• by Thom Forbes  @tforbes, March 9, 2018

The health insurer Cigna is buying the pharmacy benefits manager Express Scripts for $67 billion in what some observers charge will prove to be a bad deal for consumers even as analysts chalk up a victory for shareholders in the two companies. Cigna's primary claim in its news release, meanwhile, is that the union will result in “greater affordability and connectivity with customers and their health care providers, while making health care simpler.”

In December, PBM CVS Health and health insurer Aetna announced a $69-billion merger after several weeks of negotiations. “Together, the transactions would represent a massive consolidation of the market for managing employees’ prescription drug benefits, prompting some experts to question whether they will be approved,” Reuters’ Caroline Humer and Ankur Banerjee write .

“This type of merger would create a market-straddling giant, with new profit-maximizing incentives … ultimately leading to higher costs and potentially poorer coverage and care for consumers,” George Slover, senior policy counsel for Consumers Union, the advocacy arm of Consumer Reports, tells them.

“The deal addresses many problems for Express Scripts. The PBM will lose its largest client, Anthem Inc., in 2020, creating a massive hole that would have been impossible to fill. The PBM business has come under fire in recent years for its role in rising drug prices. And Express Scripts' unique size, standalone status and high margins made it a juicy target for criticism. As part of a larger health-care entity, Express Scripts won't face as much pressure to squeeze profit from every drug claim and will likely be more insulated from public scorn,” writes Bloomberg “Gadfly” columnist Max Nisen.

“Adding Express Scripts’ scale will likely make Cigna's insurance business more competitive — helping it lower costs for clients and offer a wider suite of services — while diversifying its revenue,” he adds.

The shadow looming over the marketplace, as it is in so many sectors, is Amazon, of course. 

“In January, Amazon, JPMorgan Chase and Berkshire Hathaway announced plans to team up to address spiraling health care costs. Berkshire’s founder, the billionaire investor Warren Buffett, described those costs as a ‘growing tapeworm on the American economy,’” Katie Thomas, Reed Abelson and Chad Bray remind us in The New York Times.

“In some sense, this was inevitable, with the other major insurance companies being integrated with a PBM — Cigna doesn’t want to be at a competitive disadvantage,” Sam Richardson, a health economist at Boston College, tells NBC News’ Martha C. White.

“Cigna CEO David Cordani described the current healthcare market as ‘not sustainable’ in a CNBC interview on Thursday. ‘The market demands more affordability, the market demands more personalization,’ he said,” White continues.

“By undergoing a vertical merger that brings an insurer and benefits manager under one umbrella, Cordani said patients as well as employers would benefit from better coordination and more efficiency in providing care. ‘This combination accelerates our movement to deliver more value,’ he said.”

But while “the two companies argue that the planned merger would benefit consumers … critics say that this deal could easily lead to higher drug prices for consumers, as it follows a broader trend that’s seen consolidation among insurers and pharmacy-benefits managers,” points out Jacob Passy for MarketWatch.

“It doesn’t seem to me that combining these two businesses lowers their health costs and, therefore, makes their premiums cheaper,” Jeff Goldsmith, an adviser with the health care segment at consulting firm Navigant, tells Passy. “Plus you’ve got all the challenges associated with managing a larger business to sort through as well.”

Plus “independent PBMs essentially worked to create consistency in drug pricing and to restrict drug manufacturers from overpricing,” he writes — a model that this deal and the Aetna-CVS merger are negating. “The PBM industry was born because this is a terrible idea,” Pramod John, CEO of specialty drug management company Vivio Health, tells Passy.

There’s usually a local story to consolidations. In this case, it’s in Missouri, where Express Scripts employs 4,700 people in north St. Louis County and is “one of the best-performing corporations here,” writes Jacob Barker for the St. Louis Post-Dispatch. “And it had risen over the last three decades to become the biggest company by revenue in St. Louis, coming in at No. 22 on the Fortune 500 list last year. That’s bigger than Bank of America. Bigger than Microsoft. Bigger than its acquirer, Cigna.”

And way, way bigger than Life Time Fitness and its competitors, which operate on the preventative side of the American sickness care system.