October 18, 2017 / 1:10 PM / a year ago

CORRECTED-UPDATE 2-Health insurer Anthem takes pharmacy business in house, taps CVS to help

(Repeats correction)

Oct 18 (Reuters) - Health insurer Anthem Inc will start managing its billions of dollars of patient prescriptions itself in 2020, it said on Wednesday, ending a deal with Express Scripts Holding that had deteriorated into lawsuits over terms.

Anthem, which has said Express Scripts overcharged it by $3 billion annually through unfavorable prices, said it would use drug retailer CVS Health Corp to handle prescription fulfillment and claims processing for five years for the new company, called IngenioRX.

Pharmacy benefit managers negotiate prices with drugmakers and determine which treatments are included on their list of covered drugs and how much of a co-payment to charge for them versus their rivals. As drug prices have posted annual double-digit gains, companies, insurers and the U.S. government have pushed benefit managers to better manage costs.

Leerink analyst Ana Gupte estimated that No.2 health insurer Anthem's prescription business represents about 220 million scripts per year worth about $23 billion in revenue.

The move should add $1.50 per share to earnings starting in 2020 based on the company's expectations to save that $3 billion annually, she said in a research note.

Other insurers, including UnitedHealth Group Inc and Humana Inc, already manage their pharmacy benefit themselves.

Anthem, whose 10-year contract with Express Scripts expires in 2019, had said it was considering staying with Express Scripts, choosing another company, or doing the work itself.

Express Scripts spokesman Brian Henry said the company was disappointed by the move and would continue to work with Anthem through the contract end date and any transition period. Excluding Anthem, the company has 65 million members, he said.

CVS Health, which also has a pharmacy benefit management business in addition to its pharmacies and Minute Clinics, said its five-year agreement with Anthem would begin in 2020 and run through the end of 2024.

CVS Health said it expects to incur implementation charges related to the transition of members, but said the costs would not have an impact on its 2017 earnings.

Shares of CVS Health were up 1.6 percent at $73.80 in premarket trading on Wednesday, while Express Scripts' shares were marginally down. (reporting by Caroline Humer and Divya Grover; Editing by Arun Koyyur and Susan Thomas)

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