte.
    Mr. Goodlatte. I thank the gentleman.
    [The prepared statement of Mr. Conyers follows:]
    
    
    
                               __________

    Mr. Goodlatte. And it is now my pleasure to introduce our 
witnesses. We have a very distinguished panel of witnesses 
today. And before I introduce them, I would like them to stand 
and be sworn.
    [Witnesses sworn.]
    Mr. Goodlatte. Thank you, and please be seated.
    Each of the witnesses' written statements will be entered 
into the record in its entirety. I ask that each witness 
summarize his or her testimony in 5 minutes or less. To help 
you stay within that time, there is a timing light on your 
table. When the light switches from green to yellow, you will 
have 1 minute to conclude your testimony. When the light turns 
red, that is it. It signals that the witness' 5 minutes have 
expired.
    Our first witness is George Paz, chairman and CEO of 
Express Scripts, Incorporated. If the merger is approved, Mr. 
Paz will be the chairman and CEO of the new merged company.
    Our second witness is David Snow, chairman and CEO of Medco 
Health Solutions.
    Our third witness is Joseph Lech, an independent community 
pharmacist from Tunkhannock, Pennsylvania.
    Our fourth witness is Dennis Wiesner, a senior director of 
the H-E-B grocery chain with responsibilities for privacy, 
pharmacy and government affairs.
    Our fifth witness is Dan Gustafson, a founding member of 
the Minneapolis law firm Gustafson Gluek.
    Our sixth and final witness is Stephanie Kanwit, counsel at 
the law firm Manatt, Phelps & Phillips.
    Mr. Paz, we will begin with you. Welcome.

             TESTIMONY OF GEORGE PAZ, CHAIRMAN AND 
         CHIEF EXECUTIVE OFFICER, EXPRESS SCRIPTS, INC.

    Mr. Paz. Thank you, Mr. Chairman and Members of the 
Subcommittee.
    Mr. Goodlatte. You may want to turn on that microphone and 
pull it close.
    Mr. Paz. Thank you, Mr. Chairman and Members of the 
Subcommittee. Thank you for the opportunity to explain how the 
combination of these two innovative companies can benefit the 
Nation's patients and its public and private purchasers. I 
believe that today's hearing will demonstrate that this merger 
is one of the best prospects to secure safer and more 
affordable prescription drugs for tens of millions of 
Americans.
    I would like to begin by addressing a concern on every 
American's mind: jobs. Health care costs are a worrisome part 
of running a business. Yesterday an important new study was 
released, which I ask to be included in the hearing record. It 
concludes that for every 1 percentage point reduction in 
prescription drug costs, 20,000 jobs in the United States can 
be funded.
    PBMs have a proven track record of generating savings for 
employers and their workers. There are many proven tools 
available through PBMs like Express Scripts and Medco that 
reduce drug costs, and this merger will sharpen and expand the 
availability of these tools.
    Four of us on this panel are part of the same noble 
mission. Patients in need of medicine rely on us for access to 
affordable care. Each us is committed to the highest ideals of 
the practice of pharmacy: accuracy, safety, affordable care, 
and service.
    Mr. Lech's pharmacies are a part of our network. We are the 
PBM for Blue Cross of Northern Pennsylvania, the insurer that 
covers many of his customers. We work with literally thousands 
of independent pharmacies like those of Mr. Lech all across the 
country, and we value those relationships.
    Mr. Wiesner's employer, H-E-B, has been our client for many 
years. His chain of stores are also an important part of our 
pharmacy network. Let me also acknowledge Mr. Wiesner's service 
on the Texas Board of Pharmacy, where he is developing the next 
generation of skilled pharmacists to serve patients.
    I am proud to report that one of my company's employees was 
just named the outstanding young pharmacist of the year by the 
Texas Pharmacy Association.
    Each of us here today should ask ourselves what is in the 
best interest of a patient when they are trying to fill a 
prescription? And who is there to ensure that the American 
family is getting the best value for their money? PBMs help 
American families and their employers get the best possible 
deal while improving safety. We make the use of prescription 
drugs safer and more affordable.
    After a patient has been seen by their caregiver and has a 
prescription that needs to be filled, they are hardly in a 
position to negotiate with a drug company or a pharmacy. They 
just know they need the prescription filled as their ticket to 
getting well. If they are one of our patients, when they walk 
into a pharmacy, they have all 13,0000 Express Scripts 
employees standing with them. Before they ever receive their 
medicine, over 100 safety checks are conducted by our system, 
one of most advanced high-tech systems in the world. In less 
than 2 seconds, we determine if there is a clinically 
appropriate, less costly generic drug available. We also make 
sure the patient is not subject to adverse drug events. 
Further, what patients pay is reduced on average by 30 to 40 
percent. For Mr. Lech, Mr. Wiesner and other pharmacies, they 
receive safety information, and they are assured payment, 
eliminating $7.3 billion in bad debt to pharmacies each year. 
These are all giant leaps forward for patients and pharmacies 
that companies like our help create, and we make these benefits 
available to over 65,000 pharmacies in every corner of the 
United States.
    I believe drug costs are still too high for American 
families. When the big drug companies' charge for their 
medicines keeps going up, and large retail drugstore chains 
want to dictate prices, I want a fair deal for our patients and 
employers. That mission goes to the core of what our companies 
are all about. We are fully aligned with our patients and 
employers. We make money by saving them money. This union of 
our two companies will strengthen our ability to do just that.
    In my formal testimony I go through many of the tools we 
have developed to drive down drug costs while improving health 
outcomes. We have a proven track record.
    There are other benefits to the health care system by 
combining our two companies. For example, one, we increase 
patient adherence and reduce unnecessary medical expenses; two, 
we help the FDA monitor drug shortages and identify safety 
concerns quickly; three, we empower Federal and State 
responders from all public health and respond to natural 
disasters; and, four, we help law enforcement address fraud, 
waste and abuse.
    In conclusion, the merger of Express Scripts and Medco is 
the best opportunity to continue to lower drug costs while 
improving health care today and for the immediate future.
    Mr. Chairman and Members of the Subcommittee, I thank you 
for the opportunity to speak to you today.
    Mr. Goodlatte. Thank you for your testimony, Mr. Paz.
    [The prepared statement of Mr. Paz follows:]
Prepared Statement of George Paz, Chairman and Chief Executive Officer, 

                         Express Scripts, Inc.
                              introduction
    Chairman Goodlatte, Ranking Member Watt, and Members of the 
Subcommittee, my name is George Paz and I am the Chairman and Chief 
Executive Officer of Express Scripts, Inc. Express Scripts is 
headquartered in St. Louis, Missouri and has more than 13,000 employees 
located in 13 states including Arizona, Florida, Indiana, New York, 
Ohio, Pennsylvania and Texas.
    I wish to thank the subcommittee for the privilege to testify and 
share my perspective on why and how the proposed merger of Express 
Scripts and Medco Health Solutions will be a win/win for the nation's 
patients and its public and private purchasers. It is my hope that 
today's hearing will also make clear why failure to finalize and 
approve the merger will eliminate one of the best prospects we know to 
secure safer, better and more affordable pharmaceutical coverage and 
care for tens of millions of Americans.
    Express Scripts is one of more than 40 pharmacy benefit managers, 
or PBMs, operating in the United States. Every year, Express Scripts is 
hired by thousands of small businesses, Fortune 500 employers, Taft-
Hartley funds, managed care plans, and state and local governments to 
manage the pharmacy benefits for more than 50 million patients.
    Clients appreciate what we do to help them provide cost-saving, 
medically appropriate prescription drug coverage for American workers 
and families. Failure to produce savings and value for our customers 
means they turn to our competitors or attempt to manage the costs 
themselves. We are quite proud, however, that our clients ``re-elect'' 
us 98% of the time. Several of our more widely known clients such as, 
Blue Cross Blue Shield of Northeast Pennsylvania, Blue Cross Blue 
Shield of Massachusetts, MetLife and Lowes have contracted with Express 
Scripts for more than a decade.
    Express Scripts is a genuine American success story. We have grown 
rapidly over our 25-year history, bringing innovation to the 
marketplace, driving out unnecessary or expensive spending in the 
pharmacy benefit and making medicines safer and more affordable. Since 
being founded in 1986, much has changed in the world. One overriding 
principle that forms the bedrock of our company never wavered: our 
goals will always fully align with our clients' needs.
    Simply and most accurately put, we and our competitors in the PBM 
industry are successful when our clients save money through lower 
employer and employee health premiums and/or reduced out-of-pocket 
costs while at the same time enhancing safety and more positive medical 
outcomes. To the extent we fail to deliver on that promise, we fail to 
retain and sustain our client base and business model.
       pbms lower prescription drug costs for consumers & payers
    At Express Scripts, we work hard on behalf of our clients to rein 
in high drug costs, improve patient outcomes, advance the practice of 
pharmacy, and assist law enforcement in critical efforts to stop fraud, 
waste and prescription drug abuse. With nearly four billion 
prescriptions filled in the United States last year alone \1\, pharmacy 
is the most frequently used part of health care and demands the 
sophisticated tools and expertise only PBMs can bring to bear.
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    \1\ http://www.imshealth.com/deployedfiles/ims/Global/Content/
Corporate/Press%20Room/Top-line%20Market%20Data/2010%20Top-
line%20Market%20Data/2010_Distribution_Channel_
by_RX.pdf
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    Express Scripts' fundamental mission is to make medicines safer, 
more affordable and more accessible. PBMs make prescription drugs more 
affordable for clients by creating old-fashioned American competition 
among brand-name and generic drug manufacturers as well as among more 
than 60,000 chain drugstores, mass merchandisers, independent 
pharmacies, and grocery pharmacies. We ``ride the same horse'' with our 
clients, helping them benefit directly from our bargaining know-how and 
world-class clinical initiatives.
    At a time when many Americans struggle to afford their medications, 
sometimes having to choose between a rent check and the prescription to 
keep their diabetes under control, our role has real meaning in the 
lives of so many. When a patient visits a pharmacy, she leaves with 
both peace of mind and the right medication to improve her health and 
well-being. Whether a patient realizes it or not, through our rapid and 
robust high-tech adjudication process, more than 100 safety checks 
occurred before she left the pharmacy. These safety checks avoid costly 
drug interactions, contraindications, and other harmful medication 
errors. PBMs save lives and deliver real value for millions of 
Americans every day.
              pbm-generated competition lowers drug prices
    PBMs have had tremendous success in driving down prescription drug 
costs for patients and payers. In doing so, PBMs have relied upon a 
wide range of tools and techniques, including expanded access to less 
costly, medically appropriate generic drugs, step therapy programs, and 
home delivery pharmacy. According to our data, Express Scripts members 
utilizing our full complement of tools enjoy an additional annual 
average savings of over 11 percent per year. These savings are in 
addition to the discounts from negotiating with drug makers, which 
average 27 percent below the average cash price consumers would pay at 
a retail pharmacy for brand name drugs and 53 percent below the retail 
cash price for generic drugs.\2\
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    \2\ US GAO ``Effects of Using Pharmacy Benefits Managers on Health 
Plans, Enrollees and Pharmacies'' GAO-03-196
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    The decisions we make and the innovations we bring forward are 
rooted in the best clinical data available anywhere in the world. A key 
tool PBMs rely upon to increase competition in the prescription drug 
supply chain begins with a Pharmacy and Therapeutics (P&T) Committee. 
Comprised of an independent group of highly-trained physicians and 
pharmacists, these panels review every marketed prescription medication 
to ensure safety, clinical appropriateness, and establish coverage 
parameters to guide formulary (the list of covered medications) 
development. These P&T Committees are focused solely on the clinical 
benefit of these medicines and are not involved in negotiations with 
pharmaceutical manufacturers, contracting with network pharmacies, or 
any other aspect of a PBM's business. The P&T Committee develops 
independent, science-based clinical parameters consistent with best 
medical practices, which PBMs use to build innovative programs and 
negotiate with drug makers to compete at the lowest price.
    Perhaps a P&T Committee's role can be best explained through the 
example of a class of medications that treat high blood cholesterol 
(hyperlipidemia). Payers, whether health plans, employers or the 
federal government, spend more on prescription medications in this 
class than any other group of medications. Within this therapeutic 
class, there are dozens of available treatments. Looking just at 
statins, a sub-class that lowers LDL cholesterol, there are seven 
different medications available. As the P&T Committee reviews this 
class, clinicians examine all the available data, weed out the ``me-
too'' drugs from truly novel therapies, and determine that a clinically 
comprehensive formulary should include generic medications and only one 
high-potency statin. With only one high-potency statin needed on the 
formulary, the manufacturers of these products blindly bid at the 
lowest possible price in an effort to ensure placement on the 
formulary. Price variation in this class is significant, with the 
monthly treatment costs varying from $11 to more than $200 \3\.
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    \3\ http://www.consumerreports.org/health/resources/pdf/best-buy-
drugs/StatinsUpdate-FINAL.
pdf
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    In 2010, brand drug makers increased prices on statins by an 
average of 9.3 percent. Yet because of Express Scripts' sophisticated 
negotiating tools, our clients' exposure to this increase was limited 
to 6.3 percent--which translates to a 32 percent discount for clients. 
Our business model is a winning formula for patients, payers, and the 
entire health care system. Each of our clients makes their own choice 
about how to use these savings. Some use the savings to offset premium 
increases. Others offer these savings to patients through reduced 
copayments, coinsurance, or through copayment waivers altogether. 
Interestingly, the number of patients receiving treatment for high-
blood cholesterol actually increased last year, addressing a public 
health concern well documented by the Centers for Disease Control and 
Prevention (CDC)\4\.
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    \4\ Kuklina EV, Shaw KM, Hong Y. Vital Signs: Prevalence, 
Treatment, and Control of High Levels of Low-Density Lipoprotein 
Cholesterol--United States, 1999-2002 and 2005-2008. Morbidity and 
Mortality Weekly Report. 2011;60(4):109-114. Available at: http://
www.cdc.gov/mmwr/pdf/wk/mm6004.pdf Accessed February 4, 2011.
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    PBMs are creating competition in the drug supply chain. If a dozen 
different prescription medications treating the same condition were all 
covered by a health plan at identical levels, drug makers would be 
incentivized to maximize prescription drug prices to whatever level the 
market would bear. Instead, the use of independent P&T Committees 
creates a market dynamic where the manufacturers of these products must 
compete with one another for placement on the plan formulary. The 
result--patients and plan sponsors save money and have better health 
outcomes.
   pbms have driven dramatic decline in drug trend in the past decade
    The emergence of PBMs correlates directly with the reduction in the 
rate of growth in prescription drug costs. In the late 1990s, the rate 
of growth in the cost of pharmaceuticals was at an all-time high annual 
growth rate of 18 percent. This growth rate was simply unsustainable. 
Employers seeking to rein in costs were desperate for help and began 
turning to PBMs in earnest for solutions. Throughout the 2000s, the 
annual rate of growth was reduced gradually to just 5 percent in 
2009.\5\ This historic decline in drug trend is attributed to a variety 
of factors, including the expanded use of cost-effective generic 
alternatives. Trend management tools that promote the use of generic 
drugs are the single most potent tool to lower drug spending. Largely 
because of the leadership from companies like mine, the use of generic 
drugs has saved American patients and payers $824 billion in the last 
decade alone \6\.
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    \5\ National Health Expenditure Data from the Centers for Medicare 
& Medicaid Services. https://www.cms.gov/NationalHealthExpendData/
downloads/highlights.pdf Accessed September 14, 2011.
    \6\ http://www.gphaonline.org/about-gpha/about-generics/case/
generics-providing-savings-americans
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 medicare part d: working as congress intended to lower seniors' drug 
                                 costs
    Medicare and more than 40 million older Americans and people with 
disabilities have also benefitted from PBMs' tool and techniques. Prior 
to the advent of Medicare Part D in 2006, about one in three Medicare 
beneficiaries lacked prescription drug coverage. Without comprehensive 
drug coverage provided through PBMs, millions of seniors every month 
faced agonizing choices that either meant forgoing needed medications 
or diverting scarce resources away from rent or food to pay for their 
prescriptions. Working together on a bipartisan basis, Congress passed 
historic legislation in 2003 modernizing Medicare by adding a much-
needed prescription drug benefit.
    Despite dire predictions by some of high costs and low 
participation, Medicare Part D has exceeded expectations. Beneficiary 
satisfaction is very high, with seniors enjoying broad access to a wide 
range of medicines. Plan participation is robust, with dozens of health 
plans and PBMs acting as prescription drug plan (PDPs) sponsors or Part 
D sub-contractors. Premiums are far lower than originally forecast and 
the program has come in under budget. In fact, the Center for Medicare 
and Medicaid Services announced in early August that 2012 Medicare Part 
D premiums will actually go down for the first time in the program's 
six year history. This is due to competition amongst Medicare Part D 
plans (administered by PBMs) and increased generic utilization.\7\ 
While there are important distinctions between Medicare Part D and how 
PBMs operate in the commercial marketplace--particularly how Part D's 
design protects drug makers from competition for certain classes of 
drugs--Part D nonetheless builds on many of PBMs' core business 
functions.
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    \7\ http://www.hhs.gov/news/press/2011pres/08/20110804a.html
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  improving patient care through prescription-drug adherence programs
    While Express Scripts and Medco have built very different 
capabilities to serve their patients, we have a shared mission to 
protect working families and small businesses from high prescription 
drug costs. Express Scripts has advanced this goal by applying 
behavioral sciences to healthcare to understand the reasons why 
patients may not always adhere to their medications. More than half of 
all patients fail to engage in behaviors consistent with their 
intentions. This disconnect between patient intent and reality results 
in the wasting of more than $18 million of pharmacy benefits each and 
every day. Imagine if our system could recoup even a modest portion of 
this waste? These resources could be allocated much more effectively in 
other parts of the system.
    Express Scripts helps close this intent-behavior gap and improve 
patient outcomes through the application of behavioral sciences. 
Inherently, we all want to use the least costly medicine, delivered as 
safely as possible. Any number of barriers can come along that trip us 
up--leading to non-adherence, financial waste and poor outcomes. We cut 
through the noise and create simple to execute programs allowing people 
to act on their best intentions. While Express Scripts has focused on 
improving compliance, Medco has made a key priority of managing chronic 
illness through Therapeutic Resource Centers (TRCs). TRCs focus on 
patients diagnosed with different chronic diseases and employ an array 
of specially trained clinicians to optimize therapy effectiveness, 
maximize health outcomes by improving adherence, and help patients 
avoid adverse drug interactions. While our clinical capabilities are 
very different, we share the same goal and these capabilities will be a 
powerful complement to one another when the merger receives regulatory 
approval and is finalized.
    Let me leave you with another example of how this combination will 
improve healthcare. You recall the excitement around the mapping of the 
human genome. We were promised a golden era of medicines. By and large, 
that promise has not been fulfilled. By bringing together our 
companies' complementary expertise in behavioral sciences and 
pharmacogenomics, we have the potential to truly deliver on the real 
promise of personalized medicine: ensuring that patients get the right 
treatment at the right time for the best outcome.
                reducing pharmacy fraud, waste and abuse
    Another shared goal of Express Scripts' and Medco's business is 
driving waste out in the pharmacy benefit, deterring fraud, and 
reducing prescription drug abuse. In 2010, Americans unnecessarily 
spent more than $400 billion on their health care, and risked their 
lives and health, by choosing the wrong medication, pharmacy or through 
simple but all-too-frequent non-adherence to their doctors' 
instructions \8\. Beyond wasteful prescription drug spending, these 
costs include unnecessary hospitalizations, testing and treatment in 
costly emergency rooms. These are very real problems with costs across 
the entire health system and PBMs are the most advanced partners to 
provide common-sense solutions.
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    \8\ Express Scripts. 2010 Drug Trend Report.
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    As much as 1 percent of prescription drug costs result from fraud, 
waste, and abuse \9\. With Americans spending $307 billion just on 
prescription drugs in 2010, this amounts to several billions of dollars 
in unnecessary costs to our system. Our clients already rely on us to 
help detect and prevent fraud, waste and abuse. Through advanced high-
tech programs and processing systems, we save clients millions of 
dollars in wasteful pharmacy spending. Beyond saving money for our 
clients and patients by preventing this wasteful, and in some cases 
criminal behavior, our merger can bring new resources to bear for law 
enforcement to address America's other drug problem--prescription drug 
abuse.
---------------------------------------------------------------------------
    \9\ Pharmaceutical Care Management Association. White paper on 
Fraud, Waste and Abuse. July 2011.
---------------------------------------------------------------------------
    Examples of fraud in the pharmacy marketplace are plentiful. A few 
years ago, six pharmacists, a doctor, and five drug dealers in Texas 
were convicted for conspiracy to divert more than 1.7 million tablets 
of prescription pain killers for illicit sale and use. The $30 million 
scheme involved pharmacists repeatedly refilling fraudulent 
prescriptions that were dispensed to drug dealers. These criminal 
enterprises have become so wide-spread, several states have enacted 
anti-``pill mill'' legislation to detect and end this kind of 
prescription drug abuse.
    The combination of Express Scripts and Medco's systems will create 
a new tool for law enforcement when investigating potentially criminal 
prescribing or dispensing patterns. With data from more than 65,000 
pharmacies across the country, doctor-shopping, polypharmacy, and other 
instances of fraud can be stopped like never before.
                      expanded clinical offerings
    Express Scripts and Medco both have significant clinical 
capabilities to serve all of our patient groups. By combining these 
offerings, we can pioneer new drug safety systems, create new resources 
for public health, and continue to advance evidence-based medicine to 
better serve our patients.
    Express Scripts has been on the cutting edge of improving patient 
safety. Through a combination of our P&T committee expertise, our vast 
database of prescription drug utilization, and post-marketing 
surveillance, Express Scripts identified serious safety concerns with 
Vioxx more than six months before the FDA withdrew market approval. By 
combining with Medco, we will have even more clinical data that can 
create the largest and best real-time early warning drug safety system 
in the world.
    This combined clinical data is also useful to public health. As 
various government agencies monitor epidemiology, or track supply chain 
disruptions in the United States, our resources will provide 
comprehensive data that have never before existed. The FDA, CDC, DEA 
and FEMA could all benefit from the comprehensive warehouse of supply 
chain data to track, distribute and respond to public health 
emergencies.
    We also intend to continue our focus on evidence-based medicine 
that improves the safety and cost-effectiveness of prescription drugs. 
The growing availability of generic alternatives has already created 
enormous opportunities to better manage prescription drug spending.
                 advancing specialty pharmacy services
    An Express Scripts-Medco merger will facilitate the advancement of 
specialty pharmacy services for patients facing the challenges of 
diseases like cancer, MS, leukemia, and hepatitis C among others. 
Express Scripts is very proud of our specialty pharmacy capabilities. 
We are committed to providing the best in class specialized care to 
patients with chronic, complex diseases with medications that can cost 
tens or even hundreds of thousands of dollars per year. Our specialty 
pharmacy programs keep patients adherent to injectable and infusible 
therapies, avoid more costly treatment settings, and improve the 
livelihood of our patients. Our specialty pharmacies also partner with 
drug makers, the Food and Drug Administration, and the Drug Enforcement 
Agency because of the need for post-marketing surveillance. Narrow 
distribution channels are necessary for drugs that are sometimes 
schedule III controlled substances. Specialty pharmacy is a complex 
market with competition both inside and outside of the pharmacy 
benefit, including retail pharmacies across the nation.
        we will protect american families from the rising cost 
                       of prescription medicines
    A combined Express Scripts and Medco will be well-positioned to 
protect American families from the rising cost of prescription 
medicines. The Federal Trade Commission, the country's only regulatory 
agency tasked with both consumer protection and competition, is 
reviewing the competitive effects of our merger. After its thorough 
review, the FTC will make its determination as to whether the proposed 
transaction passes muster under the antitrust laws.
    The PBM marketplace is highly competitive and dozens of PBMs 
compete for business in various payer streams providing coverage to 
roughly 260 million Americans. This marketplace consists of large 
group, small group, and individual insurance markets, Taft-Hartley 
union plans, and an array of separate public programs, including 
Medicare, Medicaid, Children's Health Insurance Program (CHIP), 
TRICARE, state employee benefit plans, and the federal employees' 
program (FEP). More than 20 different PBMs service the Fortune 500 
employers and the advent of the Medicare Part D program has 
dramatically increased the number of prescription drug benefit 
offerors.
    While a focus on historical market shares ignores the highly 
complex and dynamic nature of the marketplace and how PBM business is 
bid and won, by our estimates, the combined historical shares of the 
companies would be approximately 30 percent. This range falls well 
inside the parameters of mergers which have passed antitrust regulatory 
review.
    The benefits of this merger are numerous and will accrue to 
patients, employers, clinicians, and payers alike by:

          Generating greater cost savings for patients and plan 
        sponsors;

          Closing gaps in care and achieving greater adherence 
        through behavioral approach and clinical strengths;

          Providing leadership and resources required to drive 
        out waste and improve health outcomes;

          Utilizing shared expertise to better manage the cost 
        and care associated with specialty drugs--the biggest driver of 
        costs in the drug supply chain; and

          Responding to the national call for a more affordable 
        and accountable healthcare system.

In conclusion, our health care system is at a crossroads. Consumers 
want the protection that comes from comprehensive coverage providing 
high-quality, affordable care, including pharmacy benefits. Employers, 
already struggling in a difficult economy, are seeking greater value 
for their health care spending and are looking for a calm port amidst 
the storm of rising costs and middling outcomes. Policymakers are 
combing through our nation's accounting ledgers and finding Medicare 
and Medicaid awash in red ink.
    The proposed merger of Express Scripts and Medco will not resolve 
all of the challenges facing our health care system, but it is an 
affirmative step in the right direction. The merger of Express Scripts 
and Medco will help make prescription drugs more affordable for 
seniors, people with disabilities and working families. It will also 
help small businesses and large employers better compete in a global 
economy by helping to rein in their medical costs. Finally, a combined 
Express Scripts and Medco will help deliver real savings to Medicare 
and Medicaid beneficiaries and put our nation's fiscal footing on a 
stronger foundation.
    Thank you for the opportunity to testify today and to explain the 
consumer benefits and enhanced competition that will arise with a 
merged Express Scripts-Medco.
    I look forward to answering any questions you may have.
                               __________

    Mr. Goodlatte. And, without objection, the study you 
referenced in your testimony will be made a part of the record.
    [The information referred to follows:]
    
    
    
                               __________

    Mr. Goodlatte. Mr. Snow, welcome. We are pleased to have 
your testimony.

 TESTIMONY OF DAVID B. SNOW, JR., CHAIRMAN AND CHIEF EXECUTIVE 
             OFFICER, MEDCO HEALTH SOLUTIONS, INC.

    Mr. Snow. Chairman Goodlatte, Ranking Member Watt, Members 
of the Committee, thank you for this opportunity to discuss the 
proposed merger of Medco Health Solutions and Express Scripts. 
My name David Snow, and I am the chairman and CEO of Medco 
Health Solutions. Medco is an industry leader in pharmacy that 
employs over 3,000 skilled pharmacists. We develop innovative 
solutions that deliver unique value to private and public 
employers, health plans, labor unions, and government agencies 
of all sizes, as well as individuals served by Medicare Part D 
drug plans.
    Everyone recognizes that the ever-rising cost of health 
care in America is unsustainable. As the health care industry 
necessarily focuses on reducing costs without compromising 
patient care, we all face the irrefutable fact that we must do 
more with less.
    The services that PBMs provide are very much part of the 
solution. By merging Medco with Express Scripts, we will 
significantly accelerate our efforts to reduce overall costs in 
the health care system and improve the quality and efficiency 
of care delivery.
    To understand the value of the combination of our two 
companies, it is critical to recognize the dynamic marketplace 
in which we operate. Our competitors include some 40 PBMs, 
household names like Aetna, and Cigna, and CVS Caremark, and 
others who may not be so well known but continue to make major 
investments, like Prime Therapeutics, Catalyst, SXC, and 
perhaps most significantly UnitedHealth Group, who has 
announced its plans to take in house the 14 million lives 
previously served by Medco in order to increase its investment 
in its own PBM, Optum Rx.
    As these few quick examples demonstrate, competition for 
PBM services is intense and diverse, and new entry remains a 
very real prospect. That competition will only be enhanced by 
the Express Scripts-Medco merger.
    It was within the context of this competitive marketplace 
that the merger of our two companies was conceived. The essence 
of the PBM business is to bring lower drug prices and higher-
quality care to patients, employers and taxpayers. The 
combination of Medco and Express Scripts will accelerate our 
efforts to achieve that goal in a number of ways. I will just 
mention two: volume and improved clinical practices.
    First, our combined entity will be able to lower drug and 
patient-user costs by achieving even greater discounts from 
drug manufacturers, thereby lowering costs to consumers and 
employers. In fact, under the terms of our existing employer 
contracts, the ones that we have in place today, $1 billion in 
savings will be passed back to our clients, guaranteed.
    And second, the merger will create synergies by combining 
the best of our complementary patient-centered clinical care 
programs. We are particularly proud of Medco's specially 
trained pharmacists who use clinical protocols and in-depth 
counseling to help chronically ill Americans to most 
appropriately and safely manage their highly complex 
conditions. The result? An estimated $900 million in savings 
from reduced hospitalizations and associated costs last year. 
But we have only scratched the surface. We as a Nation could 
save a total of over $350 billion a year by addressing 
medications that are underprescribed, misprescribed or simply 
not taken as directed by their physician.
    Taken together, the merger will help government, businesses 
and the economy as they jointly confront the necessity to 
decrease the cost of entitlement programs, thus reducing the 
overall deficit and increasing job growth. As is the case with 
the private sector, better management of costs within the 
Medicare and Medicaid programs can achieve savings without the 
need to reduce benefits. And at 12 percent of payroll, health 
care is the most costly benefit expense for employers. 
Improving outcomes while reducing costs is the definition of 
doing more with less, and it will make our Nation's businesses 
more competitive and successful.
    We recognize that many have voiced concern about the impact 
of an Express Scripts-Medco merger on retail pharmacies, 
particularly on independent pharmacies. More than 85 percent of 
Medco customer prescriptions are filled through our network of 
over 60,000 retail pharmacies nationwide. There is nothing we 
plan to do that will change this. As our written testimony 
details, we are proud that our partnership with the community 
pharmacist has provided technology and information that have 
helped independent pharmacies protect and grow their business 
in an environment that favors national chains and big box 
retailers.
    The examples I have provided today clearly demonstrate that 
our health care system does best when many different companies 
and different models are all working to improve patient health. 
This diversity of approaches breeds innovation and 
collaboration. It is a catalyst for experimentation and 
progress, often leading to breakthrough solutions.
    We all know the future belongs to those who deliver more 
for less. Together Express Scripts and Medco will build a 
strong, competitive company that helps millions of people to 
live longer, healthier lives, while supporting the Nation's 
goal of a sustainable, affordable health care system.
    Mr. Chairman, Ranking Member Watt and Members of the 
Committee, thank you for listening to my testimony, and I would 
be happy to answer any questions you may have.
    Mr. Goodlatte. Thank you, Mr. Snow.
    [The prepared statement of Mr. Snow follows:]
        Prepared Statement of David B. Snow, Jr., Chairman and 
         Chief Executive Officer, Medco Health Solutions, Inc.
                            i. introduction
    Chairman Goodlatte, Ranking Member Watt and Members of the 
Committee, thank you for this opportunity to discuss the proposed 
merger of Medco Health Solutions and Express Scripts. My name is David 
Snow, and I am the Chairman and CEO of Medco Health Solutions. Medco is 
a leading health care company that has pioneered the world's most 
advanced pharmacy. When we originally became a public company, our goal 
was to leverage the power of pharmacy to redefine the way that health 
care is delivered--to improve patient outcomes and lower costs. Today, 
we define that mission in three words, ``making medicine smarter.''
    We are an industry leader in developing innovative solutions that 
deliver unique value to our clients and their members. We provide 
clinically driven pharmacy services designed to improve the quality of 
care and lower total health care costs for private and public 
employers, health plans, labor unions and government agencies of all 
sizes, as well as for individuals serviced by Medicare Part D 
Prescription Drug Plans.
    Everyone has recognized that the ever-rising costs of the health 
care system in America are unsustainable. In 2010, U.S. spending for 
prescription drugs alone was more than $300 billion and is expected to 
reach more than $450 billion by 2019.\1\,\2\ As the health care 
industry necessarily focuses on reducing costs; as the ``Super 
Committee'' seeks to find health care savings without compromising 
patient care; and as all participants in the system are faced with the 
prospect of doing more with less, we believe that the services that 
Medco provides are part of the solution. And now, by joining with 
Express Scripts and combining the complementary expertise of the two 
companies, we will be able to significantly accelerate efforts to 
reduce overall costs in the health care system and improve the quality 
and efficiency of care delivery.
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    \1\ IMS Institute for Healthcare Informatics' study, ``The Use of 
Medicines in the United States: Review of 2010,'' April 2011.
    \2\ Centers for Medicare and Medicaid Services, Office of the 
Actuary, National Health Statistics Group, 2010.
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                          ii. medco background
    Our mission to make medicine smarter truly defines our company and 
guides our business strategy. In 2011, Medco captured the number one 
position in the Health Care: Pharmacy and Other Services sector on 
Fortune's World's Most Admired Companies List for the fourth 
consecutive year. In this sector, Medco ranked number one in all nine 
attributes: innovation, use of corporate assets, social responsibility, 
quality of management, financial soundness, quality of products and 
services, people management, long-term investment and global 
competitiveness.
    Our services are designed not only to reduce drug costs, but also 
to close gaps in pharmacy care. We reduce drug costs for our clients 
and their members in a variety of ways including: maximizing the 
substitution rate from expensive brand-name drugs to lower-cost 
clinically equivalent generic drugs; driving competitive discounts and 
rebates from brand-name and generic drug pharmaceutical manufacturers; 
minimizing the cost and improving the accuracy of filling 
prescriptions; and applying our sophisticated service innovations to 
efficiently administer prescription dispensing through our mail order 
pharmacies. By utilizing advanced clinical tools to encourage adherence 
and drawing on real-time prescription drug and medical databases in a 
truly wired fashion, we improve patient health and reduce total medical 
spending levels.
    Our business model requires collaboration with payors, retail 
pharmacies, including independent pharmacies nationwide, physicians, 
pharmaceutical manufacturers and CMS for Medicare and state Medicaid 
agencies. We provide our services through our national networks of 
retail pharmacies and our own mail order pharmacies, as well as through 
our specialty pharmacies.
    Our unique Medco Therapeutic Resource Centers conduct therapy 
management programs using Medco Specialist Pharmacists who have 
expertise in the medications used to treat the most prevalent and 
costly chronic conditions. Our personalized medicine capabilities 
through our Medco Research InstituteTM and genomics 
counseling services foster the integration of genetic information into 
everyday health care decision making. These services represent 
innovative and successful models for the care of patients with chronic 
and complex conditions.
                        iii. dynamic marketplace
    The business of pharmacy benefit managers (PBMs) is defined by 
robust competition, with more than 40 PBMs working hard to provide 
differentiated value propositions for public and private payors. These 
firms are a diverse group with very different business models and 
varying degrees of vertical integration, some integrated with 
pharmacies, others integrated with managed care organizations and 
others entirely independent. Nine Fortune 500 companies operate their 
own PBMs. Non-PBM participants like Wal-Mart and Target also contribute 
meaningfully to the competitive landscape by offering low-price generic 
prescriptions, as do other retail pharmacies that are providing steep 
discounts on 90-day prescriptions.
    Whatever customer group you might define, there are numerous PBMs 
currently serving accounts and many more with the capability to do so. 
This is because the core services offered by PBMs are similar 
regardless of the size and nature of a client's business. For example, 
in the context of the largest accounts, more than 10 PBMs currently 
serve state accounts; at least 10 PBMs serve Fortune 50 companies.
    Our competitors often are major industry participants with 
household names like Aetna, Cigna and CVS Caremark. Other competitors 
may not be so well-known but continue to make major investments to grow 
and to better serve current and potential customers.
    For example, Catalyst acquired Walgreens' PBM in June, more than 
doubling its number of members and prescriptions. In a recent earnings 
call, Catalyst's COO highlighted the company's recent success in 
winning large, national employers during this selling season--and this 
was even before the acquisition. Several of Catalyst's recent wins came 
against Medco and Express Scripts for Fortune 500 firms. These wins 
have allowed them to add big name companies like Ford Motor Company, 
MGM Mirage International, Whirlpool and Waste Management to their 
growing roster of Fortune 500 customers--a list that already included 
companies like Nike, Sprint, Southwest Airlines and Lear Corporation.
    Prime Therapeutics recently won from Medco the Blue Cross and Blue 
Shield of North Carolina account with more than a billion dollars in 
drug spending. Prime was originally formed by Blue Cross entities and 
has expanded from the PBM inside the private label offering of the 
Blues to becoming a major independent customer.
    And just last month, another notable merger was announced: SXC 
Health Solutions agreed to acquire PBM PTRx and mail order pharmacy 
provider SaveDirectRx, again illustrating the constantly evolving 
nature of the market. At one time SXC was thought of as more of a data 
processor for PBMs and other health organizations. They have evolved 
with the marketplace and now offer a full service PBM capable of 
competing effectively. The company, which this year jumped to number 
one on Fortune's 100 Fastest-Growing Companies list, has also captured 
more than a billion dollars in drug spend with its Bravo Health 
victory.
    Perhaps nothing more clearly demonstrates the dynamic character of 
the PBM business than the evolution of our soon-to-be former customer 
UnitedHealth Group, now the largest single health carrier in the U.S. 
UnitedHealth used to have its own PBM business but sold it in the early 
1990's. They became a Medco customer in 2000, and over the years Medco 
facilitated a private label PBM offering by UnitedHealth that had Medco 
``inside'' running the PBM operation while UnitedHealth was the 
``outside'' face to the customers. In 2005, as part of the PacifiCare 
acquisition, United acquired Prescription Solutions, a stand-alone PBM. 
United has steadily built up Prescription Solutions and rebranded it as 
Optum Rx. This summer it was announced that they would not renew their 
contract with Medco and would take in-house the 14 million lives 
previously served by Medco. At the same time, UnitedHealth has publicly 
highlighted its increased investment in Optum Rx and its intention to 
serve accounts of all sizes. We now have another major competitor in 
the marketplace, one that is widely regarded to be a significant force 
in the market going forward. And, as noted by Optum Rx CEO Jacqueline 
Kosecoff in a recent interview, the company is ``very interested in the 
employer market and [is] getting very aggressive on bidding some very 
large accounts.''
    As you can tell from just these examples, Medco itself is all too 
familiar with the intensity and diversity of competition for PBM 
services. We compete against a wide variety of firms, generating a 
number of wins, as well as some significant losses. New entry remains a 
very real prospect in this business, one that ensures competition 
remains strong. Against this backdrop, PBM clients will have plenty of 
competitive choices post-merger, and the combined Express Scripts and 
Medco will be fully subject to the competitive pressures that will 
ensure value-based pricing and service. Taken together, these recent 
activities demonstrate the dynamic, competitive nature of the PBM 
marketplace and belie the notion that the combination of Medco and 
Express Scripts represents a threat to client choice. The reality is 
that the PBM business is extremely competitive and that competition 
will only be enhanced rather than diminished by the Express Scripts-
Medco merger.
                    iv. benefits of the combination
    It is within the context of this competitive marketplace that the 
merger of our two companies was conceived and ultimately approved by 
our management and respective boards of directors. The essence of the 
PBM's business is to bring lower drug prices and higher quality care to 
its clients. We compete with one another to provide that value, and as 
competition becomes more intense in our industry, it drives innovation 
aimed at doing even more to serve our patients. In the health care 
industry today, we all share the same goal of reducing costs by 
improving the quality and efficiency of care delivery.
    The combination of Medco and Express Scripts makes strategic sense 
for our clients and patients. Each company uses a fundamentally 
different business model to address the needs of customers. Combining 
the best attributes of those business models will give us an enhanced 
capability to lower prices and improve quality care for our clients. We 
will accomplish this in a number of ways.
    First, our combined entity will be able to lower drug acquisition 
costs by improving efficiency across the system and encouraging the 
most appropriate channels of distribution based on patient needs. Our 
clients and the consumers we mutually serve will benefit from these 
savings. For example, Medco negotiates the terms of its agreements with 
its clients in a fully transparent manner which, at the client's 
discretion, directs us to pass through discounts and rebates that we 
negotiate with pharmaceutical manufacturers. Under the terms of our 
existing contracts alone, $1 billion in savings from the merger will be 
passed back to our clients.
    Second, the combined entity will allow us to further innovate our 
robust technology platform so we can fully leverage the cost and 
quality benefits of our fully wired system that seamlessly integrates 
prescription management at both mail order and retail with our client 
and member services. This will result in substantial cost savings 
passed on directly to government, businesses and, ultimately, 
consumers.
    Third, our combined company will bring together advanced 
capabilities to integrate prescription management, including 
technological platforms to communicate with pharmacists and physicians 
in real time, allowing not only efficient claims processing, but also 
secure access to patient information and drug utilization reviews. Both 
Medco and Express Scripts complement and enhance physicians' care using 
advanced clinical services to deliver tailored treatments with the 
highest levels of efficacy, value and speed. For instance, the Medco 
Research Institute integrates genetic information into everyday health 
care decision making--offering patients and providers actionable 
information to drive more precise health care decisions. One Medco 
Research Institute study conducted with the Mayo Clinic showed that a 
simple genetic test reduces hospitalization rates by nearly one-third 
for patients on warfarin, a widely-prescribed blood thinner. The 
combined entity will deliver even greater value to the companies' 
clients and their members by applying the best practices of both 
companies.
    Fourth, the merger will allow the companies to benefit from 
economies of scale as the firms merge operations and implement each 
other's best practices. Many aspects of core PBM operations can benefit 
from economies of scale, including contracting, mail order pharmacy 
operations, and designing and operating specialized clinical programs. 
At a high level, our ability to put more volume through a combined 
network will drive efficiencies that will reduce the unit cost of 
medications for our patients and customers. Increased scale will also 
allow the merged company to develop and apply new programs and 
practices more broadly. And the expanded scale and expertise of the 
combined firm will allow us to accelerate the research, development and 
deployment of new and innovative solutions for improving adherence and 
safety that have the potential go well beyond what each company could 
accomplish on its own.
    Finally, and perhaps most significantly, the Express Scripts-Medco 
combination will allow the two companies to use their collective and 
complementary expertise and capabilities, creating unique synergies to 
close gaps in care, particularly for chronically ill patients. Even the 
most effective treatments cannot help patients if they are not used 
properly. Gaps in care related to medication non-adherence affect 
millions of Americans; they cost dollars and lives. More than 75 
percent of all health care costs in the United States are associated 
with chronic and complex conditions, such as cancer, heart disease, and 
asthma.\3\ In nearly 90 percent of these cases, prescription drugs are 
considered a first line of defense.\4\ However, gaps in care, largely 
caused by under-prescribed and mis-prescribed medications, as well as 
patient non-adherence, result in substantial waste each year in the 
form of unnecessary hospitalizations, emergency room visits, and 
extended illnesses. Poor management of chronic and complex conditions 
has lead to an estimated $350 billion in unnecessary health care costs 
annually.\5\
---------------------------------------------------------------------------
    \3\ Medco Research Data, 2010.
    \4\ Ibid.
    \5\ RAND Corporation Study, 2005; Institute for Health and 
Productivity Management; Medical Care. 2004 Mar; 42(3); 200-209.
---------------------------------------------------------------------------
    To address the needs of patients with chronic and complex 
conditions, Medco's Therapeutic Resource Centers (TRCs) engage members 
and model behaviors to improve clinical outcomes and reduce costs. In 
the Medco TRCs, more than 1,000 Medco specialist pharmacists--who have 
additional training and certification in the medications used to treat 
the most prevalent and serious chronic conditions and co-morbidities--
use clinical protocols to assess patients' prescription orders along 
with barriers to adherence; they provide in-depth counseling to 
patients as well as reminders to take their prescribed medications. 
Through use of TRCs, Medco members have achieved significantly higher 
adherence rates than patients receiving traditional pharmacy care for a 
broad range of medication categories. We estimate that in 2010 alone, 
TRCs closed more than 2.3 million clinical gaps in care with a 
projected savings of approximately $900 million from reduced 
hospitalizations, ER visits, and other medical expenses across a range 
of chronic and complex conditions.\6\
---------------------------------------------------------------------------
    \6\ Medco 2010 Annual Report.
---------------------------------------------------------------------------
    At the same time, through its Consumerology initiative, Express 
Scripts has applied advanced behavioral science to identify and change 
common behaviors that prevent patients from adhering to their 
prescription medications. Their research has also helped to increase 
generic substitution and increase use of the most efficient and safest 
delivery channels. Through this initiative, Express Scripts has also 
increased adherence and achieved significant cost savings.\7\
---------------------------------------------------------------------------
    \7\ ESI 2010 Drug Trend Report.
---------------------------------------------------------------------------
    Combining Medco's expertise in advanced clinical pharmacy with 
Express Scripts' expertise in behavioral science will create a new 
entity that is uniquely able to provide significant progress toward 
closing gaps in care, saving dollars and saving lives. By joining 
together, millions of members served by both of our companies will reap 
the benefits of these unique and complementary programs: increased 
prescription adherence and reduced gaps in care, resulting in better 
health outcomes and lower costs. And these benefits will help 
businesses and the economy more broadly. At 12% of payroll, health care 
is the most costly benefit expense for employers. Reducing the cost of 
quality patient care will make all American business more competitive--
creating a healthier, more productive workforce, preserving existing 
jobs and creating new jobs in the future.
                       v. independent pharmacies
    We recognize that many have expressed concern about the impact of 
an Express Scripts-Medco merger on retail pharmacies, particularly on 
independents. The facts are that more than 85% of prescriptions filled 
for Medco customers are filled through our networks of more than 60,000 
retail pharmacies representing over 95% of all retail pharmacies 
nationwide. In short, either as a stand-alone company or combined with 
Express Scripts, Medco is dependent on the continued existence of 
strong independent retail pharmacies. Even as our companies seek to 
drive efficiency in the health care system, retail pharmacies will 
always play a crucial, complementary role to PBMs.
    Moreover, the services that PBMs provide have helped independent 
pharmacies better care for their patients, including by helping to 
close gaps in care, increase patient adherence and reduce adverse drug 
interactions. The Express Scripts-Medco combination will combine both 
companies' capabilities aimed at improving patient adherence, which 
means that the millions of patients who use independent pharmacies will 
be more likely to complete their full course of prescription treatment, 
improving their overall health. The combination will also create 
additional partnership opportunities that can help independent 
pharmacies improve their customers' adherence while creating new 
sources of value.
    A program implemented by Medco is an example of the type of 
mutually beneficial collaboration that could be expanded under the 
merger. Medco's Cognitive Care Initiative, a twenty-six-week 
collaboration with community pharmacies in Illinois, significantly 
improved adherence and increased the value offered by participating 
independent pharmacies. Community pharmacists were trained to provide 
expert patient counseling on the importance of adherence and techniques 
to improve it. The initiative identified 2,400 adherence gaps; 
pharmacists in the program filled 48% more prescriptions after patient 
counseling and closed 27% more adherence gaps.\8\ The success of the 
pilot led to additional partnerships between Medco and community 
pharmacists in New Mexico, North Carolina and Florida. We look forward 
to continued collaboration on initiatives such as this in the days 
ahead.
---------------------------------------------------------------------------
    \8\ Medco Health Solutions Illinois Pilot Project.
---------------------------------------------------------------------------
    In recent years, even as PBMs have become increasingly important 
participants in the health care system, independent pharmacies have 
thrived. Between 2009 and 2010, the number of independent community 
pharmacies grew by almost 400, to more than 23,000, representing a $93 
billion industry. Last year, they filled nearly three times more 
prescriptions than were filled through mail order delivery services 
such as those offered by Express Scripts and Medco. And pharmacy 
profits have doubled since 1999, with average profits per pharmacy of 
close to $1 million.\9\ These data points confirm what our experience 
tells us to be true: PBMs and independent pharmacies are complementary 
businesses whose success can be mutually beneficial. It is our 
expectation that a successful Express Scripts-Medco--far from being a 
threat to independent pharmacies--will actually be a driver of improved 
care for our mutual customers and improved economics for their 
businesses.
---------------------------------------------------------------------------
    \9\ Drug Channels, ``Owning a Pharmacy: Still Pretty Profitable,'' 
January 25, 2011 (Analysis of 2010 NCPA Digest Data).
---------------------------------------------------------------------------
                             vi. conclusion
    The data points I have discussed confirm what our market experience 
has long told us: our health care system does best when many different 
companies and different models are all working to improve patient 
health. This diversity of approaches breeds innovation and 
collaboration. It is a catalyst for experimentation and progress, 
leading to incremental improvements and often to breakthrough 
solutions.
    Today, there is a sense of urgency among all these many 
participants in our health care system. We all know the future belongs 
to those who deliver more for less. The merger of Express Scripts and 
Medco is part of that transformative process. Together, our companies 
will focus on lowering the prices customers pay for their medicines and 
improving their quality of care. And by delivering on that promise we 
will build a strong, competitive company that helps millions of people 
to live longer, healthier lives, while supporting the nation's goal of 
a sustainable, affordable health care system.
                               __________

    Mr. Goodlatte. Mr. Lech, welcome. We are pleased to have 
you here today.

 TESTIMONY OF JOSEPH LECH, R.Ph., OWNER, LECH'S PHARMACY, AND 
       MEMBER, NATIONAL COMMUNITY PHARMACISTS ASSOCIATION

    Mr. Lech. Thank you.
    Good afternoon, Chairman Goodlatte, Ranking Member Watt and 
Members of the Subcommittee. Thank for conducting this hearing 
and for the opportunity to share my view regarding the proposed 
Express Scripts-Medco merger. My name is Joe Lech of 
Tunkhannock, Pennsylvania. I am the owner of five independent 
retail community pharmacies in rural northeast Pennsylvania, 
and have been a practicing pharmacist for 30 years. I am a 
member of the National Community Pharmacists Association, which 
represents the pharmacists, owners, managers and employees of 
more than 23,000 independent community pharmacies across the 
United States. These pharmacies dispense nearly half of the 
Nation's retail prescriptions.
    I would also like to thank Congressman Marino, my 
Congressman, for the active role he has taken in trying to 
level the playing field between community pharmacies and 
pharmacy benefit managers. In particular we thank him for 
introducing the Save Our Independent Hometown Pharmacies Act, 
which has been endorsed both by NCPA and NACDS, the group 
representing chain pharmacies. Thank you.
    As a health care provider, my primary concern is the health 
and well-being of my patients, and access to prescription 
medications is essential in maintaining the health of those 
patients.
    As you are aware, Pennsylvania, like many other States, was 
recently devastated by flooding. Many people in the area where 
I am from were evacuated from their homes with nothing more 
than the clothes on their back. The morning after the rain 
started, the road conditions were so bad that my usual 30-
minute commute to the pharmacy took almost 2 hours. As I 
approached the pharmacy, I saw Mr. Slater, a longtime patron of 
our pharmacy, standing in front. He and his wife had been 
plucked from an upstairs window of their home and taken by boat 
to safety. They were unable to retrieve his 16 medications and 
her 8 that they need on a daily basis. I assured them I would 
provide them with their prescriptions. But what would happen in 
cases such as this if pharmacies like mine disappeared from the 
community that they rely on? The fact is community pharmacies 
are closing.
    This is just one story. There are thousands just like mine 
of community pharmacies stepping up to assist patients and 
getting their much-needed prescription medications.
    During the recent flooding, Congressman Marino's district 
office staff got their feet wet, so to say, as they 
participated with Lech's Pharmacy and Red Cross in prescription 
and supply deliveries from our pharmacy. Our three pharmacies 
were the only pharmacies open in the county for 2 days, and 
they assisted in the delivery of prescriptions and supplies by 
boat. The reason I am telling you this is because PBMs, or 
middlemen, already have so much control over the marketplace 
that it greatly concerns me about what will happen should this 
merger occur.
    Over my 30 years in pharmacy, I have seen the large 
pharmacy benefit managers gobble up smaller PBMs to reduce 
competition. The result is a highly concentrated, consolidated 
marketplace. Currently there are three PBMs that overwhelmingly 
dominate the national marketplace: Express Scripts, Medco and 
CVS Caremark. As a health care provider, I am aware of the 
consolidation within the health care industry, specifically 
consolidation within the PBM industry, which I believe has and 
will continue to negatively impact not only community 
pharmacies, but, more importantly, the patients that we serve.
    The recently announced proposal of a merger of Medco and 
Express Scripts will exacerbate the problems pharmacies and 
patients face with respect to PBMs. The merger of these two 
PBMs would create a mega PBM with overwhelming power in markets 
that are critical to controlling health care costs. I believe 
the resulting merger will harm patients by reducing choice, by 
decreasing access, and ultimately leading to higher 
prescription drug costs paid by plan sponsors and consumers. In 
fact, the proposed merger a tipping point in terms of PBM 
market concentration. The merger will cause a substantial 
reduction in both price and nonprice competition among PBMs. If 
approved, this mega PBM will control over 40 percent of the 
national prescription drug market.
    The size of this consolidation is enhanced by the fact that 
large and national health plans, insurance companies and 
government-sponsored health plans are already largely limited 
in their PBM choice. Postmerger, these large national customers 
will have fewer drug benefit administration alternatives, which 
will allow the merged PBM entity to dictate plan design and 
benefit structures at the expense of purchasers.
    The merger will force more into mail order. The merger will 
create the largest mail-order operation, accounting for over 60 
percent of all mail-order directed business in the U.S. The 
merged firm will have the increased ability and incentive to 
force consumers to utilize the mail-order portion of their 
business.
    A misconception put forth by the merging parties is that 
this switch to mail order will lower drug costs for consumers. 
Evidence demonstrates the opposite. Mail-order operations push 
out more brand-name drugs and fewer generics than the retail 
pharmacies, thereby lowering generic dispensing rates.
    A dramatic consequence of more and more switch to mail is 
in too many cases a pharmacy is unable to stay in business. 
Pharmacy closures are felt particularly hard in rural areas, 
where these community pharmacies function as health care 
providers on the front lines when a disaster such as a 
hurricane, a tornado, or, in my case, excessive flooding 
strikes.
    ESI and Medco neglect to tell you that this merger, if 
approved, will cost our local economies jobs and tax revenues 
due to the number of pharmacies that will likely be out of 
business due to the shift of prescriptions to out-of-State 
mail-order production. This merger will harm small business and 
cost jobs, something our economy can least afford at this time.
    In conclusion, I would add that I enjoy being a pharmacist, 
I love what I do, and I believe I am making a difference to all 
the patients who depend on my pharmacies. However, I am 
concerned that this merger will reduce patient access, 
ultimately leading to higher drug costs due to the reduction in 
competition.
    I thank you for the invitation, I welcome any questions, 
and as part of the proceedings, I would like to enter this 
document, which I believe all the Members have received in a 
packet--but I would like to introduce this document called 
Waste Not, Want Not, dealing with waste in prescriptions.
    Mr. Goodlatte. Without objection, the report will be made a 
part of the record, and thank you, Mr. Lech.
    [The prepared statement of Mr. Lech follows:]
    
    
    
                               __________

    [The information referred to follows:]
    
    
    
    
                               __________

    Mr. Goodlatte. Mr. Wiesner, we are pleased to have you with 
us today.

TESTIMONY OF DENNIS WIESNER, R.Ph., SENIOR DIRECTOR OF PRIVACY, 
              PHARMACY, AND GOVERNMENTAL AFFAIRS, 
                   H-E-B GROCERY COMPANY, LP

    Mr. Wiesner. Thank you. Mr. Chairman, and Members of the 
Subcommittee. Thank you for the opportunity to testify. My name 
is Dennis Wiesner. I am a pharmacist, and I have worked in 
community pharmacies for over 40 years. I have grave concerns 
about this proposed merger. It would be a tipping point in PBM 
market consolidation, harming patients as well as government 
and private health plans and employers.
    Mr. Nadler. Mr. Chairman, can you ask the witness to speak 
into the mic more?
    Mr. Goodlatte. Is it turned on? Make sure the green light 
is on.
    Is that better?
    Mr. Wiesner. There is only one stakeholder that would 
benefit: the new mega PBM. Since the merger was announced, many 
Members of Congress, consumer groups, State insurance 
commissioners, State attorneys general and State legislators 
have expressed concerns to the Federal Trade Commission. This 
would be a merger of two of the big three PBMs. If approved, 
nearly 135 million Americans would rely on this single PBM to 
manage their prescription benefits. It would control over 40 
percent of the national prescription volume, 60 percent of the 
mail-order pharmacy market, and more than 50 percent of 
specialty pharmacy sales.
    Patients in particular will be harmed through reduced or no 
choice of their pharmacy providers; decreased or limited access 
to essential pharmacies services; a separation of their 
prescription medication records that could result in potential 
adverse patient health outcomes, disruption to normal timely 
prescription service, and potentially decreased medication 
adherence. Reducing patient choice and access will lead to 
higher prescription costs, potential adverse patient outcomes, 
and higher downstream health costs.
    Do PBMs actually reduce health care costs? There is no 
proof that they pass along the purported savings to health 
plans, employers or consumers. In fact, the PBM industry has 
been fraught with allegations of extensive deceptive and 
fraudulent practices. In recent years cases brought by a 
coalition of over 30 State attorneys general have resulted in 
over $370 million in penalties. It has been found that PBMs 
have accepted rebates from manufacturers in return for placing 
higher-priced medications on prescription drug plan 
formularies, switched customers to the higher-priced drugs, and 
then benefited from both the rebate received and the higher-
priced drug payment without passing along the enrichment to the 
health plan or employer.
    PBMs already operate in an opaque manner. They are 
middlemen in a unique position to dictate contract terms to 
health plans and pharmacy providers. The new mega PBM would 
have even greater ability to dictate one-sided, unfavorable 
contract terms to pharmacies, health plans and employers, 
ultimately harming consumers. This is one reason we oppose the 
merger and we seek legislative relief on PBM practices.
    Pharmacies that refuse their contract terms would be shut 
out of the networks that provide pharmacy services to their 
neighbors and huge portions of American consumers. In addition, 
more consumers would be forced into using PBMs' own mail-order 
facility as opposed to choosing their local pharmacy, depriving 
consumer access to vital health care services and valuable 
face-to-face counseling.
    The Butt family founded H-E-B 106 years ago with a firm 
commitment to serve all the citizens in all our communities. 
That commitment is stronger today than ever. However, being 
able to continue servicing the prescription and health care 
needs of our customers and neighbors has been threatened by the 
one-sided nature of pharmacy agreements with PBMs. We have seen 
firsthand the unilateral nature of these contracts. They are 
allowed to establish the basis of costs for the prescription 
medications; they are allowed to change that basis of cost with 
limited or no notice, especially for generic medication; and 
they are allowed to second-guess or override a physician's 
prescription order. Claims submitted to the PBM and approved 
are routinely reviewed retroactively and payment recouped due 
to inadequacies in the PBM claims adjudication system. My 
company experiences these and other examples each and every 
day.
    Our internal health benefits team provides health care 
services to over 140,000 individuals. They feel strongly that 
this merger would limit competitive options and result in total 
costs, especially administrative fees, increasing.
    Pharmacists helped ensure that patients understand their 
medications and take them as directed. Pharmacists collaborate 
with doctors and other local health care providers to assist in 
medication decisions. Community pharmacies also provide 
critical, cost-effective services like immunizations, disease 
state management and monitoring, health education, and 
screening programs. Together all these services improve 
patients' health and reduce out costs.
    As I said, the situation with PBMs has worsened through 
consolidation. Because of this, we support legislation to rein 
in their more egregious actions, including H.R. 1971 and H.R. 
1946.
    In conclusion, PBMs already use a lack of transparency, 
failing to pass through rebates from drug manufacturers to 
consumers and other payers, inflating drug costs for health 
plans and employers, and lowering payments to pharmacies for 
their own personal financial gain. Patients appear to be an 
afterthought. A mega PBM would have an increased ability to 
engage in similar conduct to the detriment of consumers, payers 
and pharmacy providers.
    Thank you for your time.
    Mr. Goodlatte. Thank you, Mr. Wiesner.
    [The prepared statement of Mr. Wiesner follows:]
    Prepared Statement of Dennis Wiesner, R.Ph., Senior Director of 
 Privacy, Pharmacy, and Governmental Affairs, H-E-B Grocery Company, LP
    On behalf of the National Association of Chain Drug Stores (NACDS), 
I am pleased to submit a statement for the hearing on ``The Proposed 
Merger between Express Scripts and Medco.'' My name is Dennis Wiesner. 
I am a pharmacist and have worked in numerous roles in community 
pharmacy for over forty years. I am currently a Senior Director for H-
E-B with responsibilities for privacy, pharmacy and government affairs. 
H-E-B is a private family owned regional food-drug retailer with over 
300 stores in Texas, 222 of which have pharmacies. In addition, H-E-B 
has extensive warehousing and manufacturing facilities and over 80,000 
employees. Our stores provide services to over 20 million Texans each 
year.
    I am also Chairman of the NACDS Policy Council. NACDS represents 
traditional drug stores, supermarkets, and mass merchants with 
pharmacies--from regional chains with four stores to national 
companies. Chains operate more than 40,000 pharmacies, and employ more 
than 3.5 million employees, including 130,000 full-time pharmacists. 
They fill over 2.6 billion prescriptions annually, which is more than 
72 percent of annual prescriptions in the United States. The total 
economic impact of all retail stores with pharmacies transcends their 
$900 billion in annual sales. Every $1 spent in these stores creates a 
ripple effect of $1.81 in other industries, for a total economic impact 
of $1.76 trillion, equal to 12 percent of GDP.
    This proposed merger poses significant anti-competitive threats to 
numerous U.S. industries and markets. If allowed, this merger would 
have grave consequences for consumers and the nation's community 
pharmacies that serve them, as well as for health plans and employers 
that utilize PBM services, specialty pharmacy services, and mail order 
pharmacy services. NACDS opposes this merger and has urged FTC to block 
it. Earlier this month, the FTC issued a ``Second Request'' to Express 
Scripts and Medco to gather more data on the merger. According to media 
reports, only 4% of similar proposed deals in 2010 were issued a Second 
Request by the FTC. This merger has received the attention of not only 
FTC and this Committee, but also numerous other Members of Congress, 
numerous state Insurance Commissioners, state Attorneys General, and 
state legislators, who have all asked FTC to give this proposed merger 
a high level of scrutiny.
                           background on pbms
    PBMs manage and administer the prescription drug benefits of more 
than 210 million Americans. Employers and health plans contract with 
PBMs to manage and administer prescription drug benefits (as opposed to 
medical benefits) as part of overall health benefits. PBMs construct 
and manage drug formularies and use these formularies to negotiate 
discounts with pharmaceutical drug manufacturers. Manufacturers want to 
include their drugs on a PBM's formulary, and in order to do so, they 
provide discounts and rebates to the PBM, which are not always 
disclosed or passed on to purchasers of PBM services (e.g., employers 
and health plans). If the PBM can increase a manufacturer's market 
share for certain drugs, the rebates and discounts are typically 
adjusted accordingly to incentivize the PBM to increase the dispensing 
of the manufacturer's drugs, even if the incentives increase the costs 
to plans. The PBM consults with employers and health plans as to what 
drugs they should place on their formulary, but often without full 
transparency of the financial incentives. In other words, the PBM acts 
as a ``double agent'' negotiating with drug manufacturers as well as 
employers and health plans to create consumers' prescription drug plans 
that benefit the PBM's profitability.
    The PBM then contracts with community pharmacies to provide 
prescription drugs and pharmacy services to the plans' beneficiaries. 
The payment from a PBM to a pharmacy for dispensing a prescription drug 
differs from the amount a PBM charges a plan for the same prescription 
drug, to the benefit of the PBM. Plans sponsors are typically unaware 
of this difference, commonly referred to as the ``spread.'' PBMs profit 
not only from the spread, but also from additional administrative fees 
charged to the plan for processing the claim. Many PBMs also own mail 
order pharmacies that they encourage consumers to use instead of the 
community pharmacies. In addition, Express Scripts and Medco each 
separately own two of the largest specialty pharmacy companies in the 
U.S.
    As an industry, PBMs are virtually unregulated. They may have 
tangential regulatory compliance for insurance related processes 
through their relationships with health plans and employers. A handful 
of states directly regulate some PBM functions, such as how they 
conduct audits of pharmacies, and some state boards of pharmacy 
regulate them to the extent that their activities can be construed as 
practicing pharmacy. The vast majority of their remaining functions and 
activities are unregulated, as there are no state or federal 
authorities with direct jurisdiction over them.
                          overview of concerns
    The proposed merger of Express Scripts and Medco would result in 
unparalleled market concentration in an already extremely limited 
marketplace. Because of several mergers and acquisitions over the past 
decade, the number of PBMs has declined significantly since 2000 and 
the concentration among the largest PBM providers has increased during 
that time. The market for national prescription drug plans is currently 
concentrated in just three PBMs. If the merger proceeds, there will be 
a reduction in competition in already highly-concentrated markets, 
including those involving PBM services, as well as mail order 
distribution services and specialty pharmaceutical services.
    The proposed merger would be a tipping point in terms of PBM 
concentration that would have a considerable anti-competitive impact on 
employers, health plans, federal employee benefit plans, and TRICARE, 
along with their beneficiaries. The post-merger PBM marketplace would 
have markedly reduced choice for all patients and consumers, as well as 
governmental, employer and third-party payors.
                        reduced pbm competition
    Express Scripts and Medco are two of the ``Big Three'' PBMs that 
control 50-60% of the national overall prescription drug volume.\1\ If 
approved, approximately 1/3 of all Americans (roughly 135 million 
people) would rely on the new ``mega PBM'' to manage their prescription 
benefits.\2\ This ``mega PBM'' alone would control over 40% of the 
national prescription drug volume.\3\ Certain classes of customers such 
as large, complex health plans would be left with only two choices for 
PBM services, the merged entity and the one remaining large PBM. 
Smaller regional PBMs would be unable to constrain anticompetitive 
conduct because of their smaller size, geographic limitations, and lack 
of ability to secure rebates.
---------------------------------------------------------------------------
    \1\ Atlantic Information Services (``AIS''), 2010 data; J.P. 
Morgan, Healthcare Technology & Distribution, Gill's Guide to Rx 
Channel--An Investor Handbook, May 10, 2011.
    \2\ Bloomberg, Express Scripts-Medco Deal May Spur Purchases by 
Rivals, July 22, 2011.
    \3\ Atlantic Information Services (``AIS''), 2010 data; J.P. 
Morgan, Healthcare Technology & Distribution, Gill's Guide to Rx 
Channel--An Investor Handbook, May 10, 2011.
---------------------------------------------------------------------------
    This substantial reduction in competition will harm purchasers of 
PBM services and the purchasers' beneficiaries by limiting consumer 
choice, reducing transparency, reducing access to pharmacy services, 
and increasing costs to the beneficiaries.
            anti-competitive concentration in the pbm market
    The proposed merger will lead to anticompetitive concentration in 
the PBM market, resulting in market foreclosure practices that harm 
purchasers of PBM services and consequently, consumers of pharmacy 
services. Specifically, the merged PBM will have an incentive to use 
its increased market power as both a seller and a purchaser of pharmacy 
services to impose unfavorable contract terms on community pharmacies. 
Consequently, this ``mega PBM'' would have the ability to raise prices 
for health plans and patients, limit access to pharmacy patient care 
and force patients to use the PBM's mail order pharmacies rather than 
their trusted community pharmacies, driving up costs for employers, 
health plans and other federal and state programs.
    PBMs operate unregulated and in an opaque manner. They claim that 
they save money by negotiating rebates and discounts from drug 
manufacturers and negotiating lower reimbursement rates from 
pharmacies. However, there is no proof that they pass along any of this 
purported savings to health plans, employers or consumers. In fact, the 
PBM industry has been fraught with allegations of extensive deceptive 
and fraudulent practices. In recent years, cases brought by a coalition 
of over 30 State Attorneys General have resulted in over $370 million 
in penalties for deceptive and fraudulent conduct.\4\ It was found that 
PBMs accepted rebates from manufacturers in return for placing higher 
priced medications on prescription drug plans' formularies, switched 
customers to the higher priced drugs that were paid for by the health 
plan/employer, and benefitted from both the rebate received and the 
higher priced drug payment without passing along the enrichment to the 
health plan/employer. In essence, PBMs use lack of transparency to 
negotiate higher rebates from drug manufacturers, higher drug prices 
for health plans/employers, and lower payments to pharmacies, while 
keeping the gains for themselves. We can expect a ``mega PBM'' to have 
freer reign to engage in similar egregious conduct.
---------------------------------------------------------------------------
    \4\ The American Antitrust Institute; ``Commentary: The FTC Should 
Issue a Second Request on Express Scripts' Proposed Acquisition of 
Wellpoint's PBM Business,'' May 11, 2009.
---------------------------------------------------------------------------
    As middlemen, PBMs claim that their ability to negotiate with drug 
manufacturers and pharmacies reduces overall prescription drug costs. 
However, despite their claims, overall prescription drug spending 
continues to steadily increase. Moreover, recent studies show that 
PBMs' mail order pharmacies have lower generic dispensing rates than 
retail community pharmacies.\5\ A ``mega PBM'' would be even more 
likely to increase drug costs by shifting more patients to mail order, 
which utilizes more expensive, brand name drugs. This increased cost 
would be borne by health plans, employers, and ultimately consumers.
---------------------------------------------------------------------------
    \5\ See 2010-2011 Prescription Drug Cost and Plan Benefit Design 
Report at 28, available at http://www.benefitdesignreport.com/Portals/
0/2010-2011_BDR_R1.pdf.
---------------------------------------------------------------------------
       concerns about specialty pharmacy and mail order services
    Specialty pharmaceuticals are high cost drugs required by patients 
undergoing intensive therapies for chronic, complex, relatively rare 
and/or potentially life-threatening illnesses. Industry experts 
anticipate that sales of specialty pharmaceuticals will account for an 
increasing dollar share of all drugs consumed, estimated to be 27% of 
all drug sales by 2015.\6\
---------------------------------------------------------------------------
    \6\ See CVS Caremark Corp., 2010 Annual Report at http://
www.annualreports.com/HostedData/AnnualReports/PDFArchive/cvs2010.pdf 
(citing ModernHealthcare.com).
---------------------------------------------------------------------------
    The merger would combine two of the three largest suppliers of 
specialty pharmacy services, creating an entity with more than 50% 
share of all specialty pharmacy sales. CuraScript (owned by Express 
Scripts) and Accredo (owned by Medco) are the two largest specialty 
pharmacies in the U.S. Combined, these two entities account for an 
estimated 52% of all specialty pharmaceuticals in the U.S.; this would 
be enough power to stifle competition in the specialty pharmacy market 
and command even higher prices. Both PBMs have attempted to 
significantly increase prices of specialty pharmaceuticals in recent 
years. We can expect an even greater effort to do this should the 
merger be approved.
    The merger will also create the largest mail-order pharmacy 
accounting for close to 60% of all mail-order scripts processed in the 
U.S.\7\ The merged company will have even more market power to reduce 
patient access to community pharmacies and force consumers and 
employers to use its own captive mail order operation. Although the 
merging firms may claim that shifting prescriptions to mail order 
prescriptions from retail community pharmacies will drive down drug 
costs to consumers, their increased market power is likely to result in 
an artificially high reduction in prescriptions filled through 
community pharmacies, and increased costs for payors and beneficiaries.
---------------------------------------------------------------------------
    \7\ AIS 2011 data.
---------------------------------------------------------------------------
    The ability of PBMs to drive prescriptions to their own mail order 
facilities is inherently anticompetitive. Congress has recognized the 
potential for this type of abuse, and in Medicare, this type of ``self 
dealing'' in the case of physicians is illegal. Moreover, PBMs 
determine the income received by pharmacies (by setting pharmacies' 
reimbursement rates) and then directly compete with pharmacies by 
driving prescriptions to their own mail order facilities. Further 
consolidation of PBMs and mail order pharmacies, in addition to the 
lack of transparency in PBM operations, will further exacerbate these 
conflicts. The result will be increased costs for public programs such 
as Medicare, beneficiaries, private health plans and employers, and the 
American taxpayer.
    In addition, the merged entity's ability to shift patients to its 
mail-order operations will have a direct and harmful impact on patient 
care. It will allow the mega PBM to limit consumers' access to their 
local pharmacies and the vital healthcare services and one-on-one 
counseling they provide. In addition to dispensing prescriptions, 
pharmacists counsel patients on a daily basis to ensure that they take 
their medications as directed by their doctors. They also provide a 
broad range of critical, cost-effective services such as immunizations, 
counseling for diseases such as diabetes, and other health education 
and screening programs. These high quality services increase the 
therapeutic benefits of prescription drugs, which improve health 
outcomes and lowers costs. There is simply no substitute for the in-
store, face-to-face services provided by pharmacists.
                               conclusion
    NACDS thanks the Committee for consideration of our comments on the 
proposed merger of Express Scripts and Medco. We are deeply concerned 
about the anti-competitive impact the merger would have and are 
extremely skeptical that the American public can trust a ``mega PBM'' 
to look out for the best interests of patients and payors, or to pass 
any purported ``savings'' along to beneficiaries and other consumers. 
These concerns are compounded by the fact that the PBM industry as a 
whole is virtually unregulated.
                               __________

    Mr. Goodlatte. And now we will hear from Mr. Gustafson. 
Welcome.

            TESTIMONY OF DAN E. GUSTAFSON, PARTNER, 
                      GUSTAFSON GLUEK PLLC

    Mr. Gustafson. Chairman Goodlatte, thank you for providing 
me the opportunity to testify today. My name is Dan Gustafson, 
and I practice antitrust law at Gustafson Gluek in Minneapolis. 
I am also working with a group at the American Antitrust 
Institute to evaluate the proposed merger.
    Although our work is preliminary, we have identified 
several potential concerns with regard to this merger, but 
before I identify these concerns, let me emphasize first that 
the time for careful evaluation of this merger is now. Although 
antitrust enforcement can sometimes undo the effects of already 
concentrated markets or anticompetitive conduct, preventing 
such conduct before it occurs is far more effective antitrust 
and public policy. For that reason we applaud the FTC's second 
request for information as it continues to evaluate this merger 
proposal.
    PBMs play an important and ever-expanding role in our 
health care system. They touch most American lives in their 
role as managers of prescription drug benefits through their 
pharmacy claims processing, formulary management and home-
delivery pharmacy services. They also negotiate discounts and 
rebates on purchases from pharmaceutical companies.
    The market for national PBM services is already 
concentrated. CVS Caremark, Express Scripts and Medco control 
more than 50 percent of the market when measured in terms of 
prescriptions, and over 80 percent of the market when measured 
in terms of large plan-sponsored contracts. A merged Express 
Scripts-Medco company will overwhelmingly dominate the PBM 
services market, covering nearly 150 million prescription drug 
consumers and over 50 percent of the large plan sponsors. In 
terms of covered lives, no other PBM would remotely approach 
Express Scripts-Medco.
    As a result of our evaluation of this merger, we raise 
several concerns. First, will the merger reduce competition for 
the provision of PBM services to large plan sponsors? Although 
there are numerous smaller PBMs, many of these smaller entities 
operate only in regions, some serve only a special niche 
markets such as government services, and other offer a limited 
menu of services in areas such as specialty drugs, mail order 
or claims processing. The smaller PBMs lack the ability to 
negotiate the same discounts and rebates from drug 
manufacturers that large PBMs can obtain. As a result, regional 
PBMs may be unable to constrain potential anticompetitive 
conduct.
    Second, will the proposed merger lead to increased prices 
or reduced services in the distribution of specialty 
pharmaceuticals? Significant concerns exist in the market for 
the distribution of specialty drugs where Express Scripts and 
Medco will own the two largest specialty pharmacy businesses. 
The proposed merger will result in a company holding more than 
a 50 percent share of the specialty pharmacy market segment. 
Specialty pharmacies provide important service and treatments 
to consumers with complex, chronic and often life-threatening 
illnesses. They often help administer complex treatments, work 
with physicians to monitor patient therapy, and play a role in 
the medication compliance issues. Reduced competition in this 
market segment could lead to increased costs and reduced 
services to the consumers who depend on those treatments the 
most.
    Third, will the proposed merger increase the exercise of 
buyer power to reduce the delivery of traditional 
pharmaceutical services? We are concerned that the major PBMs 
already possess the ability and incentive to exercise market 
power over retail independent and chain pharmacies. 
Reimbursements from the PBMs is a major source of their 
revenue, and the proposed merger could enable the two remaining 
large PBMs to push compensation to the retail pharmacies below 
competitive levels, eliminating jobs and leading to reduced and 
important services for their consumers.
    This proposed merger would also create the largest mail-
order pharmacy in the United States, accounting for nearly 60 
percent of all mail-order scripts, because large PBMs could 
divert prescriptions to their own mail-order facilities instead 
of to their retail traditional pharmacies. They could maximize 
their own gains if they then select drugs on which they receive 
superior rebates from manufacturers. The opportunity for 
potentially anticompetitive self-dealing which harms consumers 
may be enhanced by the creation of a dominant PBM in the mail-
order pharmacy market space and elimination of one of its only 
two competitors.
    Finally, we need to be careful to examine the claim 
deficiencies to determine if the savings that are proposed are 
specific to this merger and cannot otherwise be obtained by 
means unrelated to the merger. A careful analysis made as to 
whether and to what degree these claimed efficiencies will 
actually be passed on to plans, and therefore consumers, is 
important as well.
    Past consolidation in this industry provides sufficient 
data to evaluate the previous efficiency promises that have 
been made. The recent spike in the profits of the largest PBMs 
suggest less and not more competition and, as a result, higher 
prices for plans and for consumers.
    Thank you for providing me the opportunity to testify 
today. I am happy to answer any questions that you may have.
    Mr. Goodlatte. Thank you, Mr. Gustafson.
    [The prepared statement of Mr. Gustafson follows:]
 Prepared Statement of Dan E. Gustafson, Partner, Gustafson Gluek PLLC
                            i. introduction
    Chairman Goodlatte, Ranking Member Watt, and members of the 
Committee. Thank you for providing me the opportunity to testify before 
you today regarding the proposed Express Scripts-Medco merger, two of 
the largest pharmacy benefit managers (PBMs) in the United States. My 
name is Dan Gustafson from Gustafson Gluek in Minneapolis, Minnesota. I 
am an advisory board member of the American Antitrust Institute 
(AAI)\1\ and part of an ad hoc working group of the AAI that is 
investigating and analyzing the impact of this proposed merger.
---------------------------------------------------------------------------
    \1\ The AAI is an independent Washington-based non-profit 
organization addressing antitrust issues from a perspective of 
increasing competition and ensuring that competition works to benefit 
consumers through vigorous public and private antitrust enforcement. 
AAI Website, About Us, http://www.antitrustinstitute.org/content/about-
us
---------------------------------------------------------------------------
                ii. aai's role and antitrust enforcement
    Our analysis has just begun and has been limited to considering 
publicly available materials. At the conclusion of our evaluation, we 
expect to author an antitrust white paper to recommend actions that the 
AAI believes the FTC should take with respect to this proposed merger.
    Although the working group has not yet reached any conclusions and 
the AAI Board of Directors has not taken any position on the merger, I 
appear before you today at their request to identify some areas of 
concern that suggest further careful investigation and analysis is 
warranted. We hope that this information will assist the Committee as 
it considers this proposed merger.
    It is important to note that now is the time to evaluate and 
analyze this proposed merger. Although some post-merger antitrust 
enforcement successfully corrects excessive market concentration or 
other anticompetitive conduct, antitrust policy in this area should 
focus on preventing anticompetitive conduct by foreclosing combinations 
that incentivize or further anticompetitive conduct. Effective merger 
review requires that regulatory agencies take appropriate steps at this 
stage--before the merger happens--to ensure that competition and 
consumer interests are protected.
    With respect to this proposed merger, the FTC has already issued a 
Second Request, and the AAI applauds its continuing investigation of 
this matter. Although the FTC cleared the CVS Caremark merger without a 
Second Request, previous decisions of the Commission indicate that it 
believed the PBM industry to be competitive. Although the Commission 
has issued some broad statements about the competitiveness of the 
industry, we believe those statements should be reexamined in light of 
recent enforcement actions by state attorneys general, increased 
consolidation and the escalating profits of the major PBMs.
                        iii. industry background
    PBMs play several roles in our healthcare system. They touch most 
American lives in their role as managers of prescription drug benefits 
for third-party payors. In this role, they integrate retail pharmacy 
claims processing, formulary management, and home delivery pharmacy 
services.\2\
---------------------------------------------------------------------------
    \2\ Mark Meador, Squeezing the Middleman, 20 Annals of Health Law 
77, 78-79 (2011).
---------------------------------------------------------------------------
    In addition to adopting a pre-approved list of commonly prescribed 
prescription medications, formulary management includes managing the 
utilization of covered medications by balancing clinical effectiveness 
with costs, traditionally through clinical programs developed and 
maintained by plan doctors and pharmacists.\3\ Litigation by state 
attorneys general in recent years has raised concerns that the 
decisions made by large PBMs on these formulary issues may be 
improperly influenced by discounts and rebates received from 
manufacturers in exchange for placing higher priced medications on the 
formulary, and exclusive contractual arrangements that may lead to 
favorable treatment for higher priced drugs, irrespective of their 
relative utility.\4\
---------------------------------------------------------------------------
    \3\ Blue Cross Blue Shield of Massachusetts, Glossary, http://
www.bluecrossma.com/bluelinks-for-employers/glossary.html
    \4\ AAI White Paper, The FTC Should Issue a Second Request on 
Express Scripts' Proposed Acquisition of Wellpoint's PBM Business, May 
11, 2009 (``AAI 5/11/09 White Paper''), at 4.
---------------------------------------------------------------------------
    In recent years, many PBMs, including both Express Scripts and 
Medco, have acquired major specialty pharmacy businesses and, as a 
result, now also serve as distributors of specialty drugs. Although 
there is no universally accepted definition for a ``specialty drug,'' 
it usually refers to medications for the treatment of serious, chronic 
ailments that are expensive and often require special handling and 
control, complex administration and careful monitoring.\5\
---------------------------------------------------------------------------
    \5\ Testimony of David Balto on Health Industry Consolidation, 
September 9, 2011 (``Balto 9/9/11 Testimony''), at 6; Change to Win, 
CVS Caremark: An Alarming Merger, Two Years Later, November 2009, at 6; 
AAI 5/11/09 White Paper, supra, at 9.
---------------------------------------------------------------------------
    The large PBMs have also increasingly expanded into mail order 
pharmacy businesses. These mail order pharmacies further the vertical 
integration of large PBMs and compete directly with national, regional 
and traditional local pharmacies.\6\ The PBMs with large mail order 
operations often limit distribution of certain drugs solely through the 
mail.\7\
---------------------------------------------------------------------------
    \6\ Allison Dabbs Garrett & Robert Garis, Leveling the Playing 
Field in the Pharmacy Benefit Management Industry, 42 Val. U. L. Rev. 
33, 37, 66-68 (2007); AAI White Paper, Express Scripts' Proposed 
Acquisition of Caremark: An Antitrust White Paper, February 14, 2007 
(``AAI 2/14/07 White Paper''), at 2, 4, 7-8.
    \7\ PBMs also offer additional services such as compliance programs 
outcome research, drug therapy management programs, data analysis, and 
distribution services. Garrett & Garis, supra, at 34-38; AAI 5/11/09 
White Paper, supra, at 7.
---------------------------------------------------------------------------
         iv. proposed merger between express scripts and medco
A. Market Concentration
    Although it is premature to reach conclusions about the relevant 
market definitions in an antitrust context, the AAI working group is 
considering some market concentration issues that may raise potential 
concerns. The market space for PBM services is already concentrated. 
The top three PBMs, CVS Caremark, Express Scripts and Medco, control 
approximately 50% of the market when measuring prescriptions filled or 
controlled.\8\ If the market concentration is measured in terms of 
contractual arrangements with large plan sponsors,\9\ the market is 
even more concentrated, with the big three PBMs controlling over 
80%.\10\
---------------------------------------------------------------------------
    \8\ Guggenheim, ESRX/MHS Still Faces Tough Review--We Think This 
Could Benefit WAG and CVS at 3, Sept. 6, 2011.
    \9\ A plan sponsor is the employer insurance company, union or 
other entity which purchases PBM services on behalf of its employees or 
members.
    \10\ AAI 5/11/09 White Paper, supra, at 1.
---------------------------------------------------------------------------
    Concentration in this market already has occurred through mergers. 
CVS Caremark is a result of a $21 billion merger of CVS and Caremark in 
2007 that was cleared without a Second Request from the FTC.\11\ If 
Express Scripts and Medco merge, three will become two. A merged 
Express Scripts-Medco company will dominate the PBM services market 
space covering more than 150 million prescription drug consumers and 
50% of the large employer market.\12\ Combined with the next largest 
PBM, CVS Caremark, the two would cover approximately 240 million 
prescription drug consumers.\13\ In terms of covered lives, no other 
PBM, post-merger, would remotely approach Express Scripts-Medco. Even 
CVS Caremark would be a distant second.\14\
---------------------------------------------------------------------------
    \11\ AAI 5/11/09 White Paper supra, at 2.
    \12\ Balto 9/9/11 Testimony, supra, at 6.
    \13\ Balto 9/9/11 Testimony, supra, at 6.
    \14\ Numbers based on http://pbmi.com/PBMmarketshare1.asp.
---------------------------------------------------------------------------
    The post-merger Express Scripts-Medco company may lessen the 
competition between the top PBMs and smaller, regional PBMs and as a 
direct result, may harm consumers, plans, employers, unions, and 
pharmacies.
    In the past, the FTC has defined this market as the provision of 
PBM services to large plan sponsors.\15\ Although that market 
definition is clearly relevant to the discussion of the proposed merger 
today, it is not the only market segment that should be examined. We 
also plan to consider the impact of PBM concentration on at least the 
specialty, mail order, and retail independent and chain pharmacy market 
segments.
---------------------------------------------------------------------------
    \15\ In re Merck & Co., 127 F.T.C. 156 (1999); In re Eli Lilly & 
Co., 120 F.T.C. 243 (1995).
---------------------------------------------------------------------------
    There may be substantial concerns in the market space for 
distribution of specialty drugs where Express Scripts and Medco own, 
respectively, Curascript and Accredo, the two largest specialty 
pharmacy businesses.\16\ Specialty pharmacies provide service and 
treatments to consumers with complex, chronic, and often potentially 
life-threatening illnesses, including HIV/AIDS, Crohn's Disease, and 
some forms of cancer.
---------------------------------------------------------------------------
    \16\ Balto 9/9/11 Testimony, supra, at 6.
---------------------------------------------------------------------------
    Specialty pharmacies also often provide the most cost-effective use 
of these expensive treatments, and reduced competition in this market 
segment could lead to reduced service and increased costs to the 
consumers who depend on specialty treatments and the broad counseling 
services provided by independent specialty pharmacies. This market 
segment has become increasingly concentrated and poses its own special 
concerns. This proposed merger would leave the post-merger company with 
more than a 50% share of the specialty pharmacy market segment, and may 
threaten competition in this area.
    The largest PBMs also own businesses that provide mail order 
pharmacy operations. These mail order pharmacy operations provide a 
significant source of revenue because the PBM controls both the claims 
adjudication function and prescription dispensing function.\17\ Some 
sources suggest that a merged Express Scripts-Medco company would 
control almost 60% of the mail order market space.\18\ Although the 
proposed merger parties may claim that shifting prescriptions to mail 
order prescriptions from retail community pharmacies will lessen drug 
costs for consumers, their increased market power in the mail order 
segment may actually reduce pharmacy prescriptions and increase 
costs.\19\
---------------------------------------------------------------------------
    \17\ Garrett & Garis, supra, at 67.
    \18\ Zachary French, Express Scripts and Medco Merge Mail Order, 
Specialty Pharmacies, and of Less Importance, PBM Operations, July 22, 
2011.
    \19\ PBMs determine the income received by pharmacies (by setting 
pharmacies' reimbursement rates) and then directly compete with 
pharmacies by driving prescriptions to their own mail order facilities. 
See Statement of the National Association of Chain Drug Stores for U.S. 
House of Representatives Committee on Ways and Means, Subcommittee on 
Health, Hearing on ``Health Care Industry Consolidation,'' September 9, 
2011.
---------------------------------------------------------------------------
    Concerns also have been raised over the past several years on the 
lack of competition in the PBM market and deceptive conduct that harms 
consumers. In the past six years, a coalition of over 30 state 
attorneys general have brought cases against each of the big three PBMs 
securing over $370 million in penalties and fines.\20\ Over the past 
few years, the profits of the big three have soared over 400%.\21\
---------------------------------------------------------------------------
    \20\ AAI 5/11/09 White Paper, supra, at 4.
    \21\ National Community Pharmacists Association, Pharmacists Can 
Help States Reduce Medicaid Costs, While Preserving Patient Choice, 
June 16, 2011, http://www.ncpanet.org/index.php/news-releases/1016-
community-pharmacists-can-help-states-reduce-medicaid-costs-while-
preserving-patient-choice.
---------------------------------------------------------------------------
B. The Antitrust Concerns
    There are several issues that the AAI working group will continue 
to investigate and evaluate.
    First, could the merger reduce competition for the provision of PBM 
services to large plan sponsors?
    Currently, CVS Caremark, Express Scripts, and Medco are, by far, 
the three largest PBMs serving large plan sponsors. Over 40 of the 
``Fortune 50'' largest corporations rely on these three PBMs for PBM 
services.\22\ Because of their size and potential to offer exclusive 
contracts, these big three PBMs have significantly greater purchasing 
power than smaller PBMs for both brand and generic drugs. Their mail 
order and specialty operations similarly enable them to provide a wider 
range of services, and they have broader technological capability and 
better claims processing. Not surprisingly when one of the big three 
loses a large plan sponsor it is almost inevitably to another one of 
the big three.\23\
---------------------------------------------------------------------------
    \22\ Morgan Stanley Research, Healthcare Services & Distribution: 
Fortune 50 and Respective PBMs, July 28, 2011.
    \23\ AAI 5/11/09 White Paper, supra, at 5-7.
---------------------------------------------------------------------------
    Although there are numerous smaller PBMs in the market space for 
PBM services, smaller PBMs often face regional limitations, others 
serve a special niche market, such as government entities, and others 
do not have a full menu of services such as mail order, specialty 
pharmacy and the lack of claims processing capabilities to service 
national accounts. These smaller PBMs also face a limited ability to 
secure discounts or rebates from PBM suppliers.\24\
---------------------------------------------------------------------------
    \24\ AAI 5/11/09 White Paper, supra, at 7.
---------------------------------------------------------------------------
    The Express Scripts-Medco merger reduces the number of viable 
providers of PBM services to large plan sponsors from three to two and 
may result in higher prices, less innovation, and increased barriers to 
entry. As noted above, the three national PBMs have significant 
advantages in national scope, drug purchasing, discounts and rebates, 
mail order distribution, specialty pharmaceuticals and administrative 
services. As a result, the remaining smaller, regional PBMs may be 
unable to constrain potential anticompetitive conduct of the large 
PBMs.\25\ A key consideration in that respect is how markets are 
ultimately defined.
---------------------------------------------------------------------------
    \25\ AAI 5/11/09 White Paper, supra, at 5-7.
---------------------------------------------------------------------------
    Because PBMs enter contracts with large plan sponsors that 
typically span several years, the ability to compete for such contracts 
lessens as the bigger PBMs increase their base. These contracts are 
renewed at a high rate.\26\ PBMs also enter contracts with government 
entities--such as Medicare Part D, Tricare, and the Federal Employee 
Health Benefit Plan--through a competitive bidding process. PBM 
contracts with large plan and government plan sponsors are 
exclusive.\27\
---------------------------------------------------------------------------
    \26\ AAI 5/11/09 White Paper, supra, at 7.
    \27\ Medscape News, The Medicare Prescription Drug Benefit: PBMs 
and Supporting Institutions, http://www.medscape.com/viewarticle/
409818_3.
---------------------------------------------------------------------------
    Second, would the merger pose a threat of coordinated interaction 
by eliminating a major competitive firm from the market?
    As the PBM services segment loses major participants, the risk of 
coordinated interaction increases. The market is already dominated by a 
small number of large firms and there are substantial barriers to 
entry. Transparency issues make it difficult for plan sponsors to 
determine whether they are receiving the full benefits from their 
arrangement with the PBM. The lack of transparency and the length and 
exclusivity of contracts hamper plan sponsors' ability to negotiate 
meaningfully with PBMs.\28\
---------------------------------------------------------------------------
    \28\ Garrett & Garis, supra, at 61-72; AAI 5/11/09 White Paper, 
supra, at 5-7; Statement of National Association of Chain Drug Stores 
for Hearing on ``Health Care Industry Consolidation,'' September 9, 
2011 (``NACDS Statement''), at 4-6.
---------------------------------------------------------------------------
    As one federal court has observed, ``Whether and how a PBM actually 
saves an individual benefits provider [plan sponsor] customer money 
with respect to the purchase of a particular prescription drug is 
largely a mystery to the benefits provider.'' \29\ Even when a benefits 
provider receives a shared rebate from the PBM, it may not make up for 
the higher base price of the more expensive drugs that the PBM selects 
based on manufacturer rebates or exclusive supply arrangement, 
resulting in a net economic loss to the benefits provider. In the 
current climate, PBMs ``introduce a layer of fog to the market that 
prevents benefits providers from fully understanding how best to 
minimize their net prescription drug costs.'' \30\ Further 
consolidation could threaten to make this problem worse.
---------------------------------------------------------------------------
    \29\ Pharm. Care Mgmt. Ass'n v. Rowe, Civ. No. 03-153, 2005 WL 
757608, *2 (D. Me. Feb. 2, 2005), aff'd 429 F.3d 294 (1st Cir. 2005).
    \30\ Pharm. Care Mgmt. Ass'n v. Rowe, Civ. No. 03-153, 2005 WL 
757608, *2 (D. Me. Feb. 2, 2005), aff'd 429 F.3d 294 (1st Cir. 2005).
---------------------------------------------------------------------------
    Third, could the proposed merger lead to increased prices in the 
distribution of certain specialty pharmaceuticals?
    Specialty pharmaceuticals, which are generally more costly than 
traditional pharmaceuticals, are an increasingly important area of 
concern for cost-conscious plan sponsors and a major source of revenue 
for PBMs. The cost of specialty drugs in the aggregate is rising 
rapidly--increasing by nearly 20 percent in 2010 and the cost of all 
specialty drugs is expected to reach as high as 27.5 percent of the 
cost of all medications covered by pharmacy benefits by 2013.\31\ By 
2016, 8 of the top 10 prescription drugs are expected to be considered 
specialty drugs.\32\
---------------------------------------------------------------------------
    \31\ Express Scripts, 2010 Drug Trend Report: A Market and 
Behavioral Analysis (April 2011), at 91.
    \32\ Medco Health Solutions, 2011 Drug Trend Report (2011), at 35.
---------------------------------------------------------------------------
    Specialty pharmacies manage the highly expensive treatments of the 
most dynamic, complex, and serious illnesses and the service they 
provide is both distinct and significant. Specialty pharmacies 
traditionally educate patients on effective treatment utilization, 
monitor side effects and partner with physicians to identify 
ineffective medications and recommend treatment changes. Specialty 
pharmacies also play an active role in providing continuity of patient 
care to ensure that costs are minimized and health outcomes 
improve.\33\
---------------------------------------------------------------------------
    \33\ Change to Win, supra, at 6; Balto 9/9/11 Testimony, supra, at 
6; NACDS Statement, supra, at 6-7.
---------------------------------------------------------------------------
    This proposed merger needs to be investigated to see whether it 
poses a threat to competition in this important area of primary care 
because each of the major PBMs has acquired specialty pharmaceutical 
companies in the recent years. Some critics have suggested that it is a 
common business practice for these PBMs to prevent other pharmacies 
from dispensing specialty drugs and to force patients to use the PBM's 
mail order facility.\34\ These restricted networks disrupt the 
continuity of care and degrade health outcomes by forcing patients to 
switch away from their pharmacy of choice. The major PBMs also 
regularly mandate that patients purchase large supplies of expensive 
medication. Not uncommon in the treatment of these complex conditions, 
many patients may find after purchasing that they are not responsive to 
the drug, their treatment regimen needs to be adjusted or that they 
cannot tolerate the drug. Having already purchased a large prescription 
of non-refundable medication, even minor adjustments to improve the 
effectiveness of treatment may result in thousands of dollars in wasted 
medication in addition to the cost of the replacement drug that they 
need.\35\
---------------------------------------------------------------------------
    \34\ NACDS Statement, supra, at 6-7; Balto 9/9/11 Testimony, supra, 
at 6.
    \35\ Lehigh Valley Women's Journal, Administrators of 
Pharmaceutical Industry ``Steering'' Profits to Themselves, and 
Refusing to Give Patients a Choice, Sept. 14, 2011.
---------------------------------------------------------------------------
    Because the proposed merger would give Express Scripts-Medco a much 
larger role as a PBM, it will expand its control of patient data and 
realize an increased ability to use this data to move patients to its 
own pharmacy operations. This concern is real in light of CVS 
Caremark's demonstrated ability to use data received in its PBM 
capacity to boost sales of its CVS pharmacies.\36\ Because the 
relationship with a clinical pharmacist has been repeatedly shown to 
improve medication compliance and health outcomes, a market free of 
anticompetitive conduct by PBMs to steer patients in-house would 
support the services that most effectively promote the health of the 
patient. This proposed merger, however, will likely limit patient 
choice and lessen clinical service because of the favoritism that the 
benefit manager exhibit towards its own mail-order operations.\37\
---------------------------------------------------------------------------
    \36\ Change to Win, supra, at 6; Balto 9/9/11 Testimony, supra, at 
6; NACDS Statement, supra, at 6-7.
    \37\ Change to Win, CVS Caremark: An Alarming Merger, Two Years 
Later (Nov. 2009).
---------------------------------------------------------------------------
    The proposed merger would create the largest mail order pharmacy in 
the United States, accounting for nearly 60% of all mail order scripts 
processed.\38\ PBMs can direct prescriptions to their own mail order 
facilities instead of to competitors.\39\ PBMs channeling prescriptions 
through their own mail order operations may maximize their own gains--
at increased price to the plan sponsor--by selecting drugs on which 
they receive superior rebates from manufacturers.\40\ The opportunity 
for this kind of potentially anticompetitive, self-dealing, which harms 
consumers, will be enhanced by the creation of a dominant PBM in the 
mail order pharmacy market and the elimination of one of its only two 
real competitors.
---------------------------------------------------------------------------
    \38\ NACDS Statement, supra, at 7.
    \39\ Meador, supra, at 84.
    \40\ Garrett & Garis, supra, at 67.
---------------------------------------------------------------------------
    In addition to expanding its ownership of specialty pharmacies and 
mail order operations, the major PBMs continue to expand exclusive 
distribution arrangements with pharmaceutical manufacturers. Further 
analysis is required to determine whether these acquisitions and 
distribution alliances have led to decreased service and consumer 
choice in providers, as well as substantial increases in the prices of 
several specialty drugs.\41\ In the past, Express Scripts has imposed 
substantial price increases after becoming the sole distributor of 
certain drugs. For example, the price of H.P. Acthar Gel, a drug for 
treating children with a rare form of epilepsy, jumped from $1,600 a 
vial to $23,000 a vial after Express Scripts was given sole 
distributorship rights.\42\
---------------------------------------------------------------------------
    \41\ Meador, supra, at 77-84.
    \42\ AAI 5/11/09 White Paper, supra, at 9.
---------------------------------------------------------------------------
    By securing sole access to over 50 percent of the specialty market, 
Express Scripts-Medco could have increased leverage to restrict network 
access and enter into exclusivity arrangements with drug 
manufacturers.\43\ The proposed merger thereby could increase the 
potential for Express Scripts-Medco to engage in anticompetitive 
conduct and threatens to increase specialty drug prices and limit 
access to critical medications.
---------------------------------------------------------------------------
    \43\ Balto 9/9/11 Testimony, supra, at 6; Milt Freudenheim, The 
Middleman's Markup, New York Times, April 19, 2008.
---------------------------------------------------------------------------
    Fourth, will the proposed merger increase the exercise of monopsony 
power to reduce the local delivery of pharmaceutical services?
    We should be concerned that the major PBMs may already possess the 
ability and incentive to exercise market power over retail independent 
and chain pharmacies because reimbursement from PBMs is a major source 
of revenue for retail pharmacies.\44\ The proposed merger could enable 
these major PBMs to push compensation to the retail pharmacies below 
competitive levels, ultimately leading to lost jobs and diminished 
service for their consumers.
---------------------------------------------------------------------------
    \44\ NACDS Statement, supra, at 3-7; Garrett & Garis, supra, at 46.
---------------------------------------------------------------------------
    An adverse impact on the delivery of pharmaceutical services at the 
retail level should be sufficient by itself to raise serious concerns 
and motivate the government regulators to closely scrutinize the 
proposed merger. In recent years, federal and state regulatory agencies 
have become more sensitive to the exercise of buyer power as raising a 
potential antitrust concern. The Antitrust Division has brought cases 
against both health insurers and agricultural processors based on the 
impact on doctors and farmers respectively. In the recent George's 
Foods enforcement action, the DOJ sued to enjoin a merger of two of the 
three largest chicken processors in the Shenandoah Valley area, which 
were ``the only competitive buyers for grower services'' in the area, 
solely based on the impact on chicken farmers.\45\ Thus, the exercise 
of such buyer power should be a primary focus of any further review.
---------------------------------------------------------------------------
    \45\ United States v. George's Foods, LLC, No. 5:11-cv-00043 (W.D. 
Va.)
---------------------------------------------------------------------------
C. Potential Efficiencies Must Also Be Investigated
    There should also be careful consideration about whether the 
proposed merger will lead to increased efficiencies that are specific 
to this proposed merger and that cannot be achieved by means not 
related to a merger. In the context of this proposed merger, any 
efficiency claims should be supported by existing business documents 
and demonstrable outcomes.
    Cognizable efficiencies should not be associated with 
anticompetitive reductions in output or service. For example, if 
reducing excess capacity of mail order pharmacy services as the result 
of the merger is a potential efficiency, the companies should 
demonstrate that the existing mail order capacity has not historically 
contributed to lower health care costs for plan sponsors and that 
reduction in capacity would not also entail substantial job losses.\46\ 
Competition also has the ability to create efficiency, and the merging 
entities must show that the same efficiencies cannot be realized 
through existing, continued competition.\47\
---------------------------------------------------------------------------
    \46\ Barclays Capital, Medco-Express Scripts Antitrust: Part II, 
Sept. 12, 2011, at 9.
    \47\ FTC v. Cardinal Health, Inc., 12 F. Supp. 2d 34, 61-63 (D.D.C. 
July 31, 1998).
---------------------------------------------------------------------------
    The FTC and this Committee should also work to make sure that any 
suggested cost savings will result from scale efficiencies and not the 
exercise of monopsony power and focus on whether, and to what extent, 
these claimed cost savings will actually be passed on to the PBMs' 
customers and, therefore, consumers. A fruitful area of investigation 
may be to determine why profits of the PBMs have increased at such a 
substantial rate during a time of industry consolidation which promised 
increased efficiencies. Does this suggest that the merged firms will 
retain a good portion of any future cost savings? Such profit retention 
(as opposed to passing on such savings) is consistent with a market 
place that exhibits less, not more, competition.
                             v. conclusion
    Thank you for providing me the opportunity to present my views of 
the proposed merger of Express Scripts and Medco. The proposed merger 
raises serious concerns that call for further careful study and 
evaluation, including the risks to competition in the PBM services to 
large plan sponsors, specialty pharmacy operations, mail order pharmacy 
operations and retail pharmacy markets, as well as to consumers and 
patient health care. The AAI looks forward to providing you its white 
paper once it has been completed.
                               __________

    Mr. Goodlatte. Ms. Kanwit.

   TESTIMONY OF STEPHANIE KANWIT, COUNSEL, MANATT, PHELPS & 
                         PHILLIPS, LLP

    Ms. Kanwit. Thank you, Mr. Chairman and Members of the 
Subcommittee. I am honored to be asked to testify here today. I 
am Stephanie Kanwit, and I want to note that I am not 
testifying on behalf of either party to this merger, but, given 
my antitrust and Federal Trade Commission backgrounds, have 
been asked to testify about how the agency is likely to view 
this merger based on both Federal merger law as well as its 
previous and very extensive studies and letters relating to 
PBMs.
    I have great respect for the FTC's expertise here. And they 
are very knowledgeable, the agency is very knowledgeable, about 
what PBMs do for a living, all the entities they interface 
with, and how competitive the market is. As Mr. Watt rightly 
noted in his introduction, the FTC is going to subject this 
merger to very close scrutiny.
    And here is the ultimate question that the agency has to 
answer in antitrust lingo: Will it substantially lessen 
competition? And what that means is will there still be 
aggressive competition in the PBM marketplace that will promote 
lower prescription drugs prices for consumers and result in 
higher quality and more access to prescription drugs? As.
    The Federal merger guidelines make clear--they were just 
enacted by the FTC and the Department of Justice last year--
antitrust merger law is about the impact of the merger on the 
cost and quality for consumers. It is not concerned with the 
impact on individual competitors in that particular market.
    So here is how the FTC will be looking at this merger. It 
is going to be looking at both hats that the PBMs wear. They 
wear many hats, but it is these particular hats they will look 
at.
    First question: What is the impact on PBM customers? In a 
nutshell my testimony outlines in detail multiple reports and 
FTC investigations which have found the market competitive and 
found that PBM customers out there have choices. The FTC has 
repeatedly, in letters and studies, et cetera, talked about all 
the multiple PBMs out there, how they are varied, how they sell 
in a variety of geographic and product markets. And, in fact, 
some are even buying groups of independent pharmacies.
    It is a fluid market where entries and exits are frequent. 
And, for example, I will just give you one example, recently 
the large retailer, Walmart, has entered the PBM space. So the 
bottom line is that the FTC has found, in a very extensive 2005 
study where it subpoenaed PBMs for information, that customers 
both large and small have multiple choices and frequently can 
and do switch PBMs if they are unhappy with service or pricing, 
and that they can negotiate contracts that benefit their 
members and themselves at both prices and quality, whatever 
they want in terms of price and quality.
    The number second question in addition to customers the FTC 
is going to ask is what is the impact on retail pharmacies? 
Now, the representative retail pharmacies here today have been 
very eloquent in condemning this merger, but I just want to 
make two points, one practical and one legal. As you have heard 
from some of the previous testimony, PBMs need retail 
pharmacies and pharmacists. They need them. They have to assure 
that their customers can fill prescriptions at various 
locations. And I would just note access standards in programs 
like TRICARE for the military and Part D Medicare, they are 
very, very strict what they call network adequacy standards, 
where, for example, in urban areas 90 percent of the 
beneficiaries have to live within 2 miles of a retail pharmacy. 
So it is important, as the FTC has found, for PBMs to have 
extensive pharmacy, retail pharmacy, networks.
    Legally you have also heard some discussion about whether 
this is going to adversely affect retail pharmacists, but that 
is not the test under antitrust law. Antitrust law, as I 
mentioned, is concerned with competition in general, not 
individual competitors. So the FTC is going to look, and this 
is a long section of the merger guidelines, at whether it 
brings efficiencies to the market and what are those 
efficiencies.
    I just cite in my testimony in detail a past PBM merger 
case talking about how a merger is pro-competitive if it 
results simply in a shift in purchases from an existing source 
to a lower-cost, more efficient source rather than a reduction 
in purchases. So, in other words, that is important. If you are 
taking costs out of a system, a merger can be very pro-
competitive.
    In conclusion, I just want to say the merger guidelines 
make very clear that the FTC is supposed to look and see 
whether a proposed merger is competitively harmful, but it is 
also supposed to avoid interference with what the guidelines 
call competitively beneficial mergers. That is right out of the 
guidelines. So the FTC is going to look at this merger in light 
of the prism of its previous conclusions in this area, and it 
has found in many different studies that the market is 
competitive.
    Thank you for your time.
    [The prepared statement of Ms. Kanwit follows:]
       Prepared Statement of Stephanie Kanwit, Counsel, Manatt, 
                           Phelps & Phillips
    Thank you for inviting me to speak today. I am counsel to the law 
firm of Manatt, Phelps & Phillips. I was formerly a Regional Director 
of the Federal Trade Commission (FTC), and have written a textbook on 
that agency. I have forty years of antitrust background as a litigator, 
have served as head of litigation for a large health insurer as well as 
general counsel of a health plan trade association, and teach a course 
in health care competition at George Washington University graduate 
school.
    I would like to note that while my firm is an outside counsel, as 
am I, for the trade association of pharmaceutical benefit managers 
(PBMs), and occasionally provides legal services for Medco Health 
Solutions, neither the firm nor I represent Express Scripts or Medco in 
regard to this proposed merger. Nor have I spoken to or consulted with 
any of the companies' personnel or their attorneys, or with any of the 
government personnel involved in the evaluation of the proposed merger 
in connection with the proposed transaction.
    As a result, I am acting here as a witness at the invitation of the 
Committee, am not appearing on behalf of any party, and have 
purposefully avoided gaining specifics of the proposed merger except 
through public sources. My testimony outlines generally what the FTC 
has found in its extensive recent analyses of the competitiveness of 
the PBM industry, as well as my sense of how the agency is likely to 
view this proposed merger based on its previous rulings and studies.
    More specifically, this testimony outlines:

        (1)  The role of the FTC in preventing unfair methods of 
        competition.

        (2)  The FTC's extensive analyses of the nature of the PBM 
        industry, including its multiple findings that the market is 
        highly competitive.

        (3)  How the FTC has characterized the functions of the PBM 
        industry and the characteristics of its participants, customers 
        and contractual partners.

        (4)  How the agency could be expected to evaluate the proposed 
        merger to determine if it ``substantially lessens 
        competition.''

        (5)  The precedent of the FTC's opinion finding no 
        anticompetitive effects of the 2004 AdvancePCS/Caremark merger, 
        and how the agency evaluates merger efficiencies.
    i. introduction: the ftc's role in ensuring competitiveness in 
                          health care markets:
    Health care markets have always been a high priority for the 
Commission. The agency's goal has been to ensure that these markets 
operate competitively, and its reports, advocacy letters, and 
investigations aim to carry out the mandate Congress gave it almost a 
hundred years ago, in 1914: to prevent unfair methods of competition 
and unfair or deceptive acts or practices in or affecting commerce.\1\
---------------------------------------------------------------------------
    \1\ FTC Act, 15 U.S.C. Sec. 45.
---------------------------------------------------------------------------
    The FTC's role, in a nutshell, is to protect the market from 
anticompetitive conduct that prevents it from responding freely to the 
demands of consumers. That is the key to antitrust law initiatives--
determining the impact on consumers, in terms of possible higher prices 
and reduction in quality and choices. As former chair Timothy Muris of 
the FTC has succinctly stated, ``Aggressive competition promotes lower 
prices, higher quality, greater innovation, and enhanced access.'' \2\ 
The FTC and its sister enforcement agency, the Department of Justice 
(DOJ), step in when they view private markets as operating improperly, 
such as when competitors collude on prices, or divide customers and 
markets, or when monopolists charge higher than competitive prices for 
goods or services. Indeed, the Agencies have collaborated in issuing 
reports such as the massive 2004 Healthcare Report examining the role 
of health care competition in addressing the cost and quality 
challenges facing our health care system.\3\
---------------------------------------------------------------------------
    \2\ Timothy J. Muris, ``Everything Old is New Again: Health Care 
and Competition in the 21st Century,'' Competition in Health Care 
Forum, Nov. 7, 2002, at 6.
    \3\ FTC and DOJ, ``Improving Health Care: A Dose of Competition'' 
(2004) (hereafter ``FTC/DOJ Report'')
---------------------------------------------------------------------------
    The result of what Prof. Muris calls ``aggressive competition,'' 
however, may not always be desirable for the particular competitors 
involved.\4\ That's because competition law focuses on protecting 
competition and the competitive process, rather than individual 
competitors.\5\ Indeed, in their 2004 Report the enforcement agencies 
pointed out that while ``competition can be ruthless,'' in the long run 
the fact that it ``creates winners and losers can inspire health care 
providers to do a better job for consumers.'' \6\
---------------------------------------------------------------------------
    \4\ Sage, W., Hyman, D., and Greenberg, W., ``Why Competition Law 
Matters to Health Care Quality,'' 22 Health Affairs No. 2 at 31. 
(March/April 2003).
    \5\ See Brown Shoe v. United States, 370 U.S. 294, 320 (1962) 
(Clayton Act illustrates ``congressional concern with the protection of 
competition, not competitors, and its desire to restrain mergers only 
to the extent that such combinations may tend to lessen competition.'')
    \6\ FTC/DOJ Report, Executive Summary, at 4.
---------------------------------------------------------------------------
    Most pertinent here today is the FTC's merger work, including its 
issuance last year in conjunction with the DOJ of new revised 
Horizontal Merger Guidelines for the first time in more than 18 years. 
Those Guidelines, discussed below, provide what the FTC calls ``more 
transparency so that businesses and their counsel may better understand 
the merger review process.'' \7\ The FTC uses the principles in those 
Guidelines to review a wide variety of mergers in the health care 
arena, not just PBM mergers, but also drug company mergers, as well as 
mergers involving hospitals, insurers, and ancillary services like 
dialysis clinics.
---------------------------------------------------------------------------
    \7\ Id. at Sec. 1.
---------------------------------------------------------------------------
               ii. the ftc's extensive analyses of pbms:
    The proposed merger the Committee is focused on today involves 
pharmacy benefit managers, or PBMs, and the FTC considers itself as an 
expert in the area--and rightfully so. It has been extensively involved 
in reports and advocacy letters regarding PBMs, including:

          Its ground-breaking report on health care competition 
        issued in 2004 (in conjunction with the DOJ) contains an 
        extensive discussion of why the growth of PBMs constitutes ``an 
        important development in providing consumer access to 
        prescription drugs.'' \8\ The report devotes an entire chapter 
        to how PBMs operate, and covers such topics as drug 
        formularies, payment terms, industry overview, as well as data 
        on PBM cost savings.\9\
---------------------------------------------------------------------------
    \8\ ``Improving Health Care,'' ch. 7 at 9. See Kanwit, S, ``FTC 
`Conflict of Interest Report': Implications for the Competitive 
Marketplace in Prescription Drugs,'' American Bar Ass'n Antitrust 
Bulletin (2005).
    \9\ There is extensive literature on PBM cost savings, including 
from the U.S. General Accountability Office (PBMs produced savings for 
health plans participating in FEHBP from retail pharmacies averaging 
about 18% lower than cash customers paid):``Effects of Using Pharmacy 
Benefit Managers on Health Plans, Enrollees, and Pharmacies,'' Jan. 
2003.

          Its 2005 comprehensive ``Conflict of Interest'' PBM 
        Study, written at the behest of Congress under the 2003 
        legislation that instituted the Medicare prescription drug 
        program, which examined possible conflicts of interest that 
        might arise when PBMs owned mail-order pharmacies. The 
        Commission obtained extensive data, including agreements 
        between PBMs and their plan sponsors as well as between PBMs 
        and pharmaceutical manufacturers. The PBM Study found strong 
        evidence that such ownership of mail order pharmacies generally 
        did not disadvantage plan sponsors and that competition in the 
        industry afforded health benefit plans sufficient tools with 
---------------------------------------------------------------------------
        which to safeguard their interests.

          Multiple advocacy letters, where the FTC comments on 
        the anticompetitive implications for consumers of proposed 
        state legislation that interferes with PBMS' flexibility to 
        work with their customers to design drug benefits that lower 
        costs and expand access. For one example, it recently 
        recommended against enactment of a New York bill that would 
        limit a health plan's ability to steer beneficiaries to a lower 
        cost mail order vendor of drugs.\10\ For another example, it 
        has been in the forefront in opposing state attempts to pass 
        so-called ``transparency'' statutes (which mandate exhaustive 
        disclosures of proprietary information to PBM clients) as 
        counterproductive, because (1) PBM customers do not need the 
        mandated information to make purchasing decisions, and (2) 
        having that information publically available furthers possible 
        tacit collusion among pharmaceutical manufacturers with which 
        PBMs must bargain for lower drug prices.
---------------------------------------------------------------------------
    \10\ FTC Letter to Hon. James L. Seward, New York, Aug. 8, 2011.

    The Commission's general concern in all these studies and reports, 
again, is how well the market is working competitively for consumers to 
keep drug prices low. The FTC has repeatedly cautioned against enacting 
legislation resulting in higher prices for PBM services and 
pharmaceuticals that can ``undermine the ability of some consumers to 
obtain the pharmaceuticals and health insurance they need at a price 
they can afford.'' \11\
---------------------------------------------------------------------------
    \11\ Letter to Assembly member Greg Aghazarian, California, Sept. 
2, 2004, at 9; see also letter to Rep. Patrick T. McHenry, North 
Carolina, July 15, 2004; letter to Delegate Terry Kilgore, Virginia 
House of Delegates, Oct. 2, 2006.
---------------------------------------------------------------------------
             iii. how the ftc will look at the pbm market:
    The FTC will view the potential merger at issue here against the 
backdrop of this extensive history of analyzing the PBM marketplace, 
and hence some of its previous analyses and findings are instructive 
here in terms of (1) what the industry does, and (2) how competitive 
the industry is.
    What PBMs do: More than 215 million Americans (nearly 90% of all of 
those with prescription drug coverage) get their benefits through PBMs, 
according to the research firm Visante. Those benefits can be provided 
through Federal programs (like Medicare, Medicaid, and the Federal 
Employees Health Benefits Program, or FEHBP), and also through the 
commercial market. The functions PBMs perform are many-faceted, as they 
interface both ``up'' and ``down'' with all the myriad entities in the 
drug distribution chain. In the words of the FTC, PBMs do the 
following:

          they interface with their clients, namely the health 
        plans, private and public employers, insurers, unions and other 
        entities that provide prescription drug benefits to their 
        employees or members;

          they interface with retail pharmacies as they 
        assemble networks to allow consumers to fill prescriptions at 
        many locations;

          they may set up mail-order operations for health plan 
        enrollees, often for maintenance medications;

          they interface with pharmaceutical manufacturers as 
        they negotiate pricing, including preferred placement rebates 
        and administration fees.\12\
---------------------------------------------------------------------------
    \12\ FTC PBM Study, Executive Summary, at i through vi.

    In addition, PBMs often provide ``quality-related'' services to 
---------------------------------------------------------------------------
their customers, including the following, again in the FTC's words:

          they provide drug utilization reviews that include 
        analysis of physician prescribing patterns to identify 
        physicians prescribing high cost drugs when lower cost, 
        therapeutically equivalent alternatives are available.

          they provide disease management services by offering 
        treatment information to and monitoring of patients with 
        certain chronic diseases.\13\
---------------------------------------------------------------------------
    \13\ FTC Letter to Terry Kilgore, VA House of Delegates, Oct. 2, 
2006 at 4.

    How competitive the market is: The FTC has consistently found that 
the PBM industry is vigorously competitive, in that multiple PBMs 
compete for contracts with plan sponsors.\14\ The agency's 2005 PBM 
Study estimated that about 40-50 PBMs operate in the country.\15\ 
Another source, Atlantic Information Services, indicates that today 
that number has risen to nearly 60 PBMs in the marketplace.\16\
---------------------------------------------------------------------------
    \14\ FTC Statement, In the Matter of Caremark Rx, Inc./AdvancePCS, 
at 6.
    \15\ FTC PBM Study, Exec. Summary, at v.
    \16\ Atlantic Information Services, ``2000-2009 Survey Results: 
Pharmacy Benefit Trends and Data,'' 2009.
---------------------------------------------------------------------------
    No single PBM or PBM model dominates the marketplace. The 
Commission's former Chairman in the agency's FTC Study specifically 
noted ``the variety of PBM services'' available to PBM customers, 
including the wide variations in ownership structure.\17\ Some PBMs are 
stand-alone independent PBMs (like Express Scripts), some are 
affiliated with health insurers or health plans (like Aetna, CIGNA, and 
Kaiser), and some consist of buying groups of independent pharmacies, 
such as EPIC. CVS Caremark is a combination of a PBM and a retail drug 
chain. Until recently, in fact, the large drug retailer Walgreens owned 
a PBM business, which it sold to another PBM.
---------------------------------------------------------------------------
    \17\ FTC PBM Study, Press Statement of Chairman Deborah Platt 
Majoras, Sept. 6, 2006.
---------------------------------------------------------------------------
    PBMs also vary greatly when it comes to the market they specialize 
in--e.g., larger vs. smaller employers, or regional vs. national 
markets. Significantly, although some PBMs operate only locally or 
regionally, the FTC in the past has found them capable of competing 
with the big national PBMs.\18\ Moreover, while some PBMs operate their 
own mail order facilities, others contract that service out. Some PBMs 
participate in the Federal Medicare prescription drug program known as 
Part D as PDPs, including the two companies at issue here, while some 
do not.
---------------------------------------------------------------------------
    \18\ FTC Letter to Rep. Patrick McHenry, regarding No. Carolina HB 
1374 (July 15, 2005), at 8.
---------------------------------------------------------------------------
    To add more heterogeneity to the competitors operating in the 
market, only some PBMs manage the important and fast-growing category 
of specialty drugs, i.e., those used to treat serious and chronic 
conditions like cancer, multiple sclerosis, hemophilia, and rheumatoid 
arthritis; the drugs in this category are not only costly (tens of 
thousands or even hundreds of thousands of dollars a year) but often 
require special handling and administration.\19\ Competing with PBMs in 
this market segment are entities such as health plans and stand-alone 
specialty providers.
---------------------------------------------------------------------------
    \19\ ``Slowing the Impact: The Role of Specialty Pharmacy in 
Managing Progressive and Chronic Diseases,'' UnitedHealth Group White 
Paper, April 2011.
---------------------------------------------------------------------------
      iv. how will the ftc determine if the proposed merger will 
                 ``substantially lessen competition''?
    Under the Federal premerger notification program established by the 
Hart-Scott-Rodino Act, larger mergers are subject to the regulatory 
approval process run by the FTC as well as the DOJ.
    The starting point in determining how the FTC is likely to look at 
this (or other) proposed mergers is the antitrust agencies' new joint 
Horizontal Merger Guidelines, released in April, 2010.\20\ The 
Guidelines emphasize that they are just that -guides -to assist the 
analytical process. Their goal is to help answer the key question: will 
the merger substantially lessen competition? That accords with the 
underlying statute, Section 7 of the Clayton Act, which condemns 
mergers and acquisitions where the effect ``may be substantially to 
lessen competition, or to tend to create a monopoly.'' \21\ The Clayton 
Act is enforced by both the DOJ and FTC.
---------------------------------------------------------------------------
    \20\ Horizontal Merger Guidelines, released April 20, 2010, 
replacing the Guidelines issues in 1992, revised in 1997. The FTC's 
Bureau of Competition has also issued a Statement on Negotiating Merger 
Remedies, at www.ftc.gov./bc/bestpractices030401.shtm.
    \21\ 15 U.S.C. Sec. 18.
---------------------------------------------------------------------------
    The Guidelines note that the Agencies wisely attempt ``to identify 
and challenge competitively harmful mergers while avoiding unnecessary 
interference with mergers that are either competitively beneficial or 
neutral.'' How is that determination made? The process is always 
steered by the facts particular to a given merger. Like antitrust law 
in general, merger analysis is (in the words of the Guidelines) ``a 
fact-specific process through which the Agencies, guided by their 
extensive experience, apply a range of analytical tools to the 
reasonably available and reliable evidence to evaluate competitive 
concerns . . .''
    The most important theme of the Guidelines is that ``mergers should 
not be permitted to create, enhance, or entrench market power or to 
facilitate its exercise.'' Reams have been written about what 
constitutes ``market power,'' but the definition in the Guidelines is 
relatively straightforward: ``A merger enhances market power if it is 
likely to encourage one or more firms to raise prices, reduce output, 
diminish innovation, or otherwise harm customers as a result of 
diminished competitive constraints or incentives.''
    While the Guidelines generally cover merger analysis in terms of 
impact on pricing, they caution that enhanced market power ``can also 
be manifested in non-price terms and conditions that adversely affect 
customers . . . '' So the Agencies would look at a proposed merger 
through the prism of whether it would be likely to (for example) reduce 
the quality of the product, or the variety of product available, or 
reduce product quality, or diminish innovation--all key to assessing 
competitive impact.
    What sources of evidence does the FTC look at? The Guidelines note 
that information can come from (1) the merging parties in the form of 
documents, testimony, or data ``describing industry conditions,'' (2) 
customers, who can be asked about the likely impact of the merger, and 
(3) other industry participants and observers, such as suppliers, 
analysts, and rival firms in the market. All perspectives are 
considered, whether evidence that the ``merger is likely to result in 
efficiencies'' will be reviewed, as well as any evidence of possible 
anticompetitive results, such as ``that the merging parties intend to 
raise prices, reduce output or capacity, reduce product quality or 
variety . . .'' \22\
---------------------------------------------------------------------------
    \22\ 2010 Guidelines at 4.
---------------------------------------------------------------------------
    What kinds of evidence is the FTC assessing? Broadly, ``any 
reasonably available and reliable evidence'' may be reviewed to see if 
a merger ``may substantially lessen competition.'' For example, the 
Guidelines call for looking at evidence regarding ``direct comparisons 
based on experience,'' i.e., the economic history and structure of the 
PBM industry, such as ``recent mergers, entry, expansion, or exits in 
the relevant market.'' \23\ The second type of evidence would include 
``the merging parties' market shares in a relevant markets, the level 
of concentration, and the change caused by the merger.'' In addition, 
the Guidelines note that the Agencies will consider ``whether the 
merging firms have been, or likely will become absent the merger, 
substantial head-to-head competitors.''
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    \23\ 2010 Guidelines at 3.
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Applying the Merger Guidelines to PBMs:
            Market share analysis generally:
    When sellers exercise market power, it is called ``monopoly,'' and 
when buyers exercise it, it is called ``monopsony.'' Both decrease 
consumer welfare. PBMs can be viewed in a broad sense as both buyers 
(of services and discounts from retail pharmacies to be included in a 
plan's pharmacy network, for example) as well as sellers (of 
administrative services to health plans and their other customers). 
That dual role makes the analysis more complicated, but the same 
principles apply to both.
    Media accounts of mergers or proposed mergers often focus on the 
concept of ``market share,'' implying that this measure is a certain 
way to determine anticompetitive effects. What the antitrust agencies 
care about is market power: do sellers (or buyers) in the market have 
the ability to profitably maintain prices above (or below) competitive 
levels for a significant period of time? Measuring market power is a 
fact-intensive job. Absent direct evidence of anticompetitive effects 
(higher prices, lower outputs, and lower quality), the analysis begins 
with (1) identification of the relevant product and geographic markets, 
and then (2) calculation of the shares of the market participants and 
the concentration ratios. To identify concentration levels that might 
require further regulatory scrutiny, the antitrust agencies 
traditionally use the Herfindahl-Hirschman Index (HHI), calculated as 
the sum of squared market shares.\24\ The antitrust agencies consider 
both the post-merger level, as well as the increase resulting from the 
merger, and regard a market in which the HHI is below 1500 as 
unconcentrated, while above 2500 is deemed highly concentrated.
---------------------------------------------------------------------------
    \24\ 2010 Merger Guidelines at 18.
---------------------------------------------------------------------------
    But it is a mistake to place too much weight on market 
concentration in a highly fluid market like PBMs, where market shares 
are not ``stable over time'' (in the words of the Guidelines.)\25\ As 
the Agencies note, ``even a highly concentrated market can be very 
competitive if market shares fluctuate substantially over short periods 
of time in response to changes in competitive offerings.'' Conclusions 
regarding ``concentration'' depend enormously on how market is defined, 
whether broadly or narrowly. In addition, once the particular market is 
determined the real issue becomes whether the firm has obtained or 
maintained that power through improper means.
---------------------------------------------------------------------------
    \25\ 2010 Merger Guidelines at 18.
---------------------------------------------------------------------------
            Applying the Market Share Analysis to PBMs:
    It is likely that the FTC will find the PBM market to be 
unconcentrated, assuming it regards the product market as the national 
provision of pharmacy benefit manager services. As outlined below, (1) 
no single PBM's market share exceeds 12% based on 2009 data, and 
customers have multiple choices; (2) the market is dynamic, meaning 
that there are multiple entries and exits of market participants; and 
(3) it appears that the market has become more competitive and more 
heterogeneous over time.
    To analyze competitive effects, the agency, in accord with classic 
merger analysis, will first likely define the various markets in which 
PBMs operate (e.g., small vs. large employer, government customers vs. 
commercial business, mail-order vs. non-mail order, among others) and 
analyze those customers' ``ability and willingness to substitute away 
from one product to another in response to a price increase or a 
corresponding non-price change such as a reduction in product quality 
or service.'' \26\
---------------------------------------------------------------------------
    \26\ 2010 Guidelines at 7.
---------------------------------------------------------------------------
    While it is difficult to know definitively what market (or markets) 
the FTC will choose to evaluate here, it may be multiple markets. In a 
past (1999) evaluation involving a PBM, it found the market to be ``the 
provision of [PBM] services by national full-service PBM firms.'' \27\ 
Because both the merging parties operate nationally, that is likely to 
be designed as the geographic market. But in terms of product market, 
the FTC may decide to look not just at the commercial market as a 
whole, but also at the merging parties' shares of retail scripts vs. 
mail scripts; or shares of the Medicare Part D market, where numerous 
PDPs including UnitedHealth Group, CVS Caremark, Humana, Coventry, 
CIGNA and others compete.\28\ Then the FTC must judge if the large 
employer market is separate from the small employer market, and if so, 
what the impact on those customers might be if the parties merged.
---------------------------------------------------------------------------
    \27\ Merck & Co., Inc., 127 F.T.C. 156 (1999). That case involved 
the acquisition by a pharmaceutical manufacturer of a PBM.
    \28\ Note that Express Scripts partners with health plans in the 
Part D program, while Medco is a PDP itself, and has a broad portfolio 
of Part D products.
---------------------------------------------------------------------------
    There are numerous sources of respected data for the FTC to peruse 
regarding PBM market share, and it is likely the FTC will look at both 
(1) the number of covered lives (i.e., members) each company has, as 
well as (2) the total annual prescription volume of each PBM. Using 
either measure, Atlantic Information Services (AIS) reports that no 
single PBM dominates the market: under the ``covered lives'' measure, 
the largest PBM in 2009 (CVS Caremark) had an 11.85% market share, 
while Medco Health Solutions was assigned a 8.67% and Express Scripts a 
7.95% share.\29\ Thus, no individual PBM's share exceeded 12% during 
that time period.
---------------------------------------------------------------------------
    \29\ Atlantic Information Services, Inc., 2000-2009 Survey Results, 
Pharmacy Benefit Trends & Data: Costs, Benefit Design, Utilization and 
PBM Market Share, at 53.
---------------------------------------------------------------------------
    That 2009 data, however, must be tweaked in light of the fluidity 
of the PBM marketplace. Players (and their market shares) have changed 
since then, and are likely to continue to morph, a fact that the FTC 
will undoubtedly take notice of. The FTC and its economists in the 
Bureau of Economics will have up-to-the-minute data presenting a 
complete picture of that market in all its complexity. For an important 
example, the 2009 AIS data cited above will soon be outdated as to 
Medco, since UnitedHealth announced this summer that it will take back 
the PBM business it outsourced to Medco at the end of the year for its 
own PBM, OptumRx. Two more examples: the AIS 2009 survey lists 
Walgreens-OptionCare as having 10.85% of the PBM market, but Walgreens 
has since sold that business,\30\ and it also lists WellPoint's NextRx 
as having 5.07% of the market, but WellPoint sold that business in the 
second half of 2009.
---------------------------------------------------------------------------
    \30\ Walgreens sold its PBM business to Catalyst Health Systems, 
and WellPoint sold its PBM to Express Scripts.
---------------------------------------------------------------------------
    The possibility of new entrants is also critical: whether it is 
relatively easy to enter into the market and compete with the merged 
entity is also a factor for the FTC.\31\ Again demonstrating the 
fluidity of the market, the large retailer Wal-Mart has recently 
entered the PBM space, and introduced a preferred network model that 
includes 400 employers and 20 PBMs and managed care organizations; it 
also has a Part D network in conjunction with the health insurer 
Humana.\32\ Moreover, ``Drug Benefit News'' and other industry sources 
report continually on new initiatives and novel business models 
undertaken by large PBMs as well as small PBMs, some affiliated with 
health plans and some stand-alone, as well as retail pharmacies.
---------------------------------------------------------------------------
    \31\ ``A merger is not likely to enhance market power if entry into 
the market is so easy that the merged firm and its remaining rivals . . 
. could not profitability raise prices or otherwise reduce competition 
. . . '' 2010 Guidelines at 27.
    \32\ AISHealth.com, ``Drug Benefit News,'' Sept. 9, 2011.
---------------------------------------------------------------------------
Impact of a merger on PBM customers:
    The Merger Guidelines stress that what counts in assessing a 
proposed merger is whether customers have alternatives both in terms of 
price and/or quality.\33\ The FTC will look at the impact on both (1) 
PBM clients, which include the health plans, private and public 
employers, insurers, unions, and (2) the ultimate consumers of those 
drugs, who will ultimately benefit if the merger brings efficiencies to 
the marketplace.
---------------------------------------------------------------------------
    \33\ Id.
---------------------------------------------------------------------------
    It is likely, given what the FTC has previously found to be the 
competitive nature of the market, that customers will have sufficient 
alternatives to which they can turn should they find that the merger 
has resulted in a price increase or a reduction in quality of service. 
Plan sponsors can and regularly do change PBMs if they are dissatisfied 
with performance and/or pricing.\34\ The FTC has found that PBM 
customers are sophisticated purchasers, who often submit Requests for 
Proposal (RFPs) to suppliers of PBM services to assure they have 
options and an objective assessment of multiple alternatives. Often 
clients rely on expert consultants to assist them throughout the RFP 
process to assure their needs are met and their interests are 
protected, including agreed-upon pricing based on the customer's unique 
requirements, plan designs to encourage plan enrollees to use more 
affordable medications, specific performance guarantees, and extensive 
audit rights. Moreover, most PBM contracts are only for relatively 
short periods (one, two or three years is common) so that plan sponsors 
have the opportunity to switch PBMs if they are dissatisfied with 
performance or pricing.
---------------------------------------------------------------------------
    \34\ For example, CalPERS (the California Public Employees' 
Retirement System) announced in May, 2011 that it would not renew its 
contract with Medco beyond 2011.
---------------------------------------------------------------------------
    As a result of the RFP process, the PBM customer can almost always 
leverage its negotiating ability and have multiple PBMs competing for 
its business. Sometimes those customers increase competition among PBMs 
by bidding out separate aspects of PBM services (such as claims 
processing or network access), instead of retaining a single PBM to 
provide a comprehensive group of services. Moreover, critically for 
competitive purposes, these PBMs have to compete for the business on 
non-price dimensions as well, including benefit design, the extent of 
the retail network, and the quality of mail-order service.
    The FTC has historically been very confident of plan sponsors' 
ability to negotiate flexible yet transparent contracts with PBMs that 
suit the customers' particular needs. As the FTC noted in its PBM 
Conflict of Interest study, ``health plans already are able to 
negotiate contract terms -including diverse disclosure and audit 
rights--that protect them from conflicts of interest.'' The agency has 
emphasized the wide range of pricing models available to customers in 
PBM contracts.\35\
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    \35\ FTC Letter to Hon. James L. Seward, N.Y. Senate, March 31, 
2009; FTC PBM Study at 57-58.
---------------------------------------------------------------------------
         v. evaluating a pbm merger for possible efficiencies: 
                 the 2004 caremark/advancepcs example:
    In 2004, the FTC investigated a proposed merger of two large PBMs 
and found there was not likely to be anticompetitive impact either for 
plan sponsors or for retail pharmacies. In fact, the merger was found 
likely to generate efficiencies that helped the merged entity's ability 
to compete and might result in lower drug prices for consumers.
    The then-proposed acquisition of AdvancePCS by Caremark Rx., Inc. 
involved (in the FTC's words) ``two of the largest providers of 
prescription benefit management services in the United States.'' After 
analysis, it found the following:

          No anticompetitive impact for either small or large 
        employer customers, because they could turn to other 
        alternatives. The FTC concluded that (a) ``dozens of small, 
        often regionally-oriented PBMs provide sufficient service 
        offering to smaller employers (and will continue to do so post-
        acquisition),'' and (b) ``large employers are not likely to 
        encounter anticompetitive effects'' given adequate competition 
        from full-service PBMs with national scope as well as 
        ``significant additional competition from several health plans 
        and several retail pharmacy chains offering PBM services . . 
        .'' \36\
---------------------------------------------------------------------------
    \36\ Statement of the Federal Trade Comm. ``In the Matter of 
Caremark Rx, Inc./AdvancePCS File No. 031 0239'' at 2, available at 
http://www.ftc.gov/os/caselist/0310239/040211ftc
statement310239.pdf.

          No anticompetitive impact on retail pharmacies: 
        Focusing on the merged entity's future negotiation of 
        dispensing fees with retail pharmacies, the FTC concluded that 
        the impact was not likely to be anticompetitive. While those 
        dispensing fees might be reduced as a result of the increased 
        bargaining power of the merged PBM, such increased bargaining 
        power can be ``procompetitive when it allows the buyer to 
---------------------------------------------------------------------------
        reduce its costs and decrease prices to its customers.''

    This second finding in the AdvancePCS investigation is important 
here, because the FTC addressed the fact that PBMs in effect wear ``two 
hats'' in the prescription drug marketplace. Viewed vis-a-vis retail 
pharmacies, PBMs are ``buyers'' of their services. What the FTC found 
is that it is procompetitive if a PBM merger results simply in a shift 
in purchases from an existing source ``to a lower-cost, more efficient 
source,'' rather than a reduction in purchases.\37\ And who are the 
ultimate beneficiaries? The consumers of prescription drugs, since the 
agency found it ``likely that some of the PBM's increased shares would 
be passed through to PBM clients,'' given the highly competitive nature 
of the industry.
---------------------------------------------------------------------------
    \37\ FTC Statement at 2, emphasis in original.
---------------------------------------------------------------------------
    Thus when PBMs contract with retail pharmacies, it does not 
constitute an indicia of anticompetitive behavior if a merger results 
in lower payments to pharmacies. As the FTC commented: ``Nor do 
competition and consumers suffer when the increased bargaining power of 
large buyers allows them to obtain lower input prices without 
decreasing overall input purchases.'' \38\ The AdvancePCS merger 
analysis highlights a second important point: as noted in the Merger 
Guidelines, mergers can bring about efficiencies and enhance the merged 
firm's ability and incentive to compete. The result may be ``lower 
prices, improved quality, enhanced service, or new products.'' \39\
---------------------------------------------------------------------------
    \38\ FTC Statement at 2.
    \39\ 2010 Guidelines at 29.
---------------------------------------------------------------------------
    While the Guidelines caution that these types of efficiency claims 
cannot be ``vague'' or ``speculative,'' it is likely that the Agency 
will find efficiencies here, when the merger is viewed in light of the 
following:

          the demand in the marketplace for PBM services,

          the highly competitive nature of marketplace, and

          the record of PBMs in driving down prescription drug 
        prices.

    The evidence on the last point, the record of PBMs in driving down 
drug prices, is impressive. Prescription drug spending (according to 
government figures) grew only 3.5% in 2010, down from 5.3% in 2009.\40\ 
Much of the credit for that goes to PBMs as well as their customers, 
who are seeking to control total health care costs, and adopting 
measures such as promoting the cost-savings of generic medications as 
well as other options such as larger copayment spreads and narrower 
pharmacy networks.\41\
---------------------------------------------------------------------------
    \40\ Keehan, S. et al., ``National Health Spending Projections 
Through 2020,'' 30:8 Health Affairs (Aug. 2011), citing figures from 
CMS's Office of the Actuary.
    \41\ ``Step therapy, generics, smart technology are among top 2012 
benefit design tactics,'' ``Drug Benefit News,'' Aug. 15, 2011.
---------------------------------------------------------------------------
                             vi. conclusion
    The mission of the Federal Trade Commission in evaluating this 
proposed merger is to decide if the merger will be competitively 
harmful while at the same time ``avoiding unnecessary interference with 
mergers that are either competitively beneficial or neutral.'' \42\ The 
FTC is uniquely qualified to perform that evaluation -and in a 
relatively short time--given its past extensive studies and reports on 
the PBM marketplace.
---------------------------------------------------------------------------
    \42\ 2010 Guidelines at 1.
---------------------------------------------------------------------------
    Thank you for the opportunity to testify, and I am available to 
answer any questions on my statement.
                               __________

    Mr. Goodlatte. Thank you, Ms. Kanwit. We will now proceed 
with questions for the witnesses. I will start with you, Mr. 
Paz.
    Isn't there a great benefit to patients in having a 
personal relationship with a community pharmacist rather than a 
detached relationship with a mail order pharmacy? For example, 
how can Express Scripts' mail order drug adherence programs be 
as effective in promoting proper use of prescription drugs as a 
live, in person consultation with a pharmacist?
    Mr. Paz. Thank you, Chairman. First of all, to follow on 
with what Ms. Kanwit said, it is very important that we have 
all levels of access to pharmaceuticals, both at the retail 
level and at the mail order. If you think about somebody with a 
severe health condition and they are in a local community, they 
need to be able to get to that local pharmacist, and we do 
support local retail pharmacies. The independents are very 
important to us, as that is again part of the negotiation 
between the large drugstore chains and the small drugstores. It 
is very important to have them and to keep all the prices 
competitive. So we don't selectively choose one versus the 
other. Most of our clients, who are very sophisticated, want 
access. We supply access.
    With respect to the actual pharmacist--I am sorry?
    Mr. Goodlatte. I just want to interrupt and ask you if your 
resistance to Walgreens' promoting 90-day prescriptions to its 
retail customers, is that at least partly motivated by your 
desire to fill these prescriptions through your own mail order 
pharmacy?
    Mr. Paz. No, sir. The 90-day prescriptions are set by plan 
design. We do not govern the client's plan design. We show them 
the cost. Mail order is much cheaper. It makes sense. We can 
fill over 100,000 prescriptions a day with Six Sigma quality; 
in other words, less than two defects per million error rates, 
which is very, very, very low. The cost of producing an error 
in prescription is very high.
    So what ends up happening is the plan ultimately decides 
what their cost structure wants to be. A company that is in 
economic trouble will be much more confined and want higher 
levels of mail order. Those clients that don't have economic 
issues, they may be less forceful in these areas.
    For example, setting copay levels. The more the company has 
to save on its drug costs, the higher the copays. Express 
Scripts nor Medco nor CVS Caremark set those levels. The plan 
sets those levels. We administer those on behalf of our plans. 
Ninety day retail at Walgreens----
    Mr. Goodlatte. Mr. Paz, I am going to have to interrupt 
because I have got a bunch of questions to ask a bunch of 
people and only have 5 minutes to do it in.
    Mr. Paz. Well, let me just finish by just telling you that 
we do not want to stand in front of the community pharmacist 
serving their member. Many, many pharmacists----
    Mr. Goodlatte. Let me direct that question to Mr. Snow. You 
testified that PBMs are dependent on the continued existence of 
strong independent retail pharmacies and that PBMs engage in 
``mutually beneficial collaboration with independent 
pharmacies.''
    If the PBM-pharmacy relationship is mutually beneficial, 
why is there so much tension, criticism and distrust of PBMs 
among pharmacists?
    Mr. Snow. That is a very good question, and there are a 
number of factors that go into that, and I understand the 
plight of the independent pharmacists. If you look at the 
competitive landscape today, new retail pharmacies continue to 
open each and every year. They are independent pharmacies, they 
are chain pharmacies, they are grocery store pharmacies. The 
numbers of pharmacies in this country continue to grow. When I 
walked down the street in my hometown 10 years ago, there was 
one pharmacy that served my community.
    Mr. Goodlatte. But why is the tension there? Why when I 
visit one of these community pharmacies do I hear an earful 
about you?
    Mr. Snow. Here is why, because now there are two chain 
stores within 100 yards of that independent pharmacy. So you 
have intense--and every grocery store since 10 years ago has 
opened their own pharmacies as well. So you have enormous 
competition for that foot traffic. Patients are making choices. 
There is this competition for foot traffic. It is a very 
competitive environment, and it does put stress on the 
economics of an independent pharmacy.
    Mr. Goodlatte. Let me ask you a question about competition 
at the PBM level. What is the largest contract that Medco has 
bid for and lost in recent years that went to anyone other than 
Express Scripts or CVS Caremark?
    Mr. Snow. Let me think. I won't name the account, but it is 
a well-known account that was about $1.5 billion, and it went 
to one of those companies I mentioned in the second tier in 
terms of Catalyst Rx.
    Mr. Goodlatte. How long ago was that?
    Mr. Snow. That was I think 18 months ago, 2 years ago, 
approximately.
    Mr. Goodlatte. Thank you. Well, my time has expired. I will 
now recognize the gentleman from North Carolina, Mr. Watt.
    Mr. Watt. Thank you, Mr. Chairman. I think Ms. Kanwit's 
testimony demonstrates how technical and precise this analysis 
will have to be and illustrates the point that I made in my 
opening statement. But we are here, and let me see if I can ask 
a few questions to try to clarify my own thinking.
    Mr. Snow, I understand that Medco, the special niche that 
Medco has in North Carolina is in the specialty drug area, is 
that correct?
    Mr. Snow. We are in North Carolina. We have many, many 
clients in North Carolina, but we are a full service PBM. We 
don't have a special niche.
    Mr. Watt. You said--you are denying what some people have 
told us?
    Mr. Snow. I do not have a special niche in specialty 
pharmacy in North Carolina.
    Mr. Watt. If you do and Mr. Gustafson's testimony is 
correct that this combination will give more than 50 percent 
control over the specialty market, would that be a relevant 
consideration as far as you are concerned?
    Mr. Snow. Yeah, it would be. But the facts on this are in 
the PBM space broadly there are 40 competitors today. In the 
specialty space there are hundreds of competitors. And 
honestly, if you look at the specialty space, you need to look 
at the disease level.
    Mr. Watt. I am not looking for a treatise on the way the 
industry works.
    Ms. Kanwit, let me just pull out the specialty drug area 
here. Assume that the combination of these two companies ends 
up with more than 50 percent of the specialty drug market. How 
is that likely to play itself out before the FTC?
    Ms. Kanwit. Well, number one, we have to decide--the FTC 
has to look at it, Mr. Watt, as the submarket, in other words, 
if that is an actual market for antitrust purposes there and 
that 50 percent is relevant.
    Secondly, as I caution in my testimony, market shares per 
se don't really mean very much. What really is interesting is 
how much market power the companies can exercise.
    Mr. Watt. You are saying a company that has 50 percent of 
the market doesn't have more market power than somebody that 
has 5 percent of the market?
    Ms. Kanwit. Well, here is my point. Specialty drugs are a 
whole different kettle of fish and as I understand it, 
manufacturers of specialty drugs drive the distribution 
process. It is a different process than it is, say, with 
Lipitor or just a regular brand name drug.
    Mr. Watt. Is that more a mail order----
    Ms. Kanwit. Well, it can be, if they are maintenance drugs. 
There are very specific administration issues related to 
speciality drugs which as you know are for cancer and multiple 
sclerosis and hemophilia, et cetera.
    Mr. Watt. So the bottom line is the FTC may segment this 
whole analysis on specialty drugs and analyze that as a 
separate impact situation?
    Ms. Kanwit. It may. It may choose to do so.
    Mr. Watt. Okay. All right. Efficiency, Mr. Paz and Mr. 
Snow, you have made some claims about it. How do we know that 
the results of those efficiencies are being passed along to 
customers?
    Mr. Paz. Well, I will start, and, David, you can certainly 
chime in. If you look back at Express Scripts' history, it is 
one of acquisitions. We have done many transactions. If you 
also look at our contract with the Department of Defense, we 
are proud to serve our men and women in uniform and their 
families. Over the course of those acquisitions, if you look at 
the pricing, the pricing has stepped down through every one of 
our acquisitions. We have saved the Department of Defense over 
half a billion dollars over our contract term.
    Mr. Watt. That is fair. Let me just ask this question, Mr. 
Snow and Mr. Paz. You all have been competitors for a number of 
years. What benefits have there been from your being 
competitors that will go away as a result of the merger?
    Mr. Paz. Well, I don't----
    Mr. Watt. I am just being honest now. This is not a trick 
question.
    Mr. Paz. I don't see the benefits going away. Actually, Mr. 
Snow's company, Medco, has a different approach to the 
administration of the drug benefit than my company. I think 
they are both very good. But together, combining the best of 
both companies I believe takes us to a whole new level of 
clinical expertise and the ability to drive more costs and 
improve health outcomes----
    Mr. Watt. What do you say on that, Mr. Snow? My time is up, 
but I would like to get your view on it.
    Mr. Snow. The reason the companies hire us, Mr. Watt, is 
they----
    Mr. Watt. That is not what I asked you, but if you want to 
answer a different question than the one I asked. I am asking 
what benefits were there from the competition between the two 
companies that will go away as a result of the merger?
    Mr. Snow. As Mr. Paz said, we honestly see no benefits 
going away. We only see benefits added.
    Mr. Watt. Okay. My time has expired. Thank you. I yield 
back, Mr. Chairman.
    Mr. Goodlatte. The Chair now recognizes the gentlewoman 
from Florida, Mrs. Adams, for 5 minutes.
    Mrs. Adams. Thank you, Mr. Chair.
    Mr. Paz, we all know that health care costs are on the rise 
and a lot of us here and my constituents back home want to know 
what can be done to further lower the costs of prescriptions, 
both in the commercial market and Medicare and Medicaid 
markets?
    Mr. Paz. One of the most important things we can do, 
Congresswoman, is to eliminate fraud, waste and abuse. It is 
the biggest issue we face. Everything from, and Florida is a 
great example, we have helped the law enforcement agencies by 
turning over pharmacies that were pill-mills, if you will, 
where we could see undue uses of C2--of, you know, of 
controlled substances, I am sorry, I am used to the industry 
jargon, but controlled substances. And getting people to stay 
on their medication and getting them on the right medication 
and looking for gaps in care are incredibly important for 
eliminating costs in the equation.
    Mrs. Adams. So what we are here to talk about is 
competition today, so I am curious as to how many PBMs 
typically compete with Express Scripts when you bid on a 
contract and how often do you win, how often do you lose on 
those contracts?
    Mr. Paz. Right. From a competitive perspective, most 
clients enter into 3-year contracts. When they go out for bid, 
they usually invite anywhere from seven to eight to nine 
different companies to bid that contract. They usually take it 
down to two or three, which become the finalists.
    When you look at the purchasers of our product, these are 
very sophisticated buyers. They understand--the big, big 
Fortune 500, the big health plans, they hire people who know 
prescription drugs and have been in our industry, are 
pharmacists by education or have a medical background. They 
also hire consultants, and the consultants are the ones that 
also help them. They often come out of our industry as well. It 
is an incredibly competitive process bought by very 
sophisticated buyers.
    Mr. Snow. Congresswoman, can I add something please?
    Mrs. Adams. Sure.
    Mr. Snow. It is an important fact that for the Fortune 50, 
there are 10 different PBMs right now serving the Fortune 50, 
to give you a sense of how competitive our market is.
    Mrs. Adams. So would you agree that health care costs, it 
is waste, fraud and abuse, or would you believe that it is 
competition that could add to the lowering of the cost?
    Mr. Snow. I actually would focus on something else. George 
said our companies are different, and I think when you pull 
them together, you get more. But I honestly believe, and it 
involves all pharmacists, is we as a country need to focus on 
the better management of patients with diabetes and other 
chronic diseases, because they spend 96 percent of the drug 
money, 75 percent of the medical money in this country.
    It is estimated we waste $350 billion a year each and every 
year because of the poor management of chronic and complex 
disease. Using a wired health care system, seeing gaps in care, 
helping pharmacists when they are seeing a patient know there 
is a gap in care, closing those gaps in care, get in enormous 
amounts of money that help our system.
    We in fact in your State are doing a project with retail 
pharmacies where we push information about the patient and all 
the drugs they are taking from all the pharmacies they go to so 
that they can see up against national-based, evidence-based 
protocols what that patient's gaps in care are so they have an 
opportunity to close those gaps in care. And we have worked 
with States to help the retail pharmacies get reimbursed for 
that cognitive time and patient, because that is where--it 
isn't what retail pharmacies cost. They are an important part 
of our system. It is really how we are wasteful in the way we 
deliver total health care, and we need better systems to 
support the patient in that care. That is what Medco has been 
all about, and that is really what we want to continue to do.
    Mrs. Adams. Did you want to add something to that? You 
looked like you were thinking about what he was saying.
    Mr. Lech. Oh, yes. I have been chomping at the bit.
    Mrs. Adams. I could tell.
    Mr. Lech. I think we are confusing matters here. It is the 
pharmacies--the pharmacists who have gone to school to become 
pharmacists. It is not a PBM. It is not all this technology 
they talk about that makes that difference. Yes, we need the 
things that PBMs do. We need that data integration. We need 
those reports about those DEA kind of situations. But we have 
got it twisted by the way these gentleman to my right are 
describing it.
    Somewhere in their testimony they mentioned that a pharmacy 
is complementary to the PBM industry. Well, I will tell you 
what. As a professional, as a pharmacist, they have got that 
totally backward. They are the complement to us. It is our 
profession, it is our art, it is our science, that in a sense 
they are getting in the way of. They have become burdensome and 
they have become fat, to use that word. And I believe the 
reason why they are fat is because of the profits that they are 
extracting by the eloquent way they have been able to self-
aggrandize themselves and do this great marketing thing and 
release a study the day of the hearing that is funded by them.
    So, rather than go on and on and on about that, I think we 
need to put things into perspective and put the power into the 
pharmacist's hands. We have that technology now. We might not 
have everything he is talking about, but we have computer 
systems that bring up interactions. And they say there is 100. 
The only ones I seem to get are the ones refilled too soon. We 
don't get these clinical edits, we can get them from our 
software. I get them from the online that I subscribe to for my 
clinical use, and my pharmacy and every pharmacist does that.
    And we also--we need one--it would be ideal if a person had 
one pharmacy and one pharmacist. To have all this data, yeah, 
people travel and all that kind of stuff. But I think we need 
to get a health care system that directs persons to a pharmacy 
home, just as they do a medical home. When a doctor writes a 
prescription, that is the beginning of my job. You go to a 
doctor and you get a diagnosis and you get an examination and 
you get some lab tests that you want, his job is done in that 
sense. My job starts. And these guys are there to complement me 
in doing that and not get in my way.
    Mrs. Adams. Thank you. My time has expired. I yield back.
    Mr. Goodlatte. I thank the gentlewoman. The gentleman from 
Michigan, Mr. Conyers, is recognized for 5 minutes.
    Mr. Conyers. Thanks, Chairman.
    Mr. Snow, how has the health care bill complicated or made 
more convenient your life as a pharmacist?
    Mr. Snow. I would tell you that the health care bill has 
not necessarily complicated my life, other than the fact that 
underneath the policy Congress passed the rules are not yet 
written. So it is very difficult to manage my company and my 
23,000 employees and set direction for that company when I 
don't know what the administrative rules are underneath the 
policy, because many of the things that were promulgated are 
not effective until 2014 and 2015. That is hard.
    But I will say, I am a big believer that the things we are 
trying to do as part of health care reform are important. 
Chairman Goodlatte mentioned a comment I made on the 
announcement that in fact health care reform is driving many 
mergers. It is happening with physicians and hospitals. 
Hospitals are being bought by health plans. Health plans are 
buying physician practices. I am not saying these are bad 
things. I am saying that what is happening in our environment 
is people know that this combination in scale drives enormous 
efficiency that drives costs out of the system, which is really 
at the root of what health care reform is all about.
    Mr. Conyers. Who wants to add their view to this 
discussion? Okay, then I will call on somebody.
    Mr. Lech. Driving inefficiencies out of the system is very 
important and we need to work together in doing that.
    Mr. Conyers. Well, Mr. Snow, you support the bill and its 
objectives?
    Mr. Snow. I support many elements of the bill, and I would 
also say that the bill is a first step along an evolutionary 
path. We are going to need to do an awful lot more to finish 
the reform effort.
    Mr. Conyers. Mr. Lech, have you ever heard of universal 
health coverage?
    Mr. Lech. Certainly, Congressman.
    Mr. Conyers. Okay. How does that figure into your plans for 
health care for all Americans as an independent pharmacist?
    Mr. Lech. If universal health care coverage means that 
every American has health care, then I am 100 percent in favor 
of it.
    Mr. Conyers. Does everybody agree with that?
    You know, I don't get many volunteers for my questions. I 
am wondering, are you trying to--see, we have a fundamental 
philosophy here in the lawmaking process. My good friend the 
Chairman thinks that this was an ill-conceived effort in health 
care.
    Do you, Ms. Kanwit?
    Ms. Kanwit. Yes, Mr. Conyers. I think portions of the bill 
are very, very beneficial. For example, I am watching closely 
the portion on accountable care organizations, the Medicare 
demonstration project, to see if that can drive costs out of 
the system and get more value into the health care system.
    Mr. Conyers. Do you think the bill is unconstitutional, Mr. 
Paz?
    Mr. Paz. Sir, I am not a lawyer. I will tell you that I 
think part of the bill, again, is good. I think we are one of 
the richest countries in the Nation and people should have 
access to health care. I think that we did not do enough to 
address the cost side. I see it in my business every day, a lot 
of waste and spend. The $300 billion that Mr. Snow was 
discussing, we see it every day. We didn't address that, sir.
    Mr. Conyers. Boy. Did you guys meet before this hearing? 
No, I know you didn't. But what I am trying to find out--that 
is right, you are under oath, too, so you have got to tell me 
the truth.
    Where does this issue of pharmacy practice--we have got 
three people for this bill, we have got three people against 
the bill. How does the ObamaCare health care plan affect your 
business?
    Mr. Snow. May I volunteer?
    Mr. Conyers. Yes.
    Mr. Snow. The way I think about the President's health plan 
bill and Congress' bill is that health care reform is a three-
legged stool; it is access, cost and quality. We have done a 
good job beginning the process of trying to get universal 
access. It is fundamentally important. However, we as a nation 
need to finance that access.
    To Mr. Paz's point, I agree with him, we need to do more on 
the cost-quality equation side to pay for the access. So I 
think that is where more evolution will occur, and I think that 
is where the public-private partnership between health care 
providers and government is going to bring the best result. I 
think it is underway. It is just going to continue to evolve. 
You are already seeing some of the policies evolving as we work 
with them and we learn that there is even a better way. That is 
expected.
    Mr. Conyers. Can I get a half a minute more, Chairman 
Goodlatte?
    Mr. Goodlatte. Without objection, the gentleman is 
recognized for an additional minute.
    Mr. Conyers. How does all this saving from fraud, waste and 
abuse, how will that be affected by whether or not this merger 
is approved?
    Mr. Paz. Under this merger, one of--our continuing focus is 
to bring the best of both of our tools together to look for 
those gaps in care, to find out where prescriptions aren't 
being properly written, and contact the doctors, work with the 
pharmacists, work with the local pharmacies to make sure that 
in fact we can take that waste out of the system.
    Many diabetics today are not getting drugs for hypertension 
and lowering their cholesterol. It is a proven fact those are 
better for them. We are not doing it today. Identifying that--
--
    Mr. Conyers. You know, you are the first--if somebody else 
agrees with you on the panel, I have never heard a pharmacist 
to call up doctors to tell them that they prescribe the wrong 
thing.
    Mr. Lech. Oh, it happens all the time, practically daily.
    Mr. Conyers. Oh, really?
    Mr. Wiesner. That is a daily occurrence, sir.
    Mr. Conyers. All right, let me recognize my friend over 
here.
    Mr. Gustafson. Congressman, I wanted to answer the question 
about fraud and abuse. I would suggest that the best thing that 
will combat the fraud, waste and abuse would be more vigorous 
competition. If these companies are forced to fine tune their 
operations in order to lower their costs so they can lower 
their bids to the customers that they seek to obtain contracts 
from, that alone will generate the best cost savings through 
saving fraud, waste and abuse.
    And I was going to respond to Congressman Watt when he 
asked what would be missing if these two companies combined. 
What we will be missing is a national bidder in each of these 
accounts. When they have national accounts that they put out to 
bid every 3 years, what will be missing from the competitive 
landscape is a company that is capable of making a bid on those 
contracts.
    Mr. Lech. In regard to fraud, waste and abuse, if I could 
reference the document I mention, Waste Not-Want Not, it goes 
on to show at least the waste part of it. I think we need to 
differentiate between fraud, waste and abuse. They are 
oftentimes lumped together.
    Fraud is fraud. If it is criminal, it is criminal. That is 
pretty black and white. That has got to be dealt with in that 
way. Waste can be underuse, overuse, excessive prescribing. 
Abuse could be narcotics that are taken too much, the dosages 
that are right for the patient or wrong for the patient. But if 
you look at those pictures, these are things that I see, these 
are things that every pharmacist sees, where patients bring in 
bags of things that they have automatically been shipped from 
the drug mail order firms.
    Long ago when I first started testifying when I was a young 
buck, I testified in Pennsylvania in Erie with then State 
Senator Peterson, and the mail order companies at that time 
considered a drug called Accutane which now is in a REMS 
program, a program that you really need to be careful who gets 
it and how they take it and what happens to it after they get 
it.
    They regarded, and it was Express Scripts, they regarded 
Accutane as a maintenance medicine. 180 doses were being 
dispensed and a teenager was taking these for maybe a week. All 
this extra medicine with a medicine that could cause--was known 
to cause fatal birth defects. So this is pretty telling I 
believe as far as the waste that happens. I think they could do 
a better job of fine tuning that.
    Maybe a way they can do that is allow the pharmacist which 
knows which patient maybe can use a 90-day supply because of 
their ability to manage their own medicine; which medicines 
because of cost or danger might be drugs that shouldn't be 90-
day supplied, to me a pretty commonsense thing. Let's take it a 
patient at a time and a drug at a time, and not lump it all 
into maintenance drugs. I think there is a problem with that 
because it is profit driven.
    Mr. Goodlatte. The time of the gentleman has expired. The 
gentleman from Pennsylvania, Mr. Marino, is recognized for 5 
minutes.
    Mr. Marino. Thank you, Chairman.
    Mr. Lech, how would my legislation be a positive impact on 
independent pharmacies, if it would be?
    Mr. Lech. I believe it would be because the ability for--an 
independent pharmacy with one or two or not many locations is 
at a disadvantage when compared to other folks that may be able 
to negotiate certain prices, may or may not be able to 
negotiate prices. It would give us the ability to have access 
provided for the patients, which I think the Federal Trade 
Commission needs to consider. I understand from the testimony 
they are. I would suggest that a way that that could be done is 
to get out of the office and into the pharmacy and actually go 
see face-to-face what happens in those pharmacies.
    But it would give us the ability to have a fair, level 
playing field. We are not asking to be paid more money, paid 
more money. We just want to be able to compete. And there are 
non-price issues also that can be addressed.
    Mr. Marino. I want to get a couple more questions in here. 
Mr. Paz, Mr. Snow, respectively, do you agree that that 
statement that Mr. Lech just made?
    Mr. Paz. Again, Congressman, I am not a lawyer, but I don't 
believe that allowing anybody in our--in American business to 
collude makes sense. Effectively it allows a whole bunch of 
people to come together and negotiate price against----
    Mr. Marino. Well, isn't that what you are doing? Isn't that 
what you do with a group of large chains who have more stores, 
they get a cheaper price?
    Mr. Paz. Well, first of all, they don't necessarily get a 
cheaper price.
    Mr. Marino. Okay. Now, are you telling me that the volume 
business that you do, I am an independent individual owning a 
pharmacy, and let's just say X, Y and Z owns 100 stores. You 
are telling me that I am going to get drugs generally speaking 
at the same price as X, Y and Z pharmacy?
    Mr. Paz. What I am telling you, Congressman, is that what 
determines price is the amount of competition in a given area. 
We have stores in Alaska, North Dakota and other areas that get 
paid much, much more than any other pharmacy. Where there is a 
lot of competition, competition sets price, as it should, in 
our country.
    Mr. Marino. Okay, I understand that. You are dodging my 
question.
    Mr. Paz. I am not, sir.
    Mr. Marino. Are you telling me that as an independent, I am 
going to get the same price as somebody owning 100 stores in my 
region?
    Mr. Paz. What I am telling you is that if you have 100 
stores in a given region and there is a lot of competition, the 
plan design ultimately determines how many pharmacies----
    Mr. Marino. Okay, what if there are 100 stores with one 
company and there are three independent pharmacies. Are the 
independent pharmacies going to get the same price as the 100 
stores?
    Mr. Paz. I can't answer the question blanket because it is 
not the same answer across the board.
    Mr. Marino. You know something else? As an 18-year 
prosecutor, you are dodging my question and you do not want to 
answer it.
    Mr. Snow, do you want to answer it?
    Mr. Snow. Sure, I would like to. Thank you. At Medco, we 
recognize the plight of the retail pharmacist who is an 
independent, does not have the scale, does not have the 
purchasing power of some of the bigger chains. It is not 
uncommon for our independent retailers to have higher 
reimbursement rates in our network than the larger companies 
who have the ability to negotiate a cheaper price, number one.
    Number two, one of the things that is in place today, and 
you may be aware of it but I just want to say it for the 
records, there are group purchasing organizations that many 
individual retailers join so that they can get purchasing scale 
relative to buying their drugs, buying the things that they put 
into their store, so that they can at least begin to create 
critical mass to drive the kind of price that their competitors 
do.
    Mr. Marino. Okay, sir. I understand your answer. Thank you. 
Do either of you, Mr. Paz or Mr. Snow, do you disagree with my 
legislation?
    Mr. Snow. I would say, sir, that as Mr. Paz said, I am not 
a lawyer. I would----
    Mr. Marino. Gentleman, stop with ``I am not a lawyer.''
    Mr. Snow. I would like the independent retailers to 
survive. I would like them to have the right footing in a way 
that doesn't violate antitrust. So whatever the lawyers and the 
FTC and Congress decides, I think what you are trying to do for 
the retail pharmacist is the right thing to do. How to do it, I 
am not as sure, but that is not my job. I agree with what you 
are trying to do.
    Mr. Marino. Thank you. Do either of you own--your companies 
own retail pharmacies? Mr. Paz?
    Mr. Paz. No, we do not.
    Mr. Marino. Mr. Snow?
    Mr. Snow. No, we do not.
    Mr. Marino. Do you own mail order businesses related to 
pharmaceuticals?
    Mr. Paz. Yes, we do.
    Mr. Snow. We are a mail order pharmacy.
    Mr. Marino. And am I correct in assuming that you do direct 
your customers to purchase from your mail ordering, as opposed 
to independent pharmacies?
    Mr. Paz. If the client wants it. Again, I am not trying to 
dodge your questions, Congressman, but let me fully answer that 
question.
    Mr. Marino. Thank you.
    Mr. Paz. Some clients do not allow mail order. Some clients 
want mail order. It is a plan design decision that we 
administer for our clients. Mail order costs less than retail 
pharmacies. There is better economics of scale. We can deliver 
cheaper. So if a client directs us to, then we use mail order. 
If they don't, we don't.
    Mr. Marino. Chairman, could I have 30 seconds, please?
    Mr. Watt. I ask unanimous consent that he have 2 additional 
minutes.
    Mr. Goodlatte. Without objection, the very generous motion 
of the gentleman from North Carolina is agreed to.
    Mr. Marino. Thank you, sir.
    Gentleman, you are saying that this merger--and my 
legislation, I think you are aware of this, has nothing to do 
really with the merger or no merger. Do you understand that? My 
legislation is to give the independents--be able to form a 
group to purchase stronger in a power situation where several 
individuals as opposed to one is purchasing drugs from any 
company.
    But are you saying that with this merger, and I am going to 
put you both on the spot right now, that you are guaranteeing 
that you are going to be selling drugs to the consumer at a 
cheaper price than you are selling it now?
    Mr. Snow. Total drug costs with our book, not drug by drug, 
total drug costs will go down. It absolutely will go down. And 
that really depends on our customer's design, what patient gets 
and what the payer retains. So we have Fortune 500 companies. 
As George said, they all specify plan design.
    Mr. Marino. Okay, let me back up here a moment. I get your 
answer. I get your answer. I do, sir. I understand it. I have 
limited time here. But you said total cost. Now, coming from 
the business sector, I know what total cost means. It can mean 
anything from it is going to be cheaper to maintain the 
building, I am going to be able to hire somebody at less of a 
cost.
    If I purchase drugs from you, if you are merged tomorrow, 
am I going to get them cheaper tomorrow than I will today from 
you independently?
    Mr. Snow. Yes, you will. And can I just explain my answer?
    Mr. Marino. Please. Go ahead.
    Mr. Snow. Okay. The reason I said it the way I said it is 
that there are certain drugs where there is no other drug 
competing against it. It is a single type of drug in the class, 
meaning you have no leverage to gets the price down. Many of 
the biotech drugs are that way. But where there is competition 
and you have leverage, you can get better drug pricing, you can 
get better procurement prices for drugs. Absolutely.
    Mr. Goodlatte. The time of the gentleman has expired.
    Mr. Marino. Thank you so much. Thank you, gentlemen.
    Mr. Goodlatte. The Chair recognizes the gentlewoman from 
California, Ms. Chu, for 5 minutes.
    Ms. Chu. Thank you, Mr. Chair.
    I am hearing from my community pharmacists who are very 
concerned about this merger creating even more buying power for 
PBMs. They are expressing concern that the large PBMs will 
leverage their market share to force pharmacies into even more 
unfavorable contract terms and that they will have to make the 
decision to choose between inefficient reimbursement rates or 
exclusion from the PBM networks, and that they don't have the 
bargaining power to negotiate better contract terms so they 
oftentimes find themselves agreeing to more unfavorable terms.
    Mr. Lech, could you comment on that?
    Mr. Lech. Well, I didn't get into the practice of pharmacy 
to eventually think that I would be forced out, whether it 
would be by a decision of myself or someone else that made that 
decision. The last thing I want to do is stop providing what I 
do to my patients and my customers and my consumers. And when 
the time comes, I would like to transfer that perhaps to my 
sons, who are both--one is a pharmacist and one is about to 
become a pharmacist, or to someone else if my sons don't want 
to do that.
    But if there came a time when because of onerous 
restrictions, whether it be price or non-price, and when I say 
non-price, there are many dozens of things that could be 
included in that, I can't deny that there may come a time when 
the decision to say I can't do it anymore happens. And it would 
be certainly not what I wanted to do, but what I had to do from 
a business perspective.
    Ms. Chu. How much business does your pharmacy do with PBMs?
    Mr. Lech. With PBMs. Third party we call that, probably 90. 
These particular PBMs, if the merger were to happen, it would 
be over 50. That counts Medicare part D and all the different 
components of the claims process.
    Ms. Chu. Mr. Wiesner, would you want to comment on this 
issue about the contract terms?
    Mr. Wiesner. Sure. Just to go to your last question, 
currently about 90 percent of our prescription volume is paid 
for by a third party. The two gentlemen, their particular group 
combined together, would be one-third of our entire volume.
    From the standpoint when we are talking about unilateral 
contracts and things of that nature, it puts us in a very 
precarious position. We are in that position because that is 
one-third of my customer base. So if I am presented with what I 
would deem to be an onerous contract, I don't have much wiggle 
room. And we are reaching very quickly a tipping point as it 
relates to our cost to dispense products, which hasn't really 
been discussed today but there have been quite a few studies, 
and the ability for us to at least receive that much as an 
equitable reimbursement for our activities.
    So I think not only my company, but many companies have 
kind of reached a point in the entire process where we are 
having to take a step back and understand, is this a viable 
activity we can continue to engage in? We want to take care of 
our neighbors and our community, but we have some real concerns 
along that regard.
    One last comment. There is a little bit of a difference in 
my world. There is a lot of talk about rebates from 
manufacturers and getting greater discounts with rebates from 
manufacturers. And what we are talking about are brand products 
for which there is not a generic. In my world, because these 
gentlemen may get a rebate, that does not mean my cost to 
obtain that product is going down. So there is two different 
scenarios when you are talking about product cost.
    Ms. Chu. I see. I would also like to ask about the 
transparency. The merger of Express Scripts and Medco would 
result in one PBM controlling one-third or 135 million of all 
American prescriptions, and so transparency will be a major 
concern for a company that will be handling such a large 
amount. And a concern for PBM transparency was recently raised 
in a March 2011 Office of the Inspector General report which 
cited concerns about the lack of transparency with regard to 
PBM rebates in the Medicare part D program.
    So Mr. Gustafson, I would like to know about wouldn't the 
natural assumption be that this concern would grow if this 
merger is approved and won't the level of transparency decrease 
post-merger because employers and health plans would have fewer 
options and thus not be in a position to demand greater 
transparency?
    Mr. Gustafson. I think that is right, Congresswoman. I 
think one of the things that competition does in this 
marketplace, in any marketplace, is it forces the seller to be 
more transparent because the consumer has more choices, or in 
this case the plan sponsor or whoever the customer is in that 
instance. So I think that concentration in this market will 
allow the participants who remain to be less transparent, and I 
think that is bad for the competition levels and it is bad 
ultimately for the consumers.
    Ms. Chu. Okay. Thank you.
    Mr. Goodlatte. I thank the gentlewoman. The gentleman from 
New York, Mr. Nadler, is recognized for 5 minutes.
    Mr. Nadler. I thank the Chairman.
    Mr. Gustafson, Mr. Watt discussed the issue of product 
markets. What do you see as the relevant product markets for 
antitrust purposes that should be analyzed as part of this 
merger and in which product markets would concentration under 
the merger cause the most concern and could divestitures in any 
of these market alleviate those concerns?
    Mr. Gustafson. Congressman, I think that there is--probably 
the FTC will ultimately decide that there is more than one 
market here. There certainly seems to be markets that--at this 
stage of our investigation that large plan sponsors is probably 
a market, the specialty drugs may very well be a market. So I 
think that there is--mail order may be a market. Probably not, 
but it is possibly a different marketplace. But ultimately I 
think there is more than one market.
    The question about whether divestitures would be a solution 
to this merger, it is probably too early to tell, but there are 
certainly some things that you could consider in terms of 
divestiture that would be useful. One is the speciality drug 
companies that these two merger partners own. Another would be 
the mail order businesses that they own or part of the mail 
order businesses, because both of those instances would lessen 
their grip on the national accounts.
    Mr. Nadler. Thank you.
    Mr. Snow, you testified that the merger would give the new 
combined company greater power to negotiate prices with drug 
companies and therefore would result in lower drug prices.
    Mr. Snow. Correct.
    Mr. Nadler. Would you say the same principle would apply if 
we were to say that Medicare could negotiate drug prices with 
the pharmaceutical companies and if we let them negotiate the 
prices, instead of prohibiting them by law, the market power of 
Medicare would cause a great reduction in drug prices for 
Medicare?
    Mr. Snow. Scale does drive better pricing. It does.
    Mr. Nadler. So Medicare would have tremendous volume 
pricing power if the law were changed to enable them to 
negotiate and use their pricing power to negotiate cheaper drug 
prices instead of prohibiting them?
    Mr. Snow. Technically, yes. I would also tell you though 
that it is not uncommon for PBMs in the private sector to bump 
up against Medicaid best price when they could have done better 
had the government not set that floor. So it is a double-edged 
sword.
    Mr. Nadler. I didn't follow that.
    Mr. Snow. So there is already today Medicaid best price 
legislation that says that no one can negotiate a price that is 
better than Medicaid.
    Mr. Nadler. That is lower?
    Mr. Snow. Yes. So they by definition must always have best 
price.
    Mr. Nadler. And the best price is what Medicaid pays?
    Mr. Snow. Yes, it is what Medicaid pays and it is what the 
government has negotiated with that manufacturer on Medicaid. 
And all I am saying is that Medicaid best price legislation has 
become a floor below which we can't negotiate.
    Mr. Nadler. But we prohibit Medicaid from negotiating that 
price, do we not?
    Mr. Snow. Medicaid demands. It is the same issue. They 
demand that they get best price, which means the manufacturer 
says you can't do better than that. If government negotiates, 
manufacturers will say, well, you know, I am going to have to 
keep the prices high because I can't afford to do this, and 
they basically create artificial--artificial floors below which 
you can't negotiate.
    Mr. Nadler. I don't understand what you are saying at all. 
Let's go back to basics for a moment. I really just don't 
understand what you are saying, and I am generally not that 
incomprehending--uncomprehending.
    We had a major political argument that said Medicare, I am 
not familiar with the data on Medicaid, but Medicare should or 
should not be able to negotiate prices, and Medicare should 
negotiate prices because with their volume pricing they can get 
better prices. That is the argument.
    You are saying that if your two companies merge because you 
have greater market power you are able to negotiate lower 
prices, which seems to be the same argument. And you said a 
moment ago that that would be a valid argument, that scale does 
matter. Now you are telling me that Medicaid has--do they 
negotiate the price?
    Mr. Snow. No. They have what is called Medicaid best price.
    Mr. Nadler. So in other words, they can't be negotiate the 
price. So that is a separate--they should be able to negotiate 
the price, would follow from your logic, to get better prices.
    Mr. Snow. Government as a whole with their scale should.
    Mr. Nadler. Fine. That was my question. We could save a lot 
of money if government could use its scale to negotiate prices, 
as your two companies could save money by combining and using 
your power of scale to negotiate prices. Thank you.
    Now, my next question, let me ask Mr. Lech, I was going to 
ask this question and maybe it was what Mr. Marino was 
referring to before, I don't know. But small pharmacies I 
understand are not allowed to combine--actually, Mr. Snow, 
small pharmacies are not allowed to combine to negotiate 
because that is a violation of antitrust. Now, it seems to me 
that maybe we should allow them to do that. Maybe that is what 
Mr. Marino is referring to in his legislation, to allow them to 
get together, because then they could get presumably a better 
situation.
    But you said a few moments ago, Mr. Snow, that--I think it 
was you that said it, that small pharmacies get together now in 
co-ops sort of----
    Mr. Snow. They do, in group purchasing organizations.
    Mr. Nadler. And that does not violate the antitrust laws?
    Mr. Snow. No.
    Mr. Lech. But it doesn't achieve the negotiations that you 
are referring to, because it is not binding on any of the 
pharmacies, and the PSAOs, I guess in a perfect world what Mr. 
Snow said would be true, that they are able to negotiate better 
prices. The reality is it is not what is seen to happen.
    Mr. Nadler. Well, let me ask Mr. Snow one last question 
because I see my time has expired. It went very fast.
    Given the greater concentration that would result if this 
merger went through, would you think it would be fair and right 
to allow an antitrust exemption for independent pharmacies so 
they could have a reasonable basis for negotiating with you?
    Mr. Snow. I personally don't believe they need it because 
of us, because as I have mentioned earlier and George has 
mentioned earlier as well, we need retail pharmacies. They are 
an essential part of what we do.
    Mr. Nadler. But in terms of enabling them to survive----
    Mr. Snow. If you want natural competition to occur, you 
have to believe the companies are not going to do something 
that is not in their best interests. We need these retail 
pharmacies. As I mentioned in my oral testimony, 85 percent of 
all the prescriptions we do for all of our members come from 
retail pharmacies.
    Mr. Nadler. That is very nice, but it is not responsive to 
my question. My question really is, obviously you want to get 
the best price you can from the pharmaceutical companies and 
you want to sell the drug to the pharmacies, not for the lowest 
price possible from their point of view. They want the lowest 
price. You are the middleman, right?
    Mr. Paz. Sir, we are not wholesalers, sir. The retail 
pharmacies buy their own drugs and then we reimburse them for 
what they buy. We are not the wholesaler. We only buy drugs 
direct that go through our mail order.
    Mr. Nadler. Yes, sir.
    Mr. Lech. That reverts back to the beginning of this 
conversation when Congressman Conyers asked who are these 
people and where do they fit in. We welcome--I wish to be able 
to wrap my arms around the PBM industry and speak with local 
purchasers of prescription insurance and talk to them as if I 
could trust everything that they are saying and promoting and 
marketing to be true. But in the 30 years that I have been 
practicing, it has gone the other way. And that is why we need 
legislation like Congressman Marino has introduced.
    I would recommend that you read the legislation first. What 
it does is it offers an exemption, but the exemption is 
defined. It defines a marketplace. It is not a county-wide or 
region-wide or every independent pharmacy.
    Mr. Goodlatte. Mr. Lech, I hate to interrupt you, but the 
gentleman's time has long expired.
    Mr. Nadler. I thank the Chairman for his indulgence.
    Mr. Goodlatte. The gentleman from Florida, Mr. Deutch, is 
recognized for 5 minutes.
    Mr. Deutch. Thank you, Mr. Chairman.
    Mr. Chairman, as I brought up in a letter to the FTC 
Chairman, I have heard some real concerns from constituents in 
my district that the acquisition could result in diminished 
competition, could have a negative impact on healthcare costs, 
or could jeopardize the overall quality of patient care, and I 
would like to focus on two of those, if I may. The first is 
cost.
    Mr. Snow, if I understood you correctly, you said that, or 
if you could elaborate, there would be $1 billion passed back 
to consumers. I would like to understand that. And then, Mr. 
Gustafson, after Mr. Snow explains, if you could respond, 
because I think what you said earlier in your testimony was 
that past consolidation suggests that there will be higher 
prices for consumers.
    Mr. Snow, could you speak first?
    Mr. Snow. Absolutely. Thank you. So we have contracts with 
clients today that have 100 percent pass-through of our 
pricing, of our rebates. So when a merger like this occurs, you 
actually combine the best-of-breed contracting that we 
currently have as independent companies today. When you just 
look at best-of-breed contracts between the two companies post-
merger, it results in $1 billion of savings that by definition 
under our existing contracts with our clients they get 
immediate benefit for. It goes right back. And when I say 
client, it is our employer customers and our health plan 
customers and our State government customers.
    Mr. Deutch. So Mr. Gustafson, could you help me make some 
sense of this, because ultimately I am concerned about the I am 
fact it is going to have on consumers.
    Mr. Gustafson. What I had testified about was that when 
they claim the $1 billion in efficiencies, we need to make sure 
we document it, because we have had a lot of consolidation in 
this industry where promises have been made. We have a data 
set. We can go back and look. When CVS and Caremark merged, 
they made promises about efficiencies, and when----
    Mr. Deutch. I am sorry, Mr. Gustafson. What kind of 
promises were made and what was the result?
    Mr. Gustafson. Well, I am not familiar with the specifics 
of the promises as I sit here, but I know the mergers were 
defended on the basis that they would provide cost savings 
which would be passed on. And the data that I have seen 
suggests that the profits of these companies are soaring, which 
suggests that they are not passing it on, which suggests that 
they are taking whatever savings they get and putting them 
through to their bottom line.
    Mr. Deutch. I appreciate that. I would like, Mr. Lech, if I 
could turn to you for a moment. In your testimony you talked 
about the gradual shift of smaller and medium-sized PBMs being 
bought out by larger ones and you mentioned that the reduced 
competition hurts smaller pharmacies like yours.
    Can you speak specifically--can you help us understand what 
that looks like for your customers? Those negotiations with 
PBMs that have changed, what impact has it had on the 
customers, on the consumers?
    Mr. Lech. Well, the reason it will have a negative effect 
is basically because it is a take it or leave it contract. The 
statement was made earlier that, you know, we are very 
business-minded, savvy people, and if we get a contract that 
doesn't look good, we are going to say no. Well, that is hard 
to do. It is not hard to do business-wise, but hard to do in a 
humane kind of way, to say ``Congressman, I can't fill your 
prescriptions anymore.'' So access to the pharmacy of their 
choice and I believe also ultimately the price and the cost.
    What we have seen in all these claims of we are going to 
reduce costs, we are doing to reduce costs, the prescription 
prices keep going up. The sponsors of the plans keep paying 
more. The consumers are paying higher copays. The pharmacies 
are being paid less. So where is the money going?
    I would refer back to Mr. Gustafson's recent answer about 
those profits are going into the corporate.
    Mr. Deutch. I am sorry, can you just walk through that 
piece step-by-step? The payments to the pharmacies, the copays, 
can you just take me through that a little slower?
    Mr. Lech. Sure. Year after year we hear claims that the 
cost of medicine is going to go down, and we are hearing it 
again, and it was a guarantee I believe I heard, that the price 
will go down if this merger takes place.
    Well, first of all, I can't see how that is going to 
happen. But as time goes by, year by year, prices continue to 
go up. So that money is going somewhere, okay, maybe to the 
manufacturers because of the cost. But look at all the players 
and what they do.
    There is the plan sponsors, let's say the corporate 
employers of the world--of the country. Their cost to insure 
their folks for prescriptions are going up. The out-of-pocket 
expenses in the way of copays are rising for the consumer. The 
rates being paid to the providers are less. So where is the 
increased profit going?
    Mr. Deutch. And, finally, Mr. Lech, that has all happened 
during a period of consolidation?
    Mr. Lech. It happened as consolidation has taken place. I 
don't know how to directly attribute it.
    Mr. Deutch. Thank you, Mr. Lech. Unfortunately, I am out of 
time. Thank you, Mr. Chairman. I yield back.
    Mr. Paz. Could I answer some factual points here?
    Mr. Goodlatte. We are going to allow some of the panelists 
to ask some additional questions, so we will give him the 
opportunity to do that if he chooses to.
    At this time we will do a second round here. I am going to 
ask a couple of questions myself and yield to Mr. Watt. And 
while I do that, I will ask Mr. Marino to take the chair since 
I am going to have to go to another meeting myself, and then he 
can ask his questions and yield to any other Members who have 
questions they would like to ask. And I have two.
    First, one to Mr. Lech. Community pharmacies have long 
complained about allegedly unfair practices by PBMs, and PBMs 
have long had significant influence in the prescription drug 
markets. Why will this merger make these alleged problems 
worse, in your view?
    Mr. Lech. Well, the take ``take it or leave it'' contracts 
can make it less people that I have to say take it or leave it 
to. It now is becoming a bigger percentage of my business, 
which makes it harder for me to negotiate. It gives me less 
leverage. And again, I would love to believe that when they say 
they want to work with me and they need me, I have not seen 
that. It is just talk. So as the company gets bigger, the 
ability for me as a provider, as a health care--as a pharmacy, 
it becomes less of an opportunity or less of an actuality that 
I will be able to--discerning against the bigger party.
    Mr. Goodlatte. Mr. Paz, do you want to respond to that 
based upon your----
    Mr. Paz. Yes, please.
    If you go back and look at the releases that have come out 
of the Department of Defense as one case in point, we have 
heard testimony that, in fact, our efficiencies through mergers 
and acquisitions hasn't been felt by our plan sponsors. The 
prices that we put forth in our Department of Defense contract, 
we have actually exceeded those. We delivered higher savings 
than was originally promised under the Department of Defense--
--
    Mr. Goodlatte. What about the small pharmacies like Mr. 
Lech?
    Mr. Paz. Again, I go back to the same statement, sir. They 
are a critical component of our offering. We do not want to see 
Mr.--Mr. Lech go out of business, nor will we put him in that 
position.
    What he fails to mention is that we have access standards 
under both Federal law and under client contracts which require 
a certain area you have to go to be able to find a pharmacy for 
the health and well-being of our members. We comply with all of 
those rules. Under the Federal standards and underneath, you 
know, our client contracts, he is an important component of our 
offering.
    Mr. Goodlatte. Mr. Lech?
    Mr. Lech. What Mr. Paz fails to tell you is that the 
Department of Defense is a special entity, because through the 
mail they are given larger discounts. Those discounts have not 
passed on as much to me as an independent pharmacy. So the 
economies of scale are different with the Department of Defense 
because their contracting ability is greater than your average 
corporate purchaser.
    Mr. Paz. The savings, though, is discussed----
    Mr. Goodlatte. I can't go back and forth too many times.
    Mr. Gustafson, you testified that the Express Scripts-Medco 
merger reduces the number of viable providers of PBM services 
to large plan sponsors from three to two. Why aren't Catalyst, 
Optum Rx and Prime Therapeutics, which already handled plans 
for Fortune 50 companies, viable providers of PBM services to 
large plan sponsors? Catalyst has won contracts for such large 
employers as Ford Motor Company, Nike, Sprint, Waste Management 
and Southwest Airlines.
    Mr. Gustafson. They are not as big, and when these two 
combine, they are going to be bigger yet. And when they take 
that combination, they are going to be able to extract more 
discounts on the side of the pharmaceutical companies, they are 
going to be able to direct more to the mail order, they are 
going to have a bigger control of the specialty pharmacy 
products. All of that is going to make them more powerful vis--
vis the other PBMs.
    Optum Rx is a good example because they suffer from another 
potential problem. UnitedHealth Care, their underlying parent, 
I guess it is, is a competitor of other plan sponsors. And so 
there has been a fair amount written about the reluctance of 
Cigna or Aetna or someone like that to use a PBM like Optum Rx 
because of the potential issues with respect to data access, 
things like that.
    But I think the question that we ought to address in this 
is how big is big enough? I mean, if we were talking about a 
merger of----
    Mr. Goodlatte. Under the antitrust law that is not the 
issue that we address. The issue that you address is do they 
have market power that would preclude others from being able to 
enter the marketplace and offer competitive plans that would 
maintain the competition that is, in the view of--certainly in 
my view--in view of the law as it is written, is a desirable 
thing to have?
    Mr. Gustafson. Sure. I agree with that. What I was 
suggesting was how big is big enough with respect to the 
efficiencies they claim they can garner by getting together and 
being bigger? At some point, you know, there are no more 
efficiencies that can be gained by getting bigger. They only 
become able to extract the power that they have----
    Mr. Goodlatte. Well, that is the underlying issue, not how 
large they have to be and still maintain their efficiency.
    But let me yield to the gentleman from North Carolina Mr. 
Watt and see if he has any additional questions.
    Mr. Watt. Well, I have got all kinds of questions. I am not 
sure what they have to do with the merger, but I am just trying 
to be a little bit clearer on how this industry fits together.
    Somebody help me if I am leaving out somebody. You have got 
pharmaceutical companies, you have got plans. Those are the 
insurers, right, or self-employed--self-insured employers, 
right?
    Mr. Lech. Payers.
    Mr. Watt. Payers. You have got independent pharmacies. That 
is Mr. Lech. You have got chain pharmacies. That is Mr. Wiesner 
and CVS and Rite Aid and----
    Mr. Snow. Walgreens.
    Mr. Watt. Walgreens. You have got PBMs, and you have got 
customers.
    Mr. Snow. You also have big box pharmacies. Walmart, 
Target, Costco.
    Mr. Watt. Retail stores.
    Mr. Snow. Grocery stores.
    Mr. Watt. Somebody explain to me quickly how all of these 
things fit together. I mean, or does it vary from case to case? 
I know that the pharmacy companies, pharmaceuticals, make the 
drugs, right? I mean, they got the patents.
    Mr. Snow. Uh-huh.
    Mr. Watt. The plans insure people. They cover them. They 
pay somebody for the drugs. And so between them and the 
customers, we have independent pharmacies, chain pharmacies, 
PBMs, retail big box stores.
    Mr. Lech. You missed a layer, kind of. You have the 
manufacturers, you have the payers, you have the pharmacies, 
and you have the consumers. In between----
    Mr. Watt. Well, there are some layers here that--within the 
pharmacies, independent pharmacies, chain pharmacies, retail 
stores, PBMs. And I don't know how PBMs relate to independent 
pharmacies, chain pharmacies, retail stores. Somebody explain 
to me the role that PBMs plays in this.
    Mr. Paz. Congressman, I would be happy to do that. The PBM 
is a consultant to the plan's sponsor. Companies are constantly 
looking at their costs, and they are offering other drugs. 
There are drug manufacturers that make the drugs, and there are 
pharmacies that dispense the drugs. There are doctors who write 
for the prescription.
    Mr. Watt. I forgot about the doctors.
    Mr. Paz. It is a very complicated process. We can even get 
even a little more if we want to throw wholesalers in there 
that sell to the pharmacies, but we will leave them out for 
now.
    So what our job is to do, our main job, is to help a plan 
sponsor meet the needs that it has to meet the health care 
requirements for its employee base. So, for example, a company 
that is in dire economic straits that has to cut out costs has 
to take some fairly tough measures in order to----
    Mr. Watt. So you work for the plans?
    Mr. Paz. We work for the plans.
    Mr. Watt. You are not in the space except that you own 
specialty pharmacies and mail order.
    Well, maybe I should ask this question: Well, would this 
merger still be viable if FTC required divestiture of your mail 
order and specialty drug--I mean, would this still be a 
desirable merger?
    Mr. Paz. It depends to what degree that takes place.
    Mr. Watt. All of it. I mean, you say you work for----
    Mr. Paz. Right.
    Mr. Watt. I don't have any agenda here. When I used to 
practice law, I say this quite often in this Committee--when I 
practiced law, I never asked a question that I didn't know the 
answer to. I have the freedom now to ask questions that I don't 
know the answer to. I don't know the answer to this.
    Mr. Paz. Mail order is a very important component to our 
offering. It helps us drives down costs for those clients that 
need that type of offering. There is also----
    Mr. Watt. This would not be a desirable merger if the FTC 
says you have got to get rid of your mail order.
    Mr. Paz. That is correct, Congressman.
    Mr. Watt. And would it be a desirable merger if the FTC 
says you have to get rid of your--what is the other thing?
    Mr. Paz. Specialty.
    Mr. Watt. Specialty.
    Mr. Paz. It would not, sir.
    Mr. Watt. That wasn't a trick question. I wasn't trying to 
trip anybody up. I was just trying to figure out how all this 
fit together.
    Mr. Paz. Thank you.
    Mr. Watt. I think I understand it better, unless somebody 
got some other just angle that I need to understand.
    Mr. Wiesner. Not really a different angle, just a couple of 
comments to piggyback on some of your comments.
    When you are referring to a chain pharmacy, NACDS, of 
course, the National Association of Chain Drug Pharmacies has a 
large membership. Overwhelmingly that membership consists of 
very small regional chains. So they are not the large national 
chains that people think about.
    Mr. Watt. You are not CVS and Walgreens.
    Mr. Wiesner. They are members of NACDS, but if you look at 
my company, we are a regional chain located in one State. I 
believe in your State, there is a small chain that is located 
only in your State.
    Mr. Watt. Who is that?
    Mr. Wiesner. Kerr Drugs. So if you think of it in that 
terms, we are faced many, many times with the exact same 
challenges that Mr. Lech and independent pharmacies are. We do 
not necessarily have that large scale, but we are an important 
part of those communities in that particular regard.
    Mr. Watt. My time has expired. Is it Carr, or is it Kerr, 
K-E-R-R?
    Mr. Wiesner. K-E-R-R.
    Mr. Watt. They pronounce it Kerr?
    Mr. Wiesner. Yes.
    Mr. Watt. I thought I had seen it K-E-R-R, but then you 
said Kerr. I never associated that with K-E-R-R.
    Mr. Wiesner. Is it possible to make one last comment?
    Mr. Marino. [presiding.] Surely.
    Mr. Wiesner. Sure. I think it is really important to 
understand the different channels for drug distribution. We are 
talking a lot about retail pharmacy, we are talking about mail-
order pharmacy. We are also talking about specialty drugs.
    Specialty we need to really keep on the radar screen for 
costs. The new products that are coming forth in the future, 
the vast majority of those are going to be specialty drugs. 
They may or may not be available in your community pharmacies. 
So that is an important ingredient to the success of any PBM as 
to how they manage the specialty program, and it is also a 
great revenue source. So I don't want specialty drugs to go 
unnoticed in this particular conversation.
    And each of those different channels, whether they be 
retail community pharmacy, mail order which they own, or 
specialty which they own, exist under different contractual 
agreements. So what I receive at my level versus theirs is 
different.
    Mr. Watt. Stop.
    May I ask one?
    Mr. Marino. Take all the time you need, Mr. Watt.
    Mr. Watt. I know he wants all the time he wants. There is 
an ulterior motive here, but that is all right. That is good. 
We all understand.
    Ms. Kanwit, FTC has the authority, I presume, under the 
statute to require divestiture, right?
    Ms. Kanwit. They have remedies, sir. They have a guideline, 
not only merger guidelines, but a remedies guideline, along 
with the Department of Justice, and so they can look at some 
divestiture issues in an appropriate context. But it is very 
detailed about when they can look and what the implications of 
divestiture might be for the merged entity, yes.
    Mr. Watt. Mr. Gustafson, what is your take on the 
divestiture question I raised before? And then I am going stop 
and yield back. 
    Mr. Gustafson. I think it is certainly something that the 
FTC should look at. I mean, what makes this potential 
combination a concern is the fact that they do have the mail-
order operations and the specialty pharmaceuticals, because it 
increases the leverage they have in the marketplace. And so I 
think it is certainly an option that the FTC ought to explore. 
But I think that you heard that they are not interested in this 
merger if they have to be divested of those services.
    Mr. Watt. Can they explore it, Ms. Kanwit? 
    Ms. Kanwit. I have a response to that. Specialty is really 
critical, as you just heard Mr. Paz and Mr. Snow comment. I 
mean Teva just came out with a multiple sclerosis drug which 
would cost upwards of 42-, $45,000 a year. We are talking very, 
very expensive drugs. One of things PBMs do that the FTC has 
found is drive down costs by negotiating with pharmaceutical 
companies. So if you want a PBM to go and negotiate for lower 
costs, you certainly want them negotiating on things like 
specialty drugs, which, by the way, many of which are coming 
down the pipeline right now and are really going to be critical 
in the decade coming ahead.
    Mr. Watt. Can they do that as an independent PBM as opposed 
to an owner of a specialty drug?
    Ms. Kanwit. There are PBMs out there that do nothing but 
specialty, specialty companies.
    Mr. Watt. I yield back. The more questions I ask, the more 
questions I have. So I am going to stop.
    Mr. Marino. Thank you, Mr. Watt.
    I am going yield myself a couple minutes. Mr. Wiesner, what 
type of transparency would you as a pharmacist like to see 
concerning clarity for PBMs?
    Mr. Wiesner. Transparency is a large issue. If we look back 
on past history and past behavior, as I indicated in my 
testimony, there have been lots of allegations. Lots of State 
attorney generals that have brought charges against various 
PBMs. And that all stems from the fact that they are not 
transparent in their explanation of what their true costs are. 
They are not transparent in the rebate process. They basically 
have two contracts. One is with the buyer, the payer of their 
services; the other is with provider, the retail pharmacy. In 
each of those cases, those are all hidden costs in their 
particular organization.
    The allegation, of course--or not allegation. The 
assumption is that they are driving down costs. If they are 
driving down costs, as a gentleman said a little bit earlier, 
they would be able to return $1 billion based on 100 percent 
transparency.
    I guess my question is why can't we have 100 transparency 
at all times? Why do we have to have 80 percent at times and 
100 percent at others.
    Mr. Snow. Could I respond to that?
    Mr. Marino. Sure.
    Mr. Snow. I offer clients when we go to market, they have 
choices. They can get the price discounts and we keep portions 
of rebate, or they get 100 percent of rebate. It is equal to 
the same net cost to them. It is their choice.
    In our business, benefit design, contract structure is 100 
percent always our client's choice. And by the way, everything 
they choose is auditable, so there is transparency. Some of the 
things that are being talked about are history from a long time 
ago that has since been rectified because of the actions that 
occurred 10 years ago.
    Mr. Marino. Mr. Snow, would I as a consumer have that 
ability to obtain that information and to explore that 
transparency?
    Mr. Snow. At a consumer level, what we do today, we have 
taken this very far, we have smartphone technology. You can 
download the app for free where you, in fact, can, with your 
technology, look at the cost of your drugs, at the various 
locations of those drugs; you can look at the cheaper 
alternatives; you can discuss it with your doctor at the time 
of prescribing. We show them their copay, their coinsurance, 
what the net savings would be on an annual basis if they ask 
their physician to use an equivalent drug that was generic.
    We are making every step we possibly can to lever 
technology to create a well-informed consumer, because we 
believe that also helps the health care system reform itself 
if, in fact, the consumers become a prudent buyer of care. We 
are committed to that.
    Mr. Marino. I have a question concerning--and I am going to 
be fair on this. Mr. Snow, I think it was you that said you 
wanted--did you enter a document into the record, a report of 
some nature, or was it Mr. Paz?
    Could you explain to me what that document is and who 
prepared it?
    Mr. Paz. Yes. It is a document that basically looks at the 
cost of drugs, and if, in fact, for every 1 percent of waste we 
can take out of the system, we can--it equates to 20,000----
    Mr. Marino. Who prepared it?
    Mr. Paz. A group called PCMA, the Pharmaceutical Care 
Management Association.
    Mr. Marino. Is that in any way linked with your 
organizations, or is it a representative?
    Mr. Paz. We belong to that just like they belong to NACDS.
    Mr. Marino. Okay. Now, Mr. Lech, being fair, you entered 
something into the record, correct? What was that?
    Mr. Lech. I entered in pictures that were sent in, actual 
pictures, of medications that were in consumers' houses, of 
medication that was sent to them at times not requested.
    Mr. Marino. Okay. Who prepared that report?
    Mr. Lech. The pictures were put together by NCPA from their 
members, but the information came from consumers.
    Mr. Marino. Okay. Thank you.
    Mr. Paz, as a consumer, would I have a choice in purchasing 
from PBMs, your company that is consolidated, specialty drugs 
and mail-order drugs from where they are purchased from or 
where they are sent from? Do I have that choice, or is it your 
mail-order company that I have to purchase those drugs from?
    Mr. Paz. In the majority of the cases, there are a few that 
you would you would not have a choice, but the majority of the 
cases, you would have that choice.
    Mr. Marino. Is that offered to the consumer?
    Mr. Paz. Yes. The consumer decides which pharmacy to go to. 
The consumer decides whether or not they want to use mail 
order. That is all a consumer choice.
    Mr. Marino. Thank you.
    0Mr. Lech, your hand has gone up there.
    Mr. Lech. You know what the option is if they don't use a 
mail order?
    Mr. Marino. What is that?
    Mr. Lech. They will pay full price.
    Mr. Paz. No, sir, that is not correct. They pay a copay. 
They pay a copay at Mr. Lech's pharmacy, or they pay a copay at 
my pharmacy, mail order. There is no difference.
    Mr. Marino. I don't want to get into a debate here, but it 
is noted.
    I have no further questions. Mr. Watt?
    Mr. Watt. I have no further questions.
    Mr. Marino. No further questions. I see no one else sitting 
here.
    Lady and gentlemen, I want to thank you very much for being 
here. I was a little longer than we anticipated.
    I have some housekeeping to take care of. Without 
objection, all Members will have 5 legislate days to submit to 
the Chair additional written questions for the witnesses, which 
we will forward and ask the witnesses to respond as promptly as 
they can do so that their answers may be made a part of the 
record.
    Without objection, all Members will have 5 legislative days 
to submit any additional materials for inclusion in the record.
    With that, again I thank the witnesses, and the hearing is 
adjourned.
    [Whereupon, at 5:56 p.m., the Subcommittee was adjourned.]



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