Updated at 1:30 p.m. ET
Health insurance giant Cigna is buying Express Scripts, the company that administers prescription drug insurance plans for millions of Americans, in a deal worth $67 billion, including $15 billion in Express Scripts' debt.
The proposed combination is the latest in a string of mergers in the health care industry. Drugstore chains, pharmacy benefit managers and insurers are realigning to gain market share, enhance negotiating leverage and cut costs.
"We're at a tipping point," says Stephen Klasko, president and CEO of Jefferson Health and Thomas Jefferson University in Philadelphia. He says this deal is the beginning of a major realignment in what is now a fragmented health care system.
"Cigna-Express Scripts by itself isn't anywhere close to a revolution," he says. "But the combination of mergers across sectors is the beginning of a revolution."
In December, CVS Health, whose Caremark PBM competes with Express Scripts, said it intends to buy health insurance giant Aetna. Last month the grocery chain Albertsons agreed to buy Rite-Aid pharmacies, and in January, Amazon, JPMorgan Chase and Warren Buffet's Berkshire Hathaway said they were joining forces to create an undefined health care company.
Cigna and Express Scripts say the combination of the companies will make health care simpler for their customers and will cut costs.
Klasko says it will "de-layer the ridiculous middleman structure" that defines the pharmaceutical industry.
Express Scripts and other PBMs usually negotiate rebates on the list price of medications and pass on some of the discounts to the insurance companies they work with. Those discounts, however, remain secret so the true prices paid for prescription drugs is usually unknown.
FDA Commissoner Scott Gottlieb on Wednesday called that system a "rigged payment scheme" that drives competition out of the market.
The combination of Express Scripts and Cigna could be good for customers in terms of their health care because the interests of the companies that pay for medications will be aligned with the ones who pay the doctor and hospital bills, says Craig Garthwaite, director of the Health Enterprise Management Program at Northwestern's Kellogg School of Management.
"If I'm just responsible for your pharmacy spending, I want to make that as low as possible," he says. For example, a PBM may not pay for expensive but easy-to-administer insulin for a patient with diabetes.
"But if I'm responsible for your medications and your hospital costs, I want to make it easier for you to take your drugs so I can prevent that hospital visit," he says.
What's less clear is whether the prices of insurance or medications will go down for consumers.
The companies say they expect the deal to close by the end of 2018, but it must pass antitrust and regulatory scrutiny.
The merger announcement comes in the same week that Health and Human Services Secretary Alex Azar and the FDA's Gottlieb both warned the pharmaceutical industry that they intend to take actions to lower prescription drug prices.
ARI SHAPIRO, HOST:
I'm Ari Shapiro with news of big mergers in the health care industry. The giant insurance company Cigna is buying Express Scripts, which administers prescription drug insurance plans for millions of Americans. That deal is worth $67 billion. And it comes just about three months after CVS said it plans to buy Aetna. This is part of a wave of mergers that could change how health care is delivered and paid for. So we're going to talk about what's happening with NPR health policy correspondent Alison Kodjak. Hi, Alison.
ALISON KODJAK, BYLINE: Hey, Ari.
SHAPIRO: Cigna plus Express Scripts equals what? What does this combined company look like?
KODJAK: Well, like, to get it really basic, Cigna's an insurance company. So it pays for your doctor's appointments, your hospital visits, your lab tests. And Express Scripts is what's called a pharmacy benefit manager. And so they take care of your prescription drug insurance. So the key here is that the companies don't do the same thing. So when they merge - if it's approved - they're going to offer a different services - a larger bunch of services in one company. And so at least experts who worry about things like antitrust say this probably won't face the antitrust problems that a couple of years ago when big insurance companies tried to merge did.
SHAPIRO: So if this merger does go through, and the CVS-Aetna merger also goes through, you're going to have these much bigger, more integrated companies. What will that mean for health care consumers?
KODJAK: Well, a lot of people say, you know, it could be really good for consumers. Of course, there are a lot of caveats. You know, we don't know how it's going to play out and exactly what they're going to do with this big powerful company. But some of the experts I talked to say they could work because it makes the interests of the insurer align with the interest of the people who pay for your prescription drugs. And so they both want to spend less money. And to do that, they really have to keep you healthier. So by putting them together, it could be better for patients.
SHAPIRO: Can you give us an example?
KODJAK: Yeah. One of the ones that somebody told me, which made a lot of sense, is insulin. So there are a lot of insulin products out there. Some are much more expensive than others. And so if you're just paying for the drug, you might want to go for the cheapest insulin. But that can be more convenient. It can work for less time. You need to have more doses. Whereas a more expensive insulin might be easier to use, so people will actually be more adherent. They'll use their medication.
SHAPIRO: To keep them healthier in the long run.
KODJAK: And that will avoid expensive hospital visits. So if they both the companies together, they both want to avoid the expensive hospital visit. So they might cover the more expensive insulin.
SHAPIRO: OK. So that might make people healthier and cut costs. What other positive consequences might you see from this?
KODJAK: Well, I talked to the CEO of Jefferson Health in Philadelphia. They run a bunch of hospitals. And he is really happy with this because it gets rid of a whole layer of middlemen in the industry. Right now, the pharmacy benefit managers in the middle, they take off a share for their own profit. This could both simplify and perhaps cut costs for companies as well.
SHAPIRO: OK, so what are the negative possible problems of this?
KODJAK: Well, when you talk to consumer advocates, they always are worried when huge companies combine. These industries are already pretty concentrated. There are only three pharmacy benefit managers right now that control 75 percent of the prescription market. So these consumer advocates worry that, as these companies get bigger, they're going to see their profit potential go higher rather than want to cut costs for consumers. So that's a concern.
SHAPIRO: And we also, by way of disclosure, just need to say that Cigna is an NPR underwriter. NPR's Alison Kodjak. Thanks a lot, Alison.
KODJAK: Thanks, Ari. Transcript provided by NPR, Copyright NPR.