WellPoint offloads pharmacy division

WellPoint Inc., the country's largest private health plan by membership, has decided to sell control of its pharmacy benefit management subsidiary NextRx, netting the health plan cash and possibly leading to more consolidation of the pharmacy benefit industry.

St. Louis-based Express Scripts, one of the largest in a now smaller field of PBMs, has agreed to purchase NextRx and will continue to provide WellPoint's members with pharmacy benefits for the next 10 years.

The companies' announcement April 13 described the deal as worth $4.7 billion, including tax benefits that will accrue to Express Scripts. Analysts estimated the sale would give WellPoint a one-time cash benefit of $2.5 billion this year, significantly boosting its cash holdings and per-share earnings.

The deal is subject to approval from the Federal Trade Commission and state regulators.

WellPoint spokeswoman Cheryl Leamon said the sale would have little direct effect on doctors who care for WellPoint's 35 million members.

"WellPoint will maintain control of the formulary, which will result in little to no impact on physician offices as a result of this transaction," she said.

Financial analysts have speculated that other large health plans, including UnitedHealth Group and Aetna, could re-examine the value of owning and operating their own PBMs. No health plans have announced their intention to sell those divisions.

Mike Winkelman, RPh, a former PBM manager and now a pharmacy benefit consultant based in West Bloomfield, Mich., said he sees a simple motivation for WellPoint's decision, one that may or may not drive the company's peers to follow suit. "My instinct is WellPoint just wanted to get some cash. It's almost like it's just moving bags of money around."

WellPoint and Express Scripts have cast the sale as a way to help patients through efficiency and deeper negotiated discounts on drugs. But Winkelman said it's likely Express Scripts will keep most, if not all, of that savings.

"How does the consumer benefit?" he said. "You have a card in your wallet that says you pay a $20 co-pay for brand names and $15 for generics -- that won't change."

Stock analysts following WellPoint reacted favorably to the deal, and WellPoint's stock price rose above $42 the day the sale was announced, a value it hadn't reached since mid-February.

"Overall this appears to be an excellent transaction for WellPoint," Deutsche Bank analyst Scott Fidel wrote in a research note the day the deal was announced.

The company's share price has dipped as low as $30 twice in the past six months. Like its competitors, WellPoint is facing diminished commercial membership due to job cuts by its employer customer base. That has already driven down operating profits, as has been the case for other large insurers.