Healthcare industry participants and analysts were mostly unsurprised by the recently announced $67 billion deal between Cigna Corp. and Express Scripts Holding Co. as the space moves toward consolidating drug middlemen with managed care organizations.
Industry stakeholders surveyed by S&P Global Market Intelligence expressed concern that contracts with pharmacy benefit managers, or PBMs, may be put under pressure, but are in a holding pattern to see what materializes after regulators scrutinize the deal.
Cigna President and CEO David Cordani said on a call that the combined company is expected to establish a wide-ranging portfolio, integrating healthcare services through a new business entity.
Kavita Patel, associate chief medical officer and Medicare director at Johns Hopkins Medicine, said she was not shocked by the deal because the relationship between insurers and PBMs is mutual and almost symbiotic.
"It's the health plans' way of surviving and the PBMs' way of surviving," Patel said in an interview. "They're necessary partners."
The deal follows another major cross-industry transaction which sees CVS Health Corp. planning to pay $69 billion to merge with Aetna Inc. That transaction made Express Scripts the last large stand-alone PBM before its deal with Cigna was announced.
RBC Capital Markets equity analyst George Hill wrote in a research note that as Express Scripts is the "last available attractive asset at scale" in the less-regulated pharmacy space, he would not be surprised if other companies, such as Humana Inc. or Walgreens Boots Alliance Inc., to potentially enter the arena and create a "bidding war" for Express Scripts.
"The timing of the bid could create a problem for a Cigna-Express Scripts deal, as well as the CVS-Aetna deal, as a high level of healthcare M&A could spook regulators and cause them to reject both deals," he wrote.
At a summit hosted by health insurance lobby America's Health Insurance Plans, newly installed Health and Human Services Secretary Alex Azar said in a speech that his department would not interfere with market forces.
"We will also bear in mind whether new burdens created by models or the scale they require for viability may be driving consolidation in the healthcare market," he said in prepared remarks, speaking broadly about providers, insurers and others in the healthcare market.
Later in the day, Azar clarified to reporters that, while his department would not weigh in on the deals between CVS and Aetna and Cigna and Express Scripts, he said the economy "should do what it is going to do based on economic" and market forces.
"Payment regulations should not be the drivers of ownership structures," Azar said. "We should be agnostic to ownership structures in our payment systems and in our anti-kickback or fraud regulations. The economy should do what the economy is going to do, of course within antitrust rules."
