Cigna-Express Scripts Deal: 5 Takeaways for Health Execs

March 9, 2018

The Cigna-Express Scripts deal may signal a move to more vertical and horizontal healthcare deals. Here’s what else it means.

Cigna’s $67 billion purchase of PMB giant Express Scripts joins a trend of recent vertical and horizontal healthcare deals, and more could be on the way, according to industry experts.

Haller

Expanded consumer choice, patient-provider alignment, and personalized value, are three strategic benefits cited by Cigna in a press release. The merged company will be headed up by current Cigna CEO David Cordani. Tim Wentworth, Express Scripts CEO, will also stay on as president of the company's Express Scripts unit.

Cigna and Express Scripts are doing “what everyone else in the healthcare space is doing right now-reacting to continued cost pressures from the ACA and other industry players building scale against each other,” says Brad Haller, director in West Monroe’s M&A practice that focuses on healthcare.

“Horizontal mergers, like Cigna-Anthem and Aetna-Humana, have been blocked,” Haller explains. “The vertical integration we are seeing with retailers (CVS) buying payers (Aetna) and drug makers (Roche) buying technology platforms (Flatiron) is the way industry is going until the Department of Justice tells them otherwise.” 

Bhagat

This move is a response by two behemoths in healthcare to continue to be at the forefront as the market continues to evolve, according to Maulik Bhagat, managing director in the healthcare practice of AArete, a global consultancy specializing in data-informed performance improvement.

“Value is what the market is demanding-quality holistic healthcare and wellness at an affordable cost,” Bhagat says. “It is possible that the recent developments like CVS-Aetna, Amazon-Berkshire Hathaway-JPMorgan, and Apple’s AC Wellness,  have hastened the decision, but this was probably coming in any case. And experts have long been talking about looking at the value from a holistic view when treating patients, so combining medical and pharmacy data is progress in that direction. 

Kim

"Basically, all sorts of horizontal and vertical integration announcements that we are seeing in the market are to be able to have greater control over the delivery of healthcare, most importantly to leverage the collective data in order to drive insights and outcomes that wouldn’t be possible if not integrated,” Bhagat says

For more on vertical healthcare deals, read: “What Roche’s Purchase of Flatiron Health Means for Health Execs,” “Walgreens-AmerisourceBergen Deal: 3 Takeaways,” and “Amazon, JPMorgan, Berkshire Hathaway collaboration puts insurers ‘on notice.’

 

Next: A new model emerges

 

 

A new model emerges

Huseby

The industry has witnessed PBMs get acquired in recent years, according to Todd Huseby, lead partner in the pharmacy sector practice of A.T. Kearney, a global strategy and management consulting firm. “Express Scripts was the final large independent PBM. The current model is to combine medical and pharmacy insurance which puts all of a patients’ health-related insurance under one roof. This allows for a complete view of a member’s health-related spending. 

“Society can’t afford the healthcare that we have, so we’re wringing out cost throughout the value chain-largely through scale efficiencies and deeper knowledge about their members,” continues Huseby.

The largest profit pools in this industry remain with branded drug makers, according to Huseby. “For the rest of the drug value chain, there is tremendous deal activity to gain complementary assets along with scale efficiencies in order to manage individuals’ and populations’ healthcare costs to lower frontiers. Moreover, these large companies seek to diversify their businesses to reduce risk.” 

Henka

Bhagat agrees that Cigna and Express Scripts are responding to the evolving needs of the market. “As Cigna’s CEO David Cordani said himself, this is driven by what the market is demanding of major players in the healthcare delivery value chain. CVS-Aetna is already in process, United has OptumRx, and so if you think about it, there aren’t that many large payer-PBM combination options available out there.”

Here are five takeaways from the Cigna-Express-Scripts deal, according to industry insiders:

  • With each mega-merger we are getting closer to a single-payer system. “Which is ironic, if you think about the fact that it’s a deregulated environment creating this path over the legislative action that owners of this deregulated environment intentionally wanted to avoid,” says Haller.
     

  •  In the future, various provider groups will be added to these conglomerates. “Such moves will help the insurance conglomerates to participate first-hand in improving health outcomes with lower costs,” Huseby says. “Look to successful organizations such as Kaiser Permanente to get a glimpse at what an insurer plus provider would look like.”
     

  •  The dynamics of delivering healthcare are changing. “Whether it is contracting, value-based arrangements, interoperability and transparency of data, focus on wellness and prevention as opposed to just treatment, etc.,” says Bhagat “Every healthcare executive, whichever constituent of the healthcare value chain they represent, will have to think about how to evolve their organization so that they continue to be relevant and add value in this changing landscape.”
     

  • Data will be enriched. “Cigna will have more of a lens into a patient’s healthcare utilization and ultimately cost with more data to match claims,” says Mike Kim, a director at global consultancy AArete, and head of its Center of Data Excellence. “This vertical integration of healthcare continues to add dimensionalities of a patient’s experience that advanced analytics can innovate new solutions to better the experience of the consumer.” 
     

  • There’s more consolidation to follow. “The consolidation or merger has no impact on the drug procurement ability of the PBMs,” says David Henka, president and CEO of RxTE Health, a company specializing in pharmacy cost reduction programs. “This is about creating a much larger corporation, and does not necessarily translate to lower drug prices. Drug prices will remain the same or similar, but it will be interesting to see how the procurement occurs with rebates and bundling of services. I’ve never seen a brand drug price go down, and this merger is not going to change that dynamic.”