Situation Analysis: Express Scripts Holding Company
Express Scripts, a wholly-owned subsidiary of Express Scripts Holding Company, is one of the largest pharmacy benefit management (PBM) companies in North America.The company operates in the US and Canada. It is headquartered in St. Louis, Missouri and employed 13, 120 people as ofJanuary 2013. In the five years to 2012, Express Script's revenue increased an annualized rate of 17.2% to $48.2 billion. This was an increase of 2.6% over FY2012.The operating profit of the company was $2,311.7 million during FY2012, an increase of 11.6% over FY2011. The net profit was $1,275.8 million in FY2012, an increase of 8% over FY2010 (Datamonitor 2012). In April 2012, Express Scripts completed acquisition of Medco Health Solutions (Medco), for $29.1 billion. With medical costs outpacing the rate of inﬂation, PBMs work to keep medications affordable (Datamonitor 2012).
Representative of most PBMs, Express Scripts profits from business in the following four areas: (1) from operating its own mail order pharmacies; (2) from providing services such as drug utilization review, rebate administration, and data mining; and (3) from negotiating with groups such as health plans, pharmaceutical manufacturers, and retail pharmacies (Garrett & Gartner 2007). As a PBM, Express Scripts is a middle man and profits via a process of negotiation with different parties. There are four basic ways this happens. PBM's take a share of the fixed ingredient cost by negotiating to reimbursement to retail pharmacies for drugs at one rate, while charging health plans a higher rate. PBMs also receive fees and rebates from drug manufacturers. Third, the PBMs charge health plans a processing fee for each prescription filled. Fourth, the PBMs directing a portion of the pharmacy transactions through their own mail order branches in order to pocket dispensing fees. In this way they compete with the retail pharmaciesthat they also make...
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