Express Scripts on Anthem Threat

Shares of Express Scripts (ESRX) are down today after Anthem (ANTM) threatened to ditch Express unless they can pass along savings of $3 billion a year.

Taking a contract dispute between the two companies public, Anthem Chief Executive Officer Joseph Swedish said Tuesday that Express Scripts should be passing along more of the savings it negotiates from drugmakers. If it doesn’t, the health insurer may look for another pharmacy partner. Express Scripts disputed Swedish’s description of the terms between the two companies, and the $3 billion figure.

“We are entitled to improved pharmaceutical pricing that equates to an annual value capture of more than $3 billion,” Swedish told investors Tuesday at the J.P. Morgan Health Care Conference. “To be clear, this is the amount by which we would be overpaying for pharmaceuticals on an annual basis.” Much of those savings would be passed on to clients, he said.

Anthem and Express Scripts have an unusual arrangement that stems from Anthem’s sale of its pharmacy-benefits business to Express Scripts in 2009. The insurer is entitled to periodic reviews of how much it pays for drugs, a process the companies last went through in 2012. They haven’t yet reached a deal on the most recent talks.

Express has countered:

“Express Scripts has consistently acted in good faith and is in full compliance with the terms of its agreement,” said Brian Henry, a spokesman for the company. “While the contract calls for good faith negotiations regarding a pricing review, it does not mandate specific price adjustments. Furthermore, Anthem is not entitled to $3 billion.”

My take: The $3 billion number is nuts. It’s a negotiating tactic. They’ll reach a deal because they need to reach a deal. Ironically, if ANTM wasn’t interested, they wouldn’t be so vocal right now.

Posted by on January 13th, 2016 at 11:45 am


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