UnitedHealth Group’s pharmacy benefits business on Wednesday won a five-year contract with a value of $4.9 billion from CalPERS, the large health insurance provider for California public employees.
United’s OptumRx division was competing for the contract against St. Louis-based Express Scripts and Rhode Island-based CVS Caremark, the nation’s two largest pharmaceutical benefit managers (PBMs).
OptumRx is the nation’s third-largest PBM following a 2015 deal in which UnitedHealth Group paid $12.8 billion to purchase Catamaran, a PBM based in Illinois.
“OptumRx had the strongest bid submission,” said Rob Feckner, president of the CalPERS board of administration, in a statement. “We are confident that the company will successfully meet the needs of our members and our staff will work with OptumRx and CVS Caremark to ensure that the transition for our members and physicians will be as smooth as possible.”
Health insurers hire PBMs to negotiate prices with drug companies, assemble retail pharmacy networks and provide mail-order pharmacy services.
UnitedHealth Group’s PBM business is part of its Eden Prairie-based division called Optum, which sells a variety of services to other health insurers as well as health care providers.
United’s health insurance benefits division, UnitedHealthcare, is the largest health insurer in the country.
OptumRx generated about $8 billion in revenue during the first quarter from external health insurance customers, said Sheryl Skolnick, an analyst with Mizuho Securities LLC.
The new contract represents an increase in external revenue per quarter of about $250 million, Skolnick said, or about 3 percent.
The contract announced Wednesday “should put to rest some of the Optum/UNH critics who suggest that Optum can’t grow without help from [UnitedHealthcare’s] managed care wins,” Skolnick wrote in a research note. “This is CalPERs, one of the most sophisticated buyers of health care services in the country.”
The new contract, which takes effect Jan. 1, covers about 486,000 people covered through CalPERS, which is the abbreviation for the California Public Employees’ Retirement System.