Editor's note: This story was updated following CVS Health's earnings call.
CVS Health executives chimed in on the news that Centene will take its pharmacy benefit management contract elsewhere on the company's earnings call Wednesday morning.
CVS CEO Karen Lynch said that the healthcare giant made a competitive bid on the massive contract, which is valued at about $35 billion and includes 20 million Centene health plan members. The company has also maintained its "pricing discipline" as it navigates contract negotiations, she said.
She added that Caremark will work alongside Centene to ensure a seamless transition over the remaining duration of their contract. And while Centene may be a massive client loss, CVS' PBM will continue to be an "important driver of growth," Lynch said.
"Our demonstrated success of growing lives under management and revenue is a testament to our high-quality service," Lynch said.
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Centene has tapped Express Scripts as its pharmacy benefit manager of the future, making for one of the largest contract swaps in recent years.
Express Scripts will manage pharmacy benefits for 20 million Centene members beginning in 2024 in a contract valued at more than $35 billion. Chief financial officer Drew Asher said on the company's earnings call Tuesday that the insurer accounted for plus or minus $40 billion in gross pharmacy spend, almost all of which was previously managed by CVS Health's Caremark.
Centene opened a bidding process for PBM services as part of its value creation plan, and executives said on the call that its arrangement with Express Scripts and the early close of the bidding window should yield notable savings.
"This new partnership will allow us to innovate and redesign how our pharmacy benefits are administered," CEO Sarah London said on the call. "We anticipate delivering savings that exceed our previous expectations in 2024 and throughout the length of the agreement."
Centene mentioned the new arrangement in its earnings release Tuesday morning but offered further color for analysts during the call. Following the news, CVS' stock dropped and was down nearly 4% as of about 1:20 p.m. ET. Express Scripts and Caremark are two of the most dominant companies in the PBM space, and along with Optum Rx account for the vast majority of PBM contracts nationwide.
Amy Bricker, President of Express Scripts, told Fierce Healthcare in an interview that the new deal enables the company to not only serve Centene but to enhance its relationships with other customers as well.
"This provides the company at large the opportunity to service more regulated markets customers than ever in its history," Bricker said. "We know that we're bringing tremendous value to Centene, hence the award, but it's also reciprocal."
She said the partnership also opens the door for Express Scripts, which is part of Cigna's Evernorth subsidiary, to "compete even more fully" in the market as it looks to build out its business, and it makes a clear statement to potential partners in the government insurance markets in particular.
"Express Scripts and Evernorth are partnering in ways no one else is in the ecosystem, and this isn't a fluke," Bricker said.
Centene brought in $738 million in profit for the third quarter, surpassing Wall Street analysts' predictions.
Its profit for the quarter was up from the $584 million it reported in the third quarter of 2021. Through the first three quarters of this year, Centene has earned $1.5 billion in profit, up from $748 million through three quarters in 2021, according to its earnings report released Tuesday morning.
Centene also beat the Street on revenue with $35.9 billion, up from $32.4 billion in the prior-year quarter. Through the first three quarters of 2022, Centene has brought in $109 billion in revenue, an increase from $93.4 billion through the first nine months of 2021.
The government insurance giant said much of its revenue growth is on the back of overperformance in Medicaid and Medicare, though the resumed eligibility redeterminations in Medicaid loom. Centene said its Medicare membership increased by 22%.
In addition, in its earnings release the company touted a significant milestone in its ongoing value creation initiative: tapping Express Scripts as its pharmacy benefit manager beginning in 2024. In the quarter, the company also completed its divestiture of PANTHERx Rare, a specialty pharmacy subsidiary it acquired in 2020, to the Vistria Group, General Atlantic and Nautic Partners.
"Our strong third quarter and year-to-date results provide Centene with positive momentum as we move towards 2023," said Sarah London, Centene CEO, in the release. "Selecting our future PBM partner represents a major Value Creation Plan milestone and positions us to capture significant value for our members, partners and stakeholders in 2024 and beyond."
On the back of the performance, Centene boosted the floor for its earnings guidance slightly and now expects between $5.65 and $5.75 per share for 2022. The company also estimates between $142.7 billion and a $144.7 billion in revenue for the full year.