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Cigna-Express Scripts Move Could Hit Regulatory Snags

Analysis  |  By Gregory A. Freeman  
   March 14, 2018

The companies' proposed merger could be closely scrutinized. Cigna is looking to increase purchasing power, particularly with specialty drugs.

Cigna's plan to merge with pharmacy benefit manager Express Scripts is in line with previous consolidations intended to leverage related books of business, but it comes at a time when the nature of PBMs are being questioned.

That could make it difficult for the two companies to get regulatory approval. Antitrust concerns about the combined power of the health plan and the PBM also could get in the way.

Cigna recently announced the plan—a $52 billion deal that would follow other consolidations and disruptions in the healthcare sector, notably Amazon's announcement in January that it was teaming up with Berkshire Hathaway and JPMorgan Chase to create an innovative health plan.

Cigna probably hopes to achieve multiple objectives with the Express Scripts merger, says Brian Duffant, vice president at BluePath Solutions, a market access and health economics consulting firm. 

The health plan most likely is looking to improve purchasing power, which will be enhanced by both the increase in lives under management as well as exposure to differing biopharmaceutical manufacturer rebates across the Express Scripts and Cigna books of business, he says.

Higher rebates on similar products in one book of business versus another can serve as leverage for the plan to negotiate higher rebate levels across a broader book of business, Duffant explains.

"Additional synergies may include combined purchasing power in the specialty drug segment, which is the fastest growing component of drug trend," he says. "The combined distribution and purchasing power of the Accredo and CuraScript specialty lines of Express Script, and Cigna Specialty Pharmacy may allow for the new entity to more effectively manage the specialty drug cost trend."

Misaligned incentives

Express Scripts is the largest of the remaining independent PBMs, notes Christopher J. Kutner, JD, partner in the Rivkin Radler law firm, who previously worked as general counsel for a health plan and dealt directly with PBMs. Folding the PBM into the health plan could address some concern about misaligned incentives, he says.

"They were trying to make a profit, and we as a health plan were trying to make a profit. Having them both work in the industry and with their concerns not entirely aligned, that adds cost to the system," Kutner says. "[The Cigna-Express Scripts merger] makes perfect sense because by bringing the PBM into the confines of the payer, [Cigna] will have access to all of the data of their members' prescription drug history. The drug cost is roughly 25% of the expense for health plans, so bringing the PBM in will help Cigna eliminate a layer of cost."

Express Scripts has established itself in the industry by bargaining with drug companies to lower prescription costs for health plans and employers, competing head on with big pharmaceutical players such as CVS Health, which is merging with Cigna's competitor Aetna.

Express Scripts' biggest customer used to be Anthem, but it broke ties with the health plan after Anthem sued in 2016 on claims it had been overcharged for pharmaceuticals.

Kutner expects consumers to benefit if the Cigna deal goes through.

"The PBMs have the direct line to the manufacturer of the drugs and negotiate the discounts, so having that within the purview of the health plan means the payer will ultimately save on drug costs and hopefully—hopefully—pass that on to the consumer," he says.

Skepticism about savings

That uncertainty about consumer benefits could be a problem. The Cigna deal comes less than a month after a white paper from the White House Council of Economic Advisers (CEA) criticized the PBM industry as middlemen providing dubious assistance on lowering prices while extracting outsized profits for themselves.

On March 7, the U.S. Food & Drug Administration Commissioner Scott Gottlieb, MD, said in a speech that the PBM industry does not necessarily benefit consumers.

"The top three PBMs control more than two-thirds of the market; the top three wholesalers more than 80%; and the top five pharmacies more than 50%. Market concentration may prevent optimal competition. And so the saving may not always be passed along to employers or consumers," Gottlieb said.

"Too often, we see situations where consolidated firms—the PBMs, the distributors, and the drug stores—team up with payors," the commissioner said. "They use their individual market power to effectively split some of the monopoly rents with large manufacturers and other intermediaries rather than passing on the saving garnered from competition to patients and employers."

That view from the Trump administration could lead to regulatory hurdles, Kutner says.

"It will be interesting to see what happens with challenges to the deal. There undoubtedly will be many challenges based on antitrust concerns," he says. "The argument will be that with the health plan controlling the PBM, they will have final say over the costs and there will be no checks and balances. From a business standpoint, I think it makes sense and will save on healthcare costs, but the antitrust concerns could be a significant impediment."

Gregory A. Freeman is a contributing writer for HealthLeaders.

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