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* Kohl says critics fear testifying
* Critics say deal will lead to higher prices, worse care
* Medco say big box hurting small pharmacies, not PBMs
By Diane Bartz
WASHINGTON, Dec 6 (Reuters) - Major firms which oppose a proposed deal to merge Medco Health Solutions Inc and Express Scripts Inc feared retaliation and declined to publicly discuss the deal, said Senator Herb Kohl, head of the Senate Judiciary Committee's antitrust panel.
Senator Richard Blumenthal also took aim at the estimated $26 billion deal, saying it was "problematic" and asking the companies if they would be willing to accept major divestments to win approval for the deal.
The proposed transaction, which was announced in July, would combine two of the three U.S. pharmacy benefit managers (PBMs) that are large enough to manage prescription drug benefits for nationwide companies.
Kohl said that, post-merger, Express Scripts and Medco would have 60 percent of the U.S. mail order prescription drug business and 50 percent of the specialty drug market.
"It is notable that no large employer who privately expressed concerns to us wished to testify at today's hearing, often telling our staff that they feared retaliation from the large PBMs with whom they must do business," Kohl said.
The chief executives of the two companies, for their part, argued that they were working to push prescription drug prices down while protecting customers by guarding against negative drug interactions.
"We are going to lower prescription drug costs that are far too high," Express Scripts CEO George Paz said in testimony prepared for the Senate Judiciary Committee's antitrust panel.
Medco CEO David Snow agreed, saying, "We drive drug costs down for our clients and patients in service to our more than 65 million members across America."
But Blumenthal also questioned whether the deal could get approved by the Federal Trade Commission, saying the companies would be by far the largest PBM if the merger goes through.
"Under the law, it is problematic," he said. "I'm interested in knowing what you will do to make this merger more acceptable."
Senators Al Franken and Amy Klobuchar, both of Minnesota, asked about the PBMs' relationship with community pharmacies.
Community pharmacies, under huge pressure from big box stores which offer low prices, have complained that they compete against the PBMs. However, the community drugstores also service PBM customers at rates set by the PBMs.
"PBMs directly set the reimbursement rates for community pharmacies and for us, it's take it or leave it," said Susan Sutter, who owns three Wisconsin pharmacies.
The FTC is assessing the merger to make sure it complies with antitrust law. A group of about two dozen state attorneys general are also looking at it, and could conceivably challenge the deal on their own.
An antitrust subcommittee at the House of Representatives has also held hearings to discuss the deal, although lawmakers have no formal power to stop any transaction.