Cigna-Express Scripts Merger Presents Rx Choice Trade-Offs

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By Victoria Graham

The proposed merger between health insurer Cigna and the largest pharmaceutical benefit management organization in the U.S., Express Scripts, may lead to a give-and-take for consumers who could see lower drug prices at the cost of fewer choices.

“We’re still assessing the implications of a Cigna-Express Scripts merger, but one thing is clear: consolidation among health care giants leads to fewer choices for patients and plan sponsors,” Douglas Hoey, pharmacist and CEO of the National Community Pharmacists Association in Alexandria, Va., said in a statement.

Cigna, which provides coverage to nearly 80 million Americans, announced March 8 its intent to buy St. Louis-based Express Scripts for $54 billion. The proposed merger comes in the wake of a similar pending buyout of Aetna by CVS Pharmacy for $69 billion, leading to tighter vertical integration in the health-care sphere between pharmacy benefit managers (PBM) and providers.

Consultants and analysts within the health-care world contend that such a merger could lead to greater efficiency that in turn drives down costs, but consolidation also presents the trade-off of limited options, lessening consumer choice.

Driving Down Costs

The coupling of Cigna and Express Scripts may give the new entity greater leverage when it comes to negotiations with pharmaceutical companies over the cost of prescription drugs.

“In our analyses of specialty drug utilization, we often find opportunities to provide these drugs at a lower cost and in a site of care that might be better for the patient,” Tracy Watts, U.S. health reform leader at the Mercer Consulting Group in Washington, said in a March 8 statement.

A 2015 Congressional Research Service report says that although there is no commonly accepted definition of specialty drugs, insurers and other payers “generally characterize them as expensive prescription products requiring extra handling or administration (such as injection or infusion) that are used to treat complex diseases including multiple sclerosis, cancer, and hepatitis C.”

“A more integrated approach could benefit patients and have a favorable impact on cost,” she said. A Cigna and Express Scripts marriage would give the company greater market-share power which in turn strengthens its ability to leverage better drug costs with drug providers, Juliette Cubanski, associate director at the Kaiser Family Foundation’s program on Medicare policy in Menlo Park, Calif., told Bloomberg Law in an email March 8. “As it works, pharmaceutical companies negotiate with PBMs for greater market share exposure of their products by offering steeper rebates in exchange for favorable formulary placement,” she said. But while in theory consolidation should lead to greater prescription price leverage, in practice lower drug costs have not been the case after PBMs and health insurers merge, Hoey said.“In addition, companies make claims of cost savings that will benefit patients and health plan sponsors, but the available evidence from previous consolidations suggests otherwise. The merger of UnitedHealth and Catamaran a few years ago, for instance, certainly didn’t change the upward trajectory in health care spending,” he said. The UnitedHealthcare merger with Catamaran closed in 2015 for $12.8 billion, yet just this month UnitedHealthcare announced the rollout of pharmacy discounts for which only 7 million of the nearly 65 million customers UnitedHealthcare serves would be eligible. Discounts are not set to take hold until Jan 1. 2019. Upon announcement of the proposed merger, Cigna affirmed its intentions to drive down costs through its relationship with Express Scripts. “Cigna’s acquisition of Express Scripts brings together two complementary customer-centric services companies, well-positioned to drive greater quality and affordability for customers,” David M. Cordani, president and chief executive officer of Cigna, said in a March 8 press release. Cigna’s pledge to drive down costs could be realized, Jason McGorman, senior equity health-care analyst for Bloomberg Intelligence said, because the provider already has a well established model of cost cutting. “Cigna’s close ties to physicians and focus on local expertise will likely be a great match for Express Scripts’ expertise in formularies and specialty drugs,” McGorman told Bloomberg Law. Cigna “will try to leverage technology to identify gaps where savings can be made in drug spending among Express Scripts members,” he said.

But a cost reduction forecast from the merger is really just a wait and see, Claire McAndrew, director of campaign strategies at Families USA, a Washington-based nonprofit focused on achieving affordable health care, told Bloomberg Law March 8. “The key question really is will consumers see benefits from the mergers or will only shareholders see benefits from the mergers,” McAndrew said.

Tighter Market

The announcement of Cigna’s intent to buy Express Scripts marks nearly one year since a federal judge blocked a $54 billion Cigna-Anthem merger, saying that the combination of the two providers would raise prices and reduce competition.

While a Cigna-Express Scripts merger combines an insurer and a PBM, seemingly different than a marriage between two insurance companies, a Cigna-Express Scripts deal will still lead to greater consolidation, notably in the Medicare prescription space.

An analysis from the Kaiser Family Foundation, a nonprofit organization focused on health policy issues, found that a Cigna and Express Scripts merger would further compress the number of Medicare prescription drug benefit providers, otherwise known as Medicare Part D.

“If Cigna buys Express Scripts and CVS merges with Aetna, it would give these firms an outsize role in formulary coverage decisions in Part D, since there would be four firms in control of 86 percent of the stand-alone drug plan,” Cubanski of KFF said.

More than 70 percent of the nearly 59 million Americans enrolled in Medicare are enrolled in Part D’s prescription benefits, roughly 42 million people, according to a 2017 analysis from the Kaiser Family Foundation.

Consumer Choice Cut

A stronghold in formulary coverage decisions could lead to lower prices, as Cigna contends, but conversely may result in significant cutbacks in the medications available to the insured, Anders Gilberg, senior vice president of government affairs at the Medical Group Management Association in Washington, told Bloomberg Law in an email.

“While formulary consolidation may be administratively efficient, this may not outweigh potential limitations on physician and patient choice of treatment,” Gilberg said.

Through negotiations with pharmaceuticals, PBMs can place drugs on nonpreferred tiers or deny coverage of specific medications, Cubanski said. “If plan consolidation means fewer formularies, that could leave patients with fewer options for finding coverage of the drugs they take,” she said. “In other words, these moves toward further consolidation could effectively decrease Part D enrollees’ options in terms of coverage and finding drugs they need on plan formularies.”

Express Scripts serves a handful of other large health insurance companies, such as Blue Cross Blue Shield and Molina Healthcare. With the proposed Cigna-Express Scripts merger, there are many questions as to how Express Scripts’ relationships with other companies will play out, McAndrew said.

McAndrew said a Cigna and Express Scripts deal could create a scenario where the two companies establish preferential treatment toward one another that could in turn drive up costs or restrict access for those served by other companies.

These questions and concerns will be raised throughout the regulatory process and as they are answered, it is important that there are clear consumer benefits emerging from this deal and not just proposed gains for the companies.

“If two companies are going to merge, they should actually provide better results for consumers as they become a new entity,” McAndrew said.

To contact the reporter on this story: Victoria Graham in Washington at vgraham@bloomberglaw.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bloomberglaw.com

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