An Inside Look at Monopsony Issues in the FTC’s Express Scripts-Medco Merger Investigation

September 01, 2012

After an intense eight-month investigation by the Federal Trade Commission (FTC), both chambers of Congress, and 32 state attorneys general, Express Scripts, Inc. closed its $29 billion acquisition of fellow pharmacy benefit manager (PBM) Medco Health Solutions, Inc. without any conditions on April 2, 2012. The transaction created the largest PBM in the nation despite unprecedented levels of public opposition.

The most highly-publicized and politically-charged issue during the investigation was whether the merger would give the combined firm monopsony power over retail pharmacies. Various pharmacy groups, fearful that the combined firm would reduce the reimbursement rates they received for filling prescriptions, did everything they could to try to stop the merger: they launched an extensive public relations campaign; they advocated to the FTC in several meetings; they lobbied members of Congress to hold congressional hearings and to pressure the FTC in its investigation; and they even filed a last-minute lawsuit seeking to enjoin the merger.

As the majority of the Commission ultimately determined, however, the facts did not support the pharmacy groups’ monopsony theory. Quite the opposite, the FTC found that any reduction in reimbursement rates was likely to result in cost savings to be passed through to PBM customers, benefiting consumers through lower healthcare costs. This article summarizes and analyzes the monopsony issues raised during the Express Scripts-Medco merger investigation.