• by Thom Forbes , September 18, 2018

The U.S. Department of Justice has given an earlier-than-expected all-clear to Cigna Corp.’s quest to acquire pharmacy benefits manager Express Scripts, a move that presages further consolidation among those left standing alone in the health-care sector. 

In its ruling, the DOJ stated that the Cigna-Express merger is “unlikely to result in harm to competition or consumer.”

“Express Scripts is the largest independent pharmacy benefit manager (PBM) in the country. PBMs act as intermediaries between drug manufacturers and health insurance plans and their beneficiaries. They negotiate drug rebates and pass the savings on to patients,” writes Nathaniel Weixel for The Hill. 

“PBMs have come under fire from both the drug industry and President Trump, and the administration is considering completely eliminating the current rebate system as a way to bring down the cost of prescription drugs,” he continues. 

That said, “the sign-off by the DOJ was the last major hurdle the merger had to clear, after passing a shareholder vote at the end of August. The companies still need to get the okay from state insurance agencies, of which they've gotten 16 so far, the companies said in a release Monday,” Lydia Ramsey writes for Business Insider.

“But the hardest part lies ahead. This is a period of massive uncertainty for the PBM business, and Cigna is paying $54 billion for the pleasure of having to navigate it,” warnsBloomberg columnist Max Nisen.

“Even when the deal was announced in March, PBMs … were under substantial public scrutiny, accused of using their middlemen status to encourage and profit from ever-higher drug prices. And Amazon.com Inc. was casting its disruptive eye on the health-care business,” he continues. “Since then? Amazon’s theoretical interest has become real.”

Plus, of course, there’s another looming competitor in the making. 

Yesterday’s approval “bodes well for the pending U.S. antitrust review of CVS Health Corp’s proposed $69 billion acquisition of health insurer Aetna Inc.,” writes Reuter’s Caroline Humer. “… The Justice Department review of CVS’s planned purchase of Aetna may conclude this month, but will take longer because of divestitures needed to resolve competitive concerns, a source familiar with the matter told Reuters.”

That’s mainly because CVS and Aetna “compete head to head in Medicare Part D prescription drug plans,” in nearly three dozen markets nationally, point out CNBC’s Carmin Chappell and Bertha Coombs. Brad Haller, a consultant and director of mergers & acquisitions at West Monroe Partners, “believes regulators are pushing for a bigger divestiture than the firms had anticipated,” Chappell and Coombs write.

“The government doesn't want to be negotiating with someone of that scale in Medicare,” Haller says.

Besides being an effort to bulk up for their own self-preservation, “the deals also represent a recognition by established companies that they need to change their business model in response to customer demands that prices are better controlled. 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,” Reed Abelson observes for the New York Times.

“Both companies argue that 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,” Abelson continues.

“Express Scripts said it plans to keep its operations in north St. Louis County and continue marketing and branding under the Express Scripts name after the sale to Cigna finalizes,” the St. Louis Post-Dispatchreports. 

The deal is expected to close by the end of the year.

“We are pleased that the Department of Justice has cleared our transaction and that we are another step closer to completing our merger and delivering greater affordability, choice and predictability to our customers and clients as a combined company,” Cigna president and CEO David Cordani says in a statement. 

“The value that we deliver together will help put our society on a far more sustainable path -- one that helps health care professionals close gaps in care and supports our customers along their health journey,” he adds.

Put shareholders in front of “society” and “health care professionals” and Cordani hits the trifecta. Cigna closed up 1.40% yesterday; Express Scripts rose 3.71%.