Why is Cigna acquiring Express scripts

Cigna Acquires $ 54 Billion in Healthcare Express Scripts

Health insurer Cigna landed a deal to take over the Express Script for a pharmacy benefit manager for around $ 54 billion as a player inside and outside the industry jockey to transform the healthcare landscape.

Cigna's agreement to acquire Express Scripts is the latest step in a realignment of insurance, drug and health care management that is attracting titans from other sectors such as Warren Buffett, Jamie Dimon and Jeff Bezos.

The deal comes after drugstore chain CVS Health, which owns express rival Caremark, recently signed a similarly significant deal to acquire Cigna competitor Aetna. This also comes against the background of increasing scrutiny of the role of pharmacy benefit managers (PBMs) in the cost of prescription drugs.

In summary, the recent changes reflect a sector that is likely to evolve after Republicans and President Trump weaken Obamacare and executives seek to contain healthcare costs.

"The entire space is in transformation," said Marianne Udow-Phillips, director of the University of Michigan's Center for Healthcare Research & Transformation. "It's a very turbulent market."

Some health care professionals have blamed PBMs as drivers of steep drug prices. The sector's role in drug distribution and drug benefit management is an unnecessary bureaucracy. PBMs claim they save billions of dollars annually by efficiently managing the benefits.

The collaboration with Cigna-Express Scripts is against the background of uncertainty about the likely rise of an innovative new approach to healthcare through an alliance of Amazon.com, Berkshire Hathaway and JPMorgan Chase. Amazon boss Bezos, Berkshire boss Buffett and JPMorgan boss Dimon have all vowed to incite the health sector by trying to cut costs and increase profits.

The deal with Cigna-Express Scripts will "accelerate the much-needed change from nursing to health care interventions," said CEO David Cordani on a conference call.

He said the company would be better able to "cater to individual needs" by providing "behavioral health counseling" and other services through a new division.

And he promised "to make significant savings in medicine and pharmacy costs that will be passed on to our customers, customers and partners in the healthcare sector for the time being."

The acquisition came about a year after Cigna partnered with insurer Anthem after U.S. antitrust authorities tried to block the transaction.

Cordani said the company would introduce "greater consumer choice" and "more personalized value", although it was not immediately clear what that would mean from a practical point of view.

"The status quo in our healthcare system is unsustainable and the Express Scripts acquisition is a transformational change that brings more choice, better direction and value in line with Cigna's strategy," said Eric Palmer, Cigna's chief financial officer.

Despite the company's plans to cut administrative costs by $ 600 million, Cigna's investors weren't happy with the deal. The company's stock fell 11% to $ 171.99. Express Scripts' shares rose 8% to $ 79.72.

Cigna's intentions are unclear, but the deal makes sense for Express-Scripts as PBMs come under fire from regulators and lawmakers, Udow-Phillips said. In addition, Express Scripts faces the loss of its largest customer, the insurer Anthem, which will launch its own PBM called IngenioRx in 2020. One of the challenges for Cigna will be to maintain Express Scripts' customer base, which includes Cigna's competitors.

The elephant in the room is Amazon's potential entry into health care, including the possibility that the company will begin selling prescription drugs.

Fear of the unknown at Amazon makes healthcare companies keen, Udow-Phillips said.

"The speculation about what they can do only shows you the power of Amazon," she said.

Cigna pays a combination of cash and stocks for express scripts. Overall, the deal is worth $ 67 billion when you factor in $ 15 billion in debt.

Cordani will remain CEO. Express Scripts CEO Tim Wentworth becomes President of Express Scripts, which has more than 27,000 employees.

Cigna will keep its headquarters in Bloomfield, Connecticut, and Express Scripts will keep its headquarters in St. Louis, Mo.

The companies said they would complete the deal by the end of 2018.