Express Scripts drops $3.6B for healthcare management company
- Express Scripts Holding Co. is laying down big bucks to pick up a healthcare management solutions company that the buyer believes will help it in " becoming the nation's leading patient benefit manager," according to a Tuesday statement.
- The deal clocks in at a $3.6 billion valuation, which Express Scripts plans to finance through a mixture of cash and leveraging a $2 billion revolving credit facility the company secured in 2015, according to a company spokesman. As of June 30, the pharmacy benefit manager (PBM) had $2.35 billion in cash and cash equivalents and nothing outstanding on the revolver.
- Express Scripts expects eviCore, which employs about 4,000 and manages medical benefits for 100 million people, to operate as a standalone business under its new ownership. Further details of the transaction will come later this month when the PBM discloses third quarter earnings results.
As the pharmaceutical industry grapples with its drug pricing nightmare, much of the news on PBMs has centered on how their role affects the final cost of a medicine. PBMs like Express Scripts and CVS Health negotiate rebates and discounts for prescriptions drugs, passing along the savings to the health plans they represent. Even more so than drug manufacturers, though, the amount they profit off of these arrangements is harder to divine — helping shield them for more pointed backlash.
What's more, increased competition across a host of therapeutic areas has given the middlemen much greater negotiating power, which in turn has pushed drugmakers to extend larger rebates and discounts on their expensive brand-name treatments or risk formulary exclusion.
Even as they duke it out with manufacturers and lawmakers, PBMs also face risks from within their own ranks. Express Scripts is one of the largest in the country, jotting down more than $25.3 billion in revenue during the second quarter. Nearly 70,000 retail pharmacies used its network as of Dec. 31, 2016.
Other PBMs, however, have executed sizeable expansions in recent years — making the scramble to be at the top more challenging.
UnitedHealth Group Inc.'s subsidiary OptumRx Inc., for instance, locked down a nearly $13 billion acquisition of fellow middleman Catamaran Corp. back in 2015, making it the third largest PBM in the country. Dealmaking has continued to be a valuable tool for PBMs looking to grow, as emphasized by OptumRx's distribution agreement with Walgreens Boots Alliance Inc. or CVS Health Corp. landing business from a former OptumRx client.
Express Scripts' new buy functions similarly to those deals, expanding its range of services to better compete against formidable rivals.
"The acquisition of eviCore will give Express Scripts an attractive entry point into a growing market," the company said in the Oct. 10 statement.
"Today, pharmacy is an industry with approximately $400 billion in annual spend. Healthcare spend represents nearly $3.4 trillion. Medical benefit management is a large and growing market with more than $300 billion spent annually in the areas eviCore manages today. Establishing a cornerstone platform in this market will enable Express Scripts to build a uniquely comprehensive suite of solutions, with significant opportunities for cross-selling to both client bases."
Additionally, Express Scripts predicts that eviCore, which provides a large swath of patient-focused solutions in areas ranging from radiation therapy and medical oncology to cardiology and the musculoskeletal system, to aid its work in value-based care — an approach to reimbursement that more and more payers and drugmakers are experimenting with.
"This will further differentiate Express Scripts and position the company to take advantage of the transition to value-based care and the increasing demand from payers for a more comprehensive set of service offerings and solutions," the company said.
- Express Scripts Press release
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