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 The move is the most expensive effort to date that would enable a
national health insurer to take back full control of prescription
medicines for their customers by negotiating prices with
pharmaceutical manufacturers and setting customer out-of-pocket
costs for each drug.
CVS, one of the largest U.S. pharmacy benefits managers, has offered
to buy No. 3 health insurer Aetna for more than $200 per share,
sources said on Thursday. It could take at least several weeks for
any deal to materialize.
If the deal happens, it would likely pressure rival insurers,
drugmakers, pharmaceutical benefits managers, and retail pharmacies
to also consider mergers or switching partners to try to keep up
with the potential healthcare cost savings or increase in profit
margins.
“It's an alternate model at this point. It's not clear that it’s
definitely a better one,” BMO Capital Markets analyst Matt Borsch
said. “More consolidation could lead to pressure on some of the
brand-name drug prices and a better counterweight to the big pharma
companies."
For years, insurers paid drug benefits managers like CVS and Express
Scripts Holdings Co to negotiate down drug prices, with both parties
taking a share of any discount by the time a medicine was paid for
by consumers.
But outrage over the high costs of drugs has grown as consumers have
picked up a larger portion of the tab for drug costs and it is
threatening profit margins all along the drug supply chain, from
manufacturers to distributors, insurers and pharmacies.
UnitedHealth Group Inc and Humana Inc currently have in-house
pharmacy benefits businesses, and say that it has helped them keep
medical costs down.
Anthem Inc recently decided to go down that same path. It cut ties
with Express Scripts during a $3 billion legal fight, and said it
would use CVS to build its own pharmacy benefits business in the
next few years. That tie-up could now be at risk if CVS reaches a
deal to buy Aetna, Leerink analyst Ana Gupta said.
CVS also provides management services for Aetna rival Cigna Corp. If
CVS buys Aetna, that could revive Cigna’s interest in buying Humana,
analyst Christine Arnold of investment bank Cowen & Co said in a
research note.
Aetna earlier this year closed the door on a deal with rival insurer
Humana Inc after antitrust regulators said that combination and a
rival deal between Anthem Inc and Cigna Corp were anti-competitive.
The pharmacy chain Walgreens Boots Alliance could need to match its
business model closer to CVS to attempt to stay competitive, Arnold
said in a note, and may look at buying Express Scripts.
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Jefferies analyst Brian Tanquilut said that Express Scripts could
also be a target for Amazon Inc which is reported to be looking to
get into the pharmacy business.
SWINGING PENDULUM
Over the past decade, health insurers have diverged on the value of
the pharmacy benefits business.
Anthem sold its pharmacy benefit manager to Express Scripts and
outsourced almost all of the business in 2010.
UnitedHealth took the opposite approach when it decided in 2011 to
bring its pharmacy benefits management in house, then bought an even
bigger standalone benefits manager, Catamaran, in 2015.
Humana operates its own pharmacy benefit manager and Cigna and Aetna
have hybrid approaches where they manage some parts in house and
outsource others.
Until recently, insurers sought to expand their profit margins by
reducing their spending on hospital services, using their size to
negotiate down what they pay to healthcare providers.
But with those profits in hand, and with drug prices representing a
bigger proportion of overall healthcare spending, they see new
opportunity in targeting the pharmacy benefits, Leerink’s Gupta
said.
Another potential lure of a deal for Aetna would be to capitalize on
the growing number of simple health services offered in a CVS store,
from flu shots to blood pressure checks. Reimbursing such patient
care outside of a doctor’s office or hospital could cut healthcare
costs, Gupta said.
(Reporting by Caroline Humer and Carl O'Donnell; editing by Michele
Gershberg and Meredith Mazzilli)
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