If Anthem Splits With Express Scripts, A New PBM May Emerge

News that Anthem is suing its pharmacy benefit management vendor Express Scripts could be the precursor to building its own large PBM as other rival health insurers have done or are planning to do.

Anthem sued Express Scripts in federal court in New York in an attempt “to recover damages for pharmacy pricing that is higher than competitive benchmark pricing,” the insurer said Monday. Anthem is seeking damages but also a “declaration of Anthem’s right to terminate its contract with Express Scripts.” The contract is scheduled to expire in 2019, but that could chance as the litigation proceeds.

But there are broader implications because Anthem executives have already hinted they are looking forward to building a larger PBM once its acquisition with Cigna closes. Already, Anthem rival UnitedHealth Group has its own large PBM, OptumRx, and Aetna executives say they plan to grow a larger PBM once their company's merger with Humana is complete, possibly by the end of the year.

PBMs negotiate deals on behalf of employers or government health programs like Medicare and Medicaid, helping their clients better coordinate care and manage drug costs through buying drugs in bulk and essentially negotiating better–at times exclusive–deals for lower medicine prices. They've taken on a more important role for their clients given the large price tags of new biologic medicines and other pricey prescriptions.

Cigna chief executive David Cordani last fall said the merger with Anthem gives the combined health insurers more “leverage” when it comes to managing prescriptions. Cigna owns a PBM that would become a part of Anthem should the deal close.

“We’ve been a net importer of PBM talents over the last three years, bolstering and further expanding the talent profile of the company,” Cordani said in September at the Morgan Stanley Healthcare Conference. “We have a growing PBM. It’s delivering a great clinical value proposition and cost value proposition. And we’ve grown every year since we put this relationship in place and we have a bunch of alternative choices in front of us.”

But a consideration for Anthem in building Cigna’s PBM into a competitive player could be expensive and take time. An Anthem-Cigna PBM would be less than half the size of Express Scripts, OptumRx and CVS’ Caremark PBM, which each process 1 billion or more prescriptions annually in a business where “covered lives” bring pricing leverage.

Aetna has a contract with CVS Health , which could end in 2019. When Aetna and Humana announced their merger last summer, they said in a slide that the larger insurance company has an option to create a “high growth services company with substantive unregulated cash flow” and the nation’s fourth-largest PBM.

UnitedHealth Group last year turned OptumRx into an instant rival to CVS Caremark and Express Scripts when it bought Catamaran Corp. for nearly $13 billion.

A year ago next week, Optum and Catamaran said their effort to form a larger PBM under the UnitedHealth Group umbrella was necessary if they were serious about managing populations of patients and getting healthcare costs under control.

When UnitedHealth and Catamaran announced their deal, the two companies said “the combined organization will help customers manage the complex costs and outcomes as this portion of the pharmaceutical market expands from an estimated $100 billion in revenues in 2014 to potentially $400 billion annually by 2020.”