DOJ clears Cigna’s acquisition of Express Scripts

  • The U.S. Department of Justice has cleared Cigna’s acquisition of Express Scripts, the companies announced in a statement Monday.
  • Shareholders voted to approve the merger last month, despite opposition from activist investor Carl Icahn.
  • The companies expect to close the deal by the end of 2018.

The U.S. Department of Justice has cleared Cigna’s $52 billion acquisition of Express Scripts, the companies announced in a statement Monday.

In combining Cigna, a health insurer, and Express Scripts, a pharmacy benefit manager, the firms say they can improve care for patients and lower health-care costs. Their rivals are growing and pursuing deals of their own as the industry faces increasing costs and growing political pressure and braces for Amazon’s entry.

Shareholders voted to approve the merger last month, despite opposition from activist investor Carl Icahn, who wrote an open letter urging shareholders to reject the deal.

The companies expect to close the deal by the end of 2018.

“After a thorough review of the proposed transaction, the Antitrust Division has determined that the combination of Cigna, a health insurance company, and (Express Scripts) a pharmacy benefit management company, is unlikely to result in harm to competition or consumers,” said Assistant Attorney General of the antitrust division Makan Delrahim in a statement.

The Department of Justice’s antitrust division found that after the Cigna- Express Scripts merger, there will still be at least two large pharmacy benefit management firms and several smaller PBMs in the market. What’s more, the DOJ said it would be hard for Cigna to increase PBM costs for other insurers because of competition from other integrated insurer-PBM players. UnitedHealth Group is currently the largest integrated health and pharmacy benefits firm, but Anthem is building its own PBM unit.

“The Cigna-Express Scripts deal is essentially a replication of what UnitedHealth has done” so that there is a precedent, said Brad Haller, a consultant and director of mergers & acquisitions at West Monroe Partners.

The Cigna decision bodes well for rivals CVS Health and Aetna, in terms of their bid to become an integrated PBM and health insurer. However, the two firms compete head to head in Medicare Part D prescription drug plans, so regulatory approval will require divestitures.

“They have to figure out how much of their Part D businesses they have to divest,” said Haller.

CVS and Aetna overlap in nearly three dozen markets nationally. Haller believes regulators are pushing for a bigger divestiture than the firms had anticipated.

“The government doesn’t want to be negotiating with someone of that scale in Medicare,” he said.

Beyond the overlap in health insurance, the CVS and Aetna deal presents an extra layer of complication for regulators, because of the aim of the combined firm to leverage CVS pharmacy and clinic footprint to provide a new kind of retail health system offering basic primary care.

“There are more potential threats to competition that exist in CVS- Aetna that need to be evaluated… some of which is even more consolidation along the vertical chain,” said Craig Garthwaite, research professor at Northwestern University’s Kellogg School of Management.

“Now we’re going to combine the insurer, the PBM and the pharmacy (as well as clinics) and that requires you to be more diligent and more careful, because it impacts on more economic activity,” he said.

CVS and Aetna have expressed confidence that they will receive anti-trust clearance and close the deal by year’s end. Reuters reports that a source family with matter said a decision in their merger could come by the end of this month.

For Cigna and Express Scripts, the greenlight from the DOJ marks a major hurdle, but the companies say they are still working on final approvals from state regulators. In a statement, the companies said they’ve received 16 states approvals, and anticipate that they will be able to close the deal before the end of the year.

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