UnitedHealth enters drug benefits business

NEW YORK | Thu Jun 9, 2011 5:57pm EDT (Reuters) - UnitedHealth Group is pushing into managing pharmacy benefits, bucking a trend among U.S. health insurers and threatening the dominance of the three largest companies that help negotiate drug pricing.

Rivals WellPoint and Aetna have sold or outsourced prescription drug benefits. UnitedHealth -- the largest U.S. health insurer by market value -- has signaled it is moving in the other direction to seek new growth.

The company is seen as likely to take over the $11 billion drug benefits business it outsourced to No. 1 benefits manager Medco Health Solutions.

And well before that partnership expires next year, UnitedHealth's OptumRx unit is winning union and municipal contracts. It is now targeting employer accounts, including those who use its competitors' health insurance plans.

OptumRx CEO Jacqueline Kosecoff said in a recent interview the company is "very interested in the employer market and are getting very aggressive on bidding some very large accounts."

OptumRx's facilities are running at 50% capacity, giving it plenty of scope to bring the Medco business in-house, according to one analyst's estimate.

That alone would boost UnitedHealth earnings 3% in 2013, according to Sanford Bernstein analyst Ana Gupte, before profits from any other contracts the company might win.

Taking the Medco business would vault OptumRx's prescription volume by about 50% to over 500 million total annual prescriptions, according to Lazard Capital Markets. That would help close the gap with bigger players Medco, CVS Caremark and Express Scripts, giving UnitedHealth the scale to wrest greater drug discounts.

UnitedHealth Chief Executive Stephen Hemsley told an investor conference last week its business was "emerging as a preferred alternative to the three largest PBMs."

"It's an unexploited growth opportunity, given that they do have an asset that is capable of competing with the Big 3," said Brian Wright, an analyst with Citadel Securities, who covers both PBMs and health insurers.

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