Express Scripts’ Acquisition of WellPoint Pharmacy Benefit Manager Unit Could Lower Drug Prices for Employer CustomersExpress Scripts on Monday announced that it plans to purchase WellPoint's pharmacy benefits manager unit NextRx for $4.68 billion in a cash-and-stock deal that experts say could result in Express Scripts gaining "considerable negotiating clout" that could result in savings for customers, the AP/Richmond Times-Dispatch reports. Express Scripts, currently the third-largest PBM, likely will become the second-largest PBM after the deal closes, surpassing CVS Caremark but still behind Medco Health Solutions (AP/Richmond Times-Dispatch, 4/14). According to the Wall Street Journal, the increased size of Express Scripts could mean the company will have "a bargaining chip" while lawmakers debate health reform (Jannarone, Wall Street Journal, 4/14).
According to David Dross, a principal with Mercer, the increased bargaining power that will result from the deal should lead to better prescription drug prices for existing employer customers and more aggressive pricing for prospective customers. Such bargaining power could result in lower drug copayments for employees or reduced health plan premiums, according to the AP/Times-Dispatch. However, savings will depend on whether employers pass on the reduced costs to their employees, according to Dross.
Under the deal, WellPoint will receive at least $3.28 billion in cash (AP/Richmond Times-Dispatch, 4/14). In addition, WellPoint will receive up to $1.4 billion in Express Scripts stock, according to a regulatory filing (Ross Sorkin/de la Merced, New York Times, 4/13). Express Scripts will provide services to WellPoint for 10 years after the deal closes (AP/Richmond Times-Dispatch, 4/14). According to the Journal, the 10-year agreement is key to the deal because NextRx currently manages the drug benefits of a majority of WellPoint's members, in addition to several smaller health plans (Fuhrmans, Wall Street Journal, 4/13).
After the close of the deal, NextRx subsidiaries will provide services to about 25 million WellPoint customers (AP/Richmond Times-Dispatch, 4/14). According to the Journal, the deal would increase Express Scripts' prescription volumes by about 50% to about 750 million prescriptions annually (Wall Street Journal, 4/13).
The New York Times reports that, in general, analysts said the deal benefits both companies because it provides Express Scripts "a leg up" in a competitive business, while WellPoint received a "generous price" for a small portion of its entire business (Abelson, New York Times, 4/14). According to the Journal, "Analysts said the larger entity might not be significantly more effective in negotiating lower prices from drug companies, but that the overall operating efficiencies and scale would be an advantage." The Journal reports, "Given the profitability of the pharmacy businesses and the strategic fit that they may have within a health insurer's broader business, few experts expect a flock of similar deals."
The deal, which is subject to antitrust approval, is expected to close in the second half of 2009, according to WellPoint and Express Scripts (Wall Street Journal, 4/13). This is part of the KHN Morning Briefing, a summary of health policy coverage from major news organizations. Sign up for an email subscription.