Since late 2014, insiders have been predicting greater consolidation in the pharmacy benefit management industry. Rite Aid's acquisition of EnvisionRx earlier this year supported that expectation, and the healthcare wise men and women nodded.
Then a bombshell hit. UnitedHealth Group announced March 30 that it would acquire PBM Catamaran Corp. for $12.8 billion in cash the largest PBM merger since Express Scripts acquired Medco Health Solutions in 2012. Until that announcement, most observers expected Catamaran to be the acquirer in upcoming M&A activity rather than the target.
But Wall Street loved it, sending Catamaran stock up 24 percent by mid-afternoon Monday and UnitedHealth up about 3 percent.
UnitedHealth's in-house PBM, OptumRx, the nation's third-largest PBM, will absorb Catamaran, the fifth-largest. The combined company will still be third behind Express Scripts and CVS Health, respectively. However, the new mega-OptumRx will be in a position to challenge those two leaders in coming years.
Mark Thierer, Catamaran's chairman and CEO, will become CEO of OptumRx, while Timothy Wicks, the existing CEO of OptumRx, will become president when the deal closes, expected in the fourth quarter of 2015.
So let's take a look at this deal and what each side brings to the table.
First of all, raw numbers of Rx lives. OptumRx has approximately 26 million while Catamaran has 21 million, according to HealthLeaders-InterStudy. The combined 47 million is within striking distance of CVS Health, which has about 51 million, but still well behind Express Scripts 72 million. The synergies for the combined OptumRx, however, are impressive.
OptumRx's base is with large employers, as well as UnitedHealth Group's members. It focuses on external client growth and relies on its clinical integration of medical and pharmacy benefits to attract and retain clients. On the other hand, Catamaran contracted with Cigna for PBM services in 2013, which could be a sticky wicket in the upcoming acquisition.
According to HealthLeaders-InterStudy figures, the combination also will consolidate the two PBMs modest Medicaid enrollment to account for about 15 percent of the national Medicaid sector, putting it in second place to CVS Health. Because of Medicaid expansion, many plans across the country have been maneuvering to take advantage of this low-return but high-volume market. A strong Medicaid presence also plays well with the health insurance exchanges, where low-income beneficiaries cycle on and off Medicaid and individual coverage. A PBM with strong population health management skills, like Catamaran, is an ideal partner for OptumRx in this sector, where beneficiaries often have chronic diseases that have been untreated and respond well to management.
In addition, Catamaran brings to the table a strong presence on the exchanges where it serves as the PBM for nearly half of the 22 consumer operated and oriented plans nationwide. In its 2014 year-end earnings call, Catamaran said it accounted for 1.3 million of the total 11 million exchange lives. UnitedHealth, on the other hand, was cautious about entering the exchanges when they launched in 2014. It is stepping in a bit more boldly in 2015, but still reported in its year-end earnings call that the insurer's total exchange enrollment was just 400,000 with four more weeks of open enrollment for 2015. Clearly, OptumRx could profit from Catamaran's experience in the exchanges.
The two partners also combine different approaches to promoting drug adherence. OptumRx tackles this with technological tools such as mobile apps that fire off text reminders for refills, while Catamaran takes a more hands-on approach, dispatching clinical pharmacists within 72 hours to perform drug review, reconciliation, and patient follow-up.
And speaking of population health, the two companies in their announcement mentioned that the marriage would combine Catamaran's technological expertise with OptumRx's deep well of claims data, with powerful results. Scrubbing big data to produce predictive analytics is used in almost every facet of healthcare delivery to determine cost, benefits, and ultimately value in an era of risk-based contracting. The power of this combination is enormous, given that Catamaran has staked out a claim to innovative approaches to managing drug spends with an outcomes-based model and aggressive patient management, especially through its specialty pharmacy BriovaRx.
The combined OptumRx and BriovaRx specialty pharmacies will have tremendous clout with pharmaceutical companies, although neither has imposed the kind of aggressive formulary exclusions as Express Scripts exclusion of Gilead's Harvoni and Sovaldi for 2015. In addition, Catamaran is just finishing up the paperwork on its acquisition of a smaller specialty pharmacy, Salveo, which will bring even more negotiating power to the duo.
As just these few factors demonstrate, when this combination is up and running, CVS Health may feel OptumRx nipping at its heels, and even Express Scripts might hear the distant sound of hounds baying.
Follow Lyda Phillips on Twitter @LydaPhillipsDRG