Express, Medco tout savings, competition in hearing

WASHINGTON (Reuters) - Express Scripts' deal to buy Medco Health Solutions will bring down drug costs and help the U.S. government track waste, fraud and abuse, executives told lawmakers examining whether the deal will stifle competition in the market for managing prescription benefits.

The merger, valued at about $24 billion by Monday's closing share prices, has come under fire from pharmacists and consumer groups, who argue that a market dominated by two powerful pharmacy benefit managers will mean higher prices for consumers.

The Federal Trade Commission will make the final determination on whether to challenge the deal, but Congress, through oversight of regulators and by holding hearings, can influence public opinion.

Investors seem skeptical that the deal announced in July will pass antitrust scrutiny. Medco's shares have continued to trade at a discount to Express Scripts' offer price.

The deal would combine two of the three largest U.S. drug benefit managers, and create an industry leader that would hold nearly one-third of the market.

Antitrust concern is misplaced, Express Scripts Chief Executive George Paz said in written testimony for the House Judiciary Committee's competition subcommittee.

He said Express Scripts and Medco are just two of 40 pharmacy benefit managers, or PBMs, which manage prescription drug plans for companies and state and federal government agencies.

Critics of the deal argue that only Express Scripts, Medco and CVS Caremark have the reach to serve companies that need service in multiple cities.

The FTC is also looking into complaints of anticompetitive behavior by CVS Caremark.

Express Scripts fills nearly four billion prescriptions per year, with the goal of keeping drug prices down, Paz said in his testimony.

He said brand drugmakers increased the price of statins, used to treat high cholesterol, by an average of 9.3 percent but Express Scripts negotiated to trim the increase to 6.3 percent.

The combined firm's database will also aid in investigations to prevent waste and fraud, and could help U.S. health organizations track diseases, Paz said.

Medco's chief executive, David Snow, also testified that the PBM marketplace was extremely competitive.

Snow cited as competitors those companies that operate their own PBMs and UnitedHealth Group, which is ending its relationship with Medco in order to enter the PBM market.

Express Scripts' post-merger U.S. market share would be 30 percent, said Brian Henry, a spokesman for the company.

Joseph Lech, a member of the National Community Pharmacists Association, testified that in 25 years he had seen large PBMs buy up smaller ones until just three dominated -- Express Scripts, Medco and CVS Caremark.

He expressed concern that the PBMs would not allow consumers to use drugstores to fill prescriptions, aggressively pushing instead for customers to use mail order.

"The recently announced proposed merger of Medco and Express Scripts will likely exacerbate the problems pharmacies face with respect to PBMs," Lech said in his written testimony.

The Medco and Express Scripts merger deal carries termination fees and expenses of up to $225 million if one of the companies fails to make its best effort to get the deal closed.

But no termination fees would be required if the U.S. government blocks the combination of the two pharmacy benefit managers, the companies have said.