MERCK: Settles FTC’s Antitrust Concerns Over PBM Unity
The Federal Trade Commission and Merck & Co. have reached an agreement over Merck's ownership of prescription benefits manager Merck-Medco Managed Care LLC, under which Medco will not favor Merck products. Merck also will set up a "firewall" to "keep confidential, nonpublic information from passing between Merck and" Medco. The Wall Street Journal reports that Merck "has reaped clear rewards" from its $6.6 billion purchase of Medco in 1993, as the unit "helped boost the sale of Merck drugs" by having pharmacists persuade doctors to switch prescriptions to a list of preferred drugs, many of which were Merck products. Under the agreement reached with FTC, Medco will now offer an "'open formulary,' which allows patients unrestricted access to prescription drugs" (Tanouye, 8/27). The formulary will be determined "by an independent committee of physicians and other experts." The New York Times reports that Merck-Medco President Per G.H. Lofberg "said the unit realized from the start that it had to be independent to compete with other managed care drug units" and to "keep the confidence of other drugmakers that are the sole suppliers of popular products" (Freudenheim, 8/27).
The Wall Street Journal reports that the FTC's investigation of Merck -- and of SmithKline Beecham's Diversified Pharmaceutical Services -- were spurred by a settlement reached in 1994 between the commission and Eli Lilly & Co. over the business practices of Lilly's prescription benefit management unit, PCS Health Systems Inc. The Lilly agreement was similar to the one reached yesterday by Merck (8/27). The New York Times reports that the investigation into SmithKline's PBM unit is ongoing, but that the company "observes similar rules under an informal understanding" (8/27). The Food and Drug Administration is currently considering whether to impose "stricter oversight of drug company-owned prescription benefits managers," including classifying certain PBM practices as "promoting products on behalf of their drug-company owners and, therefore ... subject to FDA marketing regulations" (Journal, 8/27).
The PBM Way
The New York Times notes that Merck and other drugmakers hope to use their PBM units to boost sales to managed care plans by offering "disease-management programs," which offer health information to consumers with specific chronic conditions. "The aim is to keep patients faithfully taking their medicine, enhancing drug sales, while saving on potential hospital and doctor costs," the Times notes. However, the success of the PBM acquisitions is far from certain: Lilly "acknowledged it paid far too much when it bought PCS," and "took a $2.4 billion charge last year, reflecting second thoughts about [its] value." Furthermore, Southeast Research Partners analyst Neil Sweig argued that despite Medco's 20%-30% annual member growth, its purchase has "led to a 'dilution of Merck's gross profit margins" (8/27).