[Senate Hearing 112-266]
[From the U.S. Government Publishing Office]
S. Hrg. 112-266
THE EXPRESS SCRIPTS/MEDCO MERGER: COST SAVINGS FOR CONSUMERS OR MORE
PROFITS FOR THE MIDDLEMEN?
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HEARING
before the
SUBCOMMITTEE ON ANTITRUST,
COMPETITION POLICY AND CONSUMER RIGHTS
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
----------
DECEMBER 6, 2011
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Serial No. J-112-54
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Printed for the use of the Committee on the Judiciary
S. Hrg. 112-266
THE EXPRESS SCRIPTS/MEDCO MERGER: COST SAVINGS FOR CONSUMERS OR MORE
PROFITS FOR THE MIDDLEMEN?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ANTITRUST,
COMPETITION POLICY AND CONSUMER RIGHTS
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
DECEMBER 6, 2011
__________
Serial No. J-112-54
__________
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
72-806 PDF WASHINGTON : 2012
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20402-0001
COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin CHUCK GRASSLEY, Iowa
DIANNE FEINSTEIN, California ORRIN G. HATCH, Utah
CHUCK SCHUMER, New York JON KYL, Arizona
DICK DURBIN, Illinois JEFF SESSIONS, Alabama
SHELDON WHITEHOUSE, Rhode Island LINDSEY GRAHAM, South Carolina
AMY KLOBUCHAR, Minnesota JOHN CORNYN, Texas
AL FRANKEN, Minnesota MICHAEL S. LEE, Utah
CHRISTOPHER A. COONS, Delaware TOM COBURN, Oklahoma
RICHARD BLUMENTHAL, Connecticut
Bruce A. Cohen, Chief Counsel and Staff Director
Kolan Davis, Republican Chief Counsel and Staff Director
------
Subcommittee on Antitrust, Competition Policy and Consumer Rights
HERB KOHL, Wisconsin, Chairman
CHUCK SCHUMER, New York MICHAEL S. LEE, Utah
AMY KLOBUCHAR, Minnesota CHUCK GRASSLEY, Iowa
AL FRANKEN, Minnesota JOHN CORNYN, Texas
RICHARD BLUMENTHAL, Connecticut
Caroline Holland, Democratic Chief Counsel/Staff Director
David Barlow, Republican General Counsel
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Blumenthal, Hon. Richard, a U.S. Senator from the State of
Connecticut.................................................... 6
Franken, Hon. Al, a U.S. Senator from the State of Minnesota..... 5
Grassley, Hon. Chuck, a U.S. Senator from the State of Iowa...... 4
Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin...... 1
Lee, Michael S. a U.S. Senator from the State of Utah............ 3
WITNESSES
Balto, David A., Esq., Law Offices of David A. Balto, Washington,
DC............................................................. 16
Bettiga, Michael J., Chief Operating Officer and Executive Vice
President, Shopko Stores Operating Company LLC, Green Bay,
Wisconsin...................................................... 14
Paz, George, Chairman and Chief Executive Officer, Express
Scripts, Inc., St. Louis....................................... 8
Snow, David B., Jr., Chairman & Chief Executive Officer, Medco
Health Solutions, Inc., Franklin Lakes, New Jersey............. 9
Streator, Scott E., Associagd Vice President Business
Development, The Ohio State University Medical Center,
Columbus, Ohio................................................. 11
Sutter, Susan L., Co-Owner, Marshland Pharmacies, Horicon,
Wisconsin on behalf of Independent Paharmacist and Member of
the National Community Pharmacists Association, Alexandria,
Virginia....................................................... 13
QUESTIONS AND ANSWERS
Responses of David A. Balto to questions submitted by Senators
Kohl, Lee and Schumer.......................................... 41
Responses of Michael J. Bettiga to questions submitted by
Senators Grassley, Kohl, Lee and Schumer....................... 53
Responses of George Paz to questions submitted by Senators Kohl,
Lee, Schumer, Franken and Grassley............................. 62
Responses of David B. Snow to questions submitted by Senators
Franken, Grassley, Kohl, Lee and Schumer....................... 87
Responses of Scott E. Streator to questions submitted by Senators
Schumer, Lee and Kohl.......................................... 132
Responses of Susan L. Sutter to questions submitted by Senators
Kohl, Schumer and Lee.......................................... 142
SUBMISSIONS FOR THE RECORD
American Anttitrust Institute (AAI), Dan Gustafson, Advisory
Board Member and Albert A. Foer, President, Washington, DC,
November 30, 2011, joint letter................................ 158
Balto, David A., Esq., Law Offices of David A. Balto, Washington,
DC, statement.................................................. 164
Bettiga, Michael J., Chief Operating Officer and Executive Vice
President, Shopko Stores Operating Company LLC, Green Bay,
Wisconsin, statement........................................... 179
Economic Benefits of Pharmacy Benefit Managers, Jonathan Orszag,
Compass Lexecon, LLC and Kevin Green, Compass Lexecon, LLC,
joint study.................................................... 188
Fein, Adam J., President, Pembroke Consulting, Inc.,
Philadelphia, Pennsylvania, statement.......................... 235
National Association of Chain Drug Stores, Alexandria, Virginia:
2011-2012 Chain Pharmacy Industry Profile.................... 246
Steven C. Anderson, IOM, CAE President and CEO, December 13,
2011, letter............................................... 324
National Taxpayers Union, NTU, Duane Parde, President Alexandria,
Virginia, December 5, 2011, letter............................. 328
Norquist, Grover, President, Americans for Tax Reform,
Washington, DC, December 1, 2011, letter....................... 329
Paz, George, Chairman and Chief Executive Officer, Express
Scripts, Inc., St. Louis, Missouri, statement.................. 330
Snow, David B., Jr., Chairman and Chief Executive Officer, Medco
Health Solutions, Inc., Franklin Lakes, New Jersey, statement.. 339
Streator, Scott E., Associagd Vice President Business
Development, The Ohio State University Medical Center,
Columbus, Ohio, statement...................................... 355
Sutter, Susan L., Co-Owner, Marshland Pharmacies, Horicon,
Wisconsin on behalf of Independent Paharmacist and Member of
the National Community Pharmacists Association, Alexandria,
Virginia, statement............................................ 363
Towns, Edolphus ``Ed'', a U.S. House of Representative from the
State of New York and Alcee L. Hastings, a U.S. House of
Represetative from the State of Flordia, November 28, 2011,
joint letter................................................... 410
THE EXPRESS SCRIPTS/MEDCO MERGER: COST SAVINGS FOR CONSUMERS OR MORE
PROFITS FOR THE MIDDLEMEN?
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TUESDAY, DECEMBER 6, 2011
U.S. Senate,
Subcommittee on Antitrust, Competition Policy,
and Consumer Rights,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:30 p.m., in
room SD-226, Dirksen Senate Office Building, Hon. Herb Kohl,
Chairman of the Subcommittee, presiding.
Present: Senators Kohl, Klobuchar, Franken, Blumenthal,
Lee, and Grassley.
OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE
STATE OF WISCONSIN
Chairman Kohl. Good afternoon. Today we meet to consider a
merger in an industry that is central to the way prescription
drugs reach the market and the prices health plan sponsors and
ultimately consumers pay for these drugs.
Express Scripts and Medco, two of the Nation's three
largest pharmacy benefit managers, known as PBMs, seek to
merge, forming the Nation's largest PBM. If this merger goes
forward, the combined company will administer 1.14 billion
prescriptions annually and would handle 41 percent of all
prescriptions administered by PBMs. It would be nearly two
times larger than its nearest competitor, CVS Caremark.
Over the past decade, PBMs have become major players in the
health care industry. By one estimate, 90 percent of
individuals with prescription drug coverage receive benefits
through a PBM, and PBMs handle approximately two-thirds of all
prescriptions written in our country. PBMs serve as middlemen
between drug manufacturers, pharmacies, and health plan
sponsors.
PBMs do everything from negotiating the prices health plan
sponsors pay for drugs to setting the prices pharmacies are
reimbursed for dispensing drugs. They also decide which
specific drugs make it onto formularies eligible for
reimbursement.
In addition to all of these functions, Express Scripts and
Medco would control about a 60-percent share of the mail-order
pharmacy business which ships drugs in bulk directly to
consumers.
Finally, these two PBMs operate ``specialty pharmacies,''
pharmacies that carry drugs used for the treatment of the most
rare and challenging ailments. They would together control over
50 percent of the specialty market after the merger.
Express Scripts and Medco argue that this merger will be
beneficial to health plan sponsors and ultimately consumers.
They claim that the combined company's scale would give it
substantial buying power to drive down drug prices. The
merger's critics, however, worry about the consequences of
consolidating two major rivals in this very important industry.
They question whether the drug price savings that the PBMs
claim they will achieve will indeed be passed along to plan
sponsors and their benefits or whether they will just go into
the pockets of PBM shareholders.
This merger, as critics argue, will also reduce from three
to two the number of large PBMs that serve the Nation's largest
employers. Currently, 42 of the top Fortune 50 companies
utilize Express Scripts, Medco, or CVS Caremark as their PBM.
Reducing the number of competitive choices from three to two
raises the dangerous possibility that these large companies
will have little choice but to pay more for PBM services.
The merging companies argue that there are many other PBMs
beyond the Big Three that bid to provide PBM services to large
employers. However, many large companies appear to prefer the
range of services offered by the three large PBMs and do not
seriously consider smaller PBMs.
In this regard, it is notable that no large employer who
privately expressed concerns to us wished to testify at today's
hearing, often telling us that they feared retaliation from the
large PBMs with whom they must do business.
We are also aware of the concerns expressed by pharmacies,
both large chain drug stores and small community pharmacists,
of what they believe are likely harmful effects of this deal.
Pharmacists believe that the PBMs will force consumers to use
mail-order services and squeeze the reimbursement rates
pharmacies receive from PBMs.
Question: Will pharmacists be able to compete in this new
marketplace? Will consumers suffer the loss of in-person
services and consultations offered by traditional pharmacists?
Or, as the PBMs contend, will this merger wring inefficiencies
out of the system of dispensing and paying for prescriptions to
the benefit of consumers and the health care system overall?
We have no doubt that this merger will be good for Express
Scripts and Medco and for their shareholders. It is very likely
that the merging companies will be able to gain efficiencies
from merging their overlapping operations. But while this
merger may serve these two companies' private interests, our
job on the Antitrust Subcommittee is to examine whether this
merger will serve the public interest and whether it will
benefit or hurt competition and consumers.
There is no question that this merger will have far-
reaching and long-lasting effects on the way prescription drugs
are paid for, sold, and dispensed. So the burden will be
squarely on Express Scripts and Medco to convince us that this
merger will not unduly harm competition but, in fact, will
benefit the millions of consumers who continue to face rising
prescription drug costs.
Let me now turn to our Ranking Member, Senator Mike Lee,
for his statement.
STATEMENT OF HON. MIKE LEE, A U.S. SENATOR FROM THE STATE OF
UTAH
Senator Lee. Thank you, Mr. Chairman.
Each year Americans spend over $300 billion on prescription
drugs, and that number is only growing. At a time when
businesses are strapped for cash, many employers spend as much
as 12 percent of their entire budgets on employee health
benefits, including coverage for prescription drugs.
This hearing addresses an important issue relative to the
cost of prescription drugs in the United States. Pharmacy
benefit managers, or PBMs, although relatively unknown to the
general consuming public, play a prominent role and an integral
role in our health care system. Many consumers have never heard
of PBMs, but most, indirectly at least, interact with a PBM
each and every time they visit a pharmacy.
The consumer gives a co-payment and receives a medication
while the pharmacist seeks reimbursement from a PBM for the
remaining balance. The PBM in turn submits a claim for payment
of the drug to the health plan sponsor, in most cases the
consumer's employer. In this manner, over 250 million Americans
receive prescription drug coverage from their employer, union,
or the Government through a PBM, with consumers receiving
medications at a local pharmacy or perhaps through the mail.
Employers or other health plan sponsors pay PBMs a fee for
their work in administering the details of a prescription drug
plan. In addition, PBMs make money by keeping a portion of the
difference between the price between what the employer pays for
the PBM for a drug and what the PBM pays the pharmacy for
dispensing that same drug. PBMs also keep a portion of the drug
rebates they receive from drug manufacturers and generate
profits from their in-house, mail-order, and specialty
pharmacies.
There are over 40 PBMs in the country today, but there are
only a few large ones. Two of the largest PBMs, Express Scripts
and Medco, have announced their intention to merge. This is a
transaction of sufficient size to merit the review of antitrust
enforcement agencies. It has also attracted the attention of
this particular Subcommittee.
I note at the outset that the very nature and value of PBMs
is not without some dispute. Critics argue that PBMs are
massive corporate middlemen who care only about profits. PBMs
under this view seek to dominate the prescription drug market,
run retail pharmacies out of business, and automate the world
of prescription drugs until consumers have only a non-live
person to call, basically a 1-800 number, to consult for advice
about their medications.
But those favorable to PBMs suggest and point out that they
do provide a valuable administrative service without which the
delivery of prescription drug services would be much less
effective and would cost employer-sponsored health plans up to
30 percent more each year.
PBMs claim that they are intensely interested in providing
more than just medication, that their innovative clinical
programs reduce overall health care costs by increasing patient
adherence to drug regimens, and improving the overall health
approach of their clients' employees.
Whatever one's overall view of PBMs, I hope that our
discussion today can focus on the merits of this proposed
merger from the perspective of antitrust. To do so, we must
focus our attention on ensuring that the market in which PBMs
operate is truly competitive, and in that regard, we would do
well to remember the insight made famous by Robert Bork's
seminal work, ``The Antitrust Paradox'': Competition must be
understood as the maximization of consumer welfare.
Competition ensures that consumers receive the lowest
prices and the best services. In the context of PBMs,
competition can drive innovation as PBMs battle one with
another to offer prospective clients the best pharmacy network
options and clinical management, in addition to cost savings.
Insufficient competition may result in higher prescription drug
prices for consumers as well as pharmacies being so squeezed
for revenue that they are unable to provide the quality of
services that consumers presently enjoy.
Throughout this hearing, we must also keep in mind the
unique challenges and opportunities present in our health care
market. As former Secretary of Health and Human Services
Michael Leavitt recently noted, ``Lack of coordination in
providing health care is a major contributor to overspending.
Recently combined health services companies understand that to
develop the capacity to improve health care and reduce costs,
they must scale and innovate in order to achieve needed
efficiencies for payers and providers.''
To properly focus our antitrust analysis for this hearing
today and to maximize consumers' welfare in terms of prices,
service, and quality, we must ensure that PBMs operate in a
robustly competitive market while at the same time allowing for
the type of consolidation and efficiency that drives innovation
and cost savings.
Thank you, Mr. Chairman.
Chairman Kohl. Thank you, Senator Lee.
Senator Grassley.
STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM THE STATE
OF IOWA
Senator Grassley. I appreciate the opportunity to give a
short statement. I wanted to explain to you and to our
witnesses that sometime between 3:30 and 4, I am going to have
to go to the other side of the Hill to work on a problem with
military hospitals, so if I do not get a chance to ask
questions, I will be submitting questions for answer in
writing.
Thank you for holding this hearing. Whether people know it
or not, this proposed merger will affect them. Prescription
drugs are a daily part of many folks' lives. How these drugs
are paid for and determining who gets paid what is a complex
process. At the heart of all of this are pharmacy benefit
managers.
The combination of Express Scripts and Medco would create a
company that processes almost one-third of all PBM-administered
prescriptions. Basically one in four individuals who receive
prescription drugs through a health plan will be impacted. So
this is a very important matter, and so this is why the Federal
Trade Commission is taking a look at it, and I expect that the
Commission will examine this merger regularly, as they should.
Today this Committee has an opportunity to hear some
practical concerns with the merger in a public forum. I am sure
there will be much discussion on the legal issues that will be
part of the Federal Trade Commission's review. However, we get
the chance here at this hearing to listen to those who support
and those who oppose the proposed merger. I expect the
discussion will be very helpful and informative to us in the
Congress as well as to the FTC, where the final decision will
be made.
I have heard from a large number of Iowa pharmacists who
raise concerns. I am interested to hear about the effects that
this merger will have on them and Iowa consumers. There are
also transparency and competition issues that deserve
discussion, and today is a great opportunity to do that,
although those issues of transparency and competition have been
around for a long period of time before this proposed merger
came up.
So, again, I thank you for holding this very important
hearing, Mr. Chairman. Thank you.
Chairman Kohl. Thank you very much, Senator Grassley.
Senator Franken.
STATEMENT OF HON. AL FRANKEN, A U.S. SENATOR FROM THE STATE OF
MINNESOTA
Senator Franken. Thank you, Chairman Kohl, for holding this
important hearing, and thank you so much for letting me say a
couple words about this merger. Like Senator Grassley, I need
to leave this hearing early, in my case to preside, and,
unfortunately, I too may not be able to ask questions to the
panel directly, but if that is the case, I will submit them in
writing, and I thank you all for being here, by the way.
This is a very large and a very complex merger, and I have
been hearing a tremendous amount about the potential impacts of
this merger, both positive and negative, from a wide variety of
Minnesotans, so I wanted to say a couple of words.
I should note at the outset that Express Scripts has a very
large presence in my State and employs over 1,000 Minnesotans
in very good, well-paying jobs, and this means a lot to me and
to Senator Klobuchar. And it is something that I have been
weighing while looking at this merger, as you can well imagine.
But I have also heard from a significant number of
pharmacists across Minnesota, including rural pharmacists, who
provide the only outpatient pharmacy option in their towns, as
well as from the Minnesota Pharmacists Association. These
pharmacists oppose the merger and have told me that they are
very concerned that the merger may force them to shut their
doors.
I have also heard from other companies with a significant
presence in Minnesota, like Super Value, which employs 8,600
Minnesotans. These companies are telling me that this merger
will force more patients into mail order and will reduce
options and resources for patients who often need the face-to-
face advice and consultation that only a pharmacy can really
offer. And while this primary question that we are examining is
the effect that this merger will have on competition, I cannot
ignore the potential effect, obviously, that it would have on
the quality of health and health care that Minnesotans receive.
I am particularly concerned that this type of consolidation
will leave very few options for large employers who often rely
on the Big Three PBMs to manage and administer their complex
prescription drug plans. The Fortune 50 and Fortune 100 firms
cover millions of Americans. If this merger will ultimately
mean less choice for those companies, that is something we need
to be concerned about, and it is something that I hope the FTC
is closely examining. In fact, I am quite certain they are.
I have listened to Express Scripts' arguments that
combining with Medco will translate into significant discounts
from drug manufacturers and will ultimately mean lower rates
from employers. We are living in a world with spiraling health
care costs, so I am interested in hearing more about how this
merger may make a dent in those costs. But I am most interested
in hearing how Express Scripts can guarantee that those cost
savings will be passed down to its customers and will not just
result in higher profits for the company.
This is, as I said, Mr. Chairman and Mr. Ranking Member, a
very complex industry, and I am looking forward to hearing from
both sides about the pros and cons of this merger. And as I
said, if I have to leave before it is time for my questions, I
will definitely submit questions for the record.
Thank you again, Mr. Chairman, for holding this hearing and
for letting me deliver this brief opening statement. Thank you.
Chairman Kohl. Thank you very much, Senator Franken.
Senator Blumenthal, a few words from you.
STATEMENT OF RICHARD BLUMENTHAL, A U.S. SENATOR FROM THE STATE
OF CONNECTICUT
Senator Blumenthal. Thank you very much, Mr. Chairman. I
want to join in thanking you for this hearing, which I think
addresses a critical area in our economy and in our health care
industry and system. And like Senator Franken, I thank you for
being here.
It is a complex industry, but it will be judged by the same
standards, antitrust and pro-competition standards, as any
other complex industry is judged. And my guess is that you will
have to be open to modifications in the deal that you have
reached, as happens in many of these mergers, or proposed
mergers at this point.
Obviously, this industry is among the most lucrative in the
country. It is increasingly profitable. The question is: How
will consumers be protected from overreaching and excessive
profits that are at the expense of competition?
One issue is whether consumers will be driven to mail-order
services, as has happened, for example, in Connecticut. That is
a big concern not only to the pharmacies that may be affected
but also to consumers who may have choices constricted. And
ultimately competition is about choices, and the impact of this
proposal on choices for consumers will be very, very important.
So understanding all these issues requires an understanding
of the concentration in the PBM market that will result,
particularly among large employers, as well as the incentives
for employers to affirmatively seek out mail-order options, and
I look forward to hearing more from all the witnesses about all
of these issues.
Thank you very much, Mr. Chairman.
Chairman Kohl. Thank you very much, Senator Blumenthal. Now
I will introduce our witnesses on this panel.
First to testify will be George Paz. Mr. Paz is Chairman
and CEO of Express Scripts, a position he has held since 2006.
Mr. Paz first joined Express Scripts in 1998 as senior vice
president and chief financial officer.
Next to testify today will be David B. Snow, Chairman and
CEO of Medco Health Solutions. Mr. Snow joined Medco in March
of 2003 after serving as president and chief operating officer
at Empire Blue Cross Blue Shield.
Next we will be hearing from Scott Streator. Mr. Streator
is the Associate Vice President of Business Development at The
Ohio State University Medical Center. Previously he served as
the Director and National Account Executive at Medco.
Our next witness who will testify today will be Susan L.
Sutter, co-owner of Marshland Pharmacies, which includes
facilities in Horicon, Mayville, and Beaver Dam, Wisconsin. She
has an outstanding reputation in our State, of which I am very
much aware. She has served as president of the Pharmacy Society
of Wisconsin and was chairperson for the Wisconsin Pharmacy
Examining Board.
Our next witness will be Michael J. Bettiga. Mr. Bettiga is
the Executive Vice President and Chief Operating Officer of
Shopko Stores Operating Company, headquartered in Green Bay,
Wisconsin. Mr. Bettiga served as board chair of the Wisconsin
Pharmacy Examining Board.
Our final witness today will be David A. Balto, an
antitrust attorney in Washington, D.C., who has previously
served as policy director at the Federal Trade Commission. Mr.
Balto will be testifying on behalf of Consumers Union, Consumer
Federation of America, National Consumers League, U.S. Public
Interest Research Group, and the National Legislative
Association on Prescription Drug Prices.
We thank you all for appearing at this Subcommittee hearing
today, and I will ask you all to stand and raise your right
hand as I administer the oath. Do you affirm that the testimony
you are about to give before this Committee will be the truth,
the whole truth, and nothing but the truth, so help you God?
Mr. Paz. I do.
Mr. Snow. I do.
Mr. Streator. I do.
Ms. Sutter. I do.
Mr. Bettiga. I do.
Mr. Balto. I do.
Chairman Kohl. Thank you so much.
We will turn now for opening statements, first, Mr. Paz,
will you please restrict yourself, if possible, to 5 minutes.
STATEMENT OF GEORGE PAZ, CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
EXPRESS SCRIPTS, INC., ST. LOUIS, MISSOURI
Mr. Paz. Mr. Chairman, Ranking Member Lee, and members of
the Subcommittee, you have my formal testimony for the record,
so let me briefly summarize my vision of what the combination
of these two great companies will do. We will lower drug costs
that are far too high and improve health outcomes for
consumers.
Chairman Kohl, I know you have worked long and hard in the
Senate to make prescription drugs more affordable for
customers. We share that goal, and this merger will do exactly
that.
As the big drug companies merge, as large chain drug stores
buy up their competition and demand higher prices, we must
become more effective representing the interests of plan
sponsors and consumers. Patients, not profits, must come first.
It is the plan sponsors that pay the majority of the cost
of drugs and provide the drug benefits for our citizens. It is
their money everyone here today should be concerned about
protecting.
Mr. Chairman and members of the Subcommittee, I want to
highlight three key points: first, PBMs improve patient safety
and adherence; second, PBMs save plan sponsors and consumers
money; and, third, PBMs drive out waste, fraud, and abuse.
As health care spending continues on an unsustainable
trajectory, pharmacy benefit managers have reduced drug costs
by 30 percent or more. Each year through innovative technology
and products, these savings are passed on to plan sponsors and
consumers. We negotiate with the big drug manufacturers and
retail pharmacies across the United States to get the best
possible price for our clients. Our business model is one of
alignment. We make money when plan sponsors and consumers save
money. The union of our companies will accelerate our ability
to do just that.
The Federal Trade Commission has found this type of
bargaining power pro-competitive when it allows a buyer to
reduce its cost and decrease prices to consumers. Let me be
clear. This merger will in no way decrease the dynamic
marketplace within which we operate.
Mr. Chairman, we do not make decisions on behalf of our
plan sponsors or consumers. We offer options. It is a plan
sponsor's decision whether to promote home delivery. It is a
consumer's decision whether to use home delivery or go to a
retail pharmacy. In fact, the average American consumer uses
multiple pharmacies on a regular basis. Our mission is to
reduce the cost of prescription drugs, and that involves
measured, tough negotiations with retail pharmacies and
pharmaceutical manufacturers.
The GAO found that the average price PBMs negotiated for
drugs was 18 percent below the average cash price retail
customers pay. Mail-order pharmacies reduce the price of
medications by 27 percent over the cash price paid for branded
products and 53 percent for generics.
When you consider our role, the most frequent interaction
we have with a consumer is at the retail pharmacies across the
country. Before a consumer ever receives their medicine, my
company runs over 100 safety checks through our innovative
advanced technologies. This is critical because the PBM is the
only one with visibility across all pharmacies used by the
consumer.
Our systems identify and prevent dangerous drug
interactions across all these pharmacies. In addition, our
contracts save retail pharmacies $7.3 billion a year in bad
debt because we guarantee their payment.
Finally, everyone knows that health care costs are
skyrocketing and need to be better managed. Our continued
investments in innovation will improve patient adherence,
expand the use of lower-cost generics, and develop more
efficient delivery of medicines.
Just yesterday a new economic analysis was released showing
Express Scripts' and Medco's innovative strategic platforms
have reduced health care expenses by up to $87 billion a year,
$20 billion of which accrues to the Federal Government.
The merger of our two companies will provide significant
opportunities for further cost savings. It is important to note
that every 1 percentage point reduction in drug costs generates
enough savings to fund 20,000 new jobs in the United States.
In closing, let me say that the combined organization will
continue to lower costs for plan sponsors and consumers, drive
out waste, and improve safety and health outcomes. That is our
vision, and we are committed to achieving it.
Thank you, Mr. Chairman and members of the Subcommittee.
[The prepared statement of Mr. Paz appears as a submission
for the record.]
Chairman Kohl. Thank you, Mr. Paz.
Mr. Snow.
STATEMENT OF DAVID B. SNOW, JR., CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, MEDCO HEALTH SOLUTIONS, INC., FRANKLIN LAKES, NEW
JERSEY
Mr. Snow. Chairman Kohl, Ranking Member Lee, and members of
the Committee, thank you for the 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 an industry leader in advanced
pharmacy. We employ thousands of medical professionals,
including more than 3,000 pharmacists and more than a hundred
nurses. We deliver a portfolio of clinical and administrative
solutions that create value for private and public employers,
health plans, labor unions, and Government agencies of all
sizes, as well as older Americans served by Medicare Part D
drug plans. We take great pride in the innovations Medco has
created to improve clinical outcomes at reduced cost.
Everyone recognizes that the ever rising cost of health
care in America is unsustainable. The need is insatiable, our
resources are not. By merging Medco with Express Scripts, we
will significantly accelerate our ability to improve patient
care and reduce overall costs across the health care system. So
let me get right to what I think we all agree drives
affordability and quality in health care: clinical excellence
and competition.
In our country, 50 percent of the entire population has one
or more chronic or complex diseases. This 50 percent of the
population consumes 96 percent of the total dollars spent on
prescription drugs and 75 percent of the total dollars spent in
our entire health care system. Remarkably, we know that on
average 65 percent of patients stop following the drug
treatment protocol their doctor prescribes within 1 year even
though their disease is lifelong. This lack of adherence leads
to devastating patient outcomes and avoidable costs to our
system estimated to total more than $290 billion annually.
We at Medco are particularly proud of the advanced clinical
care standard we have developed specifically to address the
needs of patients with chronic and complex conditions. This
clinical care revolves around what we call therapeutic resource
centers, or TRCs. Our TRCs include more than 1,000 specialist
pharmacists who use evidence-based clinical protocols to ensure
patients are taking the right medicines and helping them
overcome barriers to adherence. Our pharmacists are available
24/7 to counsel patients and to consult with physicians.
The results are impressive. In 2010 alone, our TRCs closed
more than 2.3 million gaps in care with an estimated $900
million in savings from reduced hospitalizations, avoided
emergency room visits, and the elimination of other medical
expenses. Our larger goal as a Nation should be to save the
$290 billion a year I mentioned earlier by addressing
medications that are underprescribed, misprescribed, or simply
not taken as directed.
Many people do not realize that the only part of our
Nation's health care system that is fully wired today is
ambulatory prescription drugs. PBMs have accomplished this, and
Medco's innovations have leveraged that fact. Our merger will
only further accelerate the transition to wired health care,
significantly improving communications among patients,
physicians, and pharmacists.
Now I want to briefly touch on our competitive environment.
There are not three or four or five or even ten major PBMs.
There are more than 40, all competing to provide differentiated
value propositions. Today at least ten PBMs serve Fortune 50
companies. Seventeen serve Fortune 500 companies, and at least
nine PBMs serve large State accounts. Additionally, nine
Fortune 500 companies operate their own PBMs for their
employees, and all PBMs are not alike. Some are integrated with
retail pharmacies, like CVS Caremark. Some are part of managed
care organizations, like UnitedHealth, Aetna, CIGNA, and Prime
Therapeutics. And others are entirely independent, such as
Catalyst Rx, MedImpact, and SXC.
How fierce is the competition? While Medco has enjoyed much
success since it went public in 2003, the marketplace is
undergoing significant change. As but one example, for our plan
year 2012, Medco has lost $10 billion in business, losing 40
clients to more than 15 different PBMs. These are the facts,
and they dispel the notion that the combination of Medco and
Express Scripts represents a threat to consumer and client
choice. The reality is that the PBM business is extremely
competitive today, and competition will only be enhanced, not
diminished, by our merger.
In conclusion, there is enormous opportunity to improve
health care outcomes while reducing health care costs. Medco
and Express Scripts are committed to continuing the pursuit of
real solutions. Our efforts will only be accelerated by this
merger.
Mr. Chairman, Ranking Member Lee, and members of the
Committee, thank you for receiving my testimony. I would be
happy to address any questions you may have.
[The prepared statement of Mr. Snow appears as a submission
for the record.]
Chairman Kohl. Thank you very much, Mr. Snow.
Mr. Streator.
STATEMENT OF SCOTT E. STREATOR, ASSOCIATE VICE PRESIDENT,
BUSINESS DEVELOPMENT, THE OHIO STATE UNIVERSITY MEDICAL CENTER,
COLUMBUS, OHIO
Mr. Streator. Chairman Kohl, Ranking Member Lee, and
members of the Subcommittee, my name is Scott Streator, and I
am honored to testify on the proposed ESI/Medco merger.
My testimony will reflect over 20 years of experience in
health care and the PBM industry and most recently serving as a
CEO of The Ohio State University Health Plan. This testimony is
my own. It does not represent an official position of The Ohio
State University. I will, therefore, provide a multifaceted
perspective from all industry angles as a payer, a plan
administrator, and a provider.
In short, it is clear to me the ESI/Medco merger will
further spawn competition that can lead to lower pharmaceutical
costs for payers and consumers. Therefore, I am in favor of
this merger.
The three sources of greater competition are: one, existing
PBMs; two, health plans; and, three, emerging business models
as a result of health and payment reform. I will provide a
brief summary of each of these and several key market forces.
First, greater competition from the PBM industry. There are
a growing number of PBM options that have evolved secondary to
strategic acquisitions that have now developed a robust
infrastructure. Now these PBMs can support both small and large
employers as a result, and they are gaining market share.
Several companies are listed in my written testimony as
examples.
Further, as the barriers to entry in the PBM market have
decreased, new PBM entrants will emerge. Meanwhile,
irrespective of the size of the PBM, end payers, like those in
our Rx Ohio Collaborative, are developing innovative,
transparent contracting initiatives with a single PBM to
increase their purchasing value.
For example, at Ohio State University, as one employer in
our collaborative, we realized $10 million savings, or 9
percent, and are currently experiencing a negative 0.4 percent
per capita drug trend with Express Scripts.
Now, while there are certain advantages of a large PBM,
smaller PBMs and health plans can be more agile in implementing
cost-savings programs that can far exceed discounts. While some
estimate the combined entity could approach 50 percent of the
specialty or biologic market, it is important to note that half
the specialty drugs and many future FDA-approved biologics can
only be distributed and administered at outpatient settings.
Moreover, the pharmaceutical industry has complex distribution
and storage requirements that has narrowed their distribution
channels, making it less feasible to obtain a biologic at the
community pharmacy for a consumer.
In terms of impact on community pharmacy, PBMs contract
with community pharmacies on behalf of plan sponsors to form a
provider network. While plan sponsors make benefit decisions,
not the PBM, consumers should be given choice of their
preferred distribution channel, mail or retail. Medicare
Advantage is one example. Medicare Advantage plans offer a 90-
day retail supply that provides competition to Express Scripts,
Medco, and any other PBM mail pharmacy channel.
The second source of greater competition is from health
plans or health insurers. In today's new health reform
environment, insurance carriers may increasingly decide to in-
source the PBM function as evidenced by UnitedHealthcare's
recent business decision. Thus, insurance carriers like United,
Humana, CIGNA, and various Blue Cross Blue Shields can now
offer a competitive alternative to stand-alone PBMs by using
their in-house PBM.
Further, with a likelihood of insurance exchanges emerging
for individual and small-group markets, the in-sourced PBM
offering, coupled with the health insurer, may be an attractive
offering to some employers.
This leads me to my final point and third source of
increased competition: emerging business models resulting from
health payment reform.
Regardless of what ultimately happens with the Affordable
Care Act, it is clear the current fee-for-service reimbursement
model is evolving from ``payment for volume'' to ``payment for
value.'' How will new financial models alter the PBM landscape?
While the answer is unclear at this time as patient-centered
medical homes and the emerging accountable care types of
organizations grow, managing costs of pharmaceuticals in a silo
will be de-emphasized versus effective medication therapy
management across the entire care continuum. Thus, both
community pharmacy and PBMs can play a vital role, supporting
the physician by reviewing and recommending therapies in a
given population. We need both community pharmacists and the
PBM industry for clinical integration of care.
In conclusion, greater competition from PBMs and health
plans is emerging and will continue to advance as a result of
the proposed ESI/Medco merger. Lower costs can be generated
with greater competition, and thus I support the proposed
merger. Moreover, the impact of the Affordable Care Act and
health exchanges will provide new opportunities for current and
emerging business models.
New reimbursement models will be shifting greater financial
risk from insurers to the physician and hospital level. Thus,
the PBM landscape will be altered so that the size of the PBM
may be less important than the ability to manage and coordinate
care at the individual and population level.
Thank you, Mr. Chairman, Ranking Member Lee, and the entire
Subcommittee for this opportunity.
[The prepared statement of Mr. Streator appears as a
submission for the record.]
Chairman Kohl. Thank you, Mr. Streator.
Ms. Sutter.
STATEMENT OF SUSAN L. SUTTER, CO-OWNER, MARSHLAND PHARMACIES,
HORICON, WISCONSIN
Ms. Sutter. Thank you. Chairman Kohl, Ranking Member Lee,
and members of the Subcommittee, thank you for conducting this
hearing and providing me the opportunity to share my views
regarding the proposed Express Scripts/Medco merger. I am Sue
Sutter from Horicon, Wisconsin, and I co-own three independent
community pharmacies in rural Dodge County. I am representing
the National Community Pharmacists Association, which
represents pharmacy owners, managers, and employees of more
than 23,000 independent pharmacies. Today I join consumer
groups and other small business groups to oppose the proposed
merger. If the FTC allows this merger, it will make an already
bad situation even worse for small pharmacies and the patients
we serve.
The PBM marketplace today is already extremely concentrated
with the Big Three PBMs dominating the large employer market.
Allowing two of the Big Three to merge will result in
unparalleled market concentration in the PBM industry with the
merged single entity controlling anywhere from one-third to
two-thirds of all prescriptions filled in community pharmacies.
This market dominance and significant reduction in competition
will result in reduced choices for Federal and State programs
and other third-party payers, decreased patient access to
community pharmacy services, and ultimately lead to higher
prescription costs.
So why are we so concerned? PBMs directly set the
reimbursement rates for community pharmacies, and then for us
it is take-it-or-leave-it. We are the same pharmacies that are
in direct competition with the PBM-owned mail-order pharmacies.
Therefore, it is no surprise these PBMs try to shift their
patients to their mail-order pharmacies, often against our
patients' wishes.
Let me state this again. There is absolutely no
negotiating. And we are not crying wolf. If Walgreen's with
7,000 pharmacies in this country has dropped out of the Express
Scripts network because they could not negotiate fair terms,
how can an independent pharmacy have any chance against these
corporate giants? And the merger will make it even harder for
us to push back.
Express Scripts and Medco have claimed that, merged, they
will create greater efficiencies in the pharmaceutical supply
chain. They claim they can do this by squeezing manufacturers
and pharmacies. Well, you will have to speak to the
manufacturers, but I can tell you there is nothing else left to
squeeze with us. Our pharmacies operate on a 2- to 3-percent
net profit margin before taxes. In fact, the number of
independent pharmacies operating at a loss is now 25 percent.
Even if greater efficiencies were to be created, there are
no assurances that these savings would be passed along to plans
and consumers. Keep in mind that the PBM industry is virtually
unregulated and has a long record of enforcement actions
alleging fraudulent and deceptive conduct.
The proposed merger would create the largest mail-order
pharmacy in the United States, accounting for close to 60
percent of all mail-order prescriptions processed, and allow
the merged entity to corner the market on specialty drugs.
Currently, the top PBMs already dominate this market due to the
fact that many times they prevent community pharmacies from
filling these prescriptions and direct these highly lucrative
prescriptions to their own mail-order pharmacies. This new
merged entity would immediately own 52 percent of that market.
There is no reason a community pharmacist cannot dispense
specialty medications, other than that the PBMs' design state
that we cannot. It is just the newest form of anticompetitive
behavior we have been dealt by the PBM industry.
This merger will put us at greater risk, yet your
neighborhood community pharmacists are truly safety net health
care providers for their patients. Here is just one of my own
examples.
Twice in the last couple of weeks, I have assisted
transplant patients by contacting their physicians and
dispensing a needed supply of their medications because it had
not arrived from the mail-order pharmacy. Now, if the mail-
order pharmacy is so interested in patient care, why wasn't one
of their pharmacists on the phone to me making sure that
patient got the needed supply?
In conclusion, this proposed merger would: reduce
competition in the delivery of pharmacy benefits in this
country; reduce patient choice; and mandate using mail-order
pharmacy instead of their trusted community pharmacist; and,
finally, threaten the very existence of community pharmacies.
I appreciate the opportunity to address the Committee
today. I will be happy to answer any questions you might have.
Thank you.
[The prepared statement of Ms. Sutter appears as a
submission for the record.]
Chairman Kohl. Thank you, Ms. Sutter.
Mr. Bettiga.
STATEMENT OF MICHAEL J. BETTIGA, CHIEF OPERATING OFFICER AND
EXECUTIVE VICE PRESIDENT, SHOPKO STORES OPERATING COMPANY, LLC,
GREEN BAY, WISCONSIN
Mr. Bettiga. Mr. Chairman, Ranking Member Lee, and members
of the Subcommittee, thank you for the opportunity to testify.
My name is Mike Bettiga, and I am the chief operating officer
of Shopko, which is a retail merchandise company based in Green
Bay, Wisconsin, which operates 149 stores throughout 13 States,
all of which have pharmacies. Fifty-seven of these pharmacies
serve patients in the great State of Wisconsin.
Shopko is also a proud member of the National Association
of Chain Drug Stores on behalf of which I am testifying today.
Shopko is concerned about this merger both as a provider of
pharmacy services and as an employer of 15,000 employees.
As a pharmacist who has worked in community pharmacy for
almost 35 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. There is only one
stakeholder that would benefit, and that is the new mega PBM.
Since the proposed merger was announced, many Members of
Congress, consumer groups, State insurance commissioners, State
Attorneys General, and State legislators have all expressed
concerns to the Federal Trade Commission. Indeed, just last
week, the nonprofit American Antitrust Institute wrote the FTC
asking it to enjoin this merger. This would be a merger of two
of the Big Three PBMs. If approved, nearly 135 million
Americans would rely on this mega 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 an excessive amount of the specialty
pharmacy market.
Patients in particular would be harmed. They will
experience reduced or no choice of their pharmacy providers.
More consumers would be forced into using the PBMs' own mail-
order facilities. They will see decreased or limited access to
essential pharmacy services. They will experience separation of
their prescription medication records that could result in
potential adverse patient health outcomes. They will encounter
disruption in normal, timely prescription service and as a
result could potentially suffer decreased medication adherence.
Reducing patient choice and access will lead to higher
prescription drug costs, potential adverse patient outcomes,
and higher downstream health care costs.
When considering this merger, policymakers need to question
whether or not PBMs actually reduce health care costs. There is
little proof that PBMs pass along their 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 plans' formularies, switched customers to
the higher-priced drugs, and benefited from both the rebate
received and the higher-priced drug payment without passing
along this enrichment to the health plan or the employer.
At Shopko, we are proud of our firm commitment to serving
the needs of all the patients in our communities. However,
being able to continue serving the prescription and health care
needs of our customers and our 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 cost for prescription
medications and to change that basis of cost with limited or no
notice, especially for generic medications. Claims submitted to
the PBM and approved are routinely reviewed retroactively, and
payment is recouped due to inaccuracies in the PBM claims
adjudication systems. My company experiences these and other
PBM injustices each and every day, and this is bound to worsen
if this proposed merger is not halted.
Pharmacists help to ensure that patients understand their
medications and take them as directed. Pharmacists increase the
utilization of generics over brand-name prescription drugs.
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, and health education and screening programs.
Together these services improve patients' health and reduce
health care costs.
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 would appear to be
an afterthought. A mega PBM would have an increased ability to
engage in similar egregious conduct to the detriment of
consumers, payers, and pharmacy providers.
Thank you for the opportunity to appear, and I welcome your
questions.
[The prepared statement of Mr. Bettiga appears as a
submission for the record.]
Chairman Kohl. Thanks, Mr. Bettiga.
Mr. Balto.
STATEMENT OF DAVID A. BALTO, ESQ., LAW OFFICES OF DAVID A.
BALTO, WASHINGTON, DC.
Mr. Balto. Chairman Kohl, Ranking Member Lee, and other
members of the Committee, thank you for giving me the privilege
to testify today on behalf of the Nation's leading consumer
groups. We are here with a simple message. We are hear to
answer Senator Blumenthal's question: How can consumers be
protected from overreaching? Senator Blumenthal, there is only
one way, and that is for the FTC to go to court and to block
this merger.
The consumers wholly agree with the testimony of Ms. Sutter
and Mr. Bettiga. Pharmacies play a critical role in health care
delivery, and this merger will result in higher prices, less
consumer choice, and lower quality of care.
Let us start off by looking at the PBM market itself. As a
former antitrust enforcer, I know you need three things for a
market to work well--choice, transparency, and a lack of
conflict of interest--and in all three regards, my testimony
demonstrates that this market receives a failing grade. How do
we know? Look at how the profits of the Big Three PBMs have
skyrocketed over the past few years. They say they are the best
friend of the health care plans, but they are pocketing an
increasing portion. Those profits have increased over $6
billion a year. They are catching up with the health insurance
companies in the United States.
In terms of conflict of interest, it is the same problem,
Senators Grassley and Kohl, you have focused on in group
purchasing organizations. They have a conflict of interest
because they have their own operations which they favor,
disadvantaging consumers. That is why 30 State Attorneys
General, including Senator Blumenthal, brought cases against
each of these PBMs.
The critical antitrust issue here, or one of them, is
whether or not the market is these 30 or 40 PBMs or it is just
the Big Three. The antitrust law is clear, though. A competitor
is not somebody who just calls himself a competitor. A
competitor is somebody who constrains the market, and in this
case the market really is the Big Three.
If you look at the second chart, you can see how the Big
Three PBMs are phenomenally larger than the second-tier PBMs,
and our testimony documents the advantages they have over the
second tier PBMs.
But do not take our opinion. Listen to what the California
pension system said about the relevant market. Look at page 6
of my testimony. This is what they said: ``You can count the
PBMs that can serve organizations of our size on your hand, a
couple of fingers, maybe three, and they are frequently the
subject of lawsuits.'' That is what they said, and you do not
need a Ph.D. in economics to know that when three go to two,
consumers will be harmed and people will pay higher prices.
Consumers care about this merger because if they live in
rural areas served by people like Ms. Sutter, they are going to
lose or get less service from their most trusted community
professionals. Consumers care because they like the one-stop
shopping they get when they go to Shopko. Consumers care
because they can get cheaper prices when they go to supermarket
pharmacies, like Super Value, which actually sell drugs at
lower prices than you can get it through the PBM.
Now, a particularly significant harm from this market is in
the hundreds of thousands of patients who suffer from diseases
that need specialty drugs, like hepatitis C, cancer, the
transplant patient that Ms. Sutter mentioned. This merger gives
these firms a dominant position in specialty. They are already
using their market clout to keep independent specialty
pharmacies out of the market. Giving them more clout will
enable them to keep even more pharmacies out of the market. Why
is that a difference? Because as far as we know, there is not a
consumer who would prefer to deal with a 1-800 number or a
robot instead of Ms. Sutter.
Finally, let us deal with the question of efficiencies.
They said there are significant efficiencies, and they came up
with a study yesterday which said there were these astronomical
cost savings from PBMs, and this basically recycled old
information. What they did not tell you was what are the
specific savings from this merger. What they did not tell you
is how have the past mergers led to increased savings. We see
how they have led to increased profits, but have they really
saved consumers money?
The law is clear. In a merger that significantly increases
concentration, they must prove extraordinary efficiencies.
Thirteen years ago, four drug wholesalers tried to merge, and
they had the same efficiency arguments that these folks have,
and the court rejected those claims for two reasons:
First, with only two people left in the market, there was
no guarantee those efficiencies would be passed on in lower
prices to consumers.
Second, competition was a better way for those efficiencies
to come about. This is what Judge Sporkin said: ``The history
of the industry over the past 10 years demonstrates the power
of competition to lower cost structures and garner efficiencies
as well.''
It is competition that makes this market work, and we
should not allow these two firms to extinguish that
competition.
Thank you, and I welcome your questions.
[The prepared statement of Mr. Balto appears as a
submission for the record.]
Chairman Kohl. Thank you, Mr. Balto.
We will turn now to Senator Grassley for his 5 minutes.
Senator Grassley. And I thank you, Mr. Chairman, for that
courtesy so I can leave.
My first questions are going to be to Mr. Paz and Mr. Snow,
and prior to asking that question, I sent letters quite a while
ago as part of my Physicians Payment Sunshine Act asking PBMs
about transparency of any financial benefits that a PBM
receives from pharmaceutical companies. So we are told that
this merger would lead to increased efficiencies and savings
which will be passed on to consumers. However, as has been my
experience, for example, with GPOs, which Mr. Balto just
announced--and Senator Kohl has been involved with that--there
are serious questions about where savings actually flow. The
issue of transparent becomes even more complicated when we
consider allegations that PBMs have a conflict of interest in
the way they operate. We are told more transparency is needed
to ensure PBMs operate as honest brokers. If we have greater
transparency in the process, then we would not be having this
discussion.
So I am interested in finding out how much transparency
there is in the interactions between sponsors, PBMs,
manufacturers, pharmacies, and consumers.
So this question to either or both of you: How do you
respond to allegations that PBMs who operate their own mail-
order pharmacies, for example, cannot serve as an honest
broker? And, second, what can PBMs do to ensure greater
transparency to address allegations that I have given to you?
And, you know, the extent to which it might sound like I share
those allegations, I want information to know whether those
allegations are right or wrong. I am trying to get information.
Mr. Paz. Yes, Senator. First of all, let us break it down
into several different groups. We service our men and women in
uniform. We are very proud to serve 10 million beneficiaries
and active servicemembers. We administer that program on behalf
of the Federal Government, and every component of that is
transparent. They negotiate with us. They get the pricing, and
it is all fully disclosed.
With respect to Mr. Streator's plan--and most all of our
plans--these are called passthrough plans, so we negotiate on
behalf of the retail pharmacies. What we do, Senator, is we
bring together the buying power of all of our plans. Our plan
sponsors are very sophisticated buyers, but they specialize in
automotive; they specialize in manufacturing; they specialize
in retail and all different walks of areas for which they
provide services.
What we do is we bring together their drug procurement
side, and we negotiate on behalf of all of our plan sponsors to
go get the best prices we can from the retail pharmacies. We
also believe that the community pharmacist is very important to
our business. They have to survive. Our job is to make sure
that we find that right mix between taking price down as low as
possible so our health plans and our plan sponsors can continue
to allow for a benefit to their employees. A 10-percent, 20-
percent health increase is not sustainable. We have got to
address those issues and drive down prices.
At the same time, we have to be cognizant of Ms. Sutter and
all the other pharmacists out there that have to make a living
and have to provide a livelihood for themselves. And so we have
to balance those.
As far as transparency is concerned, all of our pricing is
disclosed to our plan sponsors. Medicare Part D, all of the
Medicare plans, it is regulatorily required, it is statutorily
required, that all those prices and all those price points are
disclosed. The same way with our clients. They know exactly
what they pay us, and they get a full accounting of all the
drug spend.
With respect to mail, mail is a choice. Some plans are in
dire economic straits today in these tough economic times. As I
said in my prepared comments, mail service can save
significantly over that of retail. It is not our decision. We
cannot walk into any plan and tell them to do something. They
choose. We give them a laundry list of options, and they choose
what they want to do in order to save money and meet the needs
of their employees, weighing access versus cost.
The more narrow the network, the less pharmacies in a
network, all the way down to mandatory mail, limits the number
of players which can drive costs even further. It is the plan
sponsor's decision to decide where they need to be in order to
meet the needs of that plan.
So it is not really our choice, Senator. It is the choice
of our plan sponsors on whether to choose mail.
Senator Grassley. OK. I will follow up with some questions
in writing.
Thank you, Mr. Chairman.
Chairman Kohl. Thank you very much, Senator Grassley.
Mr. Paz, one of the main reasons you argue this merger will
benefit consumers is that, because of the large size and buying
power of what the combined company would be, you will be able
to drive down prices even further by achieving greater
discounts or by negotiating for higher rebates.
Now, Express Scripts already has 90 million covered lives.
Given your very large size, you already get substantial volume
discounts without merging with Medco. How large do you have to
be before you maximize your discounts with your suppliers?
Mr. Paz. If you look at the size of the manufacturers, our
market cap is $20 billion. We are a rather large company. Those
of Pfizer, Merck, and others is quite a bit larger. The
question is overall clout and the ability to negotiate. We
believe we are well positioned to use clinical evidence and
drive for patient safety to try to negotiate the best discounts
available for our plan sponsors. We believe that drug price
inflation alone on the branded side was up 10 percent.
Specialty drugs were up 14 percent last year. If we do nothing,
the costs of branded drugs go up well over 10 percent in any
given year. Those issues have to be addressed, and it is our
job to work on behalf of our clients in order to try to bring
down those costs so that our plan sponsors continue to offer a
benefit for their employees.
Chairman Kohl. Well, I appreciate that, but, you know, when
you get to be as big as you are already, I am assuming you
drive the hardest possible bargain with your suppliers because
you have such clout. So now let us say you add another half or
three-quarters clout to what you have already. I am assuming
that what you are getting now is just about as much as they are
willing to give you based on your size as it presently exists.
Mr. Paz. Yes, well, what we said to Wall Street, when we
announced this acquisition is that the majority of the
synergies in this transaction are not coming from the supply
chain. They are coming from efficiencies. Mr. Snow addressed
what he is doing with his TRCs, therapeutic resource centers,
and his approach to have a disease state specific--addressing
specific diseases such as diabetes and asthma. We approach
consumer behaviors, and we believe putting our two programs
together, the biggest waste that exists today is what Mr. Snow
addressed, which is people not staying adherent to their drug
regimens.
We believe the savings that are going to come from our
acquisition is around twofold: one, better health outcomes,
keeping people out of the emergency rooms, people staying more
adherent to their drug regimens; and, two, it is the back
office efficiencies in areas such as systems and approaches
where we can eliminate those costs, which are part of the
overall health care costs. If we can eliminate those, we can
pass those savings on as well to our plan sponsors.
Chairman Kohl. I appreciate that, and we will get to Mr.
Snow. And I noticed in looking at your respective P&L
statements, your administrative costs, Mr. Snow, are
considerably higher than yours are, Mr. Paz. I assume that you
see a lot of efficiency in consolidation and by eliminating a
lot of administrative costs, which is the right way to go. I am
not being critical of that. But I heard you say just now that
significantly increasing discounts over what you are getting
right now is really not why you are doing this deal, and you
are not nearly as certain as some people might think that this
deal will result in far more discounts from your suppliers.
There are other ways in which you hope this deal will pay off.
Mr. Snow. That is correct.
Chairman Kohl. OK. Ms. Sutter, I would like to ask you a
question. We have heard reports from pharmacists that there is
a tremendous amount of waste associated with mail-order, that
consumers often cannot halt the shipping of drugs by a mail-
order when they no longer need them. Community pharmacists have
told us that consumers have returned to them thousands of
dollars worth of unused drugs that these consumers or their
relatives receive mail-order shipments from the large PBMs. The
pharmacists must by law discard these drugs. This costs the
health care system substantial sums of money involved in paying
for unused drugs.
Has that been your experience? Is there a lot of waste in
connection with mail-order drugs? And if so, why do you think
this is happening, Ms. Sutter?
Ms. Sutter. Yes, it has happened in our pharmacy, and I
think as you can see from my written statement, we have--a
picture will speak a thousand words as to the kind of things
community pharmacists see. These gentlemen talk about having
adherence programs, but to have an adherence program, just
sending drugs every 30 days does not get to the core issue for
these patients. I as a pharmacist and pharmacists across this
country have been part of destroying medications with law
enforcement drug drops to try to help patients get unneeded
medications out. Time after time they are quoted as stating
that 75 percent of the medications bought there are from mail-
order pharmacies.
So the patients appear to have routine prescriptions being
sent to them, and then when they try to call and make any
changes to them, they are having difficulty in getting through
to someone that understands that the medication should not be
sent any longer.
Chairman Kohl. OK. Mr. Snow, did you want to make a comment
a minute ago?
Mr. Snow. No. I will pass.
Chairman Kohl. OK. Mr. Paz, whatever its benefits, there
can be no doubt that this merger will eliminate one of your two
main competitors. We know this merger will be good for your
bottom line, but our job in this Subcommittee is to be
concerned with consumers' bottom lines. Can you explain why it
is necessary for you to merge with one of your chief rivals in
order to achieve the benefits you claim will be gained by this
merger?
Mr. Paz. Senator, we are facing unprecedented times in
regulatory oversight. When we look at CMS, when we look at the
exchanges coming into place, the work we have to do and the
costs attributed to those items are quite high. I believe by
having better operating systems and better approaches, we will
be able to help spread those costs and reduce the costs of
health care over the larger book of business.
In addition, in our opinion, it still comes down to the
best way to save money in the health care system is to focus on
quality, and we do. Our pharmacists do not just mail out mail-
order prescriptions. We are constantly reaching out to our
members, looking at drug interactions, looking at interfaces.
Actually, we call often on retail pharmacies where members pick
up pharmacies at multiple locations--pick up prescriptions at
multiple locations, and we see the interactions that the
retailers cannot see, and we help those members work through
those situations. We spend a considerable amount of time doing
that.
We believe all these pieces coming together will help drive
down the cost of health care.
Chairman Kohl. All right. Mr. Lee.
Senator Lee. Thank you, Mr. Chairman, and thanks to all of
you for coming today. I would like to start with some questions
for Mr. Balto.
Mr. Balto, I was a little surprised that you opened your
argument, the very first substantive argument, as I understood
it, against this merger moving forward was that PBMs have made
substantial profits in recent years. Now, I understand that
this has become a very popular mode of attack. I understand
that people do not--sometimes some people like to attack a
particular company or in this case an entire industry for
making profits. But are you really suggesting that considerable
profits, the existence of considerable profits is somehow
relevant to or dispositive of our antitrust analysis for
purposes relevant to this Subcommittee? And if so, how?
Mr. Balto. I think it is relevant. You know, certainly we
do not condemn a market because there are high profits. Things
like branded pharmaceuticals, of course, there is a tremendous
amount of risk involved and there is valuable intellectual
property involved. I think it is important in a couple
respects.
First of all, I think it is tied to the factors I talk
about in my testimony about how the market does not function
well----
Senator Lee. But they are not getting enough value out of
it, the value is not being passed along to the consumer----
Mr. Balto. If the market was truly competitive, if there
was sufficient transparency, this is an intermediary. This is
like a credit card or an ATM card. You would expect their
profits to be very low if there was sufficient competition and
transparency. So----
Senator Lee. That is the middleman part that I referred
to----
Mr. Balto. Right.
Senator Lee [continuing]. In my opening statement.
Mr. Balto. Second----
Senator Lee. Hang on. Let me just----
Mr. Balto. Sure.
Senator Lee [continuing]. Push down on that first point,
and then you can work the second part into your answer. If that
is the case, if this is a worthless middleman, why on Earth
does the client base of PBMs--meaning employer-sponsored health
plans--why do they continue to go back and back and back to
PBMs? In other words, the reason those profits exist, as I
understand it, is that someone has decided in corporate
America, in a substantial portion of corporate America, that
they can save money and thereby extend the value of their
dollar, the value of the money that they do devote to employer-
sponsored health care plans and get more health care value out
of their money if they use PBMs. So are you saying that they
are just wasting their money?
Mr. Balto. No, no. I am not saying it is a waste, but what
I am saying is if there were--when you look at this compared to
other intermediary markets--and I would be glad to supplement
my answers with written answers. But if you look at this
compared to other intermediary markets, the profits are
fabulously higher, and, you know, I think that is--when you
look at the lack of transparency, that is suggesting that there
are market problems--there are problems in the market.
Second, I think the number is important in terms of the
efficiency argument. They have to demonstrate that the
efficiencies will be passed on to consumers. Their profits are
skyrocketing. That is suggesting that a large amount is not
being passed on.
Senator Lee. OK. But, again, the fact that they continue to
go back to PBMs suggests that there is efficiency somewhere,
and I do not understand you to be suggesting that the employer-
sponsored health care plans are themselves motivated by
anything other than a sincere desire to make sure that their
health care investment, their investment into their employee
health plan, is not maximized.
Mr. Balto. I totally agree, and one of the important issues
here is transparency. Now, they say they like transparency, but
right now Medco is fighting the State of Texas on a request for
transparency. They continually fight efforts at transparency.
If there were adequate transparency--and there are small PBMs
who do provide greater transparency--then, you know, perhaps
there would be a greater degree of competition.
Senator Lee. OK. Help me understand that, then, because it
is my understanding--and correct me if I am wrong--that PBM
contracts with plan sponsors typically require a degree of
transparency, but they also require that a significant portion
of their savings be passed along to the end consumer. For
example, it is my understanding that Medco's 10K reports that
it passed through its plan sponsors 87.5 percent of
manufacturer rebates in 2010. Do you dispute that?
Mr. Balto. Well, it depends how they calculate rebates,
and, you know, because so little of this information is
transparent, I think, you know, only if you were able to
effectively audit things. There was an important audit done by
the Texas teachers and employers system that found that even in
those systems where they thought they were getting the rebates
back, they actually were not.
Senator Lee. OK. I sense that Mr. Snow would like to
respond to something that you have just said.
Mr. Snow. Thank you, Mr. Lee. I would like to respond.
Around the concept of transparency, for starters, Medco has
been called the ``gold standard'' as it relates to
transparency. And if you look at what we file on our 10K, we
report every quarter every dime we make in rebates. Our clients
always have the choice: Do they want the discounts and have us
keep rebates, or do they just want a direct passthrough? It is
always their choice. And you are correct, 12 percent of rebates
we retain at our client's election. A hundred percent are
passed back to those who elect it.
So, by the way, in the case of this merger, our clients,
Medco's clients, when this merger occurs, because of the nature
of our contracts with those clients, will save $1 billion just
because we are going to use best-in-breed contracts that we
already have. One billion dollars goes immediately to their
bottom lines. That is really economics. That is real savings.
When it comes to what our clients can do, they can audit us
anytime, contractual right to do it. And they do it. They look
at every element of the contract, every element relative to
rebates and pricing and claims processing. They see it all. And
they are welcome to do that. We are transparent.
I will also submit to you that we are regulated. For people
to think we are an unregulated industry is really a wrong
perception. So, for example, we are regulated by every State
board of pharmacy in the entire country, all 50 States. We are
regulated by every single State insurance department across the
country. We are heavily regulated by CMS. We are a large
participant in Medicare. We are regulated by the Medicaid laws.
We are a heavy participant there. And, you know, we are looked
at all the time. Our clients look at us, regulatory entities
look at us.
This is not the industry that people talked about being a
black box 10 years ago. There have been fundamental changes,
and I will tell you, it is a transparent industry where clients
know exactly what is going on. They really do.
Senator Lee. OK. I want to dive back into some of these
issues if I have a second chance for questions, but I see my
time has expired. Thank you, Mr. Chairman.
Chairman Kohl. Thank you, Mr. Lee.
Senator Klobuchar.
Senator Klobuchar. Thank you very much, Senator Kohl, for
holding this hearing. As we consider this merger, I am focused
on maintaining access to pharmacies for my constituents,
ensuring the best patient care and keeping drug prices as low
as possible. I think that is what most people are focused on.
And I have talked to many people in my State about community
pharmacies, and I hear time and time again about the vital role
that local pharmacies play, and often patients cannot reach
their doctor, so talking to their pharmacist is very important.
Could you talk about how this merger--I guess I would start
with you, Ms. Sutter--would affect local pharmacists? But then
also you raised this issue of adherence, and I wondered if you
could elaborate on that as well. And then I will ask about how
PBMs are also involved in that issue? Ms. Sutter?
Ms. Sutter. Thank you. Let me first speak to the idea of
the viability of community pharmacists. As you know, in
Minnesota there have been several pharmacies in towns where
they were only the pharmacy that have closed.
Senator Klobuchar. That would be Adams, Ashby, Belgrade,
Clara City, Collegeville, Comfrey, Erskine, Isanti, Lake
Crystal, Lamberton, Le Center, and Orono.
Ms. Sutter. Why, thank you.
Senator Klobuchar. You are welcome.
[Laughter.]
Ms. Sutter. And let me update you on some of the data. Even
in Wisconsin a group of--a family business for 75 years in the
Fox Valley, 12 stores, decided to leave the retail market and
only do long-term care. And the CEO of that family business
said it was directly related to reimbursement issues.
I just came from a meeting. A colleague in Lexington,
Kentucky, closed five stores. His comment to me: ``I just could
not deal with the Express Scripts contract. It was so
concentrated in my area.''
So these are things that are really happening. I came
prepared to answer the question as to, well, will I go out of
business if this merger goes through. My husband and I have
been successful business people for almost 30 years. We are
good business people. We have worked through a lot of the
different things that present challenges to a small business
like ourselves. But we are now facing--and I was very honest in
my comments about the average net margin of these pharmacies.
We will make very difficult decisions--reduce hours, lay off
people, whatever--to try to maintain the businesses that we
have. But at some point we will make the decision whether to
have our life earnings remain invested in this small business
any longer, which is totally--94 percent of my sales are
prescription drugs. I am the only pharmacy in Horicon,
Wisconsin. I am the only community pharmacy in Mayville,
Wisconsin. This threat to the existence of independent
community pharmacies is real.
Senator Klobuchar. OK. Mr. Snow, Mr. Paz, if you could talk
about, first of all, the adherence issue that Ms. Sutter had
raised, but then, second, this larger issue of the closure of
rural and independent pharmacies and how you could put
anything--you could do anything to stop that from happening if
you look at your networks because it is clearly an enormous
concern.
Mr. Paz. Just to put the record straight, there are more
pharmacies today than there were 5 years ago across the board.
We are up to 68,000 pharmacies throughout the United States,
and there are more coming online constantly.
You know, I cannot stop certain pharmacies from going out
of business. There are 10,000 McDonald's in the United States,
roughly, there are roughly 13,000 Starbucks in the United
States, there are 68,000 pharmacies in the United States. There
is a lot. Our job is to make sure that people have access to
pharmacies, and we have to make sure that they have appropriate
access.
So under CMS, CMS has guidelines as to what that means, and
we work very hard. I have no desire to force anyone out of
business. As a matter of fact, my intention is to work on
behalf of the community pharmacists and reimburse them at a
higher rate than we do for the big-box retailers. We believe
our country needs those small pharmacies, and they do not have
the buying power, they do not have the ability to do what the
big pharmacy chains--the Walgreens, the CVS's, the Rite-Aids--
in this world can do. So our job is to go out and negotiate and
try to get better deals for them so that they can, in fact,
stay in business and serve.
At the end of the day we have to have those rural
pharmacists in rural communities to provide those drugs. If we
cannot do that, we do not have a business. Our clients, such as
Mr. Streator, are going to insist that we have those
opportunities for those pharmacists, and they are not going to
stand by and allow us to shut those down.
One last thing before I move on, though. I would like to
just point out for the record that we talk a lot about these
great increasing profits that the PBMs have. Keep in mind our
net income profit level is still only 3 percent. So it is not
like these are big, big numbers. We are grocery store-type
profits, 3 percent net income profits.
Senator Klobuchar. OK. I have two questions here at the
end. I am sorry, Mr. Snow. If I--I have 2 minutes left, and
maybe we could do it in writing. The second thing I want to ask
about is access to lowest-cost prescription drugs, which is why
I support increased usage of generic drugs. I appreciate the
Chairman's leadership on that. Can you talk about how the
companies could balance this incentive to maintain rebates from
brand-name manufacturers with the goal of moving toward
generics?
Mr. Snow. At Medco, we have a generics-first policy, which
means we always move to generics as appropriate because it is
in the best interests of our clients. As George mentioned
earlier, the way we relate with our clients is we have
completely aligned interests. Since we pass back the vast
majority of rebates, rebates are not a motivator to do brands
versus generics. We are rewarded for, as Scott mentioned,
keeping their trend line down, and we are, because of the
things we do, able to keep trend lines in the negative
sometimes or very low relative to the real underlying inflation
rate going on.
Our performance and our renewals are tied directly to our
ability to contain their costs, and so we are motivated to go
to generics wherever possible.
Senator Klobuchar. And I am going to ask our other
witnesses here in writing for their response to that as well. I
am sorry we cannot do it here.
[The information referred to appears as a submission for
the record.]
Senator Klobuchar. I just had one last question. Senator
Franken raised the employees really across the country, and I
heard you talk about the efficiency gains here. What effect
would this merger have on employees of both of your companies
in Minnesota and across the country?
Mr. Paz. Well, as you know, Senator, as you have been
gracious enough to come to our site, our Minneapolis is our IT
hub, and it will only grow over the years. IT is what we do.
Our ability, as David said during his prepared comments, we
have a wired system. We have to get to better utilization of e-
prescribing. We have got to get to that next level. All that
work is done in our Minnesota site.
Now, again, certain areas, such as accounting, legal, some
of the back-office functions, those will diminish over time,
but we hope we could redeploy those resources, again, moving
pharmacists into more consultative roles and helping our
patients. That is where we are trying to go with this. We do
not have actually numbers at this time. We have not been able
to put our two companies together. We have to get through the
FTC first.
Mr. Snow. But the goal of our merger is growth. It is to
grow.
Senator Klobuchar. OK. Well, I know we will have some
further questions here about the costs and also the effect this
is going to have on independent pharmacists. I appreciate
everyone being here. Thank you.
Chairman Kohl. Thank you very much, Senator Klobuchar.
Senator Blumenthal.
Senator Blumenthal. Thank you, Mr. Chairman, and I want to
join my colleagues in thanking you for this hearing, and thank
you to the witnesses for your excellent, really very helpful
and instructive testimony.
You know, I am very concerned about this merger simply from
the standpoint of its effect on competition. And when I look
at, for example, the mail-order pharmacy part of the market,
which is about one-fifth of all prescription drug sales, a $52
billion industry, if this merger is approved, you will control
60 percent of it. Your nearest competitor, CVS Caremark, about
24 percent. And then the competitive landscape is like a cliff
to your nearest competitor, about 3 percent. I think it is
Aetna. And that power, I think, is fearsome. Under the law it
is problematic.
Similarly, in the specialty pharmacy market, this merger,
if approved as you have proposed it, will result in an entity
that controls 52 percent of the market, and obviously, as you
know, the specialty drug market is the most lucrative growth
area in the PBM industry. It accounts for 16.3 percent of
prescription drug plan spending. It is growing at the rate of
about 16 percent or more per year. And so I am interested in
knowing what you will do to make this merger more acceptable,
in effect what you will do to make it less problematic and more
promising for consumers, which, after all, are the chief
concern of our antitrust laws. Antitrust laws are designed to
preserve competition so they can protect consumers. Mr. Snow.
Mr. Snow. Yes, Senator, thank you for the question. A
couple of points.
We, too, are very concerned about the consumer. As George
has mentioned earlier, we are very concerned that access to
drugs is real, that they can afford them. But----
Senator Blumenthal. Would you be willing to divest the
specialty pharmacy market?
Mr. Snow. Before I go there, I would rather let the FTC
opine on the map of our deal before we talk about that. But I
would like to point something out, and I would like to submit
something for the record.
If you look at mail and mail volumes at Medco, 85 percent
of all prescriptions are retail--85 percent--and that has not
changed for quite some time. This chart, which came out of--and
I submitted this for the record, but it came out of an NACDS
data book--simply shows that mail has fundamentally not changed
in terms of numbers since 2007. The volumes are going to chain
and big-box retailers, and, yes, the independents are losing
scripts to the chain and big-box retailers. It is the data. It
is not the PBMs, and it is not mail growing exponentially. In
fact, more and more retailers are offering 90 days at retail,
and you are seeing prices pretty much stay stable because faced
with chronic and complex disease people who take drugs for a
lifetime find it is easier to comply with 90-day supply, and
you are seeing more of that going on right now. So mail is not
as large as you indicated, and it is very stable. It is not
growing. That is not where the new scripts are going.
Relative to specialty, I would just refer you to Adam
Fein's analysis which he submitted where he has done a detailed
analysis with real data and says today the combination would
give the Medco/Express Scripts merger 31 percent of the
specialty business, and that is before accounting for the Medco
losses, both UnitedHealthcare, which happens in 2013, as well
as from the losses for 2012 that are not in his numbers, which
takes us into the mid-to high 20's. And then if you look at the
disease level in specialty, which I think is the right way to
look at this, there are many, many additional competitors who
play in specific specialty diseases who are not even counted in
the analysis.
So I believe the market penetration numbers you are talking
about are not the numbers that will be looked at when looking
at markets.
Senator Blumenthal. So you think that those numbers are in
error?
Mr. Snow. Yes.
Senator Blumenthal. Let me ask you, are there any parts of
this business that you would be willing to divest? I know that
Mr. Paz is on record saying that he would be unwilling to
divest the specialty pharmacy market, for example.
Mr. Snow. Yes. You know, I think obviously there will be a
conversation when it is necessary. When it comes to mail, you
know, what is important for us is we offer a continuum of
product and service for the clients who hire us. So they are
looking for an end-to-end service capability, and to take a
piece of that service capability away really fundamentally
harms the client and the patient who we are caring for across
that continuum.
So obviously we will talk as we need to as this process
moves on, but our focus is going to be, Can we serve the
customer and the patient the way we do today? And that will
determine what we can and cannot do.
Senator Blumenthal. Mr. Balto, would you have any
suggestions as to how this merger should be dealt with by the
FTC?
Mr. Balto. Senator Blumenthal, I think the FTC should go to
court as they did in the drug wholesaler case and in Office
Depot/Staples and block the merger. You can look at both of
those mergers and see consumers are better off because they
blocked the merger.
A divestiture of a specialty facility or a mail facility
would not do much to restore the competitive equilibrium here.
They are still going to have tremendous market clout, which
they currently use, even at their limited market clout, to keep
independent specialty pharmacies, for example, out of the
market. Those offer an important source of service competition
and also price competition. That would be lost if this merger
is approved.
Senator Blumenthal. Thank you. My time has expired. I thank
the Chairman.
Chairman Kohl. I only have one question. Then I will turn
to Senator Klobuchar.
Mr. Snow, on November 11th, the New York Times reported
that Medco instructed drug stores to not fill prescriptions for
the generic version of the blood pressure drug Lipitor for 6
months beginning December 1 when Lipitor's patent expired.
According to the story, Pfizer, the manufacturer of Lipitor,
negotiated with PBMs for large discounts to prevent pharmacies
from dispensing the generic version of Lipitor.
Last week, the New York Times reported that the CVS
Caremark PBM had instructed pharmacies that the generic form of
Lipitor would not be covered for 29 prescription drug plans it
managed for Medicare Part D. If true, these reports would be
obviously very disturbing, and it is well understood that
utilization of generic drugs, which are in many cases vastly
less expensive, are essential to combating rising health care
costs.
Now, we understand that Medco has taken issue with the
first Times story and claims that Medco was acting at the
direction of just one client. The later Times story notes that
Medco has now instructed pharmacists to use the generic version
of Lipitor, but that Medco's own mail-order service will use
Lipitor as its ``house generic.''
So what is going on here, Mr. Snow? Has Pfizer negotiated
discounts with Medco in order to block the generic drug from
being utilized, either at drug stores or mail-order? And if so,
are all of these discounts being passed on to plan sponsors and
Medicare Part D consumers? And even if they are, will not this
practice deter generic drug makers from attempting to enter
markets?
Mr. Snow. Thank you, Mr. Kohl. I appreciate that question,
and I am happy to answer it.
The New York Times article was very much in error, and they
have more recently published clarifications around that, as has
other major papers like the Wall Street Journal. What happens
in Medco's case is we always prefer generics first. We do not
block retailers from providing generics of any type when they
come to market.
There are occasions where specifically a health plan
customer who is very big, very sophisticated will negotiate
their own arrangement and ask us to administer it. That is what
happened for a specific health plan that we manage. They
negotiated a direct deal, and we administer it. But for Medco
and 99 percent of our book of business, we dispense generics,
and, by the way, it is not uncommon in the first 180 days when
a new generic comes to market in that exclusive period where
you do get competition from the brand manufacturer. But make no
mistake about it. They do not compete by giving rebates or
anything like that. They compete like a generic manufacturer.
By the way, most brand manufacturers these days have a generic
manufacturing arm, and the contracts with these firms are just
like the generic contracts we have with generic manufacturers
who do not manufacture brands.
Our clients, just so you know, relative to Lipitor for the
first 12 months are going to save over $1 billion because of
the generic pricing we put together for Lipitor.
Chairman Kohl. Finally, Mr. Paz, in the last few days my
staff has received a number of reports from pharmacists that
Express Scripts as well as other PBMs were directing them to
fill prescriptions with Lipitor rather than its generic
alternative. We have received this information directly. Now,
you would dispute that?
Mr. Paz. Two different pieces. One is what Mr. Snow just
said. You know, Pfizer has a very good deal on the table. We go
to our clients, and we ask them what they would prefer. In
other words, if Pfizer was willing to negotiate the discount on
its branded product below that of the generic--so, in other
words, the prices are cheaper, the member pays a generic co-
pay, but the plan sponsor pays less--then we will give them
those options. Again, it is up to the plan sponsor to decide
how they want to put in the programs.
The world has changed a little bit because Ranbaxy was able
to get its approval to come to the market. There was a period--
keep in mind Ranbaxy did not get to enter the market until
several days after the patent expiration occurred. So there was
a period when there was only one brand product and one generic
out there, and the brand product was actually cheaper than the
generic. Now that Ranbaxy has entered the market, the generics
have dropped, and the plans are moving toward the generic. Our
job is to bring down the cost, both for the patient and the
plan sponsor, and do what is right. We are not tied to whether
it is a brand or a generic. We want the lowest cost possible
for our members to drive down the cost of health care. That is
our most important mission.
Chairman Kohl. All right. Senator Klobuchar?
Mr. Streator. Mr. Chairman?
Chairman Kohl. Mr. Streator, then Senator Klobuchar.
Mr. Streator. Yes, may I just add a few points?
As a payer and as a health plan, let me just interject a
perspective. When we do our due diligence with RFPs, which are
fairly sophisticated, we are looking at any corporation or
PBM's ability to manage drug trend or the year-over-year
change. So this renewal factor is very important. The success
rate of a PBM being renewed is going to be largely tied to how
effective they manage the drug trend. So whether it is the
brand drug for 6 months or less, the lowest net cost is what is
important.
Chairman Kohl. Senator Klobuchar.
Senator Klobuchar. Thank you very much. I want to thank
Senator Lee for letting me go ahead here. I have another thing
I have to get to, so thank you.
I wanted to follow up on that adherence issue that Ms.
Sutter raised, and I think I will start with Mr. Snow and then
maybe have Mr. Bettiga respond to this, and this is this idea
that when you go to see your pharmacist, they are able to talk
to you about how you take your medication and various things so
that you get a higher rate of people actually taking their
medication, which turns out to be one of the major health care
problems we have right now.
Could you talk about how this merger could affect that and
how PBMs are involved? And then we will go to Mr. Bettiga to
see the concerns here from a pharmacist's standpoint.
Mr. Snow. Yes, I would be happy to. Thank you. In addition
to patients' calling us with chronic or complex disease, they
call our pharmacists on average four times a year looking for
specific help relative to their benefit and/or their drug and
their clinical situation. We have the additional opportunity
because of the way we are organized to call the patient when we
see that they are not doing what the doctor suggested they do
for the disease they have. We use specially trained
pharmacists, additional certification in the disease, so let us
take diabetes. If we see that our patient is not following the
fundamental ABCs of managing diabetes as their doctor
prescribed, we will actually call them if it is something that
is dangerous and will lead to a very bad outcome, and we will
talk to the patient about why they are not adhering to what
their doctor asked them to do. We will help them through their
misunderstandings, which is often the case, about what drug is
supposed to do what for their bodies.
We actually help them get compliant, we monitor that
compliance, and we are actually very good at closing what we
call gaps in care. And there is a direct correlation between
adherence to what the doctor said and the net cost per patient
per year. There is a correlation. So if you get a patient 80
percent or more compliant with what the doctor said, it has
been shown in diabetes you can cut the cost per diabetic per
year in half because they do not become unstable, they do not
end up in the emergency room, they do not get hospitalized,
they do not have the source of very negative things that happen
to people with unmanaged diabetes like amputations and
blindness and renal failure.
We manage that, we look for that, we use evidence-based
protocols in a wired health care system. And we hope the whole
health care system gets wired one of these days because I think
enormous opportunities for physicians and others can be
leveraged. And, by the way, we are also using that wired
capability to work with retail pharmacies so that they, in
fact, can see what our pharmacists see and help with those gaps
in care. And we are actually helping them. We are doing a
number of pilots where we are helping them get paid for
cognitive time with patients managing these gaps in care.
Senator Klobuchar. OK. Mr. Bettiga, why don't you answer?
My experience being in community pharmacies, visiting them, is
that you hear a lot, you hear those discussions going on.
Mr. Bettiga. Right, and we hear it every day. And I
appreciate, the comments about wired and the work that they
have attempted to do, but here is the reality. The reality is
that they can provide face-to-face contact and consultation on
a daily basis with their patients and the consumers. That is
the end root cause of all this, and that is part of our
concern. We provide that. At Shopko, we consult on every
prescription, whether it is a new prescription, whether it is a
refillable prescription, 100 percent of the time in all of our
stores.
My concern with this whole thing rests too with the second
point on access. At some point in time, if accessibility is
limited because of the practices that would go on with a larger
entity--and pharmacies are forced to, you know, go out of
business or whatever it may be--especially in rural underserved
areas, what happens to that contact? What happens to that
consultation? What happens to that relationship that an elderly
patient may have with that pharmacist that they have known for
years? And I would submit that you cannot replace that with an
oral phone conversation, with somebody four States away.
Senator Klobuchar. OK. Now, just to end here with the
merger, because ultimately it is the FTC that is going to be
looking at this in great detail and ruling on this merger. What
do you think are the most important dynamics? Each of one of
you just give a 30-second answer here, or less. What do you
think the FTC should be looking at in evaluating this merger?
Mr. Balto, and then we will go down the row.
Mr. Balto. You know, I think the critical issue is: Is
there something that can effectively restore competition here
when the market moves from three to two? And I do not think
that there are significant--there are significant differences
which make a significant difference between the first and the
second tier.
In addition, it is the parties' obligation to demonstrate
extraordinary efficiencies, and they have not moved very far in
doing that so far.
Senator Klobuchar. OK. Mr. Bettiga.
Mr. Bettiga. The primary issue for myself in our industry
is critical access, without a doubt, to the patients, to
consumers, and I truly believe that with this merger, with the
increased cost containment measures that we have put into
effect, it is going to harm community pharmacy potentially, and
it is going to result in decreased access, in a decrease in the
services, and that face-to-face contact that we provide on a
day-in, day-out basis to our consumers.
Senator Klobuchar. OK. Ms. Sutter.
Ms. Sutter. Well, I certainly agree with Mr. Bettiga's
comments about access and face-to-face contact with my
patients. I just do not quite understand this conflict of
interest that--you know, I am on a hospital board, and, you
know, Stark laws do not allow physicians to do this referral
pattern in that, but it seems like we have totally ignored the
fact that these entities can have pharmacies that are in direct
competition to me, I am their competitor, and they set my
rates. That is what I would like the FTC or at least Congress
to look into. Why is that allowed in our industry, in our part
of health care and it is forbidden, you know, within the
hospitals and physicians?
Senator Klobuchar. Mr. Streator.
Mr. Streator. Payers today are under obvious increased
pressure to reduce costs, so regardless of the FTC, there is a
huge role for PBMs to play because right now, as you know, the
FDA approves medications on two bases: safety and efficacy.
There is no cost efficacy. Until comparative effectiveness, as
a research science matures, we as plan sponsors and health
plans and payers are relying on the pharmacy benefit managers
to help us make those decisions and to put pressure back on
manufacturers. Specialty medications often can exceed the cost
of $10,000 per prescription. There are no biosimilars, and we
do need this as payers.
Senator Klobuchar. OK. Mr. Snow.
Mr. Snow. I think the FTC should focus on competition.
There are 40 PBMs. They are real PBMs. And there are ten PBMs
serving the Fortune 50, 17 serving the Fortune 500. As I told
you, we lost $10 billion worth of business for 2012, and 15
different programs beat us and won that business. So I do think
this concept of the one, two, or three is just fundamentally
flawed, and I hope the FTC can sort that out.
Senator Klobuchar. Mr. Paz.
Mr. Paz. Thank you, Senator. I deal with many, many clients
similar to Scott in his predicament, where whether it is the
university system, whether it is the State employees, whether
it is large employers, they are struggling today in this very
difficult global economy. It is tough for companies to continue
to grow and meet earnings expectations, redeploy capital, and
hire new people.
One of the big, big drivers of cost is medical costs. I
believe the PBMs have come a long, long way in taking cost out
of the equation. We have a long way to go. And I think the
thing that the FTC should be looking at is will this merger
continue to drive down the cost of health care for the American
population. I believe it will. I believe they will find it
does, and that is why I believe it will get approved.
Senator Klobuchar. Thank you, all of you.
Chairman Kohl. Thank you, Senator Klobuchar.
Senator Lee.
Senator Lee. Thank you, Mr. Chairman.
Mr. Streator, when we look at market responses to a merger
like this one, one of the most important inquiries often
focuses on possible barriers to entry into a particular market.
In this instance, we might expand that a little bit to say
barriers to expansion. In your testimony today, you referred to
the fact that there are a number of up and coming PBMs, and I
am curious to see whether you think there might be any barriers
to their expansion within this market, their progress within
the market.
For example, because of the fact that PBMs depend on a
certain amount of scale in order to create profits through
their negotiations with pharmacies and drug manufacturers,
isn't it possible that one of the smaller PBMs might be
rendered less capable of climbing up that ladder within the
market as a result of this merger were it to go through?
Mr. Streator. Senator Lee, thank you for your question. I
can just speak from experience when we have done very
sophisticated RFPs and bidding processes. I will not share
specific company names, but I will share with you that when we
have done these bidding processes, some of the smaller ones
were right up there with the top ones. The reason we did not
choose them at that time was because they lacked integration in
operations. It was not the savings or the innovation. They were
quite creative, as I mentioned in my testimony. They were able
to be a little more nimble in some various implementations of
clinical programs which saved a significant amount of money.
But they lacked the infrastructure, and so they have--some that
I read on the chart over there to the left of me, companies
that are not even on there that are now quite attractive as a
payer and as a health plan representative have made
acquisitions to be able to integrate their infrastructure that
was not there before.
Senator Lee. So, in your opinion, it is not necessarily the
case that if the merger were to go through that phenomenon
would not continue to exist? Sorry for the double negative
there. You see no reason why that trend would not remain the
same as a result of this merger?
Mr. Streator. Correct. I believe plan sponsors can do
greater due diligence than just relying on brokers to tell them
who is available in the market. There are a number of viable,
attractive PBMs and, as I mentioned earlier, even health plan-
owned PBM offerings now. Each have a different set of
competitive advantages, and if payers worked diligently to
research these, I think there is ample competition, even with
this merger.
Senator Lee. I also wanted to talk to you more broadly just
about concerns that I developed as a result of conversations I
have had with local pharmacies throughout my State on an issue
that is very important to them and the role that local
pharmacies and individual pharmacists play in the delivery of
health care services. Are you confident that this merger would
not, in effect, squeeze them out? Are you confident that this
merger is not a part of an effort to replace independent
pharmacies and local pharmacists?
Mr. Streator. As a payer, we have a fiduciary
responsibility on behalf of our members. We want the best
quality of care for the best dollar, and we need to have
access, as I mentioned in my written testimony and my oral
testimony today, that we need community pharmacists.
I certainly believe with the emerging health care
reimbursement models, this will be even more important.
Senator Lee. OK. Thank you.
Ms. Sutter, I have a question for you. Relating to a study
that was conducted in 2005 by the Federal Trade Commission, the
FTC conducted this in-depth empirical analysis and found, among
other things, the following, and I quote: ``that the prices for
a common basket of prescription drugs dispensed by PBM-owned
mail-order pharmacies were typically lower than the prices
charged by retail pharmacies.'' The study also found,
``Competition affords health plans substantial tools with which
to safeguard their interests. Consumers benefit as a result.''
Do you dispute this finding of the FTC?
Ms. Sutter. Well, I certainly would want to look at it in
more detail. When they say my price, the community pharmacist
price, is that usual and customary or is it an adjudicated
discounted price?
Our biggest concern as community pharmacists is I am
contracted with these gentlemen's companies to fill
prescriptions at very, very low margins. They sell my services
to the payer and price it at some point up here, having no
transparency to know whether it is a fair spread for their
services. And then with their mail-order pharmacy, they somehow
are able to just put their cost of their medication slightly
lower. And so when you present a plan to a payer saying mail-
order is less expensive than what they got charged by Medco or
ESI or a PBM for my services, information and data like that
can make it look like that. What we really need to do is look
at the transparency of what am I being paid for, the
prescription and the services, the 100 percent of the services
that I am providing, and what are they charging to the payer.
In addition to that, recently one of the smaller PBMs was
at a recent conference, and an individual asked the question of
how often do you have payers audit their contracts, and they
said less than 5 percent. I have also been told, yes, all this
language is in there that they can audit their PBM, but they
also have language in there that they have to agree to the
auditor and that----
Senator Lee. That who has to agree? That the PBM has to
agree to the----
Ms. Sutter. The PBM and----
Senator Lee [continuing]. Identity of the auditor?
Ms. Sutter. So I guess I would ask you to dig further into
whether--how difficult it is for a payer to actually audit what
they are being billed for and understanding what I am being
paid for my services before we can really answer that question.
Senator Lee. OK. Help me understand the point then. Are you
suggesting that because only 5 percent of the audits that could
be conducted, in fact, are being conducted? You think that is
due at least in part to clauses in the PBM agreements mandating
that the PBM agree to the auditor?
Ms. Sutter. Well, I am certainly no expert on this, and so
some of this is just hearing a PBM official speak to this. My
concern is that only less than 5 percent of the payers are ever
even attempting to take advantage of their audit abilities in
the contract, and then we are also told that many have language
that they both have to agree to it.
Senator Lee. OK. So that is much of what you are referring
to when you talk about the lack of transparency, is that most
of the time that audit is not, in fact, being conducted.
Ms. Sutter. Exactly.
Senator Lee. Even though it could be, it is not, in fact,
happening.
Ms. Sutter. That is my understanding.
Senator Lee. OK. Thank you.
Mr. Streator. Senator Lee, could I interject on that as a
payer?
Senator Lee. Yes.
Mr. Streator. I believe that is mainly a function of, not
the PBM, but how effective plan sponsors negotiate with the PBM
and then take advantage of that capability. I know we do
routine audits during a contract year, so that is unfortunate
that other plan sponsors do not do that, but that is surely a
fiduciary responsibility of payers.
Mr. Paz. For the record, Senator, we have over 450 audits
going on as we speak.
Senator Lee. OK. So they do happen.
Mr. Paz. All the time. Constantly.
Senator Lee. I see that my time has expired. Thank you very
much.
Chairman Kohl. Mr. Balto, according to the industry
estimates, after this merger the combined Express Scripts/Medco
will control about 60 percent of the mail-order business.
Should we worry about this high level of concentration in the
mail-order marketplace?
Mr. Balto. I think absolutely, in part because it provides
greater leverage for the merged firm to go and force plans and
consumers into mail-order, which denies them the opportunity of
using their community pharmacy.
Chairman Kohl. All right. Ms. Sutter, we understand that
community pharmacies have concerns about PBMs' steering
consumers to obtain their prescriptions by mail-order. But
isn't it beneficial for consumers to obtain their prescriptions
in this way if they wish since it saves them a trip to the drug
store? We could understand that pharmacies may not like that
consumers utilize mail-order services rather than go to drug
stores, but how does greater utilization of mail-order harm
consumers? What is your response to that?
Ms. Sutter. Well, I want to speak to the fact that many of
these plan designs--there are plan designs that have mandatory
mail requirements, and many patients do not care for that. But
the majority of them just offer mail-order. The way they get
patients to default to that is that they only charge two co-
pays for every three that are acquired at the community
pharmacist. So I still have patients that appreciate and value
my services enough to financially pay a third co-pay every 90
days to do business with us, but there are a lot of people that
that expense is being--they just cannot have that expense, and
so they default to the mail-order pharmacy. So they put us on a
very unfair playing field when they say that the consumers are
free to go to their community pharmacy.
I would challenge them, if they made it absolutely equal,
where patients would choose to go to. I think I would win out.
Chairman Kohl. Mr. Snow.
Mr. Snow. Yes, Senator, I just would like to respond
because there is a misunderstanding here. The PBM does not tell
their customer how to design their benefits. Typically, when
the customer, who is paying the bill--it actually is not us. It
is the customer. It is the employer. It is the health plan. It
is the State government entity. When they are paying the bill
and they look at the difference in cost, they may choose to
motivate the consumer with one less co-pay to choose a less
expensive place for them, the payer. As George Paz said
earlier, we lay out the choices for our customers to choose
from, and they make all kinds of different choices. Everyone is
different. But when these choices are made, it is not forced by
a PBM.
I can tell you, we are not the boss when it comes to
serving our clients. We do what we are asked to do to serve our
clients in the way they want to be served.
Chairman Kohl. All right. Mr. Balto, one of the most
lucrative prescription drug markets today is for specialty
drugs that are used for the most serious medical conditions
such as cancer. These drugs often require special handling, are
often administered intravenously, and are generally much more
expensive than other types of medication. Express Scripts and
Medco combined will control over 50 percent of the specialty
market after this merger. Should we be concerned about such
concentration in the specialty market?
Mr. Balto. Absolutely, and just to make things clear, you
should be concerned whether the market share is 50 percent; you
should be concerned whether the market share is 30 percent.
Express Scripts and Medco, because they will have combined 150
million covered lives, will have the kind of clout that they
can go and force exclusivity arrangements upon manufacturers,
which we have documented have led to increased prices; that
they can have exclusive networks which will keep Mr. Bettiga
and Ms. Sutter's pharmacies out of the market, other community
specialty pharmacies out of the market; and instead of being
able to go to your community specialty pharmacy, you are going
to be dealing with a distant mail-order pharmacist. And the
problems that Ms. Sutter has documented will exist in a much
more severe fashion.
Chairman Kohl. Mr. Paz, at a House hearing on this merger,
you said that if you were required by the FTC to divest Medco's
specialty pharmacy State as a condition of doing the deal, you
would not do the deal. Is that correct?
Mr. Paz. That is correct, Senator.
Chairman Kohl. Why?
Mr. Paz. Specialty pharmacy is the fastest-growing--it is
lucrative in the sense that it is high cost. It is not our
highest profit drivers. That still comes from generic drugs and
moving patients into the lower-cost prescription programs. The
specialty products in and of themselves are very important for
our plan sponsors. These are the drugs that can cost $10,000,
$15,000 a month for a member. They need to have their arms
around it.
There are many specialty pharmacies out there--which are
part of our network, by the way--that specialize in a given
disease state. However, there are also a lot of pharmacies that
may only handle one person with a very limited disease.
One of the advantages that the PBMs can have is that when
we bring together pharmacists, doctors, and nurses that
specialize in that disease state, we also bring in health care
professionals and social workers to help the family. Often
these diseases are very debilitating to a family, and helping
that family get through the consequence of this is very, very
important. We have these people that call on these people
constantly and help them. It is a very important part of our
business.
Chairman Kohl. All right. We will turn to Senator Franken
after this one question.
One of the main arguments, Mr. Paz, for the merger is that,
combined, you will be able to develop more innovation and new
clinical tools and strategies for cutting costs. And yet we all
know that innovation is the fruit of competition and that the
more competitors, the more innovation, and the better the
consumer is served. You seem to be making an argument to the
contrary. Have you come up with a new concept for how
capitalism works?
Mr. Paz. Yes, when you look at UnitedHealthcare entering
into this market in a very big way, CIGNA coming into our space
in a very big way, Prime Therapeutics coming in in a very big
way, innovation is key. We know our role. Our role is to drive
down the cost of health care and improve health outcomes for
the millions of Americans we service. We have to remain
innovation. We have to continue to go to the market. Plan
sponsors like Mr. Streator have many, many options. The day we
start falling behind innovation is the day our market share
will decline. We must stay focused on improving health care.
Chairman Kohl. But competition is what breeds all of that
urgency and activity. Would you suggest that if you could also
take over Caremark and CVS that would be the best thing for
everybody? If you control the whole market, would you then
innovate in a way that would not be possible otherwise?
Mr. Paz. I would tell you that there is plenty of--I do not
think we need to buy CVS Caremark, but I would tell you that
there is plenty of competition out there and that we are
forced--on top of all that, Senator, CMS requires innovation.
They are coming to us on a regular basis with new regulations
and new requirements, and they are forcing us to go forward. We
need to work very closely with CMS in order to come up with new
programs, everything from e-prescribing to helping members
access drugs to plan design change, on and on and on. It is
required in our business.
Chairman Kohl. OK. Mr. Balto.
Mr. Balto. Can I go back to the conflict of interest issue
in the specialty pharmacy area? Because I think it illustrates
the problem here, because Mr. Paz owns a--you know, if he just
owned a specialty pharmacy, fine, let us compete on the merits.
But when he owns a PBM, he knows everything about his
competitors. When his competitors get too large, he excludes
them from the network. When his competitors get certain
customers, he can focus and target those customers. It is those
conflicting interests that create a tremendous problem here,
and the merger makes it worse by combining his market clout
with a dominant position in specialty pharmacy.
Chairman Kohl. Senator Franken.
Senator Franken. Thank you, Mr. Chairman.
Mr. Paz, two recent reports from the Health and Human
Services Office of the Inspector General have found that PBMs
are not adequately sharing savings with Medicare patients and
that PBMs underestimate the rebates they receive from
manufacturers, and this ultimately means higher Medicare costs
for both beneficiaries and for taxpayers.
You said in your testimony, ``Patients, not profits, must
come first.'' Can you guarantee that the lion's share of the
savings created by your merger would go to consumers?
Mr. Paz. Under CMS regulations and the way we conduct our
business, Senator, 100 percent of the rebates go back to the
plan sponsors, and 100 percent of the network pricing goes into
the plans. We make administrative fees, which are fully
disclosed to our plan sponsors under CMS and Medicare rules.
Senator Franken. Well, then, how is this Inspector
General's report possible?
Mr. Paz. I do not know the answer to that. I am not
familiar with that. I would have to look into that. But I would
tell you that in our business--and keep in mind we just
completed an audit by CMS that came in and audited our
business, and there were no issues with respect to transparency
or passing through savings.
Mr. Snow. The same is true for our business.
Mr. Paz. I cannot speak to other players in the industry,
Senator. I do not know what others may have done.
Senator Franken. OK. Health and Human Services Office of
the Inspector General found that PBMs are not adequately
sharing savings with Medicare patients. I will probably follow
up with a written question.
Mr. Paz. If you do not mind, Senator, we will be happy to
follow up with your office and get you some information on
this.
Senator Franken. I appreciate that. Thank you so much.
Mr. Paz--I am sorry.
Mr. Paz. My colleague just advised me that CMS actually
disputed those findings. We will follow up with your office and
get the information.
Senator Franken. OK. Well, thank you.
I am told that Senator Klobuchar mentioned earlier that
over the past couple years 12 communities in Minnesota have
lost their only outpatient pharmacy, and this is a huge loss
for residents in those communities, especially because
Minnesota winters are kind of rough, as you know. When elderly
patients have to drive many miles in the dead of winter or have
someone drive them to pick up their drugs, I worry. There are
currently 141 rural communities in Minnesota that have only one
pharmacy.
Medicare Part D only requires that 70 percent of Medicare
beneficiaries in rural areas have access to a pharmacy within
15 miles. That means that 30 percent of beneficiaries could
live more than 15 miles from their nearest pharmacy, and as I
understand it, there is no upper limit. So that means someone
could drive conceivably 80, 90 miles to a pharmacy.
Do you agree this is a serious problem for health care in
our country and in Minnesota?
Mr. Paz. Rural pharmacies, Senator, are a very important
part of our network. It is not only governed by CMS. CMS
clearly sets standards. DOD also sets standards that we have to
adhere to on behalf of our men and women in uniform and their
beneficiaries. But our plan sponsors, just as importantly, set
standards as well. We ought to make sure the record is
straight. Forty percent of all prescription drugs are for acute
medications, so even if everybody moved to mail-order, 40
percent would still have to be filled. If you have a child with
a toothache or you have some problem, you cannot wait to get
something in the mail. We would never suggest that you do.
Those drugs have to be there. They have to be accessible, and
they have to be ready----
Senator Franken. Right, which is----
Mr. Paz.--and so we have to have----
Senator Franken.--an argument, I think, that you could
make--I think you are not making an argument that----
Mr. Paz. I am trying to make an argument that we have to
keep the rural pharmacies in business, that it is our job to do
a very careful balancing.
Senator Franken. And you think this merger will help keep
the rural pharmacies in business, Ms. Sutter? I am sorry to--
you can feel free to answer after Ms. Sutter does.
Ms. Sutter. The issue is that the rhetoric of these
gentlemen just does not match the reality of what we are
dealing with. We have got comments after comments in my written
statement about what we are dealing with with these--40
percent--if 40 percent are acute meds, I cannot stay in
business only being basically subcontracted to these gentlemen.
My patient is the center of this equation. I am with the
physician there taking--part of the health care team taking
care of them. They are the ones that are on the side providing
some assistance in adjudicating a claim. This idea that
companies like this can be at the center of resolving health
care issues in this country is just ridiculous, quite frankly.
Senator Franken. I think they are just different roles. But
I, too, have received tons of calls and letters from community
pharmacists in Minnesota who are concerned about this.
Mr. Paz. I think when you look back, we have done several
acquisitions over our history. In 1998, we bought Value Rx, a
Minnesota-based company. We have done several acquisitions
since then. Almost every time we have been accused that savings
would not pass along to the plan sponsors. I think Mr. Streator
and all of my clients would contend and argue that what we do,
as Mr. Streator said in his comments, his drug trends were less
than--were negative. They were not zero or 1 percent. They were
negative. That means the cost of their drugs actually came down
year over year, is to help them choose the right generics, the
right channels, and the right outcomes in order to drive those
costs down. And so I do----
Senator Franken. Mr. Streator, you are at a university, is
that it?
Mr. Streator. Correct, the Ohio State University.
Senator Franken. OK. That is in Columbus, Ohio.
Mr. Streator. Correct.
Senator Franken. That is a big community, right? So what we
are really talking about, if I recall my question, was about
small rural communities.
Mr. Paz. Mr. Streator services clients all across the State
of Ohio, even in rural areas of Ohio.
Mr. Streator. That is correct. We have 56,000 members in
our health plan, and they are in every county in Ohio. We also
work in the Rx Ohio Collaborative that has over 500,000 members
all across the country. So, yes, we do need community
pharmacies.
Senator Franken. Well, thank you. I appreciate all your
testimony and all your answers, and I will get back to you with
more because I did not have the two rounds, but I have got to
go myself, and I appreciate all of your being here and I
appreciate your calling this hearing, Mr. Chairman. Thank you
all.
Chairman Kohl. Thank you, Senator Franken.
Mr. Bettiga, do you want to make a comment or two before we
begin to wrap it up?
Mr. Bettiga. Well, I would like to make a comment to what
we were just talking about here because at the end of the day,
while I understand that the plan sponsors may be OK in this, at
the end of the day the rates to community pharmacies,
especially those in the rural areas, et cetera, are dictated by
the PBMs. And they talk a lot about past activities with
mergers, et cetera. This is not about the past. This is about
what happens in the future with one larger entity and what
types of rates they will impose on retail and community-based
practice, and what does that ultimately mean then to
accessibility for those rural patients, those underserved
patients that Senator Franken was referencing? And there is a
huge concern with that because we just do not know what that
next game is going to be.
Chairman Kohl. Anybody else want to make a comment?
[No response.]
Chairman Kohl. I think we have really aired this thing very
well, and I appreciate your coming here and giving us your very
frank expressions of interest and concern about the direction
of this industry.
We will leave the record open for a week. I would again
like to thank all of you for being here today. You have added
an awful lot to the issue, and once again our appreciation.
Thank you.
[Whereupon, at 4:39 p.m., the Subcommittee was adjourned.]
[Questions and answers and submissions for the record
follows.]