Pharmacy benefit managers handle roughly two-thirds of Americans’ prescription drug benefits. They thrive on size: The bigger they become, the more negotiating power they gain with drug manufacturers and pharmacies.
Express Scripts fills about 1.4 billion drug prescriptions a year. A $94 billion behemoth, it can leverage its size to contain costs for its customers that include health plans, big employers and government health care programs.
Based in St. Louis, Express Scripts has about 30,000 employees. Founded in 1986, the company completed a $29.1 billion acquisition of Medco Health Solutions in 2012. The deal made Express Scripts America’s largest pharmacy benefit manager or PBM.
Generics To Biotech Drugs
George Paz, chairman and CEO of Express Scripts Holding Co., frequently talks in terms of alignment. He emphasizes that the company’s business model revolves around aligning its interest with its customers and patients. It makes money when its clients and patients save money by, say, choosing generic drugs and home delivery.
“Express Scripts has done the best job of structuring their company and setting up their business model to be in total alignment with their clients,” said John Kreger, principal and health care equity research analyst with William Blair & Co. in Chicago. “That has been the first goal as long as I can remember with this company, and they focus on it very consistently.”
For example, specialty pharmaceuticals that get injected or infused into the patient are becoming more popular. Because these drugs are typically much more expensive and harder to administer, the company recently created an online platform — called ExpressPAth — for doctors to manage the process.
Kreger notes that a few years ago, generics basked in the spotlight. Just as Express Scripts benefited from the growth in generics, it is now positioned to profit from the next wave of specialty biotech drugs.
“You’ve had this overarching goal to restrain health care costs, especially drug spending,” Kreger said. “Express Scripts has gone about restraining costs in a very dynamic way over the years. They try to anticipate where the health care industry is going, and they’ve been nimble.”
Like other PBMs, Express Scripts has gobbled up companies to build size and negotiating muscle. The blockbuster Medco acquisition was a particularly bold move.
“Express Scripts has excelled in terms of M&A, knowing which companies to acquire and integrating those companies to achieve maximum earnings accretion,” said Herman Saftlas, pharmaceutical analyst at S&P Capital IQ in New York City.
He adds that even though prescription drug utilization has not grown in recent years, Express Scripts continues to outperform by staying one step ahead. Moving clients to mail order and generics, for instance, helps the company increase its margins while also improving customer satisfaction, accuracy in filling orders and health outcomes.
“The company is also very good at formulary management and capital management,” Saftlas said.