Anthem CEO Joseph Swedish told analysts and investors in San Francisco on Tuesday that the company is overpaying for its drugs by $3 billion a year and is renegotiating prices with Express Scripts, the company that manages its pharmacy benefits.
Anthem, an insurance giant that's seeking to get bigger with an acquisition of Cigna, is “contractually entitled” to the savings as of last December, Swedish said. Anthem is in negotiations with Express Scripts under a repricing provision in its contract. The savings would lower its costs and make the company more competitive, he said.
The insurer has not yet gotten a competitive offer from Express Scripts, Swedish said. “Importantly, the language in this repricing provision does not include any requirement for a contract extension.”
Express Scripts rebuffed the claims. “Anthem is not entitled to $3 billion,” said Express Scripts spokesman Brian Henry. “Anthem has mischaracterized these terms and how they were reached. While the contract calls for good faith negotiations regarding a pricing review, it does not mandate specific price adjustments.”
Anthem's cage-rattling on drug prices was one of several strong signals from healthcare's heavy hitters at the JP Morgan Healthcare Conference.
Tenet Healthcare Corp., for example, mused about the conditions that would make it attractive for the Dallas-based hospital company to spin off its Conifer Health Solutions revenue cycle subsidiary.
Conifer could be cut loose from the parent system if it gains more customers, Tenet CEO Trevor Fetter said.
The transaction could withstand investor and regulatory scrutiny, Fetter told investors at the annual conference. Conifer, which operates across 20 states and ended 2014 with roughly $1.2 billion in annual revenue, has strong enough management and operations to go public, he said.
But for now, too much of Conifer's business comes from Tenet and Catholic Health Initiatives, the Englewood, Colo.-based system that acquired a minority stake in Conifer and is also a major client. Tenet and CHI account for 80% of Conifer's business. Growth of Tenet and CHI, which is also among the nation's largest health systems, has increased the share of Conifer's business from the two systems.
But the growth potential is there, Tenet says. Revenue cycle is projected to grow into an industry with revenue of $52 billion a year by 2020, up from $43 billion in 2015, Tenet reported. Of that amount, the company said, $20 billion will be outsourced to companies like Conifer by 2020, up from $12 billion in 2015.
Catholic health system Ascension Health, meanwhile, signaled that its big Michigan joint venture is just the first of many.
Ascension and Michigan competitor Trinity Health entered a partnership to form a clinically integrated network with 27 hospitals and a dozen physician organizations to jointly contract with health insurers.
St. Louis-based Ascension Health, the largest not-for-profit health system in the U.S., is in talks to enter similar agreements in other markets, said CEO Anthony Tersigni, CEO of Ascension, the parent organization that includes the health system and other operations.
Tersigni declined to say which markets Ascension is targeting for such networks. Outside of Michigan, the system has its biggest footprints in acute-care in Austin, Texas; Nashville, Tenn., and Indianapolis.
Executives from Community Health Systems said little new about the delay in the company's small-hospital spinoff.
The Franklin, Tenn.-based hospital company announced last week that the new company, Quorum Health Resources, would go it alone later than planned.
CHS has ample experience with deals, and the Quorum spinoff isn't the only one giving the company some indigestion. CHS has acquired 169 hospitals since 1997 including 71 hospitals in its 2014 acquisition of Health Management Associates.
Absorbing HMA has not gone as well as expected. Community Health Systems has grappled with management turnover as the buyer replaced leadership and the need to recruit physicians.
“If I think about HMA in terms of acquisitions, this is probably the most challenging one that we've had,” CHS CEO Wayne Smith said. “This has been a little more difficult than we thought it would be.”