Column: How Golden is This Parachute?

Chairman and other executives of NJ-based prescription management company stand to win big if they lose or leave their jobs after a proposed major corporate merger.

How many prescriptions could a company provide to needy people if it spent $39 million on such a cause?

More than a half million, at an average price of $72. Double that, if all the prescriptions were generic.

But instead of making such a charitable expenditure, a super-prescription benefit management firm proposes giving $39 million—$12.6 million of that in cash—to David Snow, the chairman and chief executive officer of Medco Health Solutions, Inc., should he not survive the merger, either on his terms or the new company’s. That’s according to a joint proxy statement filed last month by the Franklin Lakes-based Medco and Express Scripts of St. Louis.

As parachutes go, they don’t get much more golden.

Four other executives would get chutes just slightly less shiny, sharing almost $45 million.

The total cost to “retire” the five execs: $83 million. That could buy 1.1 million prescriptions at the 2008 average, the most recent data available from the Kaiser Family Foundation. Or, using Express Scripts’ data, 6.8 million prescriptions at the average 2010 co-pay of $12.15 for Express Scripts members.

That would be a whole lot of medical assistance to a whole lot of people.

Before you feel sorry for the executives who could lose their jobs in the merger, consider how much they make in a typical year. Snow’s compensation in 2010 totaled $16.4 million, $1.3 million of that in cash. The total represents a 22 percent increase from 2009. The other execs—the president and COO, the senior VP and CFO, the general counsel and the group president—received between $3.7 million and $5.9 million apiece.

And consider what all this means, or might mean in the future, to you.

Medco and Express Scripts are two of the three two largest companies managing prescription drug benefits in the United States. Last year, they reportedly handled more than 1.7 billion prescriptions. Undoubtedly millions of those were for New Jerseyans.

Their $29.1 billion merger reportedly would put the combined company in charge of a third of all the prescriptions written across the country. Right now, it is before the Federal Trade Commission for an antitrust review.

That has many groups, including those representing consumers and those representing pharmacies, worried.

Five consumer advocacy groups, including the publisher of Consumer Reports magazine, wrote in a letter last September to the FTC that the merger “will significantly reduce competition and, in turn, cause significant harm to consumers.”

But in a statement issued the same day as they testified before the U.S. House Committee on the Judiciary’s Subcommittee on Intellectual Property, Competition and the Internet, the CEOs of the two prescription managers said their merger would lead to “safer, better and more affordable pharmaceutical coverage.”

The U.S. Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights has scheduled its own hearing for Tuesday at 2:30 p.m. The hearing is titled “The Express Scripts/Medco Merger: Cost Savings for Consumers or More Profits for the Middleman?” Both Snow and Express Scripts CEO George Paz are scheduled to testify. 

As the FTC review continues, stockholders in both companies are being asked to approve the merger in pre-Christmas votes on Dec. 21. Maybe the boards of directors chose this date thinking stockholders will be in a happy holiday mood? Or maybe that they’d be so wrapped up in Christmas preparations that they wouldn’t bother voting?

The companies are also asking stockholders to endorse the golden parachutes. But even if that vote turns out to be Scrooge-like, Snow and the other execs don’t have to worry about getting their presents: The proxy statement notes that “such compensation will be payable, regardless of the outcome of this advisory vote, if the merger agreement is adopted.”

As part of the federal healthcare reform, starting next year, health insurance companies that spend excessive amounts on administrative or other costs will be penalized and have to give money back to the people they insured. Federal regulators should keep that principle in mind, as well as the golden parachutes for executives, as they evaluate the Medco/Express Scripts merger.

Colleen O'Dea is a writer, editor, researcher, data analyst, web page designer and mapper with almost three decades in the news business. Her column appears Mondays.

Michele Guttenberger December 06, 2011 at 02:23 PM
"The proxy statement notes that “such compensation will be payable, regardless of the outcome of this advisory vote, if the merger agreement is adopted." Corporate greed is fully protected. How can this ever stop when laws and regulators turn their backs. Whatever laws or regulations we have to protect the shareholders and consumers gets ignored -Such as Sarbanes Oxley. Great informative article Coleen, I hope other Patch viewers read it. Sadly, I have a Medco plan and these are the very reasons why are Healthcare costs keep escalating. Someone has to pay for this privileged executive class.
Murlin (Monte) Lower December 06, 2011 at 04:25 PM
Since I am retired military and covered by Tricare, I have had both companies handling my prescriptions. Medco did an outstanding job and Express Scripts is acceptable. That said, no one is worth what is proposed and I truly believe, no matter what the executives say, competition will be adversely affected.
Rich Smith December 06, 2011 at 10:49 PM
Because of my insurance I use Medco. Great service, no complaints. However, where does this end. Is this where all those Rx. Dollars that are supposed to be needed for “research” is going? This is a shame.
Rev. Susan Gillespie December 08, 2011 at 05:56 PM
Thank you for this.
Chris in NJ December 09, 2011 at 04:07 PM
Another aspect of this story are the jobs going to be lost by Medco employees so that a few execs can get their windfall. The guys in the lower rungs helped make Medco a succesful company, but the top guys get the big payout. The rest get the boot.


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