Merck & Co., Inc., et al.; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 951-0097]

Merck & Co., Inc., et al.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged

violations of federal law prohibiting unfair or deceptive acts or

practices or unfair methods of competition. The attached Analysis to

Aid Public Comment describes both the allegations in the draft

complaint that accompanies the consent agreement and the terms of the

consent order--embodied in the consent agreement--that would settle

these allegations.

DATES: Comments must be received on or before November 2, 1998.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 6th St. and PA. Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:

William Baer or Willard Tom, FTC/H-394, Washington, D.C. 20580. (202)

326-2932 or 326-2786.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of

the Commission's Rules of Practice (16 CFR 2.34), notice is hereby

given that the above-captioned consent agreement containing a consent

order to cease and desist, having been filed with and accepted, subject

to final approval, by the Commission, has been placed on the public

record for a period of sixty (60) days. The following Analysis to Aid

Public Comment describes the terms of the consent agreement, and the

allegations in the complaint. An electronic copy of the full text of

the consent agreement package can be obtained from the FTC Home Page

(for August 27, 1998), on the World Wide Web, at ``http://www.ftc.gov/

os/actions97.htm.'' A paper copy can be obtained from the FTC Public

Reference Room, Room H-130, Sixth Street and Pennsylvania Avenue, NW.,

Washington, DC 20580, either in person or by calling (202) 326-3627.

Public comment is invited. Such comments or views will be considered by

the Commission and will be available for inspection and copying at its

principal office in accordance with section 4.9(b)(6)(ii) of the

Commission's Rules of Practice (16 CFR 4.9(b)(6)(ii)).

Analysis of Proposed Consent Order to Aid Public Comment

The Federal Trade Commission has accepted, subject to final

approval, an Agreement Containing Consent Order from Merck and Co.,

Inc. (``Merck'') and Merck-Medco Managed Care, LLC (``Medco''), (or

``Proposed Respondents'') in resolution of antitrust concerns arising

from Merck's acquisition of Medco.

The proposed consent order (``Order'') has been placed on the

public record for sixty (60) days for reception of comments by

interested persons. Comments received during this period will become

part of the public record. After sixty (60) days, the Commission will

again review the Agreement and the comments received and will decide

whether it should withdraw from the Agreement or make final the

Agreement's proposed Order.

The Commission has reason to believe that Merck's acquisition of

Medco may substantially lessen competition in violation of Section 7 of

the Clayton Act, as amended, 15 U.S.C. 18 and Section 5 of the FTC Act,

as amended, 15 U.S.C. 45. The Order, if issued by the Commission, would

settle the allegations of the proposed Complaint (``Complaint'').

The Complaint in this matter alleges that Merck is engaged in the

development, production and sale of pharmaceutical products, including

Mevacor and Zocor, which are HMG-CoA reductase inhibitors used for

treating high cholesterol; and Prinivil and Vasotec, which are ACE

Inhibitors used for treating hypertension, high blood pressure and

heart disease. It further alleges that Merck's subsidiary, Medco, is

engaged in the business of providing pharmacy benefit management

services to corporations, insurance companies, labor unions, third

party payors, and other members of the healthcare industry.

The Complaint further alleges that a relevant line of commerce

within which to analyze the effects of this acquisition is the

provision of pharmacy benefit management (``PBM'') services by national

full-service PBM firms, and any narrower markets contained therein.

Other relevant lines of commerce within which to analyze the effects of

this acquisition are the development, manufacture and sale of

pharmaceutical products in specific therapeutic

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categories, and narrower markets contained therein (including, but not

limited to, the markets for HMG-CoA reductase inhibitors and ACE

Inhibitors). It further alleges that the relevant market for PBM

services by national full-service PBM firms, as well as the relevant

markets for pharmaceutical products in specific therapeutic categories,

are moderately to highly concentrated.

The Complaint further alleges that there are substantial barriers

to entry into the relevant markets. Even if new entry were to occur, it

would take a long time, during which time substantial harm to

competition could occur.

The Complaint further alleges that as part of its PBM services,

Medco maintains a drug formulary, which is a listing, by therapeutic

category, of ambulatory drug products that are approved for use by the

U.S. Food & Drug Administration, and which is made available to

pharmacies, physicians, third-party payors, and other persons, to guide

in the prescribing and dispensing of pharmaceuticals. Merck

pharmaceutical products are included on the Medco formulary. Medco

provides a variety of other PBM services, including claims processing,

drug utilization review, pharmacy network administration, mail service,

and related services. Medco negotiates with pharmaceutical

manufacturers, including Merck, concerning placement of drugs on the

Medco formulary, rebates, discounts, prices to be paid for

pharmaceutical products purchased pursuant to pharmacy benefit plans

managed by Medco, and similar matters. Medco thereby influences the

prices of pharmaceutical products and the availability of such products

under the Medco pharmacy benefit plans.

The Complaint further alleges that the effects of the acquisition

of Medco by Merck may be substantially to lessen competition in the

relevant markets in violation of Section 7 of the Clayton Act, as

amended, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission

Act, as amended, 15 U.S.C. 45, in the following ways, among others:

(a) Products of manufacturers other than Merck are likely to be

foreclosed from Medco's formularies;

(b) Reciprocal dealing, coordinated interaction, interdependent

conduct, and tacit collusion among Merck and other vertically

integrated pharmaceutical companies will be enhanced;

(c) Medco has been eliminated as an independent negotiator of

pharmaceutical prices with manufacturers;

(d) Incentives of other manufacturers to develop innovative

pharmaceuticals will be diminished; and

(e) Pharmaceutical prices are likely to increase and the quality of

the pharmaceuticals available to consumers is likely to diminish.

The Complaint further alleges that the acquisition of Medco by

Merck violates Section 7 of the Clayton Act, as amended, 15 U.S.C. 18,

and Section 5 of the Federal Trade Commission Act, as amended, 15

U.S.C. 45.

The Order requires Merck to cause Medco to maintain and make

available an Open Formulary, and provides that the Medco ``Universal

Formulary'' complies with this provision. A copy of this formulary is

appended to the Order. For the purposes of the Order, an open formulary

is defined as a formulary that allows the inclusion of any ambulatory

(i.e., non-hospital) prescription drug product which the Medco

independent Pharmacy and Therapeutics Committee (``P&T Committee'')

determines is appropriate for inclusion in such formulary.

The Order requires that Medco appoint an independent P&T Committee

to administer the formulary. This committee will make all decisions

concerning the inclusion and exclusion of drugs on the Open Formulary.

The Order sets forth the parameters under which the P&T Committee is to

operate.

The Order also requires that Merck cause Medco to accept all

discounts, rebates or other concessions offered by any other

manufacturer of pharmaceutical products on the Open Formulary, and

requires that all such discounts, rebates and concessions be truthfully

and accurately reflected in determining relative rankings of products

on the Open Formulary. Nothing in the Order prohibits Medco from

offering closed formularies as well as the Open Formulary.

The Order also prohibits Merck and Medco from providing,

disclosing, or otherwise making available to each other Non-Public

Information, with certain exceptions for attorneys and auditors. This

includes information concerning other persons' bids, proposals,

contracts, prices, rebates, discounts, and or other terms and

conditions of sale.

The Order also requires Merck for five years to retain all

documents, and to cause Medco to separately retain all documents,

relating to the exclusion of any prescription drugs from the Open

Formulary, any preference or ranking accorded to any prescription drug

on the Open Formulary, and statements or indications of discounts,

rebates or other concessions.

The Order also requires Merck and Medco to make known the

availability of the Open Formulary to persons who currently have a PBM

service agreement or formulary agreement with Medco, and (for a period

of five years) to prospective customers.

The Order also compels Merck and Medco to fulfill certain standard

notification, reporting and inspection requirements.

The Order terminates seven years from the date it becomes final.

It is anticipated that the Order would resolve the competitive

problems alleged in the Complaint. The purpose of this analysis is to

facilitate public comment on the Order, and it is not intended to

constitute an official interpretation of the agreement and Order or to

modify it in any way.

The proposed consent order has been entered into for settlement

purposes only, and does not constitute an admission by Proposed

Respondents that the law has been violated as alleged in the complaint.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 98-23450 Filed 8-31-98; 8:45 am]

BILLING CODE 6750-01-M