The Proposed Merger Between Express Scripts and Medco
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THE PROPOSED MERGER BETWEEN EXPRESS SCRIPTS AND MEDCO HEARING BEFORE THE SUBCOMMITTEE ON INTELLECTUAL PROPERTY, COMPETITION, AND THE INTERNET OF THE COMMITTEE ON THE JUDICIARY HOUSE OF REPRESENTATIVES ONE HUNDRED TWELFTH CONGRESS FIRST SESSION SEPTEMBER 20, 2011 Serial No. 112–58 Printed for the use of the Committee on the Judiciary ( Available via the World Wide Web: http://judiciary.house.gov U.S. GOVERNMENT PRINTING OFFICE 68–401 PDF WASHINGTON : 2011 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Aug 31 2005 16:11 Nov 18, 2011 Jkt 000000 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 H:\WORK\IP\092011\68401.000 HJUD1 PsN: DOUGA COMMITTEE ON THE JUDICIARY LAMAR SMITH, Texas, Chairman F. JAMES SENSENBRENNER, JR., JOHN CONYERS, JR., Michigan Wisconsin HOWARD L. BERMAN, California HOWARD COBLE, North Carolina JERROLD NADLER, New York ELTON GALLEGLY, California ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia BOB GOODLATTE, Virginia MELVIN L. WATT, North Carolina DANIEL E. LUNGREN, California ZOE LOFGREN, California STEVE CHABOT, Ohio SHEILA JACKSON LEE, Texas DARRELL E. ISSA, California MAXINE WATERS, California MIKE PENCE, Indiana STEVE COHEN, Tennessee J. RANDY FORBES, Virginia HENRY C. ‘‘HANK’’ JOHNSON, JR., STEVE KING, Iowa Georgia TRENT FRANKS, Arizona PEDRO R. PIERLUISI, Puerto Rico LOUIE GOHMERT, Texas MIKE QUIGLEY, Illinois JIM JORDAN, Ohio JUDY CHU, California TED POE, Texas TED DEUTCH, Florida JASON CHAFFETZ, Utah LINDA T. SA´ NCHEZ, California TIM GRIFFIN, Arkansas [Vacant] TOM MARINO, Pennsylvania TREY GOWDY, South Carolina DENNIS ROSS, Florida SANDY ADAMS, Florida BEN QUAYLE, Arizona [Vacant] SEAN MCLAUGHLIN, Majority Chief of Staff and General Counsel PERRY APELBAUM, Minority Staff Director and Chief Counsel SUBCOMMITTEE ON INTELLECTUAL PROPERTY, COMPETITION, AND THE INTERNET BOB GOODLATTE, Virginia, Chairman BEN QUAYLE, Arizona, Vice-Chairman F. JAMES SENSENBRENNER, JR., MELVIN L. WATT, North Carolina Wisconsin JOHN CONYERS, JR., Michigan HOWARD COBLE, North Carolina HOWARD L. BERMAN, California STEVE CHABOT, Ohio JUDY CHU, California DARRELL E. ISSA, California TED DEUTCH, Florida MIKE PENCE, Indiana LINDA T. SA´ NCHEZ, California JIM JORDAN, Ohio JERROLD NADLER, New York TED POE, Texas ZOE LOFGREN, California JASON CHAFFETZ, Utah SHEILA JACKSON LEE, Texas TIM GRIFFIN, Arkansas MAXINE WATERS, California TOM MARINO, Pennsylvania [Vacant] SANDY ADAMS, Florida [Vacant] BLAINE MERRITT, Chief Counsel STEPHANIE MOORE, Minority Counsel (II) VerDate Aug 31 2005 16:11 Nov 18, 2011 Jkt 000000 PO 00000 Frm 00002 Fmt 5904 Sfmt 0486 H:\WORK\IP\092011\68401.000 HJUD1 PsN: DOUGA C O N T E N T S SEPTEMBER 20, 2011 Page OPENING STATEMENTS The Honorable Bob Goodlatte, a Representative in Congress from the State of Virginia, and Chairman, Subcommittee on Intellectual Property, Com- petition, and the Internet .................................................................................... 1 The Honorable Melvin L. Watt, a Representative in Congress from the State of North Carolina, and Ranking Member, Subcommittee on Intellectual Property, Competition, and the Internet ............................................................ 3 The Honorable Tom Marino, a Representative in Congress from the State of Pennsylvania, and Member, Subcommittee on Intellectual Property, Com- petition, and the Internet .................................................................................... 4 The Honorable John Conyers, Jr., a Representative in Congress from the State of Michigan, Ranking Member, Committee on the Judiciary, and Member, Subcommittee on Intellectual Property, Competition, and the Internet ................................................................................................................. 6 WITNESSES George Paz, Chairman and Chief Executive Officer, Express Scripts, Inc. Oral Testimony ..................................................................................................... 15 Prepared Statement ............................................................................................. 17 David B. Snow, Jr., Chairman and Chief Executive Officer, Medco Health Solutions, Inc. Oral Testimony ..................................................................................................... 42 Prepared Statement ............................................................................................. 43 Joseph Lech, R.Ph., Owner, Lech’s Pharmacy, Member, National Community Pharmacists Association Oral Testimony ..................................................................................................... 48 Prepared Statement ............................................................................................. 51 Dennis Wiesner, R.Ph., Senior Director of Privacy, Pharmacy, and Govern- mental Affairs, H-E-B Grocery Company, LP Oral Testimony ..................................................................................................... 79 Prepared Statement ............................................................................................. 81 Dan E. Gustafson, Partner, Gustafson Gluek PLLC Oral Testimony ..................................................................................................... 84 Prepared Statement ............................................................................................. 86 Stephanie Kanwit, Counsel, Manatt, Phelps & Phillips, LLP Oral Testimony ..................................................................................................... 92 Prepared Statement ............................................................................................. 93 LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING Letter from Matthew E. Baker, Chairman, Health Committee, Pennsylvania House of Representatives submitted by the Honorable Tom Marino, a Rep- resentative in Congress from the State of Pennsylvania, and Member, Sub- committee on Intellectual Property, Competition, and the Internet ............... 6 Prepared Statement of the Honorable John Conyers, Jr., a Representative in Congress from the State of Michigan, Ranking Member, Committee on the Judiciary, and Member, Subcommittee on Intellectual Property, Competition, and the Internet ............................................................................ 8 (III) VerDate Aug 31 2005 16:11 Nov 18, 2011 Jkt 000000 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 H:\WORK\IP\092011\68401.000 HJUD1 PsN: DOUGA IV Page Pharmaceutical Care Management Association (PCMA) study submitted by George Paz, Chairman and Chief Executive Officer, Express Scripts, Inc. .... 23 National Community Pharmacists Association (NCPA) document submitted by Joseph Lech, R.Ph., Owner, Lech’s Pharmacy, Member, National Com- munity Pharmacists Association ......................................................................... 55 APPENDIX MATERIAL SUBMITTED FOR THE HEARING RECORD Responses to Post-Hearing Questions from George Paz, Chairman and Chief Executive Officer, Express Scripts, Inc. ............................................................. 128 Prepared Statement of Adam J. Fein, President, Pembroke Consulting, Inc. ... 131 VerDate Aug 31 2005 16:11 Nov 18, 2011 Jkt 000000 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 H:\WORK\IP\092011\68401.000 HJUD1 PsN: DOUGA THE PROPOSED MERGER BETWEEN EXPRESS SCRIPTS AND MEDCO TUESDAY, SEPTEMBER 20, 2011 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON INTELLECTUAL PROPERTY, COMPETITION, AND THE INTERNET, COMMITTEE ON THE JUDICIARY, Washington, DC. The Subcommittee met, pursuant to call, at 3:37 p.m., in room 2141, Rayburn House Office Building, the Honorable Bob Goodlatte (Chairman of the Subcommittee) presiding. Present: Representatives Goodlatte, Coble, Chabot, Issa, Chaffetz, Marino, Adams, Watt, Conyers, Chu, Deutch and Nadler. Staff Present: (Majority) Holt Lackey, Counsel; Olivia Lee, Clerk; and (Minority) Stephanie Moore, Subcommittee Chief Counsel. Mr. GOODLATTE. Good afternoon. The Subcommittee will come to order. I have an opening statement. This hearing will examine the proposed $29.1 billion acquisition of Medco Health Solutions by Express Scripts. Express Scripts and Medco are both pharmacy benefit managers, or PBMs. PBMs are probably among the least known and least understood big busi- nesses in America. Essentially PBMs act as middlemen between health insurance plans that offer prescription drug benefits and the pharmaceutical companies and pharmacists who manufacture and dispense prescription drugs to the plan’s beneficiaries. But just be- cause most Americans may not have heard of PBMs does not mean that they are anything less than enormous businesses with a sig- nificant impact on prices and competition in the market for pre- scription drugs in America. When a person with health insurance fills a prescription, it is likely that a PBM was involved in setting the copay, determining the pharmacist’s compensation, negotiating rebates and discounts with the drug manufacturer, and billing the health insurance plan for the drugs. For a growing number of prescriptions, the PBM also acts as the pharmacist. PBMs now control a majority of the mail- order pharmacy business. PBM’s position in the center of the American prescription drug market has proven very lucrative. In 2010, Express Scripts and Medco earned a combined profit of about $2.5 billion, with revenue over $100 billion. The proposed