And then there were none. The health insurer Cigna’s $67bn takeout of Express Scripts eliminates the biggest and last major standalone pharmacy benefit manager (PBM), further consolidating the power of payers and health insurers over drug prices.
With US payers and providers in a race to gain commercial strength to protect their pricing power, it might only be a matter of time before pharma is forced to respond. It is too soon to say whether this is the “detonator” of a new wave of big pharma megamergers, as Pfizer executives have described, but there can be no doubt that the pressure is rising.
All in one
Cigna, America’s fifth-largest health plan by number of enrolees, has followed bigger fish Unitedhealth Group and the merged CVS-Aetna in bringing PBM functions under an insurer’s umbrella.
As standalone companies PBMs make their money by contracting with payers – either self-funded employer health plans, fully insured health insurance plans or government programmes – to administer drug purchasing, prescription management and reimbursement. Thus a tighter combination of insurers and PBMs is sensible, especially as elements of health delivery and reimbursement become more intertwined in the form of bundled and value-based payment.
The acquisition of the insurer Aetna by the PBM CVS late last year made an Express Scripts merger, either as target or buyer, an inevitability (Aetna acquisition could help CVS's Amazon defence, December 4, 2017). Most of the biggest insurers now have in-house capabilities, and Express Scripts’ main top-tier insurance customer, Anthem, had sued Express Scripts alleging overcharging, and had migrated to CVS.
A more consolidated insurer/payer sector means, of course, that biopharma has fewer customers when negotiating reimbursement and formulary access, so executives could view this latest announcement with caution.
In a call with analysts today Express Scripts' chief executive, Tim Wentworth, who will continue to head up the Cigna PBM division, praised the combination for its ability to “drive value-based contracting across the supply chain”.
The use of value-based payments for drugs is controversial for drugmakers, which argue that reimbursement solely on the basis of the economic value to patients and providers does not account for the costs of pharmaceutical innovation.
Payer and insurer consolidation was one factor that Pfizer's chief executive, Ian Read, recently pointed to as a potential spark for M&A activity in the biopharma sector.
“I do believe there'll be a need to further consolidation to deal with the size of our customers and the size of the opportunities,” Mr Read said in Pfizer’s year-end earnings call. “I think these things come in waves. I can't tell you when it will start, but I believe there will be moments when there is a key detonator to initiation of further consolidation.”
Moreover, US big pharma now has hundreds of billions of dollars more to spend on strategic acquisitions thanks to tax reform, and might want to get started soon to counter the weight of the insurance and payer community. Pharma megamergers might not start tomorrow, but Cigna-Express Scripts shows how the stars might be coming into alignment.