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States' attorney generals concerned about Express Scripts-Medco merger -

A coalition of state attorneys general have launched an inquiry into the proposed merger of St. Louis-based Express Scripts and pharmacy benefit giant Medco Health Solutions.

The states have voiced their concerns about the planned merger to the Federal Trade Commission, which is scrutinizing the deal to determine whether it complies with antitrust laws and consumer protection goals.

Reuters reported on Thursday that more than 25 states were examining the merger. The news agency quoted James Donahue, the chief deputy attorney general in Pennsylvania, who has led a multistate task force that coordinates antitrust cases and advocates competition before federal and state courts and administrative agencies including the FTC and Justice Department.

An Express Scripts spokesman acknowledged that the company had held discussions with representatives from some of the states.

"We understand there are a number of state attorneys general who are looking into the transaction," said Express Scripts spokesman Thom Gross. "This is an ordinary course for a merger of this nature.

"As is generally the case, they are working in conjunction with the FTC and we have spoken to some of them directly. We will continue to work with the FTC and those states that have requested information."

Gross declined to say what type of information the states were seeking. "We're still expecting to get the deal done in the first half of next year. That hasn't changed," he said. "At this point, we can't speculate on the FTC's timing."

Missouri Attorney General Chris Koster's office is reviewing the merger but called the inquiry routine.

"We are looking at it as we often look at mergers," said office press secretary Nanci Gonder. "At this point we're just reviewing."

The proposed $29.1 billion merger, announced in July, would combine two of the nation's three largest pharmacy benefit managers, double the size of Express Scripts, and produce the largest company in its field. The combined entity would have one third of the multi-billion dollar U.S. market for managing prescriptions for employers and insurers.

Express Scripts reported revenue last year of $111 billion. Medco, based in Franklin Lakes, N.J., had revenue of $66 billion.

Express Scripts has tussled previously with state regulatory agencies.

In 2008, Express Scripts and CIGNA Life Insurance Co. agreed to pay $27 million to settle a lawsuit filed by New York's attorney general that accused the two companies of switching patients to higher-priced or higher profit-margin drugs by contacting their doctor without their knowledge.

The same year, Express Scripts agreed to pay a $9.3 million settlement to a coalition of 29 states, as well as up to $200,000 in reimbursement to patients who incurred expenses related to certain switches regarding cholesterol drugs. The states had accused the pharmacy benefit manager of deceptive business practices. Express Scripts also agreed to make certain disclosures to consumers, doctors and employers about its business practices.

The FTC's Bureau of Competition is tasked with reviewing mergers and acquisitions, and challenging those that would probably lead to higher prices, fewer choices, or less innovation.

Community pharmacists have challenged the proposed merger on the grounds that it will result in part in higher consumer prices and limit consumer choice. In particular, they fear that the combined entity will have more power to steer clients toward receiving their prescriptions through its own mail-order business rather than retail pharmacies.

In a filing lodged at the Securities and Exchange Commission on Thursday, Express Scripts stated that the merger talks were initiated by Medco chairman David Snow, who telephoned Express Scripts chairman George Paz on June 10 to discuss the possibility of a business combination. Several weeks later, on July 21, the two companies announced the deal.


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