FTC Closes Eight-Month Investigation of Express Scripts, Inc.'s Proposed Acquisition of Pharmacy Benefits Manager Medco Health Solutions, Inc.

The Federal Trade Commission has closed its investigation of the proposed acquisition of pharmacy benefits manager Medco Health Solutions, Inc. by Express Scripts, Inc. Express Scripts, headquartered in St. Louis, Missouri, and Medco, headquartered in Franklin Lakes, New Jersey, are two of the largest PBMs in the United States.

Under an agreement dated July 20, 2011, Express Scripts intends to acquire Medco for approximately $29 billion. After the proposed deal was announced, the FTC began a comprehensive eight-month investigation into whether the effect of the merger may be to substantially reduce competition for the provision of pharmacy benefit management services within the United States. The FTC also carefully considered whether the merger might unduly increase the merged entity's bargaining power with pharmacies, and whether the merger might harm consumers of specialty pharmaceuticals for patients with rare, complex or chronic conditions.

The Commission vote on the motion to close the investigation was 3-1, with Commissioner Brill dissenting and issuing a separate statement. Commissioners J. Thomas Rosch and Edith Ramirez and Chairman Jon Leibowitz issued a closing statement on behalf of the Commission. The vote on the motion to issue the Statement of the Commission was 3-0-1, with Commissioner Brill abstaining.

In its statement, the Commission majority explained that the Commission's investigation "revealed a competitive market for PBM services characterized by numerous, vigorous competitors who are expanding and winning business from traditional market leaders. The acquisition of Medco by Express Scripts will likely not change these dynamics: the merging parties are not particularly close competitors, the market today is not conducive to coordinated interaction, and there is little risk of the merged company exercising monopsony power. Under these circumstances, we lack a reason to believe that a violation of Section 7 of the Clayton Act has occurred or is likely to occur by means of Express Scripts' acquisition of Medco."

An earlier motion by Chairman Leibowitz to accept for public comment a proposed consent agreement that would have prohibited Express Scripts from engaging in potentially exclusionary conduct that might have hindered the ongoing expansion of competition failed to receive the support of the majority of the Commission and was withdrawn.

In her dissenting statement, although Commissioner Brill "fully acknowledge[d] that the evidence doesn't all point towards the same outcome," she described the merger as an industry "game changer" that creates a "merger to duopoly" between the merged ESI/Medco and CVS Caremark, "with few efficiencies and high entry barriers – something no court has ever approved." In addition, Commissioner Brill expressed concern about the likelihood of coordinated effects allowing the merged ESI/Medco and CVS Caremark to "pull their competitive punches" when bidding on customer accounts in the future. Commissioner Brill called on the Commission to conduct a retrospective study on the merger in three years' time.

The FTC's Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook and follow us on Twitter.