Over two dozen states are scrutinizing Express Scripts' proposed acquisition of Medco Health Solutions , as pharmacists stoke fears that the $22 billion deal would propel the companies' aggressive tactics.

More than 25 states have formed a group concerned about the potential merger of the two massive pharmacy benefit managers, said James Donahue of the Pennsylvania state attorney general's office, who declined to name the states.

Connecticut and Iowa are among those concerned, according to officials from those states.

The states do not have a direct say in the review by the Federal Trade Commission, whose role is to make sure the deal complies with antitrust law.

But they will likely add pressure on the FTC to give tough scrutiny to the merger, and could hand the agency evidence that would potentially serve as ammunition to challenge it.

The states could also challenge the deal on their own.

The deal, announced in July, would combine two of the three largest U.S. pharmacy benefit managers (PBMs) that are big enough to manage prescription drug benefits for large, nationwide companies. It would create an industry leader with nearly one-third of the market.

The FTC is already getting an earful from community and specialty pharmacists who feel bullied by Medco and Express Scripts as the companies negotiate drug prices for employers and other clients worried about spiraling healthcare costs.

There are allegations that the PBM industry drives a hard bargain but largely pockets the savings. There have also been complaints that the PBMs unfairly pressure doctors and patients to switch to their own in-house pharmacies.

The pharmacy groups opposed to the deal have met with staff at the FTC and with individual commissioners at least five times since the deal was announced, said David Balto, a former FTC policy director who is working with the pharmacists.

The FTC is in the early stages of its probe, said Balto. The FTC declined to comment on its review.

They were very interested in our thoughts, said Russell Gay, executive director of the Independent Specialty Pharmacy Coalition. We are asking for it to be blocked.

Shares of Medco have continued to trade below the value implied by Express Scripts' cash and stock offer, closing at a 20 percent discount on Wednesday, suggesting investors are concerned the deal may not win approval.

PHARMACISTS COMPLAIN

Specialty pharmacists -- who provide medicines for chronic, serious ailments like hemophilia or hepatitis C and provide some patient oversight -- say that Express Scripts is contacting patients' doctors and asking them to switch patients from their usual specialty pharmacy to CuraScript, a specialty pharmacy company which Express bought in 2004.

PBMs that own specialty pharmacies contact patients' doctors thousands of times a day to urge that the patients be shifted to the PBM-owned pharmacy, said Gay. We're constantly fighting these days in order to get authorization for patients we have today.

Express Scripts described the effort as a way to keep rising health care costs under control.

Moving patients to the lowest cost, clinically equivalent treatment is a core PBM tool, and the country absolutely needs this sort of benefit management, said Express Scripts spokesman Brian Henry in an email. Whether or not to use CuraScript, just like mail order, is a plan sponsor decision.

Some specialty pharmacists say Express Scripts subjects them to abusive audits as it tries to move into the business.

Express Scripts audits almost every single claim from (a health care plan), said one specialty pharmacist who asked not to be named and questioned if the company audits itself as aggressively.

EXPRESS SCRIPTS DEFENDS PRACTICES

Express Scripts said the audits were needed. Pharmacy audits that ensure proper payments save plan sponsors and patients money, said Henry.

We're committed to working with FTC, and we welcome their questions, he added.

Community pharmacists, already facing stiff challenges from big-box store pharmacies like Wal-Mart , fear powerful pharmacy benefits managers will push for consumers to get many drugs, like blood pressure medicines, by mail.

They fear a replay of the fight with CVS Caremark , the largest U.S. prescription drug provider and second-largest drugstore chain, which has been accused of using Caremark data to steer customers to mail order or to CVS retail pharmacies.

CVS said in November 2009 that the FTC was investigating its business practices.

The FTC was an early supporter of PBMs, on the grounds that a strong drug distributor would be able to negotiate good prices with pharmaceutical manufacturers.

But the three big pharmacy benefits manager companies -- Express Scripts, Medco and Caremark, before its merger with CVS in 2007, have been in hot water with regulators.

All three settled with states angered by the companies urging doctors and patients to switch medications, saying it would benefit the patient or plan. In fact, usually it was the PBM which benefited in the form of rebates given to the PBM by the drug company, said a source who spoke privately.

Medco reached a multi-state agreement that cost it $29.3 million in 2004, while Caremark and Express Scripts made similar settlements in 2008 for $41 million and $9.5 million, respectively.

Express Scripts said on Wednesday it never admitted to wrongdoing in the settlement.

If regulators find that abusive practices are rife throughout the industry, they may be reluctant to allow a merger that would create a U.S. powerhouse in managing prescription drug benefits.