Express Scripts Holding Co.’s incoming CEO is trying to keep its biggest customer after health insurer Anthem Inc. sued to recoup billions of dollars in what it called excess payments for drugs and threatened to end their relationship.
“We don’t intend to lose Anthem. We’ll get through this,” Express Scripts President Tim Wentworth, who will take over as CEO in May, said in an interview. “We think we have done a great job for Anthem.”
The lawsuit, filed by Anthem on Monday in the U.S. District Court for the Southern District of New York, escalates a dispute that has been simmering for a year. In the complaint, Anthem describes how it repeatedly tried to negotiate for better drug prices with pharmacy benefits manager Express Scripts, only to be rebuffed or ignored. Express Scripts called the lawsuit “without merit.”
Indianapolis-based Anthem is suing for about $15 billion, tied mainly to the amount the insurer estimates it will overpay for drugs over the rest of the course of the contract, which runs through 2019, and a transitional period afterward, according to the complaint. The insurer is also seeking the right to end its relationship with Express Scripts, although it hasn’t decided whether to terminate the contract.
Express Scripts “has deliberately delayed the repricing process for months” and “refused to negotiate, let alone in good faith, over Anthem’s pricing proposals,” Anthem, the second-largest U.S. health insurer, said in the complaint.
The clash between the two companies intensified in January, when Anthem CEO Joseph Swedish said Express Scripts should be passing along about $3 billion more of the savings it negotiates from drugmakers. Their dispute has been shining a light on the obscure world of managing drug benefits, a unique business where third-parties such as Express Scripts are hired by employers or insurers to manage patients’ prescriptions.
So far, Express Scripts has received few questions from clients about the Anthem dispute, according to Wentworth. He said he doesn’t know how long the dispute may take to resolve.
Express Scripts bought Anthem’s pharmacy-benefits manager in 2009. The 10-year contract they struck at the time gives Anthem the right to periodically review what it’s paying for drugs and negotiate new terms. The insurer said the suit won’t affect how customers receive their prescriptions.
It would be difficult for Anthem to switch to another pharmacy-benefit manager, and doing so could disrupt care for the insurer’s members, according to Garen Sarafian, an analyst at Citigroup Inc.
“This is one of the largest managed care plans in the country with millions of lives and scripts, and the transition is not immaterial or without risk,” he said in a research note. “Threatening to terminate its contract rings a bit hollow.”
Express Scripts shares fell 0.2 percent Monday, to close at $69.34 per share, while Anthem lost 1.9 percent, to $140.
“Express Scripts values its relationship with Anthem and will continue to honor its commitments under the contract,” Brian Henry, a company spokesman, said by e-mail. “Express Scripts has consistently acted in good faith and in accordance with the terms of its agreement with Anthem.”
Benefit managers say they’re saving employers billions of dollars a year by using their clout to negotiate big, and typically secret, rebates off the list prices for top-selling drugs. In recent months, Express Scripts has made itself a champion of lower drug costs, leading the charge in complaining about prices increases by giant pharmaceuticals companies.