What’s Behind The Recent Frenzy Of Health Care Deals?
Two Connecticut-based health insurance companies are rushing into the pharmacy business. Hartford-based Aetna said in December it would merge with CVS, and Bloomfield-based Cigna said this month that it would buy Express Scripts. A recent SEC filing signals a haste to reform how and where people buy not just medicine, but healthcare in general.
In the pharmaceutical business there are companies called PBMs, or prescription benefit managers. They are essentially the middlemen who decide which drugs your health insurance company will pay for, and how much patients will have to pay for them. CVS and Express Scripts are two of the largest PBMs in the country. They are now merging with two of the biggest health insurance companies in the country.
Brian Tanquilut, a healthcare analyst for the investment bank Jefferies, says, “I think that most of the deals are being driven by a desire or an interest among these companies to adapt to the changing healthcare environment. Or if not adapt, I would even say to influence how healthcare delivery evolves over the next few years.”
Tanquilut says there’s widespread recognition in the industry that healthcare is just plain inefficient. The mergers with these PBMs, the middlemen of the pharma chain, is aimed at simplifying that. “To really help the patient, whether that’s health coaching or chronic care management…having that visibility into the pharmacy side, which helps reduce overall cost.”
It’s not certain that these deals will clear anti-trust concerns from regulators.
In a filing last week, the Securities and Exchange Commission asked Cigna why it’s rushing its purchase of Express Scripts when the CVS-Aetna deal has yet to be approved. Cigna said, given the current marketplace, it wanted to move proactively.
Jeff Malone, president of RxPreferred Benefits, a smaller PBM that competes with Express Scripts and CVS, finds the speed odd. “It just doesn’t make sense to happen now, and the only conclusion the industry comes to is that this is preemptive, in case the CVS deal clears anti-trust, they are that much further along.”
Not everyone is thrilled with the joining of PBMs and insurance companies. PBMs have garnered criticism for their black box profit models. PBMs make money on both sides of the transaction: from health insurance companies and from drug manufacturers. Some worry that if health insurance companies are suddenly making money from drug companies that it will influence which medicine patients have access to.