Will Cigna’s purchase of Express Scripts reduce drug costs?
Monday, March 19, 2018
For those following the big business carousel in healthcare, Cigna is certainly on their radar.
In May of 2017, the behemoth insurer announced it was abandoning plans to merge with another behemoth, Anthem. This followed a U.S. appeals court decision in April that blocked the bid because the $54 billion deal would have led to higher prices for healthcare.
But Cigna is bouncing back, announcing this month that it would purchase Express Scripts, the country's largest pharmacy benefit management firm, in a deal worth $67 billion. The two firms said the merger will offer three main strategic benefits, according to the announcement:
Expanded consumer choice. Offering a full suite of medical, behavioral, specialty pharmacy and other health engagement services accessible across a wide array of retail and online distribution channels, providing optionality for all customers. This will position the combined company to deliver superior services, responding fully to the dynamic needs of our customers and clients, which will drive long-term value creation for shareholders.
Patient-provider alignment. Using a broad and proven network of delivery system partnerships to drive the combined company's role as the connective tissue between individuals and their healthcare providers, providing a more coordinated approach to an individual's healthcare journey, reducing complexity and creating better outcomes.
Personalized value. Making healthcare simpler for consumers by harnessing actionable insights and predictive analytics, maximizing adoption of evidence-based care and delivering industry-leading innovation and medical technology to support care decisions.
Under the terms of the agreement, the transaction will consist of $48.75 in cash and .2434 shares of stock of the combined company per Express Scripts share, or $54 billion in the aggregate. Cigna will assume about $15 million in Express Scripts' debt. Upon closing of the transaction, Cigna shareholders will own about 64 percent of the combined company, and Express Scripts shareholders will own about 36 percent. This represents about a 31 percent premium to Express Scripts' closing price of $73.42 on March 7.
Upon closing, the combined company will be led by David M. Cordani as president and CEO. Tim Wentworth will assume the role of president, Express Scripts. The combined company's board will be expanded to 13 directors, including four independent members of the Express Scripts board.
The combined company will be named Cigna. Cigna's headquarters in Bloomfield, Connecticut, will become the headquarters for the combined company, and Express Scripts will be headquartered in St. Louis, Missouri.
"This combination accelerates Cigna's enterprise mission of improving the health, well-being and sense of security of those we serve, and, in turn, expanding the breadth of services for our customers, partners, clients, health plans and communities," Cordani said in the announcement.
According to MarketWatch, Leerink Partners analyst Ana Gupte said, "It has been our long-held belief that stand-alone pharmacy benefit managers had no future" because drug spending has become a key component of rising healthcare costs, and networks are increasingly seen a way to control the cost of expensive specialty drugs. Per the same report, Express Scripts was ousted as Anthem's PBM in 2017 for what the insurer said was overpricing.
The goal of such alignments is usually simple: lower drug costs for better outcomes. Time will tell if these types of mergers actually produce such.
Wentworth said in the announcement that the deal shows Express Scripts' commitment to providing high-quality care to its members: "Adding our company's leadership in pharmacy and medical benefit management, technology-powered clinical solutions and specialized patient care model to Cigna's track record of delivering value through innovation, we are positioned to transform healthcare."
The Cigna deal is not the first of its kind. A deal between CVS and Aetna, which is valued at $69 billion, is making its way through the appropriate channels. Consumers advocates are alarmed, of course, saying both deals could be anti-competitive and lead to fewer options for patients.
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