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8-K - FORM 8-K - MEDCO HEALTH SOLUTIONS INC | y92790e8vk.htm |
Exhibit 99.1
David B. Snow, Jr.
Chairman and Chief Executive Officer
Medco Health Solutions, Inc.
September 20, 2011
House Committee on the Judiciary,
Subcommittee on Intellectual Property, Competition and the Internet
Hearing on the Proposed Merger between Express Scripts and Medco
I. INTRODUCTION
Chairman Goodlatte, Ranking Member Watt and Members of the Committee, thank you for this
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 a leading health
care company that has pioneered the worlds most advanced pharmacy. When we originally became a
public company, our goal was to leverage the power of pharmacy to redefine the way that health care
is delivered to improve patient outcomes and lower costs. Today, we define that mission in
three words, making medicine smarter.
We are an industry leader in developing innovative solutions that deliver unique value to our
clients and their members. We provide clinically driven pharmacy services designed to improve the
quality of care and lower total health care costs for private and public employers, health plans,
labor unions and government agencies of all sizes, as well as for individuals serviced by Medicare
Part D Prescription Drug Plans.
Everyone has recognized that the ever-rising costs of the health care system in America are
unsustainable. In 2010, U.S. spending for prescription drugs alone was more than $300 billion and
is expected to reach more than $450 billion by 2019.1,2 As the health care
industry necessarily focuses on reducing costs; as the Super Committee seeks to find health care
savings without compromising patient care; and as all participants in the system are faced with the
prospect of doing more with less, we believe that the services that Medco provides are part of the
solution. And now, by joining with Express Scripts and combining the complementary
1 | IMS Institute for Healthcare Informatics study, The Use of Medicines in the United States: Review of 2010, April 2011. | |
2 | Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, 2010. |
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expertise of the two companies, we will be able to significantly accelerate efforts to reduce
overall costs in the health care system and improve the quality and efficiency of care delivery.
II. MEDCO BACKGROUND
Our mission to make medicine smarter truly defines our company and guides our business
strategy. In 2011, Medco captured the number one position in the Health Care: Pharmacy and Other
Services sector on Fortunes Worlds Most Admired Companies List for the fourth consecutive year.
In this sector, Medco ranked number one in all nine attributes: innovation, use of corporate
assets, social responsibility, quality of management, financial soundness, quality of products and
services, people management, long-term investment and global competitiveness.
Our services are designed not only to reduce drug costs, but also to close gaps in pharmacy
care. We reduce drug costs for our clients and their members in a variety of ways including:
maximizing the substitution rate of expensive brand-name drugs for lower-cost clinically equivalent
generic drugs; driving competitive discounts and rebates from brand-name and generic drug
pharmaceutical manufacturers; minimizing the cost and improving the accuracy of filling
prescriptions; and applying our sophisticated service innovations to efficiently administer
prescription dispensing through our mail order pharmacies. By utilizing advanced clinical tools to
encourage adherence and drawing on real-time prescription drug and medical databases in a truly
wired fashion, we improve patient health and reduce total medical spending levels.
Our business model requires collaboration with payors, retail pharmacies, including
independent pharmacies nationwide, physicians, pharmaceutical manufacturers and CMS for
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Medicare and state Medicaid agencies. We provide our services through our national networks
of retail pharmacies and our own mail order pharmacies, as well as through our specialty
pharmacies.
Our unique Medco Therapeutic Resource Centers conduct therapy management programs using Medco
Specialist Pharmacists who have expertise in the medications used to treat the most prevalent and
costly chronic conditions. Our personalized medicine capabilities through our Medco Research
InstituteTM and genomics counseling services foster the integration of genetic
information into everyday health care decision making. These services represent innovative and
successful models for the care of patients with chronic and complex conditions.
III. DYNAMIC MARKETPLACE
The business of pharmacy benefit managers (PBMs) is defined by robust competition, with more
than 40 PBMs working hard to provide differentiated value propositions for public and private
payors. These firms are a diverse group with very different business models and varying degrees of
vertical integration, some integrated with pharmacies, others integrated with managed care
organizations and others entirely independent. Nine Fortune 500 companies operate their own PBMs.
Non-PBM participants like Wal-Mart and Target also contribute meaningfully to the competitive
landscape by offering low-price generic prescriptions, as do other retail pharmacies that are
providing steep discounts on 90-day prescriptions.
Whatever customer group you might define, there are numerous PBMs currently serving accounts
and many more with the capability to do so. This is because the core services
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offered by PBMs are similar regardless of the size and nature of a clients business. For
example, in the context of the largest accounts, more than 10 PBMs currently serve state accounts;
at least 10 PBMs serve Fortune 50 companies.
Our competitors often are major industry participants with household names like Aetna, Cigna
and CVS Caremark. Other competitors may not be so well-known but continue to make major
investments to grow and to better serve current and potential customers.
For example, Catalyst acquired Walgreens PBM in June, more than doubling its number of
members and prescriptions. In a recent earnings call, Catalysts COO highlighted the companys
recent success in winning large, national employers during this selling season and this was even
before the acquisition. Several of Catalysts recent wins came against Medco and Express Scripts
for Fortune 500 firms. These wins have allowed them to add big name companies like Ford Motor
Company, MGM Mirage International, Whirlpool and Waste Management to their growing roster of
Fortune 500 customers a list that already included companies like Nike, Sprint, Southwest
Airlines and Lear Corporation.
Prime Therapeutics recently won from Medco the Blue Cross and Blue Shield of North Carolina
account with more than a billion dollars in drug spending. Prime was originally formed by Blue
Cross entities and has expanded from the PBM inside the private label offering of the Blues to
becoming a major independent customer.
And just last month, another notable merger was announced: SXC Health Solutions agreed to
acquire PBM PTRx and mail order pharmacy provider SaveDirectRx, again illustrating
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the constantly evolving nature of the market. At one time SXC was thought of as more of a
data processor for PBMs and other health organizations. They have evolved with the marketplace and
now offer a full service PBM capable of competing effectively. The company, which this year jumped
to number one on Fortunes 100 Fastest-Growing Companies list, has also captured more than a
billion dollars in drug spend with its Bravo Health victory.
Perhaps nothing more clearly demonstrates the dynamic character of the PBM business than the
evolution of our soon-to-be former customer UnitedHealth Group, now the largest single health
carrier in the U.S. UnitedHealth used to have its own PBM business but sold it in the early 1990s.
They became a Medco customer in 2000, and over the years Medco facilitated a private label PBM
offering by UnitedHealth that had Medco inside running the PBM operation while UnitedHealth was
the outside face to the customers. In 2005, as part of the PacifiCare acquisition, United
acquired Prescription Solutions, a stand-alone PBM. United has steadily built up Prescription
Solutions and rebranded it as Optum Rx. This summer it was announced that they would not renew
their contract with Medco and would take in-house the 14 million lives previously served by Medco.
At the same time, UnitedHealth has publicly highlighted its increased investment in Optum Rx and
its intention to serve accounts of all sizes. We now have another major competitor in the
marketplace, one that is widely regarded to be a significant force in the market going forward.
And, as noted by Optum Rx CEO Jacqueline Kosecoff in a recent interview, the company is very
interested in the employer market and [is] getting very aggressive on bidding some very large
accounts.
As you can tell from just these examples, Medco itself is all too familiar with the intensity
and diversity of competition for PBM services. We compete against a wide variety of
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firms, generating a number of wins, as well as some significant losses. New entry remains a
very real prospect in this business, one that ensures competition remains strong. Against this
backdrop, PBM clients will have plenty of competitive choices post-merger, and the combined Express
Scripts and Medco will be fully subject to the competitive pressures that will ensure value-based
pricing and service. Taken together, these recent activities demonstrate the dynamic, competitive
nature of the PBM marketplace and belie the notion that the combination of Medco and Express
Scripts represents a threat to client choice. The reality is that the PBM business is extremely
competitive and that competition will only be enhanced rather than diminished by the Express
Scripts-Medco merger.
IV. BENEFITS OF THE COMBINATION
It is within the context of this competitive marketplace that the merger of our two companies
was conceived and ultimately approved by our management and respective boards of directors. The
essence of the PBMs business is to bring lower drug prices and higher quality care to its clients.
We compete with one another to provide that value, and as competition becomes more intense in our
industry, it drives innovation aimed at doing even more to serve our patients. In the health care
industry today, we all share the same goal of reducing costs by improving the quality and
efficiency of care delivery.
The combination of Medco and Express Scripts makes strategic sense for our clients and
patients. Each company uses a fundamentally different business model to address the needs of
customers. Combining the best attributes of those business models will give us an enhanced
capability to lower prices and improve quality care for our clients. We will accomplish this in a
number of ways.
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First, our combined entity will be able to lower drug acquisition costs by improving
efficiency across the system and encouraging the most appropriate channels of distribution based on
patient needs. Our clients and the consumers we mutually serve will benefit from these savings.
For example, Medco negotiates the terms of its agreements with its clients in a fully transparent
manner which, at the clients discretion, directs us to pass through discounts and rebates that we
negotiate with pharmaceutical manufacturers. Under the terms of our existing contracts alone, $1
billion in savings from the merger will be passed back to our clients.
Second, the combined entity will allow us to further innovate our robust technology platform
so we can fully leverage the cost and quality benefits of our fully wired system that seamlessly
integrates prescription management at both mail order and retail with our client and member
services. This will result in substantial cost savings passed on directly to government,
businesses and, ultimately, consumers.
Third, our combined company will bring together advanced capabilities to integrate
prescription management, including technological platforms to communicate with pharmacists and
physicians in real time, allowing not only efficient claims processing, but also secure access to
patient information and drug utilization reviews. Both Medco and Express Scripts complement and
enhance physicians care using advanced clinical services to deliver tailored treatments with the
highest levels of efficacy, value and speed. For instance, the Medco Research Institute integrates
genetic information into everyday health care decision making offering patients and providers
actionable information to drive more precise health care decisions. One Medco Research Institute
study conducted with the Mayo Clinic showed that a
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simple genetic test reduces hospitalization rates by nearly one-third for patients on
warfarin, a widely-prescribed blood thinner. The combined entity will deliver even greater value to
the companies clients and their members by applying the best practices of both companies.
Fourth, the merger will allow the companies to benefit from economies of scale as the firms
merge operations and implement each others best practices. Many aspects of core PBM operations can
benefit from economies of scale, including contacting, mail order pharmacy operations, and
designing and operating specialized clinical programs. At a high level, our ability to put more
volume through a combined network will drive efficiencies that will reduce the unit cost of
medications for our patients and customers. Increased scale will also allow the merged company to
develop and apply new programs and practices more broadly. And the expanded scale and expertise of
the combined firm will allow us to accelerate the research, development and deployment of new and
innovative solutions for improving adherence and safety that have the potential go well beyond what
each company could accomplish on its own.
Finally, and perhaps most significantly, the Express ScriptsMedco combination will allow the
two companies to use their collective and complementary expertise and capabilities, creating unique
synergies to close gaps in care, particularly for chronically ill patients. Even the most
effective treatments cannot help patients if they are not used properly. Gaps in care related to
medication non-adherence affect millions of Americans; they cost dollars and lives. More than 75
percent of all health care costs in the United States are associated with chronic and complex
conditions, such as cancer, heart disease, and asthma.3 In nearly 90 percent
of
3 | Medco Research Data, 2010 |
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these cases, prescription drugs are considered a first line of defense.4
However, gaps in care, largely caused by under-prescribed and mis-prescribed medications, as well
as patient non-adherence, result in substantial waste each year in the form of unnecessary
hospitalizations, emergency room visits, and extended illnesses. Poor management of chronic and
complex conditions has lead to an estimated $350 billion in unnecessary health care costs
annually.5
To address the needs of patients with chronic and complex conditions, Medcos Therapeutic
Resource Centers (TRCs) engage members and model behaviors to improve clinical outcomes and reduce
costs. In the Medco TRCs, more than 1,000 Medco specialist pharmacists who have additional
training and certification in the medications used to treat the most prevalent and serious chronic
conditions and co-morbidities use clinical protocols to assess patients prescription orders
along with barriers to adherence; they provide in-depth counseling to patients as well as reminders
to take their prescribed medications. Through use of TRCs, Medco members have achieved
significantly higher adherence rates than patients receiving traditional pharmacy care for a broad
range of medication categories. We estimate that in 2010 alone, TRCs closed more than 2.3 million
clinical gaps in care with a projected savings of approximately $900 million from reduced
hospitalizations, ER visits, and other medical expenses across a range of chronic and complex
conditions.6
At the same time, through its Consumerology initiative, Express Scripts has applied
advanced behavioral science to identify and change common behaviors that prevent patients from
adhering to their prescription medications. Their research has also helped to increase
4 | Ibid | |
5 | RAND Corporation Study, 2005; Institute for Health and Productivity Management; Medical Care. 2004 Mar; 42(3); 200-209 | |
6 | Medco 2010 Annual Report |
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generic substitution and increase use of the most efficient and safest delivery channels.
Through this initiative, Express Scripts has also increased adherence and achieved significant cost
savings.7
Combining Medcos expertise in advanced clinical pharmacy with Express Scripts expertise
in behavioral science will create a new entity that is uniquely able to provide significant
progress toward closing gaps in care, saving dollars and saving lives. By joining together,
millions of members served by both of our companies will reap the benefits of these unique and
complementary programs: increased prescription adherence and reduced gaps in care, resulting in
better health outcomes and lower costs. And these benefits will help businesses and the economy
more broadly. At 12% of payroll, health care is the most costly benefit expense for employers.
Reducing the cost of quality patient care will make all American business more competitive
creating a healthier, more productive workforce, preserving existing jobs and creating new jobs in
the future.
V. INDEPENDENT PHARMACIES
We recognize that many have expressed concern about the impact of an Express Scripts-Medco
merger on retail pharmacies, particularly on independents. The facts are that more than 85% of
prescriptions filled for Medco customers are filled through our networks of more than 60,000 retail
pharmacies representing over 95% of all retail pharmacies nationwide. In short, either as a
stand-alone company or combined with Express Scripts, Medco is dependent on the continued existence
of strong independent retail pharmacies. Even as our companies seek to
7 | ESI 2010 Drug Trend Report |
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drive efficiency in the health care system, retail pharmacies will always play a crucial,
complementary role to PBMs.
Moreover, the services that PBMs provide have helped independent pharmacies better care for
their patients, including by helping to close gaps in care, increase patient adherence and reduce
adverse drug interactions. The Express Scripts-Medco combination will combine both companies
capabilities aimed at improving patient adherence, which means that the millions of patients who
use independent pharmacies will be more likely to complete their full course of prescription
treatment, improving their overall health. The combination will also create additional partnership
opportunities that can help independent pharmacies improve their customers adherence while
creating new sources of value.
A program implemented by Medco is an example of the type of mutually beneficial collaboration
that could be expanded under the merger. Medcos Cognitive Care Initiative, a twenty-six-week
collaboration with community pharmacies in Illinois, significantly improved adherence and increased
the value offered by participating independent pharmacies. Community pharmacists were trained to
provide expert patient counseling on the importance of adherence and techniques to improve it. The
initiative identified 2,400 adherence gaps; pharmacists in the program filled 48% more
prescriptions after patient counseling and closed 27% more adherence gaps.8
The success of the pilot led to additional partnerships between Medco and community pharmacists in
New Mexico, North Carolina and Florida. We look forward to continued collaboration on initiatives
such as this in the days ahead.
8 | Medco Health Solutions Illinois Pilot Project |
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In recent years, even as PBMs have become increasingly important participants in the health
care system, independent pharmacies have thrived. Between 2009 and 2010, the number of independent
community pharmacies grew by almost 400, to more than 23,000, representing a $93 billion industry.
Last year, they filled nearly three times more prescriptions than were filled through mail order
delivery services such as those offered by Express Scripts and Medco. And pharmacy profits have
doubled since 1999, with average profits per pharmacy of close to $1 million.9
These data points confirm what our experience tells us to be true: PBMs and independent
pharmacies are complementary businesses whose success can be mutually beneficial. It is our
expectation that a successful Express Scripts-Medco far from being a threat to independent
pharmacies will actually be a driver of improved care for our mutual customers and improved
economics for their businesses.
VI. CONCLUSION
The data points I have discussed confirm what our market experience has long told us: our
health care system does best when many different companies and different models are all working to
improve patient health. This diversity of approaches breeds innovation and collaboration. It is a
catalyst for experimentation and progress, leading to incremental improvements and often to
breakthrough solutions.
Today, there is a sense of urgency among all these many participants in our health care
system. We all know the future belongs to those who deliver more for less. The merger of Express
Scripts and Medco is part of that transformative process. Together, our companies will focus on
lowering the prices customers pay for their medicines and improving their quality of
9 | Drug Channels, Owning a Pharmacy: Still Pretty Profitable, January 25, 2011 (Analysis of 2010 NCPA Digest Data) |
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care. And by delivering on that promise we will build a strong, competitive company that
helps millions of people to live longer, healthier lives, while supporting the nations goal of a
sustainable, affordable health care system.
Cautionary Statement Regarding Forward-Looking Statements
This document contains forward-looking statements as that term is defined in the Private
Securities Litigation Reform Act of 1995. These statements, as they relate to Medco Health
Solutions, Inc. or Express Scripts, Inc., the management of either such company or the transaction,
involve risks and uncertainties that may cause results to differ materially from those set forth in
the statements. No forward-looking statement can be guaranteed, and actual results may differ
materially from those projected. Medco and Express Scripts undertake no obligation to publicly
update any forward-looking statement, whether as a result of new information, future events or
otherwise. Forward-looking statements are not historical facts, but rather are based on current
expectations, estimates, assumptions and projections about the business and future financial
results of the pharmacy benefit management and specialty pharmacy industries, and other legal,
regulatory and economic developments. We use words such as anticipates, believes, plans,
expects, projects, future, intends, may, will, should, could, estimates,
predicts, potential, continue, guidance and similar expressions to identify these
forward-looking statements. Actual results could differ materially from the results contemplated
by these forward-looking statements due to a number of factors, including, but not limited to, the
possibility that (1) Medco and Express Scripts may be unable to obtain stockholder or regulatory
approvals required for the merger or may be required to accept conditions that could reduce the
anticipated benefits of the merger as a condition to obtaining regulatory approvals; (2) the length
of time necessary to consummate the proposed merger may be longer than anticipated; (3) problems
may arise in successfully integrating the businesses of Medco and Express Scripts; (4) the proposed
merger may involve unexpected costs; (5) the businesses may suffer as a result of uncertainty
surrounding the proposed merger; and (6) the industry may be subject to future risks that are
described in SEC reports filed by Medco and Express Scripts.
The foregoing list of factors is not exhaustive. You should carefully consider the foregoing
factors and the other risks and uncertainties that affect the businesses of Medco and Express
Scripts described in their respective Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q
and other documents filed from time to time with the Securities and Exchange Commission.
Additional Information and Where to Find It
In connection with the proposed merger, Express Scripts, Inc. will file with the SEC a registration
statement on Form S-4 that will include a joint proxy statement of Medco and Express Scripts, and a
prospectus of Express Scripts, as well as other relevant documents concerning the proposed merger.
Stockholders are urged to read the registration statement and the proxy statement/prospectus
contained therein regarding the merger when they become available and any other relevant documents
as well as any amendments or supplements to those documents, because they will contain important
information.
You will be able to obtain a free copy of the proxy statement/prospectus, as well as other filings
containing information about Medco and Express Scripts, at the SECs Internet site
(http://www.sec.gov). You will also be able to obtain these documents, free of charge, in the
Investor Relations portion of the Medco website at http://www.medcohealth.com under the heading
Investors and then under SEC Filings. Copies of the proxy statement/prospectus and the SEC
filings that will be incorporated by reference in the proxy statement/prospectus can also be
obtained, free of charge, by directing a request to Investor Relations, 100 Parsons Pond Drive,
Franklin Lakes, NJ, 07417, 201-269-3400.
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Participants in Solicitation
Medco and Express Scripts and their respective directors and executive officers may be deemed to be
participants in the solicitation of proxies from the stockholders of Medco in connection with the
proposed merger. Information about the directors and executive officers of Medco and their
ownership of Medco common stock is set forth in the proxy statement for the Medco 2011 annual
meeting of stockholders, as filed with the SEC on Schedule 14A on April 8, 2011. Information about
the directors and executive officers of Express Scripts and their ownership of Express Scripts
common stock is set forth in the proxy statement for the Express Scripts 2011 annual meeting of
stockholders, as filed with the SEC on Schedule 14A on March 21, 2011. Additional information
regarding the interests of those persons and other persons who may be deemed participants in the
merger may be obtained by reading the proxy statement/prospectus regarding the proposed merger when
it becomes available. You may obtain free copies of this document as described in the preceding
paragraph.
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