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>> US health insurer, Cigna, on Thursday, announced it had reached a nearly $53 billion deal to buy Express Scripts. It's the latest mega merger in a trend reshaping the US health care industry. Express Scripts handles the prescription drug plans for more than 80 million Americans. It's a model called a prescription benefits manager, or PBM.
Reuters correspondent, Carl O'Donnell, covers mergers.>> Basically their job is straight-forward. They're supposed to sit down with the manufacturers of prescription drugs and negotiate as low of drug prices as possible on behalf of insurance companies who should be able to pass those cost savings down to patients.>> And it makes sense that a health insurer, such a Cigna, would want to bring that business together with its own.
It puts Cigna in a better position to compete with its rival, UnitedHealth.>> So UnitedHealth Group was really seen as the leader in this new model of merging the insurance company with a pharmaceutical benefits manager with bricks and mortar health care providers. And they've been very successful. It's been seen as giving them a big advantage over competitors and that's really why we've seen everyone else follow in their footsteps to one degree or another.
>> Cigna and Express Scripts said the merger will eventually save $600 million a year due to administrative efficiencies, and cut costs as they better coordinate pharmacy and medical claims. But Cigna might be biting off more than it can chew. Cigna shares fell 11% in afternoon trading, and Express Scripts were up almost 9%.
>> All the burden's on Cigna, the size of this deal is larger than the size of Cigna's market capitalization. So, this is a massive bet for them, and it really puts the pressure on them to make sure that it works, and as a result, investors are taking a second look at the company.
>> The announced deal comes as US health insurers are looking to cut costs now more than ever, with rising drug costs, changes to the Affordable Care Act, possible competition from Amazon, and comes at the heels of a $69 billion merger of Aetna and CVS health.