Cigna-Express Scripts merger

Today, Cigna purchased Express Scripts for $52 billion.  This follows another mega-deal where CVS bought Aetna.  The integration of pharmacy benefit managers (PBMs) and insurers is nothing new.  Previously, many insurers managed their own pharmacy benefit.  However, as PBMs grew in size and were able to get larger discounts and rebates, in-house PBMs became less competitive.

The key question on everyone’s mind is, is this deal a good thing?  On the one hand, it could be a good thing.  Many pharmaceuticals improve patients health and reduce the risk of hospitalizations.  By bringing Express Scripts in house, Cigna may be able to better internalize these cost savings.  In addition, this deal will help with value-based contracts.  Under value-based or performance-based contracts, life sciences firms must provide discounts if their products do not show the health benefits or savings expected.  By better integrating pharmacy and medical benefits, these contracts are much more feasible.  Further, the Cigna-Express Scripts deal may increase the purchasing power of this entity, which could drive down prices.

However, there are also reasons to be pessimistic.  Driving down prices may be good in the short-run, but–as I mention in my interview with NBC News–oftentimes these discounts are not passed on to consumers.  This could be changing, however, after UnitedHealth Group announced a few days ago that it would be passing drug rebates on to consumers.  Although value-based contracting could is a promising area for PBMs to ensure that new treatment’s value is worth the cost, there is some worry that the contracts would largely be structured to control cost and access to new medications would be restricted.  For instance, CVS’s new Transform Rheumatoid Arthritis Care program appears to have some cost and outcomes guarantees it would provide to employers.  Cost guaranttes are only possible, however, if PBMs can restrict access to innovative–but perhaps more expensive–new therapies that come on the market.  Further, if access to new medicines becomes more restrictive, life sciences firms may reduce their R&D investments in response, leading to the development of fewer innovative medications.  Finally, with increasing consolidation, there is a risk for price increases to consumers.  With fewer insurer and PBM choices, there is less competition and health insurance premiums could rise.

They key question is, how will patients and consumers be affected by this deal in the short, medium and long-runs.  That question, is still yet to be answered.

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