Absorbing Express Scripts, the nation’s largest pharmacy benefit manager, could further reshape the roiling health care landscape.
The deal would mark the end of the last major independent pharmacy benefit manager, one that has focused on striking deals with drug companies to lower costs for insurers and employers. Express Scripts is responsible for the prescription plans of more than 80 million Americans.
The New York Times quotes Cigna’s chief executive, David Cordani, who will serve as chief executive for the combined company:
This step furthers our strategy to improve the affordability and value to the consumer in a more personalized way.
This is the future of the stand-alone pharmacy benefit manager, said Tim Wentworth, the chief executive of Express Scripts, who would serve as president of the Express Scripts business under the deal. The two companies said that they would continue to offer pharmacy services to other insurers and to employers that do not use Cigna.
The deal would ensure that all of the major pharmacy benefit managers would have ties to big insurers. CVS Health, which also owns pharmacies, recently announced a merger agreement with the health insurer Aetna. OptumRx is owned by the insurance giant UnitedHealth Group. Anthem, which operates for-profit Blue Cross plans in several states, said it had plans to create its own pharmacy business.
With no other large independent pharmacy managers left for smaller insurers, federal and state officials could be reluctant to approve the Cigna-Express Scripts deal, according to David A. Balto, an antitrust lawyer who worked at the Federal Trade Commission and the Justice Department who is a fierce critic of mergers of insurers and pharmacy managers. The CVS-Aetna deal could face the same problem, he said in the New York Times story.
HealthLeaders Media reports Craig Garthwaite, associate professor of strategy and director of the Health Enterprise Management Program at Northwestern University’s Kellogg School of Management, in a tweet Thursday:
We should be skeptical of the wisdom of vertical integration. We also know that imperfectly competitive supplier markets and agency problems can be reasons for such strategic action
Garthwaite and Fiona Scott Morton, a professor of economics at the Yale School of Management, wrote an article on the topic last fall, arguing that recent consolidation among PBMs and a lack of transparency drive prices higher.
The answer to high prices isn’t broad price regulation, but restoring the intended level of competition to a market characterized by a dangerous combination of PBM consolidation and opaque pricing.
Antitrust experts said the Trump administration would need to review how both deals between Cigna and Express and between CVS and Aetna would affect the U.S. market, already the world’s most expensive healthcare system.
In 2016, the Obama administration scuttled two major health insurer mergers – Anthem Inc’s purchase of Cigna and Aetna’s purchase of rival Humana – largely on concerns the consolidation would raise costs for consumers.
Today’s deals between an insurer and PBM represents a so-called vertical integration of players within the health industry. But it could limit the ability of large employers to choose who manages both prescription drug benefits and medical coverage for their employees. Read more in Reuters
Read “5 things to know” as distilled by Becker’s Hospital Review:
1. Cigna CEO David Cordani will lead the combined company as president and CEO, upon regulatory and shareholder approval required to close the deal. Express Scripts President and CEO Tim Wentworth will become president of Express Scripts.
2. The entity will be named Cigna, with Cigna shareholders owning roughly 64 percent of the company and Express Scripts shareholders holding roughly 36 percent of the firm.
3. Cigna and Express Scripts anticipate the deal will close by the end of 2018.
4. The healthcare services industry is going through rapid change as a slew of giant companies propose deals, including CVS Health’s $69 billion offer to buy Aetna.
5. The deal arrives after Express Scripts lost a major deal with Anthem last year when the insurer decided to launch its own pharmacy benefit manager instead of signing another deal with Express Scripts.