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.
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.”
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.
"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.’”
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.”
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: