Cigna's Express Scripts Purchase Intensifies PBM Market Shakeup
The insurer’s $52 billion purchase of the pharmacy benefits manager is the latest in a series of deals that promise upheaval as stakeholders grapple with rising costs.
Stock prices for Express Scripts Holding Company, the pharmacy benefits manager (PBM) based in St. Louis, rose more than 15% when markets opened Thursday, after the company signed a deal with health insurance giant Cigna Corp., based in Bloomfield, Connecticut.
Cigna plans to buy Express Scripts for about $52 billion and take on $15 billion in the PBM’s debt. The deal is designed to give Cigna a competitive advantage—or at least a fighting chance—amid a series of big moves in the PBM market by heavy-hitters looking to rein in rising costs as the healthcare industry’s landscape keeps shifting.
Express Scripts, the biggest prescription drug benefits administrator in the country, is valued not only for its PBM capabilities but also for the number of consumers it serves and the wide range of ways it serves them, Cigna CEO David Cordani told The Wall Street Journal in an interview Thursday.
“It expands our service portfolio beyond that of a PBM,” Cordani said.
“Having the capabilities to serve an individual whether they are healthy, healthy at risk, chronic or acute is important.”
This deal comes after a similar vertical merger in which drugstore chain CVS Health Corp. agreed to buy insurer Aetna Inc. for $69 billion late last year, part of a widespread trend.
Some have reservations
“We should be skeptical of the wisdom of vertical integration,” said Craig Garthwaite, associate professor of strategy and director of the Health Enterprise Management Program at Northwestern University’s Kellogg School of Management, in a tweet Thursday.
“We also know that imperfectly competitive supplier markets and agency problems can be reasons for such strategic actions.”
Garthwaite and Fiona Scott Morton, a professor of economics at the Yale School of Management, wrote an article on the topic last fall, arguing that recent consolidation among PBMs and a lack of transparency drive prices higher.
“The answer to high prices isn’t broad price regulation, but restoring the intended level of competition to a market characterized by a dangerous combination of PBM consolidation and opaque pricing,” Garthwaite and Morton wrote.