Merger of Cigna and Express Scripts Gets Approval From Justice Dept.
Source: New York Times
Federal officials on Monday gave the go-ahead to the proposed merger between Cigna, one of the nation’s largest health insurers, and Express Scripts, a major pharmacy benefit manager.
The $52 billion deal, announced last March, is one of two proposed transactions involving pharmacy companies before the Justice Department. Last December, Aetna, another giant insurer, announced its plan to join forces with CVS Health, the drugstore chain that is the main independent rival to Express Scripts, in a $69 billion deal.
The Justice Department continues to review the deal between Aetna and CVS, although the two companies are also expected to receive a green light soon.
These combinations of powerful health insurance companies with the country’s dominant pharmacy benefit managers are occurring as established players in the health care sector are frantically searching for ways to fend off potential interlopers like Amazon, whose tentative forays into the pharmacy business have already shaken up the industry.
The deals also represent a recognition by established companies that they need to change their business model in response to customer demands that prices are better controlled. Both insurers and pharmacy benefit managers serve as middlemen for employers and governments, and the proposed mergers are an attempt to convince their customers that they are working to reduce costs.
The entrenched industry has also been buffeted by a new alliance among the corporate giants Amazon, Berkshire Hathaway and JPMorgan Chase, which have created a separate health care entity out of their frustration with big insurers and the major pharmacy managers. Those companies want to develop new ways to cut through the seemingly intractable, expensive systems of coverage for their employees.
The decision by federal antitrust officials to allow Cigna to buy Express Scripts signals an acceptance of so-called vertical mergers in which companies, although in the same broad line of business, do not directly compete. The nation’s big health insurers, including Aetna and Cigna, had previously tried to combine with other insurers, only to have those deals blocked over concerns about the possible impact on consumers.
In approving the Cigna-Express Scripts deal, federal officials emphasized that they did not believe the merger would damp competition in the pharmacy business.
“Quality health care and competitive pricing for health care services and pharmaceutical drugs is critical to U.S. consumers,” Makan Delrahim, an assistant attorney general, said in a statement on Monday.
Both companies argue that the merger will benefit consumers by allowing Cigna and Express Scripts to better manage their customers’ health by sharing information about both their medical and drug expenses. The other major insurers, UnitedHealth Group and Anthem, have also moved away from using outside benefit managers, posing major threats to CVS and Express Scripts.
“Together, we believe we will be able to do even more to reduce health care costs, expand choice, and improve patient outcomes,” Tim Wentworth, the chief executive of Express Scripts, said in a statement.
Rising drug prices are forcing the issue for the insurers, said Terry Stone, a managing partner for Oliver Wyman, a consultant. Many were unprepared for the onslaught of new, very expensive medications, she said, and were “caught off guard” when the new hepatitis C drugs were introduced a few years ago at a cost of tens of thousands of dollars to treat a single individual.
She argued the combination of these large insurers, with expertise in managing costs for chronic diseases, and the pharmacy managers offer “a huge amount of synergy.”
Both the insurers and pharmacy companies are under tremendous pressure to prove they can deliver cost-conscious results, said Jim Winkler, a senior executive at Aon, a benefits consultant. “It is reasonable to say both models have to change and will change,” he said.
But the parties will have to do more than merge to convince employers that they are offering something of greater value than they do separately, said Mr. Winkler, who noted that many employers said they did not intend to change their benefits strategy when the mergers were first announced.
The deals also reflect an increasing interest in the business of providing private plans under the Medicare program, where drug benefits represent a critical component of an insurers’ offerings, Mr. Winkler said. Cigna’s purchase of Express Scripts allows the company, which is not considered a major player in Medicare Advantage, to increase its presence, he said.
Cigna and Express Scripts said they had already received approval from 16 state insurance departments and were working with regulators in the other states to get the necessary approval. Shareholders of both companies have already voted to go ahead with the deal, and the companies said they expected the deal to close by the end of the year.
Filed Under: ACA/Health Reform