Express Scripts (ESRX) to buy Medco (MHS) – WOW!!

In maybe even bigger news than the CVS acquisition of Caremark, Express Scripts announced this morning that they were merging (buying) Medco (for more information go to www.betterrxcare.com) . I’ve imagined a lot of scenarios for the industry, but this was not one.

You now have one big independent PBM with one owned by a retail and the third biggest owned by a payer. A big difference from a few years ago. The 3 models represent fundamentally different approaches.

I knew the United Healthcare decision would prompt something radical to happen in the industry, but I saw Medco driving that not being acquired. This brings a lot of things to mind:

1. What does this mean for the Walgreen’s negotiations with Express Scripts?  (original post)

2. What will the combined entity look like in terms of Consumerology + Therapeutic Resources Centers, International, Specialty, rebates, trend management, mail order operations, call center, and leadership?

3. There will be some serious consolidation over time of people and facilities. How long will this take?

4. Which system(s) will be used?

5. Will this accelerate other consolidation? I would think this puts other PBMs in play.

6. Will United build on their PBM by being an acquirer of other PBMs? How will CVS Caremark respond?

7. With the FEP decision re: Medco, will this impact DOD at Express Scripts?

8. Which of the executives survive? For example, much of David’s team (Medco CEO) has been together for a while. Do they have parachutes? Do they all leave?

9. This becomes a huge client for a wholesaler and other vendors. How will they throw their weight around and what does that mean for the competition?

10. How will they leverage unique components across companies (e.g., different approaches to Medicare, systemed, worker’s comp)?

Of course, all of this assumes the SEC approves this, but I assume the parties feel this is very likely. The industry will look like the wholesalers from a concentration perspective. Will this simply be the beginning of mass consolidation across healthcare – payer, hospital, pharma, technology?

And, at the end of the day, what will the combined entity’s culture be and how will other’s react? I’m sure you’ll see lots of lobbying against the combined entity.

And, in all this, I think people probably missed an analyst report on another PBM that said they thought two captive PBMs with an estimated value of $200-400M would be up for sale in the near future. Who could that be?

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