Obamacare's vindication will likely add momentum to insurance-giant mergers


Could PBMs be the big loser in how US healthcare is ultimately reshaped?

The decision today (June 25) by the US Supreme Court to uphold the essentials of the Affordable Care Act—the ability to provide subsidized insurance via state health exchanges—will likely spur the current merger activity among the biggest health insurance companies—what the Wall Street Journal called a “five-way takeover frenzy.” Last week, Anthem Health went public with what is now a $47.5-billion hostile takeover bid for Cigna; previously, UnitedHealth had made an offer for Aetna, and both Cigna and Aetna have reportedly made approaches to Humana. WSJ speculates that federal antitrust regulators would allow only one or two of these mega-mergers.

The Anthem-Cigna deal is being held up, say analysts, over a dispute for how the merged companies would be led, either by Anthem’s Joseph Swedish or by Cigna’s David Cordani. By going public with its offer, Anthem is hoping that shareholders in Cigna stock will force Cordani to come to the table.

These mergers possibilities follow the trend among healthcare providers, as major health systems become national (and even international) integrated delivery networks. Going down a step, the leading pharmacy benefit managers (Express Scripts, CVS Health, UnitedHealth’s Optum unit and Catamaran; the latter two are in the process of merging) have been consolidating, which restricts the number of buyers of pharmaceutical products. The merger activity in pharma in recent years, while lively, looks to be a lesser consideration in the context of overall healthcare delivery.

What is spurring the insurer merger activity, in part, is the battle for market share as more consumers come under insurance plans—a direct result of Obamacare. Bigger insurers will have bigger purchasing power, the better to negotiate with health systems over the costs of healthcare. The longterm loser in all this, says Randy Vogenberg, an industry consultant and partner in Access Market Intelligence (Trumbull, CT), could be the PBMs. “PBMs do a lot of things, but they exist primarily to serve as gatekeepers of drugs and their pricing,” he says. “What they don’t do well is provide a role in managing risk, which is what the payers—the insurers—are primarily concerned with. As Obamacare’s framework for managing healthcare costs through shared risk, by means of mechanisms like accountable care organizations, becomes more embedded, that inability to share risk will affect PBMs’ future.”

Express Scripts, the leading PBM, is certainly aware of this: in recent months it has been making bids to manage the medical-benefit part of specialty drug dispensing (typically, pharmacy benefits are ‘carved out’ of health insurance under separate pharmacy-benefit programs; but when drugs are dispensed by healthcare providers, as most specialty products are, the drug is reimbursed as a medical benefit).

All this is speculative; the insurer mergers have yet to play out, and the PBM arrangements between them and corporate employee health plans are yet to be determined. Meanwhile, most of the leading Republican candidates for the presidency have said their early goal, if elected, is to repeal Obamacare.

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