UnitedHealth said it plans to merge Catamaran Corp. with its existing pharmacy benefits management company, OptumRx. The deal will help UnitedHealth increase its profits about 5% in 2016, the company said.
Whether the acquisition will benefit consumers may be an issue in the months ahead. Some experts suggest that the deal may weaken competition and prompt opposition from the
Pharmacy benefit managers help negotiate with drug companies the prices of prescription drugs on behalf of employers, insurers and government agencies. The largest players in the industry include Express Scripts and CVS/Caremark.
The companies are seen as key players in the battle to reduce the costs of specialty drugs, complex medications that can provide life-saving treatment for diseases such as HIV, cancer and hepatitis C — but often with high price tags.
UnitedHealth was the fifth-largest health insurer in California in 2013 with 7% of revenues, according to a recent report from the California Healthcare Foundation.
UnitedHealth said the merger will "create a dynamic competitor" in the pharmacy benefit management market. It expects the deal to close in the final three months of 2015.
Larry Renfro, chief executive of UnitedHealth's OptumRx division, said its customers can expect to benefit from the deal.
"We believe this combination will create significant value for health plan, government, third-party administrator and employer customers and, most importantly, the individual consumers who depend on us for accurate, affordable and convenient pharmacy benefit products and services," he said.
Unconvinced is David Balto, a Washington antitrust lawyer and former policy director for the Federal Trade Commission. He said the acquisition could reduce competition and lead to higher prices for consumers.
"I think this merger will face very stiff head winds at the FTC," Balto said. "A dominant insurance company is going to extinguish one of the paltry sources of competition in the market."
Investors and analysts liked the deal, which called for UnitedHealth to pay $61.50 for each share of Catamaran stock — a 27% premium on the company's Friday closing price.
Catamaran shares surged $11.51, or 24%, to $59.83. UnitedHealth's stock climbed $2.99, or 2.5%, to $121.
Brooks O'Neil, a healthcare analyst with Dougherty & Co., said the combination will help UnitedHealth cut costs in two ways: eliminating redundant jobs and using its size to negotiate better prices. He said UnitedHealth is acquiring a well-run company.
"We think putting United together with Catamaran brings a sophistication and expertise to United, plus you have the benefit now of significant scale," O'Neil said.
O'Neil said he expects the deal could help UnitedHealth control the costs it charges to consumers.
"Pharmacy costs have been among the fastest-rising costs in healthcare over the last 10 to 15 years," he said. "These companies are working to make pharmacy more affordable to the average person.... I think it's a unique combination. I think it's going to be really important to their members."
UnitedHealth's deal to buy Catamaran, based in the Chicago suburb of Schaumburg, Ill., is undoubtedly an effort to control the money it spends on prescription drugs, said Wendell Potter, a former Cigna executive who now is an author and consumer advocate. That could be good and bad for consumers, he said.
Lower prescription drug costs could help control the cost of health insurance policies, he said. But a more powerful UnitedHealth might be less willing to pay for expensive but life-saving drugs, he said.
"It's clear that United and other insurers are doing what they can to get a better handle on what they're having to pay for drugs," he said.