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Express Scripts sees early benefits from Medco deal

NEW YORK (Reuters) – After years of trying to convince potential clients of its superiority over chief rival Medco, Express Scripts Holding Co is now finding the company it bought for $29 billion was doing a lot of things right.

Express Scripts is less than two months into digesting its massive acquisition that made it the clear leader in managing drug benefits for Americans, doubling the number of prescriptions it processes a year to about 1.5 billion.

A critical rationale for the merger was simply to enable Express Scripts to become much bigger, gaining advantages such as leverage in bargaining with drug manufacturers.

But Express Scripts now sees other benefits from the deal, such as choosing to switch to Medco’s information technology platform to smaller changes like adopting its postage-rate strategy for mailing multiple prescriptions to patients’ homes.

“There’s much more of their stuff coming over than in a typical integration,” Steven Miller, Express Scripts’ chief medical officer, told Reuters in an interview.

Express is an experienced acquirer, having struck more than a half-dozen sizable deals since 1998, though Medco is by far its biggest purchase.

Miller said Express Scripts officials had 2,000 meetings with Medco counterparts between the time the deal was announced in July of last year and when it closed in early April, following a contentious review by U.S. antitrust regulators.

But only then did Express Scripts gain real insight into the strategy, pricing and clients of Medco, which for years had been its rival in trying to woo employers, health plans and other prospective customers.

“We were surprised by how much they are like us,” Miller said. “We always looked at them as bigger, they had more of the Fortune 100s. They were more glitzy.”

One important hoped-for benefit that has materialized, Miller said, is that Medco has lower-priced deals from manufacturers on certain medicines that Express Scripts lacked.

“That means we have better purchasing,” Miller said. “We knew we would have more scale for sure. We thought these opportunities were there but you couldn’t confirm it until the deal closed.”

Miller also pointed to Medco’s methods for encouraging increased use of mail order by doctors through electronic prescribing as another surprising benefit.

The benefits, large and small, could help Express Scripts reach its target of $1 billion in cost savings and other synergies from the deal.

One sure way the company will seek to slash costs is by eliminating duplicative jobs, but Miller said it was too soon to speculate on how many positions might be cut. The companies had more than 33,000 employees between them as of the end of 2011, and each company now processes about 750 million prescriptions.

“The question is how many people are we going to need to service their half of those scripts going forward, and that’s the kind of math we’re working on,” Miller said.

The company has set a target of completing integration by 2014, “so we have the next 18 months to have the footprint and the workers that we want for the long haul.”

Express Scripts was impressed with Medco’s focus on chronic diseases through its therapeutic resource centers.

“They’re going to change in both the staffing model and the size of them but they’re definitely going to be part of our future going forward,” Miller said.

Medco had started to expand its services internationally before the deal, something Express Scripts had been reluctant to invest in.

“International is getting a hard look right now,” he said.

Miller said the companies had different cultures when it came to spending money.

“Our very disciplined spending will definitely be the culture going forward,” he said. “Many of their employees are embracing it, they love it. Those who can’t are obviously going to have trouble being a good fit in the future.”