Federal officials on Monday gave the go-ahead to the proposed merger between Cigna, one of the nation’s largest health insurers, and Express Scripts, a major pharmacy benefit manager.
The $52-billion deal, announced last March, is one of two proposed transactions involving pharmacy companies before the Justice Department. Last December, Aetna, another giant insurer, announced its plan to join forces with CVS Health, the drugstore chain that is the main independent rival to Express Scripts, in a $69-billion deal.
The Justice Department continues to review the deal between Aetna and CVS, although the two companies are also expected to receive a green light soon.
These combinations of powerful health insurance companies with the country’s dominant pharmacy benefit managers are occurring as established players in the health care sector are frantically searching for ways to fend off potential interlopers like Amazon, whose tentative forays into the pharmacy business has already shaken up the industry.
The deals also represent a recognition by established companies that they need to change their business model in response to customer demands that they better control prices. Both insurers and pharmacy benefit managers serve as middlemen for employers and governments, and the proposed mergers are an attempt to convince their customers that they are working to reduce costs.
The entrenched industry has also been buffeted by a new alliance among the corporate giants Amazon, Berkshire Hathaway and JPMorgan Chase, which have created a separate health care entity out of their frustration with big insurers and the major pharmacy managers. Those companies want to develop new ways to cut through the seemingly intractable, expensive systems of coverage for their employees.
The decision by federal antitrust officials to allow Cigna to buy Express Scripts signals an acceptance of so-called vertical mergers in which companies, although in the same broad line of business, do not directly compete. The nation’s big health insurers, including Aetna and Cigna, had previously attempted to combine 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 they did not believe the merger would dampen competition in the pharmacy business that would hurt consumers.
“Quality health care and competitive pricing for health care services and pharmaceutical drugs is critical to U.S. consumers,” said Makan Delrahim, an assistant attorney general, in a statement on Monday.
Both companies argue the merger will benefit consumers by allowing Cigna and Express Scripts to better 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 away from using outside benefit managers, posing major threats to CVS and Express Scripts.
“Together, we believe we will be able to do even more to reduce health care costs, expand choice, and improve patient outcomes,” said Tim Wentworth, the chief executive of Express Scripts in a statement.
Cigna and Express Scripts said they have already received approval from 16 state insurance departments and are working with regulators in the other states to get the necessary approval. Shareholders of both companies have already voted to go ahead with the deal, and the companies said they expect the deal to close by the end of the year.