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Megadeal Unites Drug Rivals Essay

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Anna Wilde Mathews and Jonathan Rockoff authored Megadeal Unites Drug Rivals in a published WSJ.com article of July 22, 2011. The article addresses the merger of two pharmacy benefits companies, Express Scripts Inc. and Medco Health Solutions Inc., along with the merger’s ramifications on the health care industry. This strategic merger is expected to impact the pharmacy benefit manager (PBM) market in conjunction with influencing drug costs and channels and possibly raising anti-trust concerns.
The main characters in this article include the merging PBM companies Express Scripts Inc. and Medco Health Solutions Inc. Their PBM competitor companies include UnitedHealth Group Inc. with its OptumRx pharmacy unit, Walgreen Co., and CVS
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Their consolidated size can create intense pressure points on all affected venues and change the purchasing dynamics of the market.
Generally, an industry consolidation can generate concerns regarding monopolistic tendencies and negative affects on market trends. In a monopoly, companies maximize profits, control prices, place prohibitive barriers to entry, and minimize competition. As expected, this PBM consolidation did raise similar concerns by the NCPA (2011) and encouraged the FTC to block the consolidation based on monopoly power and market domination. However, the NCPA is incorrect when describing this merger as a monopoly. Monopolies typically occur in a supply chain market. PBM’s are sellers of goods and services. As such, this consolidation is in fact an oligopsony, describing a market with many sellers and few buyers. An oligopsony market allows for competition and compliments consumers. The anti-trust concern, however, may be whether competition will remain strong enough to pass any cost savings to the PBM’s customers, i.e. employer plans, health plans, and other client markets.
Medco’s acquisition by Express Scripts was likely generated by several setbacks. The company lost its contract to CVS Caremark for health services to approximately five million U.S. federal employees, retirees, and dependents. It also lost its prescription-benefit contract for the California Public Employees’ Retirement System, U.S.’s largest public
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