Express Scripts likely to lose Anthem, its biggest customer

Pharmacy benefits manager Express Scripts said it will lose Anthem as a client when its current contract expires at the end of 2019, claiming it can’t agree to the price concessions Anthem has been demanding.

The relationship between the two has been anything but cordial in recent years, with Anthem filing a $15 billion lawsuit in March 2016 claiming Express Scripts was overcharging for prescription drugs and seeking the right to terminate the contract.

Express Scripts said in its first quarter earnings announcement that it sought to retain Anthem by offering up to $1 billion in price concessions in each of the final three years of the contract. According to Tim Wentworth, president and CEO of Express Scripts, Anthem want $3 billion in annual concessions, which he said is above the benefits manager’s profits on the insurer’s business.

“It is difficult for us to understand why Anthem has not recognized the potential value which could be brought forth by engaging in meaningful discussions regarding a mutually beneficial pricing arrangement for the remaining term of our contract and beyond," Wentworth said on the earnings call with investors. "No other party can offer Anthem savings prior to 2020, and no other party can provide updated pricing terms beyond 2019 without the risk and disruption of a lengthy and complicated implementation.”

Express Scripts said Anthem hasn’t provided any written notice that it won’t renew the contract, but is moving forward with the expectation it will lose its biggest client.

The company provided financials from 2015 and 2016 which excluded the business of Anthem and other departing clients in an attempt to “demonstrate that the core pharmacy benefit manager business, excluding Anthem, is well positioned for future growth.”

Last year, Anthem made up about 17 percent of its $100 billion revenue. Based on those 2016 figures, if Anthem does depart, along with business from Coventry and Catamaran, Express Scripts will experience a 34 percent drop in earnings before interest, taxes, depreciation and amortization, to just below $4.8 billion.

The loss of Anthem’s 20 million members would also cost Express Scripts the title of the nation’s largest pharmacy benefits manager, as it should fall behind the current No. 2, CVS Health.