Justice Department Approves Cigna

The merger of Cigna and Express Scripts Gets Approval From Justice Dept.

Federal officials on Monday gave the go-ahead to the proposed the merger between Cigna, one of the nation’s largest health insurers, and Express Scripts, a serious pharmacy benefit manager.

The $52 billion deal, announced last March, is one among two proposed transactions involving pharmacy companies before the Justice Department.

Last December, Aetna, another giant insurer announced its decision to collaborate with CVS Health, the pharmacy the chain that's the most independent rival to precise Scripts, during a $69 billion deal.

The Department of Justice continues to review the deal between Aetna and CVS, although the two companies also are expected to receive a green light soon.

These combinations of powerful insurance companies with the country’s dominant pharmacy benefit managers are occurring as established players within the health care sector are frantically checking out ways to debar potential interlopers like Amazon, whose tentative forays into the pharmacy business have already surprised the industry.

The deals also represent a recognition by established companies that they have to change their business model in response to customer demands that prices are better controlled.

Both insurers and pharmacy benefit managers function middlemen for employers and governments, and therefore the proposed mergers are an effort to convince their customers that they are working to reduce costs.

The entrenched industry has also been buffeted by a replacement of the alliance among the company giants Amazon, Berkshire Hathaway, and JPMorgan Chase, which have created a separate health care entity out of their frustration with big insurers and therefore the major pharmacy managers.

Those companies want to develop new ways to chop through the seemingly intractable, expensive systems of coverage for their employees.

The decision by federal antitrust officials to permit Cigna to shop for Express Scripts signals an acceptance of so-called vertical mergers during which companies, although within the same broad line of business, do not directly compete.

The nation’s big health insurers, including Aetna and Cigna, had previously tried to mix with other insurers, only to have those deals blocked over concerns about the possible impact on consumers.

In approving the Cigna-Express Scripts deal, federal officials emphasized that they didn't believe the merger would damp competition within the pharmacy business.

“Quality health care and competitive pricing for health care services and pharmaceutical drugs are critical to U.S. consumers,” Makan Delrahim, an assistant the attorney general said in a statement on Monday.

Both companies argue that the merger will benefit consumers by allowing Cigna and Express Scripts to raised manage their customers’ health by sharing information about both their medical and drug expenses.

The other major insurers, UnitedHealth Group and Anthem have also moved faraway from using outside benefit managers, posing major threats to CVS and Express Scripts.

“Together, we believe we'll be ready to do even more to scale back health care costs, expand choice, and improve patient outcomes,” Tim Wentworth, the chief executive of Express Scripts, said in a statement.

Rising drug prices are forcing the difficulty for the insurers, said Terry Stone, a managing partner for Oliver Wyman, a consultant.

Many were unprepared for the onslaught of new, very expensive medications, she said and were “caught off guard” when the new hepatitis C drugs were introduced a couple of years ago at a price of tens of thousands of dollars to treat a single individual.

She argued the mixture of those large insurers, expertly in managing costs for chronic diseases and pharmacy managers offers “a huge amount of synergy.”

Both the insurers and pharmacy companies are under tremendous pressure to prove they can deliver cost-conscious results, said Jim Winkler, a senior executive at Aon, a benefits consultant.

“It is cheap to mention both models need to change and can change,” he said.

But the parties will need to do quite merge to convince employers that they're offering something of greater value than they are doing separately, said Mr. Winkler, who noted that many employers said they didn't shall change their benefits strategy when the mergers were first announced.

Cigna and Express Script may say they're going to now be ready to Share information about patients, but it's unclear whether the combined companies are going to be ready to negotiate lower drug prices and better manage people with expensive diseases, he said.

These are “interesting questions without answers,” Mr. Winkler said.

The deals also reflect an increasing interest within the business of providing private plans under the Medicare program, where drug benefits represent a critical component of an insurers’ offerings, Mr. Winkler said.

Cigna’s purchase of Express Scripts allow the company, which isn't considered a serious player in Medicare Advantage, to extend its presence, he said.

Cigna and Express Scripts said that they had already received approval from 16 state insurance departments and were working with regulators within the other states to urge the necessary approval.

Shareholders of both companies have already voted to travel ahead with the deal, and therefore the companies said they expected the deal to shut by the top of the year.