In its biggest decline since November 2012, ExpressScripts shares fell 6.1% Tuesday after Anthem CEO Joseph Swedish said it would consider leaving the pharmacy benefit manager if it didn’t share more of its savings earned from drug contracts.

"We are entitled to improved pharmaceutical pricing that equates to an annual value capture of more than $3 billion," said Swedish. "To be clear, this is the amount by which we would be overpaying for pharmaceuticals on an annual basis." He added much of the savings would be returned to clients. Mr. Swedish made his comments earlier that day at the J.P. Morgan Healthcare Conference.

ExpressScripts shares continued to fall throughout the week, down 14.7% from Monday to close at $74.59 on Friday. Anthem accounts for about one-seventh of Express Scripts $100.9 billion in revenue.

In a statement, Brian Henry, a spokesman for ExpressScipts, said that the company has been acting in good faith and is in compliance with its existing contract with Anthem, which ends in 2019. “While the contract calls for good faith negotiations regarding a pricing review, it does not mandate specific price adjustments,” Henry said. “Furthermore, Anthem is not entitled to $3 billion.”

Our Take: We’re not sure how effective this negotiating strategy is for Anthem. Consider their primary alternatives: Would CVS Health, which is also under a long-term agreement with Aetna, risk jeopardizing that relationship to work with Anthem? Would UnitedHealth’s OptumRx be a better strategic partner than ExpressScripts? Would a smaller PBM be able to handle Anthem's massive book of business?

Further, consider how this public dispute looks to other potential partners. Anthem looks like a less-than-honest business partner if they’re willing to negotiate terms of an agreement in the media.

Some of the selloff last week was due to an overall market decline. While such comments may affect ExpressScripts shareholder value in the short run—its market capitalization fell $7.7 billion last week to $50.44 billion—Aetna doesn’t appear to have better alternatives elsewhere. That is, unless Anthem considers having its own pharmacy benefit management company a reasonable option.

Mr. Henry does appear to have a point about the $3 billion, considering that ExpressScripts earns less than $4 billion annually on $100 billion in sales.

What we find more interesting about this story is that it highlights the lack of transparency in which PBMs operate. We’ve written previously about the expected scrutiny on drugmakers from lawmakers in 2016. PBMs have been harshly critical of pharmaceutical company prices, particularly in recent months.

PBMs make their money by negotiating discounts with drug companies, then passing some of those savings to insurers or large, self-insured companies that deal with them directly. But no one knows exactly how much of that savings is passed on. So one could argue that PBMs effectively force higher drug prices to extract higher rebates—which ultimately affects the consumer.

We think that Congress is more likely to set its sights on drugmakers in an election year. It’s an easy story to tell about an industry that has an embattled public image. But as more of the costs of healthcare fall on the shoulders of consumers, PBMs—and insurers—could be in the spotlight next.

Updated January 17, 2016

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