The need to address runaway healthcare costs in the US prompted another merger on Thursday with insurer Cigna Corp announcing the US$67 billion purchase of pharmacy benefits manager Express Scripts Holding Co.
By combining two players from different corners of the sprawling US healthcare market, the companies said they could achieve US$600 million in administrative savings.
Cigna chief executive David Cordani touted the benefits of taking ownership of Express Scripts and its capacities to negotiate medicine and health services for employers, government programs and other clients.
“Our society needs a step function improvement in affordability that is delivered in a highly personalized fashion, having the consumer touch points, having the further depth in clinical engagement,” Cordani said on a conference call with analysts.
The transaction follows on the heels of pharmacy chain CVS Health Corp’s US$69 billion takeover of insurer Aetna Inc, another so-called “vertical” merger because it combines two entities at separate stages of the health industry value chain.
US antitrust regulators in 2016 blocked proposed “horizontal” combinations between health insurers, including a thwarted merger between Cigna and Anthem Inc.
With that possibility foreclosed, insurers are looking to other options for cutting costs.
“Merger activity in the healthcare space is picking up as companies are aiming to find ways to control rising healthcare costs through operating efficiencies and expanded product/service offerings,” Briefing.com said.
The deal also comes after a dramatic announcement in January by retail behemoth Amazon.com Inc, Warren Buffett’s Berkshire Hathaway Inc and JPMorgan Chase & Co of the creation of a non-profit to address skyrocketing costs that Buffett said have become a “hungry tapeworm on the American economy.”
Express Scripts currently manages pharmacy and medical benefits for more than 100 million in the US, chief executive Tim Wentworth said.
The company’s revenue was just over US$100 billion last year, while Cigna had revenue of US$41.6 billion.
“Combining these assets with Cigna’s innovative solutions and strong relationships with providers will drive greater value, affordability and access,” Wentworth said.
Cordani touted an “open architecture” model under the proposed takeover of Express Scripts “meaning [consumers] can choose the care and channels that were best for them guided by choice and value.”
The deal is a means to transform today’s “suicidal narrative, which equates healthcare solely with sick care rather than keeping people healthy in the first place,” Cordani said.
Cigna shares slumped 10.1 percent to US$174.67 in late-morning trade, while Express Scripts surged 10.5 percent to US$81.09.
The cash-and-stock transaction is to balloon Cigna’s debt to US$41.1 billion.
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