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There's $3 billion--or more--on the line.

By Laura Lorenzetti
February 17, 2016

Express Scripts’ positive earnings Tuesday were overshadowed by a contract dispute with health insurer Anthem, which is claiming the pharmacy benefit manager owes it $3 billion in annual savings on pharmaceuticals dating back to December 2015.

Express Scripts CEO George Paz shrugged off the allegations, saying that he has “no clue where the $3 billion came from. I have no concept, the number doesn’t make any sense.” Regardless, the company remains “fully committed to good faith negotiations,” said Paz.

When pressed about the status of negotiations with Anthem during the company’s earnings call, Express Scripts management said that they don’t think the health insurer “would appreciate it if I was trying to air all their dirty laundry out and try to force a negotiation through a conference call.”

Anthem has been a customer of Express Scripts since 2009, but the relationship went south in January when Anthem accused the company of not passing along enough savings on drugs. It threatened to move its business to another pharmacy benefits manager, which would be a significant blow to Express Scripts’ near-term revenues. Anthem accounted for about $14 billion in sales for Express Scripts in 2014. Negotiations are still a possibility, though Anthem has said it will also explore legal action if that fails.

Express Scripts gained Anthem’s business originally after it acquired NetRx, Anthem’s drug-benefit plan, for $4.7 billion. Part of that deal included a 10-year contract to oversee Anthem’s drug benefits, which would expire in 2019. The contract still allows for periodic pricing reviews, the most recent of which happened in 2012.

“We find it surprising that ‘market pricing’ would have changed by that much in just three years,” Lisa Gill, an analyst with J.P. Morgan, wrote in a note to investors.

Express Scripts’ revenues attributable to Anthem increased by a total of $1.3 billion from 2012 to 2014, despite Anthem’s claim that it is being overcharged by $3 billion in the previous year, noted Gill.

Regardless, Express Scripts ESRX reiterated that resolving the dispute with the health insurer is a top priority, and it would love to extend the contract with Anthem ANTM beyond 2019.

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