Cigna and Express Scripts close on $67 billion merger

Cigna Corp. and Express Scripts said they closed their merger on Thursday, less than a year after the companies first agreed to combine in a deal that further transforms the healthcare landscape.

"Today's closing represents a major milestone in Cigna's drive to transform our healthcare system for our customers, clients, partners and communities," Cigna CEO David Cordani said in the announcement. "Together, we are establishing a blueprint for personalized, whole-person healthcare, further enhancing our ability to put the customer at the center of all we do by creating a flexible, open and connected model that improves affordability, choice and predictability."

The $67 billion deal, which pairs a health insurance giant with the nation's largest pharmacy benefit manager, is the second insurance mega-merger to close in 2018, behind the $70 billion deal between CVS Health and Aetna. Healthcare companies are consolidating to tamp down rising healthcare spending and ward off new competitors.

Bloomfield, Conn.-based Cigna and St. Louis-based Express Scripts say their merger positions them to lower healthcare costs and deliver better care outcomes. Their combination allows Cigna to "dramatically accelerate the number and breadth of value-based relationships" and drive transparency and engagement with customers, the insurer said.

In conjunction with the merger closing, Cigna also said it will invest $200 million to improve the health in local communities it serves, including a $25 million investment over five years to address children's health, first by improving nutrition.

Cigna and Express Scripts had nabbed all necessary federal and state regulatory approvals as of Wednesday. The U.S. Justice Department signed off on the deal in September after concluding it was unlikely to harm consumers or competition in the PBM market. Federal regulators didn't require any divestitures for their approval.

Cordani will remain president and CEO of the combined company, and Express Scripts CEO Tim Wentworth will become president of the PBM unit within Cigna. While Cordani has promised that most of the medical and pharmacy cost savings will flow to customers instead of shareholders, he said in the announcement that the combination will "deliver sustained attractive return for shareholders" and positions Cigna "for future revenue and earnings growth."

Strong margins and free cash flows will allow Cigna to quickly bring down its debt and reinvest in the combined company, he said. Cigna and Express Scripts boast combined revenue of $141.7 billion, based on 2017 financial results.

Despite the companies' promises to lower costs and improve care, industry insiders are skeptical the deal will drive much savings for employers, plan members and other customers. David Henka, CEO of ActiveRADAR, a company that uses reference pricing to lower medical and pharmacy costs for employers and other plan sponsors, said that's a "false hope" because integration between two middlemen is unlikely to impact care delivery.

"Just because these two large companies are integrating does not quid pro quo translate to any cost differential to plan sponsors or individuals," he said, adding that truly impacting patient care and reducing utilization will require integration across the entire healthcare system, including medical, pharmacy, labs and hospitalization.

Experts also doubt that the merger will increase transparency in the complex healthcare system. The PBM business is notoriously secretive, and switching ownership of the PBM is unlikely to change that, critics of the merger have said. Moreover, a competitive insurance market is needed if any savings are to translate into lower premiums for customers, but the insurance industry has been consolidating at a rapid pace.

Still, some are optimistic that integrating medical and pharmacy benefits could allow the company to think holistically about a patient's health, which should in theory allow it to lower costs. For example, a company that controls medical and pharmacy costs may choose to provide access to a certain expensive drug if it means lower medical costs down the road. But a company controlling just the pharmacy benefit has less incentive to provide that expensive drug.

Henka pointed out, however, that not every Cigna customer will also contract with Express Scripts. The two say they will continue to work with other health plans and PBMs.

Cigna previously attempted to merge with another health insurer, Anthem, but a federal judge blocked that deal in February 2017. The two companies are still embroiled in litigation surrounding a $1.85 billion break-up fee. Express Scripts is also involved in a legal spat with Anthem, which sued the PBM for $15 billion after alleging it overcharged Anthem by $3 billion annually.