Express Scripts 2011 Annual Report Download - page 14

Express Scripts 2011 Annual Report
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In November 2009, we implemented a contract with the United States Department of Defense (―DoD‖). While we
have provided services to the DoD since 2003, this new contract combines the pharmacy network services, home delivery
and specialty pharmacy under one program. The DoD’s TRICARE Pharmacy Program is the military healthcare program
serving active-duty service members, National Guard and Reserve members, and retirees, as well as their dependents.
Under the new contract, we provide online claims adjudication, home delivery services, specialty pharmacy clinical
services, claims processing and contact center support, and other services critical to managing pharmacy trend.
In December 2009, we completed the purchase of 100% of the shares and equity interests of certain subsidiaries of
WellPoint, Inc. (―WellPoint‖) that provide pharmacy benefit management services (―NextRx‖ or the ―NextRx PBM
Business‖). We also entered into a 10-year contract under which we provide pharmacy benefits management services to
members of the affiliated health plans of WellPoint (the ―PBM agreement‖). Upon close of the acquisition, we began
integrating NextRx’s PBM clients into our existing systems and operations, which we substantially completed during 2010.
Refer to Note 12 – Segment information for a discussion of client concentration.
Medicare Prescription Drug Coverage
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the ―MMA‖) created the federal
Voluntary Prescription Drug Benefit Program under ―Part D‖ of the Social Security Act. Eligible Medicare beneficiaries are
able to obtain prescription drug coverage under Part D by enrolling in a prescription drug plan (―PDP‖) or a ―Medicare
Advantage‖ plan that offers prescription drug coverage (an ―MA-PD‖). In addition, the MMA created an opportunity for
employers offering eligible prescription drug coverage for their Medicare-eligible members to receive a subsidy payment
by enrolling in the Retiree Drug Subsidy (―RDS‖) program. In order to claim the subsidy, the beneficiaries claimed by the
employer cannot be enrolled in a PDP or MA-PD.
Our services support clients who have elected to become a PDP or an MA-PD. In addition, we support the needs
of employers who enroll in the RDS program. We provide PBM services to these clients as well as Part D functions that
include managing member out-of-pocket costs, creation of Explanation of Benefits of the prescription data event,
medication therapy management services and various reporting required by CMS.
We are approved by CMS to function as a Part D PDP plan sponsor, offering prescription drug coverage to
Employer Group Waiver Plans, through our wholly owned subsidiary, Express Scripts Insurance Company (―ESIC‖). ESIC
is licensed by the Arizona Department of Insurance as a Disability Insurer which meets the CMS requirements of a risk-
bearing entity regulated under state insurance laws or similar statutes.
Mergers and Acquisitions
On July 20, 2011, we entered into a definitive merger agreement (the ―Merger Agreement‖) with Medco Health
Solutions, Inc. (―Medco‖), which was amended by Amendment No. 1 thereto on November 7, 2011. The Merger
Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Medco
shareholders will receive total consideration of $25.9 billion composed of $65.00 per share in cash and stock (valued based
on the closing price of our stock on December 31, 2011), including $28.80 in cash and 0.81 shares for each Medco share
owned. We anticipate the Transaction will close in the first half of 2012. The Transaction was approved by Express Scripts’
and Medco’s shareholders in December 2011. The Transaction is subject to regulatory clearance and other customary
closing conditions, and will be accounted for under the authoritative guidance for business combinations.
On December 1, 2009, we completed the purchase of 100% of the shares and equity interests of the NextRx PBM
Business in exchange for total consideration of $4,675.0 million paid in cash. The working capital adjustment was finalized
during the second quarter of 2010 and reduced the purchase price by $8.3 million, resulting in a final purchase price of
$4,666.7 million. Our PBM operating results include those of the NextRx PBM Business beginning on December 1, 2009,
the date of acquisition.
See Note 3 – Changes in business for further discussion of our merger and acquisition activity.
We regularly review potential acquisitions and affiliation opportunities. We believe available cash resources, bank
financing or the issuance of additional common stock or other securities could be used to finance future acquisitions or
affiliations. There can be no assurance we will make new acquisitions or establish new affiliations in 2012 or thereafter.
(see ―Part II – Item 7 – Management’s Discussion and Analysis of Financial Conditions and Results of Operations –
Liquidity and Capital Resources – Acquisitions and Related Transactions‖).