S. HRG. 112–266 

THE EXPRESS SCRIPTS/MEDCO MERGER: COST 

SAVINGS FOR CONSUMERS OR MORE PROFITS 

FOR THE MIDDLEMEN? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ANTITRUST, 

COMPETITION POLICY AND CONSUMER RIGHTS 

OF THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

DECEMBER 6, 2011 

Serial No. J–112–54 

Printed for the use of the Committee on the Judiciary 

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S. HRG. 112–266 

THE EXPRESS SCRIPTS/MEDCO MERGER: COST 

SAVINGS FOR CONSUMERS OR MORE PROFITS 

FOR THE MIDDLEMEN? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ANTITRUST, 

COMPETITION POLICY AND CONSUMER RIGHTS 

OF THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

DECEMBER 6, 2011 

Serial No. J–112–54 

Printed for the use of the Committee on the Judiciary 

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(II) 

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

CHUCK SCHUMER, New York 

DICK DURBIN, Illinois 

SHELDON WHITEHOUSE, Rhode Island 

AMY KLOBUCHAR, Minnesota 

AL FRANKEN, Minnesota 

CHRISTOPHER A. COONS, Delaware 

RICHARD BLUMENTHAL, Connecticut 

CHUCK GRASSLEY, Iowa 

ORRIN G. HATCH, Utah 

JON KYL, Arizona 

JEFF SESSIONS, Alabama 

LINDSEY GRAHAM, South Carolina 

JOHN CORNYN, Texas 

MICHAEL S. LEE, Utah 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

KOLAN DAVIS, Republican Chief Counsel and Staff Director 

SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS

HERB KOHL, Wisconsin, Chairman 

CHUCK SCHUMER, New York 

AMY KLOBUCHAR, Minnesota 

AL FRANKEN, Minnesota 

RICHARD BLUMENTHAL, Connecticut 

MICHAEL S. LEE, Utah 

CHUCK GRASSLEY, Iowa 

JOHN CORNYN, Texas 

CAROLINE HOLLAND, Democratic Chief Counsel/Staff Director 

DAVID BARLOW, Republican General Counsel 

(III) 

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page 

Blumenthal, Hon. Richard, a U.S. Senator from the State of Connecticut ........ 6 

Franken, Hon. Al, a U.S. Senator from the State of Minnesota .......................... 5 

Grassley, Hon. Chuck, a U.S. Senator from the State of Iowa ............................ 4 

Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin ............................ 1 

Lee, Michael S. a U.S. Senator from the State of Utah ....................................... 3 

WITNESSES 

Balto, David A., Esq., Law Offices of David A. Balto, Washington, DC ............. 16 

Bettiga, Michael J., Chief Operating Officer and Executive Vice President, 

Shopko Stores Operating Company LLC, Green Bay, Wisconsin .................... 14 

Paz, George, Chairman and Chief Executive Officer, Express Scripts, Inc., 

St. Louis ................................................................................................................ 8 

Snow, David B., Jr., Chairman & Chief Executive Officer, Medco Health 

Solutions, Inc., Franklin Lakes, New Jersey ..................................................... 9 

Streator, Scott E., Associagd Vice President Business Development, The Ohio 

State University Medical Center, Columbus, Ohio ........................................... 11 

Sutter, Susan L., Co-Owner, Marshland Pharmacies, Horicon, Wisconsin on 

behalf of Independent Paharmacist and Member of the National Community Pharmacists Association, Alexandria, Virginia ......................................... 13 

QUESTIONS AND ANSWERS 

Responses of David A. Balto to questions submitted by Senators Kohl, Lee 

and Schumer ......................................................................................................... 41 

Responses of Michael J. Bettiga to questions submitted by Senators Grassley, 

Kohl, Lee and Schumer ....................................................................................... 53 

Responses of George Paz to questions submitted by Senators Kohl, Lee, 

Schumer, Franken and Grassley ........................................................................ 62 

Responses of David B. Snow to questions submitted by Senators Franken, 

Grassley, Kohl, Lee and Schumer ....................................................................... 87 

Responses of Scott E. Streator to questions submitted by Senators Schumer, 

Lee and Kohl ........................................................................................................ 132 

Responses of Susan L. Sutter to questions submitted by Senators Kohl, Schumer and Lee .......................................................................................................... 142 

SUBMISSIONS FOR THE RECORD 

American Anttitrust Institute (AAI), Dan Gustafson, Advisory Board Member 

and Albert A. Foer, President, Washington, DC, November 30, 2011, joint 

letter ...................................................................................................................... 158 

Balto, David A., Esq., Law Offices of David A. Balto, Washington, DC, statement ...................................................................................................................... 164 

Bettiga, Michael J., Chief Operating Officer and Executive Vice President, 

Shopko Stores Operating Company LLC, Green Bay, Wisconsin, statement . 179 

Economic Benefits of Pharmacy Benefit Managers, Jonathan Orszag, Compass Lexecon, LLC and Kevin Green, Compass Lexecon, LLC, joint study .... 188 

Fein, Adam J., President, Pembroke Consulting, Inc., Philadelphia, Pennsylvania, statement ................................................................................................... 235 

National Association of Chain Drug Stores, Alexandria, Virginia: 

2011–2012 Chain Pharmacy Industry Profile ................................................ 246 

Steven C. Anderson, IOM, CAE President and CEO, December 13, 2011, 

letter ............................................................................................................... 324 

Page

IV 

National Taxpayers Union, NTU, Duane Parde, President Alexandria, Virginia, December 5, 2011, letter ........................................................................... 328 

Norquist, Grover, President, Americans for Tax Reform, Washington, DC, 

December 1, 2011, letter ...................................................................................... 329 

Paz, George, Chairman and Chief Executive Officer, Express Scripts, Inc., 

St. Louis, Missouri, statement ............................................................................ 330 

Snow, David B., Jr., Chairman and Chief Executive Officer, Medco Health 

Solutions, Inc., Franklin Lakes, New Jersey, statement .................................. 339 

Streator, Scott E., Associagd Vice President Business Development, The Ohio 

State University Medical Center, Columbus, Ohio, statement ........................ 355 

Sutter, Susan L., Co-Owner, Marshland Pharmacies, Horicon, Wisconsin on 

behalf of Independent Paharmacist and Member of the National Community Pharmacists Association, Alexandria, Virginia, statement ...................... 363 

Towns, Edolphus ‘‘Ed’’, a U.S. House of Representative from the State of 

New York and Alcee L. Hastings, a U.S. House of Represetative from 

the State of Flordia, November 28, 2011, joint letter ....................................... 410 

(1) 

THE EXPRESS SCRIPTS/MEDCO MERGER: 

COST SAVINGS FOR CONSUMERS OR MORE 

PROFITS FOR THE MIDDLEMEN? 

TUESDAY, DECEMBER 6, 2011 

U.S. SENATE, 

SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY, 

AND CONSUMER RIGHTS, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:30 p.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Herb Kohl, Chairman of the Subcommittee, presiding. 

Present: Senators Kohl, Klobuchar, Franken, Blumenthal, Lee, 

and Grassley. 

OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR 

FROM THE STATE OF WISCONSIN 

Chairman KOHL. Good afternoon. Today we meet to consider a 

merger in an industry that is central to the way prescription drugs 

reach the market and the prices health plan sponsors and ultimately consumers pay for these drugs. 

Express Scripts and Medco, two of the Nation’s three largest 

pharmacy benefit managers, known as PBMs, seek to merge, forming the Nation’s largest PBM. If this merger goes forward, the combined company will administer 1.14 billion prescriptions annually 

and would handle 41 percent of all prescriptions administered by 

PBMs. It would be nearly two times larger than its nearest competitor, CVS Caremark. 

Over the past decade, PBMs have become major players in the 

health care industry. By one estimate, 90 percent of individuals 

with prescription drug coverage receive benefits through a PBM, 

and PBMs handle approximately two-thirds of all prescriptions 

written in our country. PBMs serve as middlemen between drug 

manufacturers, pharmacies, and health plan sponsors. 

PBMs do everything from negotiating the prices health plan 

sponsors pay for drugs to setting the prices pharmacies are reimbursed for dispensing drugs. They also decide which specific drugs 

make it onto formularies eligible for reimbursement. 

In addition to all of these functions, Express Scripts and Medco 

would control about a 60-percent share of the mail-order pharmacy 

business which ships drugs in bulk directly to consumers. 

Finally, these two PBMs operate ‘‘specialty pharmacies,’’ pharmacies that carry drugs used for the treatment of the most rare 

2 

and challenging ailments. They would together control over 50 percent of the specialty market after the merger. 

Express Scripts and Medco argue that this merger will be beneficial to health plan sponsors and ultimately consumers. They claim 

that the combined company’s scale would give it substantial buying 

power to drive down drug prices. The merger’s critics, however, 

worry about the consequences of consolidating two major rivals in 

this very important industry. They question whether the drug price 

savings that the PBMs claim they will achieve will indeed be 

passed along to plan sponsors and their benefits or whether they 

will just go into the pockets of PBM shareholders. 

This merger, as critics argue, will also reduce from three to two 

the number of large PBMs that serve the Nation’s largest employers. Currently, 42 of the top Fortune 50 companies utilize Express 

Scripts, Medco, or CVS Caremark as their PBM. Reducing the 

number of competitive choices from three to two raises the dangerous possibility that these large companies will have little choice 

but to pay more for PBM services. 

The merging companies argue that there are many other PBMs 

beyond the Big Three that bid to provide PBM services to large employers. However, many large companies appear to prefer the range 

of services offered by the three large PBMs and do not seriously 

consider smaller PBMs. 

In this regard, it is notable that no large employer who privately 

expressed concerns to us wished to testify at today’s hearing, often 

telling us that they feared retaliation from the large PBMs with 

whom they must do business. 

We are also aware of the concerns expressed by pharmacies, both 

large chain drug stores and small community pharmacists, of what 

they believe are likely harmful effects of this deal. Pharmacists believe that the PBMs will force consumers to use mail-order services 

and squeeze the reimbursement rates pharmacies receive from 

PBMs. 

Question: Will pharmacists be able to compete in this new marketplace? Will consumers suffer the loss of in-person services and 

consultations offered by traditional pharmacists? Or, as the PBMs 

contend, will this merger wring inefficiencies out of the system of 

dispensing and paying for prescriptions to the benefit of consumers 

and the health care system overall? 

We have no doubt that this merger will be good for Express 

Scripts and Medco and for their shareholders. It is very likely that 

the merging companies will be able to gain efficiencies from merging their overlapping operations. But while this merger may serve 

these two companies’ private interests, our job on the Antitrust 

Subcommittee is to examine whether this merger will serve the 

public interest and whether it will benefit or hurt competition and 

consumers. 

There is no question that this merger will have far-reaching and 

long-lasting effects on the way prescription drugs are paid for, sold, 

and dispensed. So the burden will be squarely on Express Scripts 

and Medco to convince us that this merger will not unduly harm 

competition but, in fact, will benefit the millions of consumers who 

continue to face rising prescription drug costs. 

3 

Let me now turn to our Ranking Member, Senator Mike Lee, for 

his statement. 

STATEMENT OF HON. MIKE LEE, A U.S. SENATOR FROM THE 

STATE OF UTAH 

Senator LEE. Thank you, Mr. Chairman. Each year Americans spend over $300 billion on prescription 

drugs, and that number is only growing. At a time when businesses 

are strapped for cash, many employers spend as much as 12 percent of their entire budgets on employee health benefits, including 

coverage for prescription drugs. 

This hearing addresses an important issue relative to the cost of 

prescription drugs in the United States. Pharmacy benefit managers, or PBMs, although relatively unknown to the general consuming public, play a prominent role and an integral role in our 

health care system. Many consumers have never heard of PBMs, 

but most, indirectly at least, interact with a PBM each and every 

time they visit a pharmacy. 

The consumer gives a co-payment and receives a medication 

while the pharmacist seeks reimbursement from a PBM for the remaining balance. The PBM in turn submits a claim for payment of 

the drug to the health plan sponsor, in most cases the consumer’s 

employer. In this manner, over 250 million Americans receive prescription drug coverage from their employer, union, or the Government through a PBM, with consumers receiving medications at a 

local pharmacy or perhaps through the mail. 

Employers or other health plan sponsors pay PBMs a fee for 

their work in administering the details of a prescription drug plan. 

In addition, PBMs make money by keeping a portion of the difference between the price between what the employer pays for the 

PBM for a drug and what the PBM pays the pharmacy for dispensing that same drug. PBMs also keep a portion of the drug rebates they receive from drug manufacturers and generate profits 

from their in-house, mail-order, and specialty pharmacies. 

There are over 40 PBMs in the country today, but there are only 

a few large ones. Two of the largest PBMs, Express Scripts and 

Medco, have announced their intention to merge. This is a transaction of sufficient size to merit the review of antitrust enforcement 

agencies. It has also attracted the attention of this particular Subcommittee. 

I note at the outset that the very nature and value of PBMs is 

not without some dispute. Critics argue that PBMs are massive 

corporate middlemen who care only about profits. PBMs under this 

view seek to dominate the prescription drug market, run retail 

pharmacies out of business, and automate the world of prescription 

drugs until consumers have only a non-live person to call, basically 

a 1–800 number, to consult for advice about their medications. 

But those favorable to PBMs suggest and point out that they do 

provide a valuable administrative service without which the delivery of prescription drug services would be much less effective and 

would cost employer-sponsored health plans up to 30 percent more 

each year. 

PBMs claim that they are intensely interested in providing more 

than just medication, that their innovative clinical programs reduce 

4 

overall health care costs by increasing patient adherence to drug 

regimens, and improving the overall health approach of their clients’ employees. 

Whatever one’s overall view of PBMs, I hope that our discussion 

today can focus on the merits of this proposed merger from the perspective of antitrust. To do so, we must focus our attention on ensuring that the market in which PBMs operate is truly competitive, 

and in that regard, we would do well to remember the insight 

made famous by Robert Bork’s seminal work, ‘‘The Antitrust Paradox’’: Competition must be understood as the maximization of consumer welfare. 

Competition ensures that consumers receive the lowest prices 

and the best services. In the context of PBMs, competition can 

drive innovation as PBMs battle one with another to offer prospective clients the best pharmacy network options and clinical management, in addition to cost savings. Insufficient competition may 

result in higher prescription drug prices for consumers as well as 

pharmacies being so squeezed for revenue that they are unable to 

provide the quality of services that consumers presently enjoy. 

Throughout this hearing, we must also keep in mind the unique 

challenges and opportunities present in our health care market. As 

former Secretary of Health and Human Services Michael Leavitt 

recently noted, ‘‘Lack of coordination in providing health care is a 

major contributor to overspending. Recently combined health services companies understand that to develop the capacity to improve 

health care and reduce costs, they must scale and innovate in order 

to achieve needed efficiencies for payers and providers.’’ 

To properly focus our antitrust analysis for this hearing today 

and to maximize consumers’ welfare in terms of prices, service, and 

quality, we must ensure that PBMs operate in a robustly competitive market while at the same time allowing for the type of consolidation and efficiency that drives innovation and cost savings. 

Thank you, Mr. Chairman. 

Chairman KOHL. Thank you, Senator Lee. 

Senator Grassley. 

STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR 

FROM THE STATE OF IOWA 

Senator GRASSLEY. I appreciate the opportunity to give a short 

statement. I wanted to explain to you and to our witnesses that 

sometime between 3:30 and 4, I am going to have to go to the other 

side of the Hill to work on a problem with military hospitals, so 

if I do not get a chance to ask questions, I will be submitting questions for answer in writing. 

Thank you for holding this hearing. Whether people know it or 

not, this proposed merger will affect them. Prescription drugs are 

a daily part of many folks’ lives. How these drugs are paid for and 

determining who gets paid what is a complex process. At the heart 

of all of this are pharmacy benefit managers. 

The combination of Express Scripts and Medco would create a 

company that processes almost one-third of all PBM-administered 

prescriptions. Basically one in four individuals who receive prescription drugs through a health plan will be impacted. So this is 

a very important matter, and so this is why the Federal Trade 

5 

Commission is taking a look at it, and I expect that the Commission will examine this merger regularly, as they should. 

Today this Committee has an opportunity to hear some practical 

concerns with the merger in a public forum. I am sure there will 

be much discussion on the legal issues that will be part of the Federal Trade Commission’s review. However, we get the chance here 

at this hearing to listen to those who support and those who oppose 

the proposed merger. I expect the discussion will be very helpful 

and informative to us in the Congress as well as to the FTC, where 

the final decision will be made. 

I have heard from a large number of Iowa pharmacists who raise 

concerns. I am interested to hear about the effects that this merger 

will have on them and Iowa consumers. There are also transparency and competition issues that deserve discussion, and today 

is a great opportunity to do that, although those issues of transparency and competition have been around for a long period of time 

before this proposed merger came up. 

So, again, I thank you for holding this very important hearing, 

Mr. Chairman. Thank you. 

Chairman KOHL. Thank you very much, Senator Grassley. 

Senator Franken. 

STATEMENT OF HON. AL FRANKEN, A U.S. SENATOR FROM 

THE STATE OF MINNESOTA 

Senator FRANKEN. Thank you, Chairman Kohl, for holding this 

important hearing, and thank you so much for letting me say a 

couple words about this merger. Like Senator Grassley, I need to 

leave this hearing early, in my case to preside, and, unfortunately, 

I too may not be able to ask questions to the panel directly, but 

if that is the case, I will submit them in writing, and I thank you 

all for being here, by the way. 

This is a very large and a very complex merger, and I have been 

hearing a tremendous amount about the potential impacts of this 

merger, both positive and negative, from a wide variety of Minnesotans, so I wanted to say a couple of words. 

I should note at the outset that Express Scripts has a very large 

presence in my State and employs over 1,000 Minnesotans in very 

good, well-paying jobs, and this means a lot to me and to Senator 

Klobuchar. And it is something that I have been weighing while 

looking at this merger, as you can well imagine. 

But I have also heard from a significant number of pharmacists 

across Minnesota, including rural pharmacists, who provide the 

only outpatient pharmacy option in their towns, as well as from the 

Minnesota Pharmacists Association. These pharmacists oppose the 

merger and have told me that they are very concerned that the 

merger may force them to shut their doors. 

I have also heard from other companies with a significant presence in Minnesota, like Super Value, which employs 8,600 Minnesotans. These companies are telling me that this merger will 

force more patients into mail order and will reduce options and resources for patients who often need the face-to-face advice and consultation that only a pharmacy can really offer. And while this primary question that we are examining is the effect that this merger 

will have on competition, I cannot ignore the potential effect, obviVerDate Nov 24 2008 10:03 Mar 15, 2012 Jkt 072806 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\72806.TXT SJUD1 PsN: CMORC
6 

ously, that it would have on the quality of health and health care 

that Minnesotans receive. 

I am particularly concerned that this type of consolidation will 

leave very few options for large employers who often rely on the 

Big Three PBMs to manage and administer their complex prescription drug plans. The Fortune 50 and Fortune 100 firms cover millions of Americans. If this merger will ultimately mean less choice 

for those companies, that is something we need to be concerned 

about, and it is something that I hope the FTC is closely examining. In fact, I am quite certain they are. 

I have listened to Express Scripts’ arguments that combining 

with Medco will translate into significant discounts from drug manufacturers and will ultimately mean lower rates from employers. 

We are living in a world with spiraling health care costs, so I am 

interested in hearing more about how this merger may make a 

dent in those costs. But I am most interested in hearing how Express Scripts can guarantee that those cost savings will be passed 

down to its customers and will not just result in higher profits for 

the company. 

This is, as I said, Mr. Chairman and Mr. Ranking Member, a 

very complex industry, and I am looking forward to hearing from 

both sides about the pros and cons of this merger. And as I said, 

if I have to leave before it is time for my questions, I will definitely 

submit questions for the record. 

Thank you again, Mr. Chairman, for holding this hearing and for 

letting me deliver this brief opening statement. Thank you. 

Chairman KOHL. Thank you very much, Senator Franken. 

Senator Blumenthal, a few words from you. 

STATEMENT OF RICHARD BLUMENTHAL, A U.S. SENATOR 

FROM THE STATE OF CONNECTICUT 

Senator BLUMENTHAL. Thank you very much, Mr. Chairman. I 

want to join in thanking you for this hearing, which I think addresses a critical area in our economy and in our health care industry and system. And like Senator Franken, I thank you for being 

here. 

It is a complex industry, but it will be judged by the same standards, antitrust and pro-competition standards, as any other complex industry is judged. And my guess is that you will have to be 

open to modifications in the deal that you have reached, as happens in many of these mergers, or proposed mergers at this point. 

Obviously, this industry is among the most lucrative in the country. It is increasingly profitable. The question is: How will consumers be protected from overreaching and excessive profits that 

are at the expense of competition? 

One issue is whether consumers will be driven to mail-order 

services, as has happened, for example, in Connecticut. That is a 

big concern not only to the pharmacies that may be affected but 

also to consumers who may have choices constricted. And ultimately competition is about choices, and the impact of this proposal 

on choices for consumers will be very, very important. 

So understanding all these issues requires an understanding of 

the concentration in the PBM market that will result, particularly 

among large employers, as well as the incentives for employers to 

7 

affirmatively seek out mail-order options, and I look forward to 

hearing more from all the witnesses about all of these issues. 

Thank you very much, Mr. Chairman. 

Chairman KOHL. Thank you very much, Senator Blumenthal. 

Now I will introduce our witnesses on this panel. 

First to testify will be George Paz. Mr. Paz is Chairman and 

CEO of Express Scripts, a position he has held since 2006. Mr. Paz 

first joined Express Scripts in 1998 as senior vice president and 

chief financial officer. 

Next to testify today will be David B. Snow, Chairman and CEO 

of Medco Health Solutions. Mr. Snow joined Medco in March of 

2003 after serving as president and chief operating officer at Empire Blue Cross Blue Shield. 

Next we will be hearing from Scott Streator. Mr. Streator is the 

Associate Vice President of Business Development at The Ohio 

State University Medical Center. Previously he served as the Director and National Account Executive at Medco. 

Our next witness who will testify today will be Susan L. Sutter, 

co-owner of Marshland Pharmacies, which includes facilities in 

Horicon, Mayville, and Beaver Dam, Wisconsin. She has an outstanding reputation in our State, of which I am very much aware. 

She has served as president of the Pharmacy Society of Wisconsin 

and was chairperson for the Wisconsin Pharmacy Examining 

Board. 

Our next witness will be Michael J. Bettiga. Mr. Bettiga is the 

Executive Vice President and Chief Operating Officer of Shopko 

Stores Operating Company, headquartered in Green Bay, Wisconsin. Mr. Bettiga served as board chair of the Wisconsin Pharmacy Examining Board. 

Our final witness today will be David A. Balto, an antitrust attorney in Washington, D.C., who has previously served as policy director at the Federal Trade Commission. Mr. Balto will be testifying on behalf of Consumers Union, Consumer Federation of 

America, National Consumers League, U.S. Public Interest Research Group, and the National Legislative Association on Prescription Drug Prices. 

We thank you all for appearing at this Subcommittee hearing 

today, and I will ask you all to stand and raise your right hand 

as I administer the oath. Do you affirm that the testimony you are 

about to give before this Committee will be the truth, the whole 

truth, and nothing but the truth, so help you God? 

Mr. PAZ. I do. 

Mr. SNOW. I do. 

Mr. STREATOR. I do. 

Ms. SUTTER. I do. 

Mr. BETTIGA. I do. 

Mr. BALTO. I do. 

Chairman KOHL. Thank you so much. 

We will turn now for opening statements, first, Mr. Paz, will you 

please restrict yourself, if possible, to 5 minutes. 

8 

STATEMENT OF GEORGE PAZ, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, EXPRESS SCRIPTS, INC., ST. LOUIS, MISSOURI 

Mr. PAZ. Mr. Chairman, Ranking Member Lee, and members of 

the Subcommittee, you have my formal testimony for the record, so 

let me briefly summarize my vision of what the combination of 

these two great companies will do. We will lower drug costs that 

are far too high and improve health outcomes for consumers. 

Chairman Kohl, I know you have worked long and hard in the 

Senate to make prescription drugs more affordable for customers. 

We share that goal, and this merger will do exactly that. 

As the big drug companies merge, as large chain drug stores buy 

up their competition and demand higher prices, we must become 

more effective representing the interests of plan sponsors and consumers. Patients, not profits, must come first. 

It is the plan sponsors that pay the majority of the cost of drugs 

and provide the drug benefits for our citizens. It is their money everyone here today should be concerned about protecting. 

Mr. Chairman and members of the Subcommittee, I want to 

highlight three key points: first, PBMs improve patient safety and 

adherence; second, PBMs save plan sponsors and consumers 

money; and, third, PBMs drive out waste, fraud, and abuse. 

As health care spending continues on an unsustainable trajectory, pharmacy benefit managers have reduced drug costs by 30 

percent or more. Each year through innovative technology and 

products, these savings are passed on to plan sponsors and consumers. We negotiate with the big drug manufacturers and retail 

pharmacies across the United States to get the best possible price 

for our clients. Our business model is one of alignment. We make 

money when plan sponsors and consumers save money. The union 

of our companies will accelerate our ability to do just that. 

The Federal Trade Commission has found this type of bargaining 

power pro-competitive when it allows a buyer to reduce its cost and 

decrease prices to consumers. Let me be clear. This merger will in 

no way decrease the dynamic marketplace within which we operate. 

Mr. Chairman, we do not make decisions on behalf of our plan 

sponsors or consumers. We offer options. It is a plan sponsor’s decision whether to promote home delivery. It is a consumer’s decision 

whether to use home delivery or go to a retail pharmacy. In fact, 

the average American consumer uses multiple pharmacies on a 

regular basis. Our mission is to reduce the cost of prescription 

drugs, and that involves measured, tough negotiations with retail 

pharmacies and pharmaceutical manufacturers. 

The GAO found that the average price PBMs negotiated for 

drugs was 18 percent below the average cash price retail customers 

pay. Mail-order pharmacies reduce the price of medications by 27 

percent over the cash price paid for branded products and 53 percent for generics. 

When you consider our role, the most frequent interaction we 

have with a consumer is at the retail pharmacies across the country. Before a consumer ever receives their medicine, my company 

runs over 100 safety checks through our innovative advanced techVerDate Nov 24 2008 10:03 Mar 15, 2012 Jkt 072806 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\72806.TXT SJUD1 PsN: CMORC
9 

nologies. This is critical because the PBM is the only one with visibility across all pharmacies used by the consumer. 

Our systems identify and prevent dangerous drug interactions 

across all these pharmacies. In addition, our contracts save retail 

pharmacies $7.3 billion a year in bad debt because we guarantee 

their payment. 

Finally, everyone knows that health care costs are skyrocketing 

and need to be better managed. Our continued investments in innovation will improve patient adherence, expand the use of lower-cost 

generics, and develop more efficient delivery of medicines. 

Just yesterday a new economic analysis was released showing 

Express Scripts’ and Medco’s innovative strategic platforms have 

reduced health care expenses by up to $87 billion a year, $20 billion of which accrues to the Federal Government. 

The merger of our two companies will provide significant opportunities for further cost savings. It is important to note that every 

1 percentage point reduction in drug costs generates enough savings to fund 20,000 new jobs in the United States. 

In closing, let me say that the combined organization will continue to lower costs for plan sponsors and consumers, drive out 

waste, and improve safety and health outcomes. That is our vision, 

and we are committed to achieving it. 

Thank you, Mr. Chairman and members of the Subcommittee. 

[The prepared statement of Mr. Paz appears as a submission for 

the record.] 

Chairman KOHL. Thank you, Mr. Paz. 

Mr. Snow. 

STATEMENT OF DAVID B. SNOW, JR., CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, MEDCO HEALTH SOLUTIONS, INC., 

FRANKLIN LAKES, NEW JERSEY 

Mr. SNOW. Chairman Kohl, Ranking Member Lee, and members 

of the Committee, thank you for the opportunity to discuss the proposed merger of Medco Health Solutions and Express Scripts. My 

name is David Snow, and I am the Chairman and CEO of Medco 

Health Solutions. Medco is an industry leader in advanced pharmacy. We employ thousands of medical professionals, including 

more than 3,000 pharmacists and more than a hundred nurses. We 

deliver a portfolio of clinical and administrative solutions that create value for private and public employers, health plans, labor 

unions, and Government agencies of all sizes, as well as older 

Americans served by Medicare Part D drug plans. We take great 

pride in the innovations Medco has created to improve clinical outcomes at reduced cost. 

Everyone recognizes that the ever rising cost of health care in 

America is unsustainable. The need is insatiable, our resources are 

not. By merging Medco with Express Scripts, we will significantly 

accelerate our ability to improve patient care and reduce overall 

costs across the health care system. So let me get right to what I 

think we all agree drives affordability and quality in health care: 

clinical excellence and competition. 

In our country, 50 percent of the entire population has one or 

more chronic or complex diseases. This 50 percent of the population 

consumes 96 percent of the total dollars spent on prescription 

10 

drugs and 75 percent of the total dollars spent in our entire health 

care system. Remarkably, we know that on average 65 percent of 

patients stop following the drug treatment protocol their doctor 

prescribes within 1 year even though their disease is lifelong. This 

lack of adherence leads to devastating patient outcomes and avoidable costs to our system estimated to total more than $290 billion 

annually. 

We at Medco are particularly proud of the advanced clinical care 

standard we have developed specifically to address the needs of patients with chronic and complex conditions. This clinical care revolves around what we call therapeutic resource centers, or TRCs. 

Our TRCs include more than 1,000 specialist pharmacists who use 

evidence-based clinical protocols to ensure patients are taking the 

right medicines and helping them overcome barriers to adherence. 

Our pharmacists are available 24/7 to counsel patients and to consult with physicians. 

The results are impressive. In 2010 alone, our TRCs closed more than 2.3 million gaps in care with an estimated $900 million in 

savings from reduced hospitalizations, avoided emergency room visits, and the elimination of other medical expenses. Our larger goal 

as a Nation should be to save the $290 billion a year I mentioned 

earlier by addressing medications that are underprescribed, 

misprescribed, or simply not taken as directed. 

Many people do not realize that the only part of our Nation’s 

health care system that is fully wired today is ambulatory prescription drugs. PBMs have accomplished this, and Medco’s innovations 

have leveraged that fact. Our merger will only further accelerate 

the transition to wired health care, significantly improving communications among patients, physicians, and pharmacists. 

Now I want to briefly touch on our competitive environment. 

There are not three or four or five or even ten major PBMs. There 

are more than 40, all competing to provide differentiated value 

propositions. Today at least ten PBMs serve Fortune 50 companies. 

Seventeen serve Fortune 500 companies, and at least nine PBMs 

serve large State accounts. Additionally, nine Fortune 500 companies operate their own PBMs for their employees, and all PBMs are 

not alike. Some are integrated with retail pharmacies, like CVS 

Caremark. Some are part of managed care organizations, like 

UnitedHealth, Aetna, CIGNA, and Prime Therapeutics. And others 

are entirely independent, such as Catalyst Rx, MedImpact, and 

SXC. 

How fierce is the competition? While Medco has enjoyed much 

success since it went public in 2003, the marketplace is undergoing 

significant change. As but one example, for our plan year 2012, 

Medco has lost $10 billion in business, losing 40 clients to more 

than 15 different PBMs. These are the facts, and they dispel the 

notion that the combination of Medco and Express Scripts represents a threat to consumer and client choice. The reality is that 

the PBM business is extremely competitive today, and competition 

will only be enhanced, not diminished, by our merger. 

In conclusion, there is enormous opportunity to improve health 

care outcomes while reducing health care costs. Medco and Express 

Scripts are committed to continuing the pursuit of real solutions. 

Our efforts will only be accelerated by this merger. 

11 

Mr. Chairman, Ranking Member Lee, and members of the Committee, thank you for receiving my testimony. I would be happy to 

address any questions you may have. 

[The prepared statement of Mr. Snow appears as a submission 

for the record.] 

Chairman KOHL. Thank you very much, Mr. Snow. 

Mr. Streator. 

STATEMENT OF SCOTT E. STREATOR, ASSOCIATE VICE PRESIDENT, BUSINESS DEVELOPMENT, THE OHIO STATE UNIVERSITY MEDICAL CENTER, COLUMBUS, OHIO 

Mr. STREATOR. Chairman Kohl, Ranking Member Lee, and members of the Subcommittee, my name is Scott Streator, and I am 

honored to testify on the proposed ESI/Medco merger. 

My testimony will reflect over 20 years of experience in health 

care and the PBM industry and most recently serving as a CEO 

of The Ohio State University Health Plan. This testimony is my 

own. It does not represent an official position of The Ohio State 

University. I will, therefore, provide a multifaceted perspective 

from all industry angles as a payer, a plan administrator, and a 

provider. 

In short, it is clear to me the ESI/Medco merger will further 

spawn competition that can lead to lower pharmaceutical costs for 

payers and consumers. Therefore, I am in favor of this merger. 

The three sources of greater competition are: one, existing PBMs; 

two, health plans; and, three, emerging business models as a result 

of health and payment reform. I will provide a brief summary of 

each of these and several key market forces. 

First, greater competition from the PBM industry. There are a 

growing number of PBM options that have evolved secondary to 

strategic acquisitions that have now developed a robust infrastructure. Now these PBMs can support both small and large employers 

as a result, and they are gaining market share. Several companies 

are listed in my written testimony as examples. 

Further, as the barriers to entry in the PBM market have decreased, new PBM entrants will emerge. Meanwhile, irrespective of 

the size of the PBM, end payers, like those in our Rx Ohio Collaborative, are developing innovative, transparent contracting initiatives with a single PBM to increase their purchasing value. 

For example, at Ohio State University, as one employer in our 

collaborative, we realized $10 million savings, or 9 percent, and are 

currently experiencing a negative 0.4 percent per capita drug trend 

with Express Scripts. 

Now, while there are certain advantages of a large PBM, smaller 

PBMs and health plans can be more agile in implementing costsavings programs that can far exceed discounts. While some estimate the combined entity could approach 50 percent of the specialty or biologic market, it is important to note that half the specialty drugs and many future FDA-approved biologics can only be 

distributed and administered at outpatient settings. Moreover, the 

pharmaceutical industry has complex distribution and storage requirements that has narrowed their distribution channels, making 

it less feasible to obtain a biologic at the community pharmacy for 

a consumer. 

12 

In terms of impact on community pharmacy, PBMs contract with 

community pharmacies on behalf of plan sponsors to form a provider network. While plan sponsors make benefit decisions, not the 

PBM, consumers should be given choice of their preferred distribution channel, mail or retail. Medicare Advantage is one example. 

Medicare Advantage plans offer a 90-day retail supply that provides competition to Express Scripts, Medco, and any other PBM 

mail pharmacy channel. 

The second source of greater competition is from health plans or 

health insurers. In today’s new health reform environment, insurance carriers may increasingly decide to in-source the PBM function as evidenced by UnitedHealthcare’s recent business decision. 

Thus, insurance carriers like United, Humana, CIGNA, and various Blue Cross Blue Shields can now offer a competitive alternative to stand-alone PBMs by using their in-house PBM. 

Further, with a likelihood of insurance exchanges emerging for 

individual and small-group markets, the in-sourced PBM offering, 

coupled with the health insurer, may be an attractive offering to 

some employers. 

This leads me to my final point and third source of increased 

competition: emerging business models resulting from health payment reform. 

Regardless of what ultimately happens with the Affordable Care 

Act, it is clear the current fee-for-service reimbursement model is 

evolving from ‘‘payment for volume’’ to ‘‘payment for value.’’ How 

will new financial models alter the PBM landscape? While the answer is unclear at this time as patient-centered medical homes and 

the emerging accountable care types of organizations grow, managing costs of pharmaceuticals in a silo will be de-emphasized 

versus effective medication therapy management across the entire 

care continuum. Thus, both community pharmacy and PBMs can 

play a vital role, supporting the physician by reviewing and recommending therapies in a given population. We need both community 

pharmacists and the PBM industry for clinical integration of care. 

In conclusion, greater competition from PBMs and health plans 

is emerging and will continue to advance as a result of the proposed ESI/Medco merger. Lower costs can be generated with greater competition, and thus I support the proposed merger. Moreover, 

the impact of the Affordable Care Act and health exchanges will 

provide new opportunities for current and emerging business models. 

New reimbursement models will be shifting greater financial risk 

from insurers to the physician and hospital level. Thus, the PBM 

landscape will be altered so that the size of the PBM may be less 

important than the ability to manage and coordinate care at the individual and population level. 

Thank you, Mr. Chairman, Ranking Member Lee, and the entire 

Subcommittee for this opportunity. 

[The prepared statement of Mr. Streator appears as a submission 

for the record.] 

Chairman KOHL. Thank you, Mr. Streator. 

Ms. Sutter. 

13 

STATEMENT OF SUSAN L. SUTTER, CO-OWNER, MARSHLAND 

PHARMACIES, HORICON, WISCONSIN 

Ms. SUTTER. Thank you. Chairman Kohl, Ranking Member Lee, 

and members of the Subcommittee, thank you for conducting this 

hearing and providing me the opportunity to share my views regarding the proposed Express Scripts/Medco merger. I am Sue Sutter from Horicon, Wisconsin, and I co-own three independent community pharmacies in rural Dodge County. I am representing the 

National Community Pharmacists Association, which represents 

pharmacy owners, managers, and employees of more than 23,000 

independent pharmacies. Today I join consumer groups and other 

small business groups to oppose the proposed merger. If the FTC 

allows this merger, it will make an already bad situation even 

worse for small pharmacies and the patients we serve. 

The PBM marketplace today is already extremely concentrated 

with the Big Three PBMs dominating the large employer market. 

Allowing two of the Big Three to merge will result in unparalleled 

market concentration in the PBM industry with the merged single 

entity controlling anywhere from one-third to two-thirds of all prescriptions filled in community pharmacies. This market dominance 

and significant reduction in competition will result in reduced 

choices for Federal and State programs and other third-party payers, decreased patient access to community pharmacy services, and 

ultimately lead to higher prescription costs. 

So why are we so concerned? PBMs directly set the reimbursement rates for community pharmacies, and then for us it is takeit-or-leave-it. We are the same pharmacies that are in direct competition with the PBM-owned mail-order pharmacies. Therefore, it 

is no surprise these PBMs try to shift their patients to their mailorder pharmacies, often against our patients’ wishes. 

Let me state this again. There is absolutely no negotiating. And 

we are not crying wolf. If Walgreen’s with 7,000 pharmacies in this 

country has dropped out of the Express Scripts network because 

they could not negotiate fair terms, how can an independent pharmacy have any chance against these corporate giants? And the 

merger will make it even harder for us to push back. 

Express Scripts and Medco have claimed that, merged, they will 

create greater efficiencies in the pharmaceutical supply chain. They 

claim they can do this by squeezing manufacturers and pharmacies. Well, you will have to speak to the manufacturers, but I 

can tell you there is nothing else left to squeeze with us. Our pharmacies operate on a 2- to 3-percent net profit margin before taxes. 

In fact, the number of independent pharmacies operating at a loss 

is now 25 percent. 

Even if greater efficiencies were to be created, there are no assurances that these savings would be passed along to plans and 

consumers. Keep in mind that the PBM industry is virtually unregulated and has a long record of enforcement actions alleging 

fraudulent and deceptive conduct. 

The proposed merger would create the largest mail-order pharmacy in the United States, accounting for close to 60 percent of all 

mail-order prescriptions processed, and allow the merged entity to 

corner the market on specialty drugs. Currently, the top PBMs already dominate this market due to the fact that many times they 

14 

prevent community pharmacies from filling these prescriptions and 

direct these highly lucrative prescriptions to their own mail-order 

pharmacies. This new merged entity would immediately own 52 

percent of that market. There is no reason a community pharmacist cannot dispense specialty medications, other than that the 

PBMs’ design state that we cannot. It is just the newest form of 

anticompetitive behavior we have been dealt by the PBM industry. 

This merger will put us at greater risk, yet your neighborhood 

community pharmacists are truly safety net health care providers 

for their patients. Here is just one of my own examples. 

Twice in the last couple of weeks, I have assisted transplant patients by contacting their physicians and dispensing a needed supply of their medications because it had not arrived from the mailorder pharmacy. Now, if the mail-order pharmacy is so interested 

in patient care, why wasn’t one of their pharmacists on the phone 

to me making sure that patient got the needed supply? 

In conclusion, this proposed merger would: reduce competition in 

the delivery of pharmacy benefits in this country; reduce patient 

choice; and mandate using mail-order pharmacy instead of their 

trusted community pharmacist; and, finally, threaten the very existence of community pharmacies. 

I appreciate the opportunity to address the Committee today. I 

will be happy to answer any questions you might have. Thank you. 

[The prepared statement of Ms. Sutter appears as a submission 

for the record.] 

Chairman KOHL. Thank you, Ms. Sutter. 

Mr. Bettiga. 

STATEMENT OF MICHAEL J. BETTIGA, CHIEF OPERATING OFFICER AND EXECUTIVE VICE PRESIDENT, SHOPKO STORES 

OPERATING COMPANY, LLC, GREEN BAY, WISCONSIN 

Mr. BETTIGA. Mr. Chairman, Ranking Member Lee, and members of the Subcommittee, thank you for the opportunity to testify. 

My name is Mike Bettiga, and I am the chief operating officer of 

Shopko, which is a retail merchandise company based in Green 

Bay, Wisconsin, which operates 149 stores throughout 13 States, 

all of which have pharmacies. Fifty-seven of these pharmacies 

serve patients in the great State of Wisconsin. 

Shopko is also a proud member of the National Association of 

Chain Drug Stores on behalf of which I am testifying today. Shopko 

is concerned about this merger both as a provider of pharmacy 

services and as an employer of 15,000 employees. 

As a pharmacist who has worked in community pharmacy for almost 35 years, I have grave concerns about this proposed merger. 

It would be a tipping point in PBM market consolidation, harming 

patients as well as Government and private health plans and employers. There is only one stakeholder that would benefit, and that 

is the new mega PBM. 

Since the proposed merger was announced, many Members of 

Congress, consumer groups, State insurance commissioners, State 

Attorneys General, and State legislators have all expressed concerns to the Federal Trade Commission. Indeed, just last week, the 

nonprofit American Antitrust Institute wrote the FTC asking it to 

enjoin this merger. This would be a merger of two of the Big Three 

15 

PBMs. If approved, nearly 135 million Americans would rely on 

this mega PBM to manage their prescription benefits. It would control over 40 percent of the national prescription volume, 60 percent 

of the mail-order pharmacy market, and an excessive amount of 

the specialty pharmacy market. 

Patients in particular would be harmed. They will experience reduced or no choice of their pharmacy providers. More consumers 

would be forced into using the PBMs’ own mail-order facilities. 

They will see decreased or limited access to essential pharmacy 

services. They will experience separation of their prescription medication records that could result in potential adverse patient health 

outcomes. They will encounter disruption in normal, timely prescription service and as a result could potentially suffer decreased 

medication adherence. Reducing patient choice and access will lead 

to higher prescription drug costs, potential adverse patient outcomes, and higher downstream health care costs. 

When considering this merger, policymakers need to question 

whether or not PBMs actually reduce health care costs. There is 

little proof that PBMs pass along their purported savings to health 

plans, employers, or consumers. In fact, the PBM industry has 

been fraught with allegations of extensive deceptive and fraudulent 

practices. In recent years, cases brought by a coalition of over 30 

State Attorneys General have resulted in over $370 million in penalties. 

It has been found that PBMs have accepted rebates from manufacturers in return for placing higher-priced medications on prescription drug plans’ formularies, switched customers to the higherpriced drugs, and benefited from both the rebate received and the 

higher-priced drug payment without passing along this enrichment 

to the health plan or the employer. 

At Shopko, we are proud of our firm commitment to serving the 

needs of all the patients in our communities. However, being able 

to continue serving the prescription and health care needs of our 

customers and our neighbors has been threatened by the one-sided 

nature of pharmacy agreements with PBMs. We have seen firsthand the unilateral nature of these contracts. They are allowed to 

establish the basis of cost for prescription medications and to 

change that basis of cost with limited or no notice, especially for 

generic medications. Claims submitted to the PBM and approved 

are routinely reviewed retroactively, and payment is recouped due 

to inaccuracies in the PBM claims adjudication systems. My company experiences these and other PBM injustices each and every 

day, and this is bound to worsen if this proposed merger is not 

halted. 

Pharmacists help to ensure that patients understand their medications and take them as directed. Pharmacists increase the utilization of generics over brand-name prescription drugs. Pharmacists 

collaborate with doctors and other local health care providers to assist in medication decisions. 

Community pharmacies also provide critical cost-effective services like immunizations, disease state management and monitoring, and health education and screening programs. Together 

these services improve patients’ health and reduce health care 

costs. 

16 

In conclusion, PBMs already use a lack of transparency, failing 

to pass through rebates from drug manufacturers to consumers and 

other payers, inflating drug costs for health plans and employers, 

and lowering payments to pharmacies for their own personal financial gain. Patients would appear to be an afterthought. A mega 

PBM would have an increased ability to engage in similar egregious conduct to the detriment of consumers, payers, and pharmacy 

providers. 

Thank you for the opportunity to appear, and I welcome your 

questions. 

[The prepared statement of Mr. Bettiga appears as a submission 

for the record.] 

Chairman KOHL. Thanks, Mr. Bettiga. 

Mr. Balto. 

STATEMENT OF DAVID A. BALTO, ESQ., LAW OFFICES OF 

DAVID A. BALTO, WASHINGTON, DC. 

Mr. BALTO. Chairman Kohl, Ranking Member Lee, and other 

members of the Committee, thank you for giving me the privilege 

to testify today on behalf of the Nation’s leading consumer groups. 

We are here with a simple message. We are hear to answer Senator Blumenthal’s question: How can consumers be protected from 

overreaching? Senator Blumenthal, there is only one way, and that 

is for the FTC to go to court and to block this merger. 

The consumers wholly agree with the testimony of Ms. Sutter 

and Mr. Bettiga. Pharmacies play a critical role in health care delivery, and this merger will result in higher prices, less consumer 

choice, and lower quality of care. 

Let us start off by looking at the PBM market itself. As a former 

antitrust enforcer, I know you need three things for a market to 

work well—choice, transparency, and a lack of conflict of interest— 

and in all three regards, my testimony demonstrates that this market receives a failing grade. How do we know? Look at how the 

profits of the Big Three PBMs have skyrocketed over the past few 

years. They say they are the best friend of the health care plans, 

but they are pocketing an increasing portion. Those profits have increased over $6 billion a year. They are catching up with the 

health insurance companies in the United States. 

In terms of conflict of interest, it is the same problem, Senators 

Grassley and Kohl, you have focused on in group purchasing organizations. They have a conflict of interest because they have their 

own operations which they favor, disadvantaging consumers. That 

is why 30 State Attorneys General, including Senator Blumenthal, 

brought cases against each of these PBMs. 

The critical antitrust issue here, or one of them, is whether or 

not the market is these 30 or 40 PBMs or it is just the Big Three. 

The antitrust law is clear, though. A competitor is not somebody 

who just calls himself a competitor. A competitor is somebody who 

constrains the market, and in this case the market really is the Big 

Three. 

If you look at the second chart, you can see how the Big Three 

PBMs are phenomenally larger than the second-tier PBMs, and our 

testimony documents the advantages they have over the second tier 

PBMs. 

17 

But do not take our opinion. Listen to what the California pension system said about the relevant market. Look at page 6 of my 

testimony. This is what they said: ‘‘You can count the PBMs that 

can serve organizations of our size on your hand, a couple of fingers, maybe three, and they are frequently the subject of lawsuits.’’ 

That is what they said, and you do not need a Ph.D. in economics 

to know that when three go to two, consumers will be harmed and 

people will pay higher prices. 

Consumers care about this merger because if they live in rural 

areas served by people like Ms. Sutter, they are going to lose or 

get less service from their most trusted community professionals. 

Consumers care because they like the one-stop shopping they get 

when they go to Shopko. Consumers care because they can get 

cheaper prices when they go to supermarket pharmacies, like 

Super Value, which actually sell drugs at lower prices than you can 

get it through the PBM. 

Now, a particularly significant harm from this market is in the 

hundreds of thousands of patients who suffer from diseases that 

need specialty drugs, like hepatitis C, cancer, the transplant patient that Ms. Sutter mentioned. This merger gives these firms a 

dominant position in specialty. They are already using their market clout to keep independent specialty pharmacies out of the market. Giving them more clout will enable them to keep even more 

pharmacies out of the market. Why is that a difference? Because 

as far as we know, there is not a consumer who would prefer to 

deal with a 1–800 number or a robot instead of Ms. Sutter. 

Finally, let us deal with the question of efficiencies. They said 

there are significant efficiencies, and they came up with a study 

yesterday which said there were these astronomical cost savings 

from PBMs, and this basically recycled old information. What they 

did not tell you was what are the specific savings from this merger. 

What they did not tell you is how have the past mergers led to increased savings. We see how they have led to increased profits, but 

have they really saved consumers money? 

The law is clear. In a merger that significantly increases concentration, they must prove extraordinary efficiencies. Thirteen 

years ago, four drug wholesalers tried to merge, and they had the 

same efficiency arguments that these folks have, and the court rejected those claims for two reasons: 

First, with only two people left in the market, there was no guarantee those efficiencies would be passed on in lower prices to consumers. 

Second, competition was a better way for those efficiencies to 

come about. This is what Judge Sporkin said: ‘‘The history of the 

industry over the past 10 years demonstrates the power of competition to lower cost structures and garner efficiencies as well.’’ 

It is competition that makes this market work, and we should 

not allow these two firms to extinguish that competition. 

Thank you, and I welcome your questions. 

[The prepared statement of Mr. Balto appears as a submission 

for the record.] 

Chairman KOHL. Thank you, Mr. Balto. 

We will turn now to Senator Grassley for his 5 minutes. 

18 

Senator GRASSLEY. And I thank you, Mr. Chairman, for that 

courtesy so I can leave. 

My first questions are going to be to Mr. Paz and Mr. Snow, and 

prior to asking that question, I sent letters quite a while ago as 

part of my Physicians Payment Sunshine Act asking PBMs about 

transparency of any financial benefits that a PBM receives from 

pharmaceutical companies. So we are told that this merger would 

lead to increased efficiencies and savings which will be passed on 

to consumers. However, as has been my experience, for example, 

with GPOs, which Mr. Balto just announced—and Senator Kohl 

has been involved with that—there are serious questions about 

where savings actually flow. The issue of transparent becomes even 

more complicated when we consider allegations that PBMs have a 

conflict of interest in the way they operate. We are told more transparency is needed to ensure PBMs operate as honest brokers. If we 

have greater transparency in the process, then we would not be 

having this discussion. 

So I am interested in finding out how much transparency there 

is in the interactions between sponsors, PBMs, manufacturers, 

pharmacies, and consumers. 

So this question to either or both of you: How do you respond to 

allegations that PBMs who operate their own mail-order pharmacies, for example, cannot serve as an honest broker? And, second, what can PBMs do to ensure greater transparency to address 

allegations that I have given to you? And, you know, the extent to 

which it might sound like I share those allegations, I want information to know whether those allegations are right or wrong. I am 

trying to get information. 

Mr. PAZ. Yes, Senator. First of all, let us break it down into several different groups. We service our men and women in uniform. 

We are very proud to serve 10 million beneficiaries and active 

servicemembers. We administer that program on behalf of the Federal Government, and every component of that is transparent. They 

negotiate with us. They get the pricing, and it is all fully disclosed. 

With respect to Mr. Streator’s plan—and most all of our plans— 

these are called passthrough plans, so we negotiate on behalf of the 

retail pharmacies. What we do, Senator, is we bring together the 

buying power of all of our plans. Our plan sponsors are very sophisticated buyers, but they specialize in automotive; they specialize in manufacturing; they specialize in retail and all different 

walks of areas for which they provide services. 

What we do is we bring together their drug procurement side, 

and we negotiate on behalf of all of our plan sponsors to go get the 

best prices we can from the retail pharmacies. We also believe that 

the community pharmacist is very important to our business. They 

have to survive. Our job is to make sure that we find that right 

mix between taking price down as low as possible so our health 

plans and our plan sponsors can continue to allow for a benefit to 

their employees. A 10-percent, 20-percent health increase is not 

sustainable. We have got to address those issues and drive down 

prices. 

At the same time, we have to be cognizant of Ms. Sutter and all 

the other pharmacists out there that have to make a living and 

19 

have to provide a livelihood for themselves. And so we have to balance those. 

As far as transparency is concerned, all of our pricing is disclosed 

to our plan sponsors. Medicare Part D, all of the Medicare plans, 

it is regulatorily required, it is statutorily required, that all those 

prices and all those price points are disclosed. The same way with 

our clients. They know exactly what they pay us, and they get a 

full accounting of all the drug spend. 

With respect to mail, mail is a choice. Some plans are in dire economic straits today in these tough economic times. As I said in my 

prepared comments, mail service can save significantly over that of 

retail. It is not our decision. We cannot walk into any plan and tell 

them to do something. They choose. We give them a laundry list 

of options, and they choose what they want to do in order to save 

money and meet the needs of their employees, weighing access 

versus cost. 

The more narrow the network, the less pharmacies in a network, 

all the way down to mandatory mail, limits the number of players 

which can drive costs even further. It is the plan sponsor’s decision 

to decide where they need to be in order to meet the needs of that 

plan. 

So it is not really our choice, Senator. It is the choice of our plan 

sponsors on whether to choose mail. 

Senator GRASSLEY. OK. I will follow up with some questions in 

writing. 

Thank you, Mr. Chairman. 

Chairman KOHL. Thank you very much, Senator Grassley. 

Mr. Paz, one of the main reasons you argue this merger will benefit consumers is that, because of the large size and buying power 

of what the combined company would be, you will be able to drive 

down prices even further by achieving greater discounts or by negotiating for higher rebates. 

Now, Express Scripts already has 90 million covered lives. Given 

your very large size, you already get substantial volume discounts 

without merging with Medco. How large do you have to be before 

you maximize your discounts with your suppliers? 

Mr. PAZ. If you look at the size of the manufacturers, our market cap is $20 billion. We are a rather large company. Those of Pfizer, 

Merck, and others is quite a bit larger. The question is overall clout 

and the ability to negotiate. We believe we are well positioned to 

use clinical evidence and drive for patient safety to try to negotiate 

the best discounts available for our plan sponsors. We believe that 

drug price inflation alone on the branded side was up 10 percent. 

Specialty drugs were up 14 percent last year. If we do nothing, the 

costs of branded drugs go up well over 10 percent in any given 

year. Those issues have to be addressed, and it is our job to work 

on behalf of our clients in order to try to bring down those costs 

so that our plan sponsors continue to offer a benefit for their employees. 

Chairman KOHL. Well, I appreciate that, but, you know, when 

you get to be as big as you are already, I am assuming you drive 

the hardest possible bargain with your suppliers because you have 

such clout. So now let us say you add another half or three-quarters clout to what you have already. I am assuming that what you 

20 

are getting now is just about as much as they are willing to give 

you based on your size as it presently exists. 

Mr. PAZ. Yes, well, what we said to Wall Street, when we announced this acquisition is that the majority of the synergies in 

this transaction are not coming from the supply chain. They are 

coming from efficiencies. Mr. Snow addressed what he is doing with 

his TRCs, therapeutic resource centers, and his approach to have 

a disease state specific—addressing specific diseases such as diabetes and asthma. We approach consumer behaviors, and we believe 

putting our two programs together, the biggest waste that exists 

today is what Mr. Snow addressed, which is people not staying adherent to their drug regimens. 

We believe the savings that are going to come from our acquisition is around twofold: one, better health outcomes, keeping people 

out of the emergency rooms, people staying more adherent to their 

drug regimens; and, two, it is the back office efficiencies in areas 

such as systems and approaches where we can eliminate those 

costs, which are part of the overall health care costs. If we can 

eliminate those, we can pass those savings on as well to our plan 

sponsors. 

Chairman KOHL. I appreciate that, and we will get to Mr. Snow. 

And I noticed in looking at your respective P&L statements, your 

administrative costs, Mr. Snow, are considerably higher than yours 

are, Mr. Paz. I assume that you see a lot of efficiency in consolidation and by eliminating a lot of administrative costs, which is the 

right way to go. I am not being critical of that. But I heard you 

say just now that significantly increasing discounts over what you 

are getting right now is really not why you are doing this deal, and 

you are not nearly as certain as some people might think that this 

deal will result in far more discounts from your suppliers. There 

are other ways in which you hope this deal will pay off. 

Mr. SNOW. That is correct. 

Chairman KOHL. OK. Ms. Sutter, I would like to ask you a question. We have heard reports from pharmacists that there is a tremendous amount of waste associated with mail-order, that consumers often cannot halt the shipping of drugs by a mail-order 

when they no longer need them. Community pharmacists have told 

us that consumers have returned to them thousands of dollars 

worth of unused drugs that these consumers or their relatives receive mail-order shipments from the large PBMs. The pharmacists 

must by law discard these drugs. This costs the health care system 

substantial sums of money involved in paying for unused drugs. 

Has that been your experience? Is there a lot of waste in connection with mail-order drugs? And if so, why do you think this is happening, Ms. Sutter? 

Ms. SUTTER. Yes, it has happened in our pharmacy, and I think 

as you can see from my written statement, we have—a picture will 

speak a thousand words as to the kind of things community pharmacists see. These gentlemen talk about having adherence programs, but to have an adherence program, just sending drugs every 

30 days does not get to the core issue for these patients. I as a 

pharmacist and pharmacists across this country have been part of 

destroying medications with law enforcement drug drops to try to 

help patients get unneeded medications out. Time after time they 

21 

are quoted as stating that 75 percent of the medications bought 

there are from mail-order pharmacies. 

So the patients appear to have routine prescriptions being sent 

to them, and then when they try to call and make any changes to 

them, they are having difficulty in getting through to someone that 

understands that the medication should not be sent any longer. 

Chairman KOHL. OK. Mr. Snow, did you want to make a comment a minute ago? 

Mr. SNOW. No. I will pass. 

Chairman KOHL. OK. Mr. Paz, whatever its benefits, there can 

be no doubt that this merger will eliminate one of your two main 

competitors. We know this merger will be good for your bottom 

line, but our job in this Subcommittee is to be concerned with consumers’ bottom lines. Can you explain why it is necessary for you 

to merge with one of your chief rivals in order to achieve the benefits you claim will be gained by this merger? 

Mr. PAZ. Senator, we are facing unprecedented times in regulatory oversight. When we look at CMS, when we look at the exchanges coming into place, the work we have to do and the costs 

attributed to those items are quite high. I believe by having better 

operating systems and better approaches, we will be able to help 

spread those costs and reduce the costs of health care over the larger book of business. 

In addition, in our opinion, it still comes down to the best way 

to save money in the health care system is to focus on quality, and 

we do. Our pharmacists do not just mail out mail-order prescriptions. We are constantly reaching out to our members, looking at 

drug interactions, looking at interfaces. Actually, we call often on 

retail pharmacies where members pick up pharmacies at multiple 

locations—pick up prescriptions at multiple locations, and we see 

the interactions that the retailers cannot see, and we help those 

members work through those situations. We spend a considerable 

amount of time doing that. 

We believe all these pieces coming together will help drive down 

the cost of health care. 

Chairman KOHL. All right. Mr. Lee. 

Senator LEE. Thank you, Mr. Chairman, and thanks to all of you 

for coming today. I would like to start with some questions for Mr. 

Balto. 

Mr. Balto, I was a little surprised that you opened your argument, the very first substantive argument, as I understood it, 

against this merger moving forward was that PBMs have made 

substantial profits in recent years. Now, I understand that this has 

become a very popular mode of attack. I understand that people do 

not—sometimes some people like to attack a particular company or 

in this case an entire industry for making profits. But are you really suggesting that considerable profits, the existence of considerable profits is somehow relevant to or dispositive of our antitrust 

analysis for purposes relevant to this Subcommittee? And if so, 

how? 

Mr. BALTO. I think it is relevant. You know, certainly we do not 

condemn a market because there are high profits. Things like 

branded pharmaceuticals, of course, there is a tremendous amount 

22 

of risk involved and there is valuable intellectual property involved. 

I think it is important in a couple respects. 

First of all, I think it is tied to the factors I talk about in my 

testimony about how the market does not function well—— 

Senator LEE. But they are not getting enough value out of it, the 

value is not being passed along to the consumer—— 

Mr. BALTO. If the market was truly competitive, if there was sufficient transparency, this is an intermediary. This is like a credit 

card or an ATM card. You would expect their profits to be very low 

if there was sufficient competition and transparency. So—— 

Senator LEE. That is the middleman part that I referred to—— 

Mr. BALTO. Right. 

Senator LEE [continuing]. In my opening statement. 

Mr. BALTO. Second—— 

Senator LEE. Hang on. Let me just—— 

Mr. BALTO. Sure. 

Senator LEE [continuing]. Push down on that first point, and 

then you can work the second part into your answer. If that is the 

case, if this is a worthless middleman, why on Earth does the client 

base of PBMs—meaning employer-sponsored health plans—why do 

they continue to go back and back and back to PBMs? In other 

words, the reason those profits exist, as I understand it, is that 

someone has decided in corporate America, in a substantial portion 

of corporate America, that they can save money and thereby extend 

the value of their dollar, the value of the money that they do devote to employer-sponsored health care plans and get more health 

care value out of their money if they use PBMs. So are you saying 

that they are just wasting their money? 

Mr. BALTO. No, no. I am not saying it is a waste, but what I am 

saying is if there were—when you look at this compared to other 

intermediary markets—and I would be glad to supplement my answers with written answers. But if you look at this compared to 

other intermediary markets, the profits are fabulously higher, and, 

you know, I think that is—when you look at the lack of transparency, that is suggesting that there are market problems—there 

are problems in the market. 

Second, I think the number is important in terms of the efficiency argument. They have to demonstrate that the efficiencies 

will be passed on to consumers. Their profits are skyrocketing. 

That is suggesting that a large amount is not being passed on. 

Senator LEE. OK. But, again, the fact that they continue to go 

back to PBMs suggests that there is efficiency somewhere, and I 

do not understand you to be suggesting that the employer-sponsored health care plans are themselves motivated by anything 

other than a sincere desire to make sure that their health care investment, their investment into their employee health plan, is not 

maximized. 

Mr. BALTO. I totally agree, and one of the important issues here 

is transparency. Now, they say they like transparency, but right 

now Medco is fighting the State of Texas on a request for transparency. They continually fight efforts at transparency. If there 

were adequate transparency—and there are small PBMs who do 

provide greater transparency—then, you know, perhaps there 

would be a greater degree of competition. 

23 

Senator LEE. OK. Help me understand that, then, because it is 

my understanding—and correct me if I am wrong—that PBM contracts with plan sponsors typically require a degree of transparency, but they also require that a significant portion of their 

savings be passed along to the end consumer. For example, it is my 

understanding that Medco’s 10K reports that it passed through its 

plan sponsors 87.5 percent of manufacturer rebates in 2010. Do you 

dispute that? 

Mr. BALTO. Well, it depends how they calculate rebates, and, you 

know, because so little of this information is transparent, I think, 

you know, only if you were able to effectively audit things. There 

was an important audit done by the Texas teachers and employers 

system that found that even in those systems where they thought 

they were getting the rebates back, they actually were not. 

Senator LEE. OK. I sense that Mr. Snow would like to respond 

to something that you have just said. 

Mr. SNOW. Thank you, Mr. Lee. I would like to respond. Around 

the concept of transparency, for starters, Medco has been called the 

‘‘gold standard’’ as it relates to transparency. And if you look at 

what we file on our 10K, we report every quarter every dime we 

make in rebates. Our clients always have the choice: Do they want 

the discounts and have us keep rebates, or do they just want a direct passthrough? It is always their choice. And you are correct, 12 

percent of rebates we retain at our client’s election. A hundred percent are passed back to those who elect it. 

So, by the way, in the case of this merger, our clients, Medco’s 

clients, when this merger occurs, because of the nature of our contracts with those clients, will save $1 billion just because we are 

going to use best-in-breed contracts that we already have. One billion dollars goes immediately to their bottom lines. That is really 

economics. That is real savings. 

When it comes to what our clients can do, they can audit us anytime, contractual right to do it. And they do it. They look at every 

element of the contract, every element relative to rebates and pricing and claims processing. They see it all. And they are welcome 

to do that. We are transparent. 

I will also submit to you that we are regulated. For people to 

think we are an unregulated industry is really a wrong perception. 

So, for example, we are regulated by every State board of pharmacy in the entire country, all 50 States. We are regulated by 

every single State insurance department across the country. We 

are heavily regulated by CMS. We are a large participant in Medicare. We are regulated by the Medicaid laws. We are a heavy participant there. And, you know, we are looked at all the time. Our 

clients look at us, regulatory entities look at us. 

This is not the industry that people talked about being a black 

box 10 years ago. There have been fundamental changes, and I will 

tell you, it is a transparent industry where clients know exactly 

what is going on. They really do. 

Senator LEE. OK. I want to dive back into some of these issues 

if I have a second chance for questions, but I see my time has expired. Thank you, Mr. Chairman. 

Chairman KOHL. Thank you, Mr. Lee. 

Senator Klobuchar. 

24 

Senator KLOBUCHAR. Thank you very much, Senator Kohl, for 

holding this hearing. As we consider this merger, I am focused on 

maintaining access to pharmacies for my constituents, ensuring the 

best patient care and keeping drug prices as low as possible. I 

think that is what most people are focused on. And I have talked 

to many people in my State about community pharmacies, and I 

hear time and time again about the vital role that local pharmacies 

play, and often patients cannot reach their doctor, so talking to 

their pharmacist is very important. 

Could you talk about how this merger—I guess I would start 

with you, Ms. Sutter—would affect local pharmacists? But then 

also you raised this issue of adherence, and I wondered if you could 

elaborate on that as well. And then I will ask about how PBMs are 

also involved in that issue? Ms. Sutter? 

Ms. SUTTER. Thank you. Let me first speak to the idea of the viability of community pharmacists. As you know, in Minnesota there 

have been several pharmacies in towns where they were only the 

pharmacy that have closed. 

Senator KLOBUCHAR. That would be Adams, Ashby, Belgrade, 

Clara City, Collegeville, Comfrey, Erskine, Isanti, Lake Crystal, 

Lamberton, Le Center, and Orono. 

Ms. SUTTER. Why, thank you. 

Senator KLOBUCHAR. You are welcome. 

[Laughter.] 

Ms. SUTTER. And let me update you on some of the data. Even 

in Wisconsin a group of—a family business for 75 years in the Fox 

Valley, 12 stores, decided to leave the retail market and only do 

long-term care. And the CEO of that family business said it was 

directly related to reimbursement issues. 

I just came from a meeting. A colleague in Lexington, Kentucky, 

closed five stores. His comment to me: ‘‘I just could not deal with 

the Express Scripts contract. It was so concentrated in my area.’’ 

So these are things that are really happening. I came prepared 

to answer the question as to, well, will I go out of business if this 

merger goes through. My husband and I have been successful business people for almost 30 years. We are good business people. We 

have worked through a lot of the different things that present challenges to a small business like ourselves. But we are now facing— 

and I was very honest in my comments about the average net margin of these pharmacies. We will make very difficult decisions—reduce hours, lay off people, whatever—to try to maintain the businesses that we have. But at some point we will make the decision 

whether to have our life earnings remain invested in this small 

business any longer, which is totally—94 percent of my sales are 

prescription drugs. I am the only pharmacy in Horicon, Wisconsin. 

I am the only community pharmacy in Mayville, Wisconsin. This 

threat to the existence of independent community pharmacies is 

real. 

Senator KLOBUCHAR. OK. Mr. Snow, Mr. Paz, if you could talk 

about, first of all, the adherence issue that Ms. Sutter had raised, 

but then, second, this larger issue of the closure of rural and independent pharmacies and how you could put anything—you could do 

anything to stop that from happening if you look at your networks 

because it is clearly an enormous concern. 

25 

Mr. PAZ. Just to put the record straight, there are more pharmacies today than there were 5 years ago across the board. We are 

up to 68,000 pharmacies throughout the United States, and there 

are more coming online constantly. 

You know, I cannot stop certain pharmacies from going out of 

business. There are 10,000 McDonald’s in the United States, roughly, there are roughly 13,000 Starbucks in the United States, there 

are 68,000 pharmacies in the United States. There is a lot. Our job 

is to make sure that people have access to pharmacies, and we 

have to make sure that they have appropriate access. 

So under CMS, CMS has guidelines as to what that means, and 

we work very hard. I have no desire to force anyone out of business. As a matter of fact, my intention is to work on behalf of the 

community pharmacists and reimburse them at a higher rate than 

we do for the big-box retailers. We believe our country needs those 

small pharmacies, and they do not have the buying power, they do 

not have the ability to do what the big pharmacy chains—the 

Walgreens, the CVS’s, the Rite-Aids—in this world can do. So our 

job is to go out and negotiate and try to get better deals for them 

so that they can, in fact, stay in business and serve. 

At the end of the day we have to have those rural pharmacists 

in rural communities to provide those drugs. If we cannot do that, 

we do not have a business. Our clients, such as Mr. Streator, are 

going to insist that we have those opportunities for those pharmacists, and they are not going to stand by and allow us to shut 

those down. 

One last thing before I move on, though. I would like to just 

point out for the record that we talk a lot about these great increasing profits that the PBMs have. Keep in mind our net income 

profit level is still only 3 percent. So it is not like these are big, 

big numbers. We are grocery store-type profits, 3 percent net income profits. 

Senator KLOBUCHAR. OK. I have two questions here at the end. 

I am sorry, Mr. Snow. If I—I have 2 minutes left, and maybe we 

could do it in writing. The second thing I want to ask about is access to lowest-cost prescription drugs, which is why I support increased usage of generic drugs. I appreciate the Chairman’s leadership on that. Can you talk about how the companies could balance 

this incentive to maintain rebates from brand-name manufacturers 

with the goal of moving toward generics? 

Mr. SNOW. At Medco, we have a generics-first policy, which 

means we always move to generics as appropriate because it is in 

the best interests of our clients. As George mentioned earlier, the 

way we relate with our clients is we have completely aligned interests. Since we pass back the vast majority of rebates, rebates are 

not a motivator to do brands versus generics. We are rewarded for, 

as Scott mentioned, keeping their trend line down, and we are, because of the things we do, able to keep trend lines in the negative 

sometimes or very low relative to the real underlying inflation rate 

going on. 

Our performance and our renewals are tied directly to our ability 

to contain their costs, and so we are motivated to go to generics 

wherever possible. 

26 

Senator KLOBUCHAR. And I am going to ask our other witnesses 

here in writing for their response to that as well. I am sorry we 

cannot do it here. 

[The information referred to appears as a submission for the 

record.] 

Senator KLOBUCHAR. I just had one last question. Senator 

Franken raised the employees really across the country, and I 

heard you talk about the efficiency gains here. What effect would 

this merger have on employees of both of your companies in Minnesota and across the country? 

Mr. PAZ. Well, as you know, Senator, as you have been gracious 

enough to come to our site, our Minneapolis is our IT hub, and it 

will only grow over the years. IT is what we do. Our ability, as 

David said during his prepared comments, we have a wired system. 

We have to get to better utilization of e-prescribing. We have got 

to get to that next level. All that work is done in our Minnesota 

site. 

Now, again, certain areas, such as accounting, legal, some of the 

back-office functions, those will diminish over time, but we hope we 

could redeploy those resources, again, moving pharmacists into 

more consultative roles and helping our patients. That is where we 

are trying to go with this. We do not have actually numbers at this 

time. We have not been able to put our two companies together. We 

have to get through the FTC first. 

Mr. SNOW. But the goal of our merger is growth. It is to grow. 

Senator KLOBUCHAR. OK. Well, I know we will have some further 

questions here about the costs and also the effect this is going to 

have on independent pharmacists. I appreciate everyone being 

here. Thank you. 

Chairman KOHL. Thank you very much, Senator Klobuchar. 

Senator Blumenthal. 

Senator BLUMENTHAL. Thank you, Mr. Chairman, and I want to 

join my colleagues in thanking you for this hearing, and thank you 

to the witnesses for your excellent, really very helpful and instructive testimony. 

You know, I am very concerned about this merger simply from 

the standpoint of its effect on competition. And when I look at, for 

example, the mail-order pharmacy part of the market, which is 

about one-fifth of all prescription drug sales, a $52 billion industry, 

if this merger is approved, you will control 60 percent of it. Your 

nearest competitor, CVS Caremark, about 24 percent. And then the 

competitive landscape is like a cliff to your nearest competitor, 

about 3 percent. I think it is Aetna. And that power, I think, is 

fearsome. Under the law it is problematic. 

Similarly, in the specialty pharmacy market, this merger, if approved as you have proposed it, will result in an entity that controls 52 percent of the market, and obviously, as you know, the specialty drug market is the most lucrative growth area in the PBM 

industry. It accounts for 16.3 percent of prescription drug plan 

spending. It is growing at the rate of about 16 percent or more per 

year. And so I am interested in knowing what you will do to make 

this merger more acceptable, in effect what you will do to make it 

less problematic and more promising for consumers, which, after 

all, are the chief concern of our antitrust laws. Antitrust laws are 

27 

designed to preserve competition so they can protect consumers. 

Mr. Snow. 

Mr. SNOW. Yes, Senator, thank you for the question. A couple of 

points. 

We, too, are very concerned about the consumer. As George has 

mentioned earlier, we are very concerned that access to drugs is 

real, that they can afford them. But—— 

Senator BLUMENTHAL. Would you be willing to divest the specialty pharmacy market? 

Mr. SNOW. Before I go there, I would rather let the FTC opine 

on the map of our deal before we talk about that. But I would like 

to point something out, and I would like to submit something for 

the record. 

If you look at mail and mail volumes at Medco, 85 percent of all 

prescriptions are retail—85 percent—and that has not changed for 

quite some time. This chart, which came out of—and I submitted 

this for the record, but it came out of an NACDS data book—simply shows that mail has fundamentally not changed in terms of 

numbers since 2007. The volumes are going to chain and big-box 

retailers, and, yes, the independents are losing scripts to the chain 

and big-box retailers. It is the data. It is not the PBMs, and it is 

not mail growing exponentially. In fact, more and more retailers 

are offering 90 days at retail, and you are seeing prices pretty 

much stay stable because faced with chronic and complex disease 

people who take drugs for a lifetime find it is easier to comply with 

90-day supply, and you are seeing more of that going on right now. 

So mail is not as large as you indicated, and it is very stable. It 

is not growing. That is not where the new scripts are going. 

Relative to specialty, I would just refer you to Adam Fein’s analysis which he submitted where he has done a detailed analysis 

with real data and says today the combination would give the 

Medco/Express Scripts merger 31 percent of the specialty business, 

and that is before accounting for the Medco losses, both 

UnitedHealthcare, which happens in 2013, as well as from the 

losses for 2012 that are not in his numbers, which takes us into 

the mid-to high 20’s. And then if you look at the disease level in 

specialty, which I think is the right way to look at this, there are 

many, many additional competitors who play in specific specialty 

diseases who are not even counted in the analysis. 

So I believe the market penetration numbers you are talking 

about are not the numbers that will be looked at when looking at 

markets. 

Senator BLUMENTHAL. So you think that those numbers are in 

error? 

Mr. SNOW. Yes. 

Senator BLUMENTHAL. Let me ask you, are there any parts of 

this business that you would be willing to divest? I know that Mr. 

Paz is on record saying that he would be unwilling to divest the 

specialty pharmacy market, for example. 

Mr. SNOW. Yes. You know, I think obviously there will be a conversation when it is necessary. When it comes to mail, you know, 

what is important for us is we offer a continuum of product and 

service for the clients who hire us. So they are looking for an endto-end service capability, and to take a piece of that service capaVerDate Nov 24 2008 10:03 Mar 15, 2012 Jkt 072806 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\72806.TXT SJUD1 PsN: CMORC
28 

bility away really fundamentally harms the client and the patient 

who we are caring for across that continuum. 

So obviously we will talk as we need to as this process moves on, 

but our focus is going to be, Can we serve the customer and the 

patient the way we do today? And that will determine what we can 

and cannot do. 

Senator BLUMENTHAL. Mr. Balto, would you have any suggestions as to how this merger should be dealt with by the FTC? 

Mr. BALTO. Senator Blumenthal, I think the FTC should go to 

court as they did in the drug wholesaler case and in Office Depot/ 

Staples and block the merger. You can look at both of those mergers and see consumers are better off because they blocked the 

merger. 

A divestiture of a specialty facility or a mail facility would not 

do much to restore the competitive equilibrium here. They are still 

going to have tremendous market clout, which they currently use, 

even at their limited market clout, to keep independent specialty 

pharmacies, for example, out of the market. Those offer an important source of service competition and also price competition. That 

would be lost if this merger is approved. 

Senator BLUMENTHAL. Thank you. My time has expired. I thank 

the Chairman. 

Chairman KOHL. I only have one question. Then I will turn to 

Senator Klobuchar. 

Mr. Snow, on November 11th, the New York Times reported that 

Medco instructed drug stores to not fill prescriptions for the generic 

version of the blood pressure drug Lipitor for 6 months beginning 

December 1 when Lipitor’s patent expired. According to the story, 

Pfizer, the manufacturer of Lipitor, negotiated with PBMs for large 

discounts to prevent pharmacies from dispensing the generic 

version of Lipitor. 

Last week, the New York Times reported that the CVS 

Caremark PBM had instructed pharmacies that the generic form of 

Lipitor would not be covered for 29 prescription drug plans it managed for Medicare Part D. If true, these reports would be obviously 

very disturbing, and it is well understood that utilization of generic 

drugs, which are in many cases vastly less expensive, are essential 

to combating rising health care costs. 

Now, we understand that Medco has taken issue with the first 

Times story and claims that Medco was acting at the direction of 

just one client. The later Times story notes that Medco has now instructed pharmacists to use the generic version of Lipitor, but that 

Medco’s own mail-order service will use Lipitor as its ‘‘house generic.’’ 

So what is going on here, Mr. Snow? Has Pfizer negotiated discounts with Medco in order to block the generic drug from being 

utilized, either at drug stores or mail-order? And if so, are all of 

these discounts being passed on to plan sponsors and Medicare 

Part D consumers? And even if they are, will not this practice deter 

generic drug makers from attempting to enter markets? 

Mr. SNOW. Thank you, Mr. Kohl. I appreciate that question, and 

I am happy to answer it. 

The New York Times article was very much in error, and they 

have more recently published clarifications around that, as has 

29 

other major papers like the Wall Street Journal. What happens in 

Medco’s case is we always prefer generics first. We do not block retailers from providing generics of any type when they come to market. 

There are occasions where specifically a health plan customer 

who is very big, very sophisticated will negotiate their own arrangement and ask us to administer it. That is what happened for 

a specific health plan that we manage. They negotiated a direct 

deal, and we administer it. But for Medco and 99 percent of our 

book of business, we dispense generics, and, by the way, it is not 

uncommon in the first 180 days when a new generic comes to market in that exclusive period where you do get competition from the 

brand manufacturer. But make no mistake about it. They do not 

compete by giving rebates or anything like that. They compete like 

a generic manufacturer. By the way, most brand manufacturers 

these days have a generic manufacturing arm, and the contracts 

with these firms are just like the generic contracts we have with 

generic manufacturers who do not manufacture brands. 

Our clients, just so you know, relative to Lipitor for the first 12 months are going to save over $1 billion because of the generic 

pricing we put together for Lipitor. 

Chairman KOHL. Finally, Mr. Paz, in the last few days my staff 

has received a number of reports from pharmacists that Express 

Scripts as well as other PBMs were directing them to fill prescriptions with Lipitor rather than its generic alternative. We have received this information directly. Now, you would dispute that? 

Mr. PAZ. Two different pieces. One is what Mr. Snow just said. 

You know, Pfizer has a very good deal on the table. We go to our 

clients, and we ask them what they would prefer. In other words, 

if Pfizer was willing to negotiate the discount on its branded product below that of the generic—so, in other words, the prices are 

cheaper, the member pays a generic co-pay, but the plan sponsor 

pays less—then we will give them those options. Again, it is up to 

the plan sponsor to decide how they want to put in the programs. 

The world has changed a little bit because Ranbaxy was able to 

get its approval to come to the market. There was a period—keep 

in mind Ranbaxy did not get to enter the market until several days 

after the patent expiration occurred. So there was a period when 

there was only one brand product and one generic out there, and 

the brand product was actually cheaper than the generic. Now that 

Ranbaxy has entered the market, the generics have dropped, and 

the plans are moving toward the generic. Our job is to bring down 

the cost, both for the patient and the plan sponsor, and do what 

is right. We are not tied to whether it is a brand or a generic. We 

want the lowest cost possible for our members to drive down the 

cost of health care. That is our most important mission. 

Chairman KOHL. All right. Senator Klobuchar? 

Mr. STREATOR. Mr. Chairman? 

Chairman KOHL. Mr. Streator, then Senator Klobuchar. 

Mr. STREATOR. Yes, may I just add a few points? 

As a payer and as a health plan, let me just interject a perspective. When we do our due diligence with RFPs, which are fairly sophisticated, we are looking at any corporation or PBM’s ability to 

manage drug trend or the year-over-year change. So this renewal 

30 

factor is very important. The success rate of a PBM being renewed 

is going to be largely tied to how effective they manage the drug 

trend. So whether it is the brand drug for 6 months or less, the 

lowest net cost is what is important. 

Chairman KOHL. Senator Klobuchar. 

Senator KLOBUCHAR. Thank you very much. I want to thank Senator Lee for letting me go ahead here. I have another thing I have 

to get to, so thank you. 

I wanted to follow up on that adherence issue that Ms. Sutter 

raised, and I think I will start with Mr. Snow and then maybe 

have Mr. Bettiga respond to this, and this is this idea that when 

you go to see your pharmacist, they are able to talk to you about 

how you take your medication and various things so that you get 

a higher rate of people actually taking their medication, which 

turns out to be one of the major health care problems we have 

right now. 

Could you talk about how this merger could affect that and how 

PBMs are involved? And then we will go to Mr. Bettiga to see the 

concerns here from a pharmacist’s standpoint. 

Mr. SNOW. Yes, I would be happy to. Thank you. In addition to 

patients’ calling us with chronic or complex disease, they call our 

pharmacists on average four times a year looking for specific help 

relative to their benefit and/or their drug and their clinical situation. We have the additional opportunity because of the way we are 

organized to call the patient when we see that they are not doing 

what the doctor suggested they do for the disease they have. We 

use specially trained pharmacists, additional certification in the 

disease, so let us take diabetes. If we see that our patient is not 

following the fundamental ABCs of managing diabetes as their doctor prescribed, we will actually call them if it is something that is 

dangerous and will lead to a very bad outcome, and we will talk 

to the patient about why they are not adhering to what their doctor 

asked them to do. We will help them through their misunderstandings, which is often the case, about what drug is supposed to 

do what for their bodies. 

We actually help them get compliant, we monitor that compliance, and we are actually very good at closing what we call gaps 

in care. And there is a direct correlation between adherence to 

what the doctor said and the net cost per patient per year. There 

is a correlation. So if you get a patient 80 percent or more compliant with what the doctor said, it has been shown in diabetes you 

can cut the cost per diabetic per year in half because they do not 

become unstable, they do not end up in the emergency room, they 

do not get hospitalized, they do not have the source of very negative things that happen to people with unmanaged diabetes like 

amputations and blindness and renal failure. 

We manage that, we look for that, we use evidence-based protocols in a wired health care system. And we hope the whole health 

care system gets wired one of these days because I think enormous 

opportunities for physicians and others can be leveraged. And, by 

the way, we are also using that wired capability to work with retail 

pharmacies so that they, in fact, can see what our pharmacists see 

and help with those gaps in care. And we are actually helping 

them. We are doing a number of pilots where we are helping them 

31 

get paid for cognitive time with patients managing these gaps in 

care. 

Senator KLOBUCHAR. OK. Mr. Bettiga, why don’t you answer? My 

experience being in community pharmacies, visiting them, is that 

you hear a lot, you hear those discussions going on. 

Mr. BETTIGA. Right, and we hear it every day. And I appreciate, 

the comments about wired and the work that they have attempted 

to do, but here is the reality. The reality is that they can provide 

face-to-face contact and consultation on a daily basis with their patients and the consumers. That is the end root cause of all this, 

and that is part of our concern. We provide that. At Shopko, we 

consult on every prescription, whether it is a new prescription, 

whether it is a refillable prescription, 100 percent of the time in all 

of our stores. 

My concern with this whole thing rests too with the second point 

on access. At some point in time, if accessibility is limited because 

of the practices that would go on with a larger entity—and pharmacies are forced to, you know, go out of business or whatever it 

may be—especially in rural underserved areas, what happens to 

that contact? What happens to that consultation? What happens to 

that relationship that an elderly patient may have with that pharmacist that they have known for years? And I would submit that 

you cannot replace that with an oral phone conversation, with 

somebody four States away. 

Senator KLOBUCHAR. OK. Now, just to end here with the merger, 

because ultimately it is the FTC that is going to be looking at this 

in great detail and ruling on this merger. What do you think are 

the most important dynamics? Each of one of you just give a 30- 

second answer here, or less. What do you think the FTC should be 

looking at in evaluating this merger? Mr. Balto, and then we will 

go down the row. 

Mr. BALTO. You know, I think the critical issue is: Is there something that can effectively restore competition here when the market 

moves from three to two? And I do not think that there are significant—there are significant differences which make a significant difference between the first and the second tier. 

In addition, it is the parties’ obligation to demonstrate extraordinary efficiencies, and they have not moved very far in doing that 

so far. 

Senator KLOBUCHAR. OK. Mr. Bettiga. 

Mr. BETTIGA. The primary issue for myself in our industry is critical access, without a doubt, to the patients, to consumers, and I 

truly believe that with this merger, with the increased cost containment measures that we have put into effect, it is going to harm 

community pharmacy potentially, and it is going to result in decreased access, in a decrease in the services, and that face-to-face 

contact that we provide on a day-in, day-out basis to our consumers. 

Senator KLOBUCHAR. OK. Ms. Sutter. 

Ms. SUTTER. Well, I certainly agree with Mr. Bettiga’s comments 

about access and face-to-face contact with my patients. I just do not 

quite understand this conflict of interest that—you know, I am on 

a hospital board, and, you know, Stark laws do not allow physicians to do this referral pattern in that, but it seems like we have 

32 

totally ignored the fact that these entities can have pharmacies 

that are in direct competition to me, I am their competitor, and 

they set my rates. That is what I would like the FTC or at least 

Congress to look into. Why is that allowed in our industry, in our 

part of health care and it is forbidden, you know, within the hospitals and physicians? 

Senator KLOBUCHAR. Mr. Streator. 

Mr. STREATOR. Payers today are under obvious increased pressure to reduce costs, so regardless of the FTC, there is a huge role 

for PBMs to play because right now, as you know, the FDA approves medications on two bases: safety and efficacy. There is no 

cost efficacy. Until comparative effectiveness, as a research science 

matures, we as plan sponsors and health plans and payers are relying on the pharmacy benefit managers to help us make those decisions and to put pressure back on manufacturers. Specialty medications often can exceed the cost of $10,000 per prescription. There 

are no biosimilars, and we do need this as payers. 

Senator KLOBUCHAR. OK. Mr. Snow. 

Mr. SNOW. I think the FTC should focus on competition. There 

are 40 PBMs. They are real PBMs. And there are ten PBMs serving the Fortune 50, 17 serving the Fortune 500. As I told you, we 

lost $10 billion worth of business for 2012, and 15 different programs beat us and won that business. So I do think this concept 

of the one, two, or three is just fundamentally flawed, and I hope 

the FTC can sort that out. 

Senator KLOBUCHAR. Mr. Paz. 

Mr. PAZ. Thank you, Senator. I deal with many, many clients 

similar to Scott in his predicament, where whether it is the university system, whether it is the State employees, whether it is large 

employers, they are struggling today in this very difficult global 

economy. It is tough for companies to continue to grow and meet 

earnings expectations, redeploy capital, and hire new people. 

One of the big, big drivers of cost is medical costs. I believe the 

PBMs have come a long, long way in taking cost out of the equation. We have a long way to go. And I think the thing that the FTC 

should be looking at is will this merger continue to drive down the 

cost of health care for the American population. I believe it will. I 

believe they will find it does, and that is why I believe it will get 

approved. 

Senator KLOBUCHAR. Thank you, all of you. 

Chairman KOHL. Thank you, Senator Klobuchar. 

Senator Lee. 

Senator LEE. Thank you, Mr. Chairman. 

Mr. Streator, when we look at market responses to a merger like 

this one, one of the most important inquiries often focuses on possible barriers to entry into a particular market. In this instance, 

we might expand that a little bit to say barriers to expansion. In 

your testimony today, you referred to the fact that there are a 

number of up and coming PBMs, and I am curious to see whether 

you think there might be any barriers to their expansion within 

this market, their progress within the market. 

For example, because of the fact that PBMs depend on a certain 

amount of scale in order to create profits through their negotiations 

with pharmacies and drug manufacturers, isn’t it possible that one 

33 

of the smaller PBMs might be rendered less capable of climbing up 

that ladder within the market as a result of this merger were it 

to go through? 

Mr. STREATOR. Senator Lee, thank you for your question. I can 

just speak from experience when we have done very sophisticated 

RFPs and bidding processes. I will not share specific company 

names, but I will share with you that when we have done these 

bidding processes, some of the smaller ones were right up there 

with the top ones. The reason we did not choose them at that time 

was because they lacked integration in operations. It was not the 

savings or the innovation. They were quite creative, as I mentioned 

in my testimony. They were able to be a little more nimble in some 

various implementations of clinical programs which saved a significant amount of money. But they lacked the infrastructure, and so 

they have—some that I read on the chart over there to the left of 

me, companies that are not even on there that are now quite attractive as a payer and as a health plan representative have made 

acquisitions to be able to integrate their infrastructure that was 

not there before. 

Senator LEE. So, in your opinion, it is not necessarily the case 

that if the merger were to go through that phenomenon would not 

continue to exist? Sorry for the double negative there. You see no 

reason why that trend would not remain the same as a result of 

this merger? 

Mr. STREATOR. Correct. I believe plan sponsors can do greater 

due diligence than just relying on brokers to tell them who is available in the market. There are a number of viable, attractive PBMs 

and, as I mentioned earlier, even health plan-owned PBM offerings 

now. Each have a different set of competitive advantages, and if 

payers worked diligently to research these, I think there is ample 

competition, even with this merger. 

Senator LEE. I also wanted to talk to you more broadly just about 

concerns that I developed as a result of conversations I have had 

with local pharmacies throughout my State on an issue that is very 

important to them and the role that local pharmacies and individual pharmacists play in the delivery of health care services. Are 

you confident that this merger would not, in effect, squeeze them 

out? Are you confident that this merger is not a part of an effort 

to replace independent pharmacies and local pharmacists? 

Mr. STREATOR. As a payer, we have a fiduciary responsibility on 

behalf of our members. We want the best quality of care for the 

best dollar, and we need to have access, as I mentioned in my written testimony and my oral testimony today, that we need community pharmacists. 

I certainly believe with the emerging health care reimbursement 

models, this will be even more important. 

Senator LEE. OK. Thank you. 

Ms. Sutter, I have a question for you. Relating to a study that 

was conducted in 2005 by the Federal Trade Commission, the FTC 

conducted this in-depth empirical analysis and found, among other 

things, the following, and I quote: ‘‘that the prices for a common 

basket of prescription drugs dispensed by PBM-owned mail-order 

pharmacies were typically lower than the prices charged by retail 

pharmacies.’’ The study also found, ‘‘Competition affords health 

34 

plans substantial tools with which to safeguard their interests. 

Consumers benefit as a result.’’ 

Do you dispute this finding of the FTC? 

Ms. SUTTER. Well, I certainly would want to look at it in more 

detail. When they say my price, the community pharmacist price, 

is that usual and customary or is it an adjudicated discounted 

price? 

Our biggest concern as community pharmacists is I am contracted with these gentlemen’s companies to fill prescriptions at 

very, very low margins. They sell my services to the payer and 

price it at some point up here, having no transparency to know 

whether it is a fair spread for their services. And then with their 

mail-order pharmacy, they somehow are able to just put their cost 

of their medication slightly lower. And so when you present a plan 

to a payer saying mail-order is less expensive than what they got 

charged by Medco or ESI or a PBM for my services, information 

and data like that can make it look like that. What we really need 

to do is look at the transparency of what am I being paid for, the 

prescription and the services, the 100 percent of the services that 

I am providing, and what are they charging to the payer. 

In addition to that, recently one of the smaller PBMs was at a 

recent conference, and an individual asked the question of how 

often do you have payers audit their contracts, and they said less 

than 5 percent. I have also been told, yes, all this language is in 

there that they can audit their PBM, but they also have language 

in there that they have to agree to the auditor and that—— 

Senator LEE. That who has to agree? That the PBM has to agree 

to the—— 

Ms. SUTTER. The PBM and—— 

Senator LEE [continuing]. Identity of the auditor? 

Ms. SUTTER. So I guess I would ask you to dig further into 

whether—how difficult it is for a payer to actually audit what they 

are being billed for and understanding what I am being paid for 

my services before we can really answer that question. 

Senator LEE. OK. Help me understand the point then. Are you 

suggesting that because only 5 percent of the audits that could be 

conducted, in fact, are being conducted? You think that is due at 

least in part to clauses in the PBM agreements mandating that the 

PBM agree to the auditor? 

Ms. SUTTER. Well, I am certainly no expert on this, and so some 

of this is just hearing a PBM official speak to this. My concern is 

that only less than 5 percent of the payers are ever even attempting to take advantage of their audit abilities in the contract, and 

then we are also told that many have language that they both have 

to agree to it. 

Senator LEE. OK. So that is much of what you are referring to 

when you talk about the lack of transparency, is that most of the 

time that audit is not, in fact, being conducted. 

Ms. SUTTER. Exactly. 

Senator LEE. Even though it could be, it is not, in fact, happening. 

Ms. SUTTER. That is my understanding. 

Senator LEE. OK. Thank you. 

Mr. STREATOR. Senator Lee, could I interject on that as a payer? 

35 

Senator LEE. Yes. 

Mr. STREATOR. I believe that is mainly a function of, not the 

PBM, but how effective plan sponsors negotiate with the PBM and 

then take advantage of that capability. I know we do routine audits 

during a contract year, so that is unfortunate that other plan sponsors do not do that, but that is surely a fiduciary responsibility of 

payers. 

Mr. PAZ. For the record, Senator, we have over 450 audits going 

on as we speak. 

Senator LEE. OK. So they do happen. 

Mr. PAZ. All the time. Constantly. 

Senator LEE. I see that my time has expired. Thank you very 

much. 

Chairman KOHL. Mr. Balto, according to the industry estimates, 

after this merger the combined Express Scripts/Medco will control 

about 60 percent of the mail-order business. Should we worry about 

this high level of concentration in the mail-order marketplace? 

Mr. BALTO. I think absolutely, in part because it provides greater 

leverage for the merged firm to go and force plans and consumers 

into mail-order, which denies them the opportunity of using their 

community pharmacy. 

Chairman KOHL. All right. Ms. Sutter, we understand that community pharmacies have concerns about PBMs’ steering consumers 

to obtain their prescriptions by mail-order. But isn’t it beneficial for 

consumers to obtain their prescriptions in this way if they wish 

since it saves them a trip to the drug store? We could understand 

that pharmacies may not like that consumers utilize mail-order 

services rather than go to drug stores, but how does greater utilization of mail-order harm consumers? What is your response to that? 

Ms. SUTTER. Well, I want to speak to the fact that many of these 

plan designs—there are plan designs that have mandatory mail requirements, and many patients do not care for that. But the majority of them just offer mail-order. The way they get patients to default to that is that they only charge two co-pays for every three 

that are acquired at the community pharmacist. So I still have patients that appreciate and value my services enough to financially 

pay a third co-pay every 90 days to do business with us, but there 

are a lot of people that that expense is being—they just cannot 

have that expense, and so they default to the mail-order pharmacy. 

So they put us on a very unfair playing field when they say that 

the consumers are free to go to their community pharmacy. 

I would challenge them, if they made it absolutely equal, where 

patients would choose to go to. I think I would win out. 

Chairman KOHL. Mr. Snow. 

Mr. SNOW. Yes, Senator, I just would like to respond because 

there is a misunderstanding here. The PBM does not tell their customer how to design their benefits. Typically, when the customer, 

who is paying the bill—it actually is not us. It is the customer. It 

is the employer. It is the health plan. It is the State government 

entity. When they are paying the bill and they look at the difference in cost, they may choose to motivate the consumer with one 

less co-pay to choose a less expensive place for them, the payer. As 

George Paz said earlier, we lay out the choices for our customers 

to choose from, and they make all kinds of different choices. EveryVerDate Nov 24 2008 10:03 Mar 15, 2012 Jkt 072806 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\72806.TXT SJUD1 PsN: CMORC
36 

one is different. But when these choices are made, it is not forced 

by a PBM. 

I can tell you, we are not the boss when it comes to serving our 

clients. We do what we are asked to do to serve our clients in the 

way they want to be served. 

Chairman KOHL. All right. Mr. Balto, one of the most lucrative 

prescription drug markets today is for specialty drugs that are used 

for the most serious medical conditions such as cancer. These drugs 

often require special handling, are often administered intravenously, and are generally much more expensive than other types 

of medication. Express Scripts and Medco combined will control 

over 50 percent of the specialty market after this merger. Should 

we be concerned about such concentration in the specialty market? 

Mr. BALTO. Absolutely, and just to make things clear, you should 

be concerned whether the market share is 50 percent; you should 

be concerned whether the market share is 30 percent. Express 

Scripts and Medco, because they will have combined 150 million 

covered lives, will have the kind of clout that they can go and force 

exclusivity arrangements upon manufacturers, which we have documented have led to increased prices; that they can have exclusive 

networks which will keep Mr. Bettiga and Ms. Sutter’s pharmacies 

out of the market, other community specialty pharmacies out of the 

market; and instead of being able to go to your community specialty pharmacy, you are going to be dealing with a distant mailorder pharmacist. And the problems that Ms. Sutter has documented will exist in a much more severe fashion. 

Chairman KOHL. Mr. Paz, at a House hearing on this merger, 

you said that if you were required by the FTC to divest Medco’s 

specialty pharmacy State as a condition of doing the deal, you 

would not do the deal. Is that correct? 

Mr. PAZ. That is correct, Senator. 

Chairman KOHL. Why? 

Mr. PAZ. Specialty pharmacy is the fastest-growing—it is lucrative in the sense that it is high cost. It is not our highest profit 

drivers. That still comes from generic drugs and moving patients 

into the lower-cost prescription programs. The specialty products in 

and of themselves are very important for our plan sponsors. These 

are the drugs that can cost $10,000, $15,000 a month for a member. They need to have their arms around it. 

There are many specialty pharmacies out there—which are part 

of our network, by the way—that specialize in a given disease 

state. However, there are also a lot of pharmacies that may only 

handle one person with a very limited disease. 

One of the advantages that the PBMs can have is that when we 

bring together pharmacists, doctors, and nurses that specialize in 

that disease state, we also bring in health care professionals and 

social workers to help the family. Often these diseases are very debilitating to a family, and helping that family get through the consequence of this is very, very important. We have these people that 

call on these people constantly and help them. It is a very important part of our business. 

Chairman KOHL. All right. We will turn to Senator Franken after 

this one question. 

37 

One of the main arguments, Mr. Paz, for the merger is that, combined, you will be able to develop more innovation and new clinical 

tools and strategies for cutting costs. And yet we all know that innovation is the fruit of competition and that the more competitors, 

the more innovation, and the better the consumer is served. You 

seem to be making an argument to the contrary. Have you come 

up with a new concept for how capitalism works? 

Mr. PAZ. Yes, when you look at UnitedHealthcare entering into 

this market in a very big way, CIGNA coming into our space in a 

very big way, Prime Therapeutics coming in in a very big way, innovation is key. We know our role. Our role is to drive down the 

cost of health care and improve health outcomes for the millions of 

Americans we service. We have to remain innovation. We have to 

continue to go to the market. Plan sponsors like Mr. Streator have 

many, many options. The day we start falling behind innovation is 

the day our market share will decline. We must stay focused on improving health care. 

Chairman KOHL. But competition is what breeds all of that urgency and activity. Would you suggest that if you could also take 

over Caremark and CVS that would be the best thing for everybody? If you control the whole market, would you then innovate in 

a way that would not be possible otherwise? 

Mr. PAZ. I would tell you that there is plenty of—I do not think 

we need to buy CVS Caremark, but I would tell you that there is 

plenty of competition out there and that we are forced—on top of 

all that, Senator, CMS requires innovation. They are coming to us 

on a regular basis with new regulations and new requirements, 

and they are forcing us to go forward. We need to work very closely 

with CMS in order to come up with new programs, everything from 

e-prescribing to helping members access drugs to plan design 

change, on and on and on. It is required in our business. 

Chairman KOHL. OK. Mr. Balto. 

Mr. BALTO. Can I go back to the conflict of interest issue in the 

specialty pharmacy area? Because I think it illustrates the problem 

here, because Mr. Paz owns a—you know, if he just owned a specialty pharmacy, fine, let us compete on the merits. But when he 

owns a PBM, he knows everything about his competitors. When his 

competitors get too large, he excludes them from the network. 

When his competitors get certain customers, he can focus and target those customers. It is those conflicting interests that create a 

tremendous problem here, and the merger makes it worse by combining his market clout with a dominant position in specialty pharmacy. 

Chairman KOHL. Senator Franken. 

Senator FRANKEN. Thank you, Mr. Chairman. 

Mr. Paz, two recent reports from the Health and Human Services 

Office of the Inspector General have found that PBMs are not adequately sharing savings with Medicare patients and that PBMs underestimate the rebates they receive from manufacturers, and this 

ultimately means higher Medicare costs for both beneficiaries and 

for taxpayers. 

You said in your testimony, ‘‘Patients, not profits, must come 

first.’’ Can you guarantee that the lion’s share of the savings created by your merger would go to consumers? 

38 

Mr. PAZ. Under CMS regulations and the way we conduct our 

business, Senator, 100 percent of the rebates go back to the plan 

sponsors, and 100 percent of the network pricing goes into the 

plans. We make administrative fees, which are fully disclosed to 

our plan sponsors under CMS and Medicare rules. 

Senator FRANKEN. Well, then, how is this Inspector General’s report possible? 

Mr. PAZ. I do not know the answer to that. I am not familiar 

with that. I would have to look into that. But I would tell you that 

in our business—and keep in mind we just completed an audit by 

CMS that came in and audited our business, and there were no 

issues with respect to transparency or passing through savings. 

Mr. SNOW. The same is true for our business. 

Mr. PAZ. I cannot speak to other players in the industry, Senator. 

I do not know what others may have done. 

Senator FRANKEN. OK. Health and Human Services Office of the 

Inspector General found that PBMs are not adequately sharing 

savings with Medicare patients. I will probably follow up with a 

written question. 

Mr. PAZ. If you do not mind, Senator, we will be happy to follow 

up with your office and get you some information on this. 

Senator FRANKEN. I appreciate that. Thank you so much. 

Mr. Paz—I am sorry. 

Mr. PAZ. My colleague just advised me that CMS actually disputed those findings. We will follow up with your office and get the 

information. 

Senator FRANKEN. OK. Well, thank you. 

I am told that Senator Klobuchar mentioned earlier that over the 

past couple years 12 communities in Minnesota have lost their only 

outpatient pharmacy, and this is a huge loss for residents in those 

communities, especially because Minnesota winters are kind of 

rough, as you know. When elderly patients have to drive many 

miles in the dead of winter or have someone drive them to pick up 

their drugs, I worry. There are currently 141 rural communities in 

Minnesota that have only one pharmacy. 

Medicare Part D only requires that 70 percent of Medicare beneficiaries in rural areas have access to a pharmacy within 15 miles. 

That means that 30 percent of beneficiaries could live more than 

15 miles from their nearest pharmacy, and as I understand it, 

there is no upper limit. So that means someone could drive conceivably 80, 90 miles to a pharmacy. 

Do you agree this is a serious problem for health care in our 

country and in Minnesota? 

Mr. PAZ. Rural pharmacies, Senator, are a very important part 

of our network. It is not only governed by CMS. CMS clearly sets 

standards. DOD also sets standards that we have to adhere to on 

behalf of our men and women in uniform and their beneficiaries. 

But our plan sponsors, just as importantly, set standards as well. 

We ought to make sure the record is straight. Forty percent of all 

prescription drugs are for acute medications, so even if everybody 

moved to mail-order, 40 percent would still have to be filled. If you 

have a child with a toothache or you have some problem, you cannot wait to get something in the mail. We would never suggest that 

39 

you do. Those drugs have to be there. They have to be accessible, 

and they have to be ready—— 

Senator FRANKEN. Right, which is—— 

Mr. PAZ.—and so we have to have—— 

Senator FRANKEN.—an argument, I think, that you could make— 

I think you are not making an argument that—— 

Mr. PAZ. I am trying to make an argument that we have to keep 

the rural pharmacies in business, that it is our job to do a very 

careful balancing. 

Senator FRANKEN. And you think this merger will help keep the 

rural pharmacies in business, Ms. Sutter? I am sorry to—you can 

feel free to answer after Ms. Sutter does. 

Ms. SUTTER. The issue is that the rhetoric of these gentlemen 

just does not match the reality of what we are dealing with. We 

have got comments after comments in my written statement about 

what we are dealing with with these—40 percent—if 40 percent are 

acute meds, I cannot stay in business only being basically subcontracted to these gentlemen. My patient is the center of this equation. I am with the physician there taking—part of the health care 

team taking care of them. They are the ones that are on the side 

providing some assistance in adjudicating a claim. This idea that 

companies like this can be at the center of resolving health care 

issues in this country is just ridiculous, quite frankly. 

Senator FRANKEN. I think they are just different roles. But I, too, 

have received tons of calls and letters from community pharmacists 

in Minnesota who are concerned about this. 

Mr. PAZ. I think when you look back, we have done several acquisitions over our history. In 1998, we bought Value Rx, a Minnesota-based company. We have done several acquisitions since 

then. Almost every time we have been accused that savings would 

not pass along to the plan sponsors. I think Mr. Streator and all 

of my clients would contend and argue that what we do, as Mr. 

Streator said in his comments, his drug trends were less than— 

were negative. They were not zero or 1 percent. They were negative. That means the cost of their drugs actually came down year 

over year, is to help them choose the right generics, the right channels, and the right outcomes in order to drive those costs down. 

And so I do—— 

Senator FRANKEN. Mr. Streator, you are at a university, is that 

it? 

Mr. STREATOR. Correct, the Ohio State University. 

Senator FRANKEN. OK. That is in Columbus, Ohio. 

Mr. STREATOR. Correct. 

Senator FRANKEN. That is a big community, right? So what we 

are really talking about, if I recall my question, was about small 

rural communities. 

Mr. PAZ. Mr. Streator services clients all across the State of 

Ohio, even in rural areas of Ohio. 

Mr. STREATOR. That is correct. We have 56,000 members in our 

health plan, and they are in every county in Ohio. We also work 

in the Rx Ohio Collaborative that has over 500,000 members all 

across the country. So, yes, we do need community pharmacies. 

Senator FRANKEN. Well, thank you. I appreciate all your testimony and all your answers, and I will get back to you with more 

40 

because I did not have the two rounds, but I have got to go myself, 

and I appreciate all of your being here and I appreciate your calling this hearing, Mr. Chairman. Thank you all. 

Chairman KOHL. Thank you, Senator Franken. 

Mr. Bettiga, do you want to make a comment or two before we 

begin to wrap it up? 

Mr. BETTIGA. Well, I would like to make a comment to what we 

were just talking about here because at the end of the day, while 

I understand that the plan sponsors may be OK in this, at the end 

of the day the rates to community pharmacies, especially those in 

the rural areas, et cetera, are dictated by the PBMs. And they talk 

a lot about past activities with mergers, et cetera. This is not about 

the past. This is about what happens in the future with one larger 

entity and what types of rates they will impose on retail and community-based practice, and what does that ultimately mean then to 

accessibility for those rural patients, those underserved patients 

that Senator Franken was referencing? And there is a huge concern with that because we just do not know what that next game 

is going to be. 

Chairman KOHL. Anybody else want to make a comment? 

[No response.] 

Chairman KOHL. I think we have really aired this thing very 

well, and I appreciate your coming here and giving us your very 

frank expressions of interest and concern about the direction of this 

industry. 

We will leave the record open for a week. I would again like to 

thank all of you for being here today. You have added an awful lot 

to the issue, and once again our appreciation. Thank you. 

[Whereupon, at 4:39 p.m., the Subcommittee was adjourned.] 

[Questions and answers and submissions for the record follows.] 

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Æ 


72806.368