Health insurer Anthem takes pharmacy business in house, taps CVS to help

(Reuters) - Health insurer Anthem Inc will start managing its billions of dollars of patient prescriptions itself in 2020, it said on Wednesday, ending a deal with Express Scripts Holding Co that had deteriorated into lawsuits over terms.

Anthem said it would save $4 billion annually in the new contract with drug retailer CVS Health Corp, which will handle prescription fulfillment and claims processing starting in 2020 for five years for the new company, called IngenioRX.

Anthem said it would pass on 80 percent of those savings to customers in pricing and 20 percent to the bottom line, boosting earnings by $2 per share starting in 2021.

Anthem shares rose 3.1 percent, or $5.93, to $193 in Wednesday afternoon trading, while CVS shares were up 2.3 percent at $74.31.

The new structure gives Anthem more control to lower healthcare costs, expand contracting with doctors and hospitals based on health outcomes and work on lowering annual increases in medical costs, Anthem Chief Executive Joseph Swedish said in an interview.

Anthem had considered exiting the Express Scripts deal for several years and sued the pharmacy benefit manager in 2016 over claims of being overcharged by $3 billion annually. Express Scripts has countersued and denied allegations of overcharging.

Pharmacy benefit managers negotiate prices with drugmakers and determine which treatments are included on their list of covered drugs and how much of a co-payment to charge for them versus their rivals. As drug prices have posted annual double-digit gains, companies, insurers and the U.S. government have pushed benefit managers to better manage costs.

Lawmakers have criticized the companies for not being “transparent” about drug prices and questioned whether any savings make it to their customers and consumers. Swedish said that with the pharmacy function run by Anthem, it would be able to provide that information to customers.

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Leerink analyst Ana Gupte estimated that No.2 health insurer Anthem’s prescription business represents about 220 million scripts per year worth about $23 billion in revenue.

Other insurers, including UnitedHealth Group Inc and Humana Inc, already manage their pharmacy benefits themselves.

Anthem, whose 10-year contract with Express Scripts expires in 2019, had said it was considering staying with Express Scripts, choosing another company, or doing the work itself.

Express Scripts spokesman Brian Henry said the company was disappointed by the move and would continue to work with Anthem through the contract end date and any transition period. Excluding Anthem, the company has 65 million members, he said.

Express Scripts’ shares rose 2.3 percent.

CVS Health, which also has a pharmacy benefit management business in addition to its pharmacies and Minute Clinics, said it expects to incur implementation charges related to the Anthem deal, but that the costs would not have an impact on its 2017 earnings.

reporting by Caroline Humer and Divya Grover; Editing by Arun Koyyur and Susan Thomas