Employer groups are warily eyeing a possible merger between Cigna Group and Humana Inc. that would set up the industry for less competition among pharmacy benefit managers and raise the specter of higher costs for company health plans.
In 2022 Cigna commanded about 24% of the PBM market through its Evernorth and Express Scripts businesses, making it the second largest PBM in the US, while Humana Pharmacy Solutions, the in-house PBM operated by Humana, is the fourth largest with 8% of the market, according to Drug Channels Institute, which researches pharmaceutical economics and the drug distribution system.
The deal could make an already complicated market even more opaque for health plans by lumping together two of the nation’s largest PBMs, entities that manage prescription drug plans on behalf of insurers. There’s already concern among employers that PBMs are making drugs more expensive, prompting the Federal Trade Commission—which must approve a Humana-Cigna merger—to separately investigate the industry.
“We’re always concerned about the over-consolidation in the health care space,” said Mark Wilson, vice president of health and employment policy and chief economist of the HR Policy Association. “This would certainly create one of the largest PBMs.”
Several PBMs have been purchased by health insurers in recent years, and the three largest are now owned by insurance companies.
Consolidating PBMs
One distinction between Cigna and Humana’s PBMs is that Cigna’s directly serves the commercial market, while Humana’s focuses on its own Medicare market. But a deal would still have repercussions on company health plans, employer groups and attorneys say.
Neither Cigna nor Humana responded to requests for comment on their reported merger talks.
The deal would impact employers by further increasing Cigna’s dominance in the commercial health insurance market, since employers often use the PBMs associated with the health insurer that manages their self-insured plan or the insurer from which they purchase fully-insured group plans.
Cigna has 16 million members in the commercial market, 13.8 million of whom are covered through self-insured plans administered by the company and 2.2 million of whom are directly insured, according to Bloomberg Intelligence.
“Cigna is one of the biggest players on the commercial side, certainly for national employers,” Michael Thompson, CEO of the National Alliance of Healthcare Purchaser Coalitions, said. “There’s very few carriers that are positioned to support employers with employees all across the country, and Cigna’s one of those very few.”
Humana said in February it already had plans to leave the commercial health insurance market, but a merger could speed up that process.
PBM Transparency
A tie-up between the two companies could also make it more difficult for employers to get access to information on the prices they’re paying for drugs.
“I do worry about the bundling dynamic for employers,” said Josh Bindl, CEO of National CooperativeRx, a non-profit national drug purchasing cooperative based in Madison, Wis.
It’s not difficult to track pharmaceutical spending by itself, but prescription drug spending is hard for employers to see clearly when it’s combined with other medical expenditures, Bindl said. Information on drug prices can get combined with medical spending on invoices employers receive and it may not be clear what plan sponsors are being charged for.
When medical and prescription information is bundled together, the vendor often provides one report, with prescription costs being a small part, he said. “The report is often provided annually, if at all,” Bindl said, and employers can’t track their drug spending during the year.
Employers have been calling for more transparency from PBMs so they can evaluate whether they’re getting the best deal on drug purchases. A major concern is that PBMs are buying higher-cost drugs to get bigger rebates from manufacturers that might not actually translate into employer savings.
Mergers like Cigna-Humana may not be a concern “as long as there’s still competition out there,” said Stan Zeyer, chief administrative officer of civil engineering firm Sunrise Engineering in Fillmore, Utah.
“If it all comes down to one monopoly it becomes a problem,” said Zeyer, who manages his company’s health plan.
Over the past five years, the mid-sized company has saved about 30% of drug expenses through rebates it’s gotten back through its participation in National CooperativeRx, which negotiates drug prices Sunrise pays to the PBM it contracts with, CVS Caremark.
Even with major consolidations like a Cigna-Humana merger, there may be other new PBM market entrants to provide new competition and keep costs to employers under control.
“There’s quite a few smaller ones that are coming up the ranks,” said Zeyer, citing players like Navitus Health Solutions LLC and Capital Rx.
Upside Possibilities
Though longer-term effects on PBMs and pricing seem assured, immediate impacts may be blunted if Humana’s PBM is absorbed into Cigna.
“You’re not taking a PBM that was focused on large employers out of the marketplace,” said Jonathan Palmer, senior equity research analyst with Bloomberg Intelligence.
One larger company could actually result in better buying power by the merged health insurer, said Jacquelyn Meng Abbott, a member of the labor and employer practice group at Vorys, Sater, Seymour and Pease LLP. “The biggest benefit for employers is that Cigna becomes bigger and has better negotiating power” with drug companies as well as medical providers, she said.
If some of that savings could be passed along to employers they’ll benefit, Abbott said.
A merger would have to be approved by the FTC, a near-certain uphill battle that could require divestitures from the companies.
“The FTC’s going to have this merger proposal in front of it in combination with its current and ongoing and expanded investigation into PBM practices,” the HR Policy Association’s Wilson said.
Wilson predicted that a potential merger could also “breathe new life into the effort to pass PBM reform” in Congress.
Employer groups have called for legislation that would require more transparency in PBMs’ pricing and profits, require all rebates reach plans and beneficiaries, and apply fiduciary standards to PBMs.
Bills with these provisions have been approved by committees in both the House and the Senate, but the legislation has not been considered by the full bodies.