Health insurer Anthem Inc. plans to set up its own pharmacy benefits management unit, signaling a final break with Express Scripts Holding Co. after accusing it of overcharging by billions of dollars.
The move means Express Scripts will not only lose its biggest client but also face a new rival. Anthem’s new unit, called IngenioRx, will grow its own business with a “full suite” of services, the insurer said in a statement on Wednesday.
Anthem said it had also secured a five-year agreement with CVS Health Corp. — the operator of a pharmacy benefits manager that is Express Scripts’ biggest competitor — that goes into effect after its current contract with Express Scripts expires at the end of 2019.
The pharmacy benefit management business has been under pressure from all sides. Lawmakers in Washington have been asking how PBMs — which act as middlemen administering complex drug contracts and negotiating prices — make their profits. Drugmakers have blamed PBMs for consumer outrage over the high cost of medicine in the U.S. And analysts have speculated that Amazon.com Inc. is eyeing the industry as ripe for disruption.
Express Scripts said it has already been taking steps to mitigate the fallout from Anthem’s exit. The news is “not unexpected, but is disappointing,” said Brian Henry, an Express Scripts spokesman.
The move draws to a close a turbulent saga that’s helped push Express Scripts shares down by roughly a third since January 2016, when the dispute between the companies became public. At an investor conference that month, Anthem Chief Executive Officer Joe Swedish said that the PBM had overcharged it by as much as $3 billion. The companies subsequently sued each other.
George Hill, an analyst at RBC Capital Markets, said it’s difficult to see how Express Scripts will fill the void in its business left by the end of its relationship with Anthem.
“We’ve all known this was coming. Anthem has telegraphed this punch for years. Today is the day of the final delivery,” said Hill, who has a sector perform rating on Express Scripts shares.
Despite the setback, Express Scripts shares were up 3% to $58.93 at 10:24 a.m. in New York. CVS shares were up 0.2% to $72.75, and Anthem gained 4.1%.
For Anthem, the move gives the company another avenue to compete with rival UnitedHealth Group Inc. The nation’s largest health insurer, UnitedHealth also runs its own pharmacy-benefits management business called OptumRx. That unit brought in $16 billion in revenue in the third quarter, UnitedHealth said in its earnings report this week.
“The launch of IngenioRx will allow us to break through what is now a complex and fragmented landscape,” Anthem CEO Swedish said in the statement. “It also positions Anthem to take advantage of a unique opportunity to grow and diversify our business within our existing footprint as well as nationally.”
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