Claiming that it is overpaying for prescription drugs, health insurer Anthem Inc. filed a lawsuit last week against Express Scripts Holding Co. seeking approximately $15 billion and the right to terminate its contract with the pharmacy benefit manager (PBM), should it decide to take that step. 

The two companies have been in dispute for a year as Anthem continues to seek an increased share of the rebates Express Scripts receives from pharmaceutical companies. Express Scripts said the lawsuit “is without merit.”

When Anthem sold its in-house pharmacy benefits business to Express Scripts in 2009, the insurer agreed to use Express Scripts for 10 years. The contract between the two companies calls for periodic pricing reviews, the last of which occurred in 2012. A review was to be conducted in December, but Anthem stated in its lawsuit that Express Scripts “has deliberately delayed the repricing for months” and “refused to negotiate, let alone in good faith, over Anthem’s pricing proposals.” 

In January, Anthem CEO Joseph Swedish told investors at the J.P. Morgan Healthcare Conference that Anthem “is entitled to improved pharmaceutical pricing that equates to an annual value capture of more than $3 billion.” The $15 billion in damages Anthem is seeking is the amount the company estimates it will overpay for the remainder of the contract plus a transitional period thereafter.

Anthem, the second largest insurer in the U.S., is Express Scripts’ largest client. Losing Anthem’s business would topple Express Scripts from its position as the nation’s largest PBM.

Express Scripts’ president, Tim Wentworth, who will take over as CEO in May, said the company values the relationship and does not intend to lose Anthem as a client, according to the Indianapolis Business Journal (IBJ)

A Citigroup analyst cited in the IBJ article said switching to another PBM would be difficult and disruptive for Anthem, adding that the company’s threat to end its contract with Express Scripts “rings a bit hollow.”

Noting that Anthem executives have “hinted” at expanding Cigna’s PBM when the company finalizes its acquisition of Cigna, Forbes said such an undertaking would be costly and take time, and an Anthem-Cigna PBM “would be less than half the size of Express Scripts.”

Our Take: Anthem clearly wants to be in the pharmacy benefit management business. We know that because it used to run a successful PBM business before the healthcare delivery landscape changed, when in 2009 it sold the division to Express Scripts. Now the company is having seller’s remorse. Rather than wait four more years—who knows what the picture will look like then?—Anthem is suing Express Scripts for an outrageous amount of money as a negotiating position. We don’t normally prognosticate with such certainty, but this relationship will be over by this time next year.

The pendulum swung with UnitedHealth Group’s acquisition of Catamaran last year, and its announced intent to grow its OptumRx PBM. Aetna’s contract with CVS Health ends in 2019 and according to reporting from Forbes, is also seeking to grow its PBM business following completion of its acquisition of Humana.

It just makes sense. For the big payers, having a PBM provides an added revenue stream while having the added benefit of tighter data integration. Closing the loop on the data means more effective population health management and an attractive value proposition for employers choosing among competing health plans.

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