Dive Brief:
- Cigna’s chief executive is pledging to be more aggressive in defending its pharmacy benefit manager amid mounting public criticism of the drug middlemen — and as its PBM, Express Scripts, continues to drive soaring revenue for the insurance giant.
- That includes heavier lobbying in Washington, sponsoring more research into the value of PBMs and working more with independent pharmacists, which have been some of PBMs’ loudest critics, CEO David Cordani told investors on a Thursday morning call to discuss the payer’s second quarter results.
- Cigna handily beat Wall Street expectations on earnings and revenue in the quarter, with a topline of $60.5 billion, up 25% year over year. Net income of $1.5 billion was up 6% year over year. Cigna chalked the results up to significant growth in Evernorth, its health services division that includes Express Scripts.
Dive Insight:
Cigna’s CEO said the Connecticut-based healthcare company plans to go to the mat to defend PBMs, which have found themselves bearing the brunt of public blame for sky-high U.S. drug costs.
PBMs sit between pharmaceutical manufacturers and payers in the drug supply chain, negotiating prices for drugs to sit on payers’ formularies and reimbursing pharmacies for dispensing prescriptions.
On Thursday, Cordani repeated a mainstay argument of the industry — that they’re the only actor in the pharmaceutical supply chain that work to bring down costs — but acknowledged PBMs need to do more to communicate their value.
Congress, antitrust regulators, third-party pharmacies, patient advocates and more continue to accuse PBMs of profiteering amid a slew of negative research and media reports focusing on how PBMs contribute to higher drug costs and fewer choices for patients.
“The environment calls on us to be proactive” in communicating PBMs’ value, though “our industry negotiations to drive these results can at times create friction in the system,” Cordani said.
“We challenge ourselves to be much more aggressive related to communication and engagement,” the CEO added later in the call.
With his comments, Cordani is looking to protect a division from disruption that is the single largest revenue driver for his company.
Express Scripts, which Cigna acquired for $67 billion six years ago, brought in $26.6 billion in revenue in the second quarter — 44% of Cigna’s entire topline.
Express Scripts is a part of Evernorth, which also includes specialty pharmacy Accredo, medical benefit manager Evicore and Cigna’s other health service product lines.
In the second quarter, Evernorth’s revenue jumped 30% year over year to almost $49.6 billion. Adjusted income from operations before taxes was $1.6 billion, up 7% year over year, thanks to the migration of Centene’s lucrative prescription drug contract and growth in specialty pharmacy.
To maintain that growth, Cigna is banking on continued adoption of biosimilars and GLP-1s, medications traditionally used for diabetes that have showed efficacy in use cases as varied as weight loss, infertility treatments, sleep apnea and Alzheimer’s disease.
In March, Cigna announced a cost-sharing agreement for GLP-1s covered in a condition management program, to insulate health plan and employer clients from the soaring costs of the medication — and ensure Evernorth can benefit from continued demand.
Cigna has enrolled more than 2 million people in that program, called EncircleRx, to date, according to Eric Palmer, Evernorth CEO.
“Looking ahead, we expect the use of these medications to continue to grow, and that is part of the growth algorithm for Evernorth overall,” Palmer said.
Evernorth is also seeing “meaningful uptake” of its interchangeable biosimilar for Humira, which became available for eligible Accredo patients for $0 out-of-pocket cost in June, according to Palmer.
Evernorth is producing the biosimilar for AbbVie’s frequently prescribed immune disease drug through an affiliated distributor and agreements with multiple manufacturers.
It’s still early, but after seeing demand over the past five weeks, biosimilars could eventually grow to make up one-fifth of Accredo’s book of business, Palmer said.
As for Cigna’s insurance business, the payer saw higher medical utilization among its members in the quarter, in line with its peers. Areas like facility-based services (including the emergency room) and mental health services were elevated, but generally in line with expectations, CFO Brian Evanko told investors.
The majority of Cigna’s business comes from offering employer-sponsored insurance, which has sheltered the payer from the worst of utilization increases in Medicare Advantage. Cigna reported a medical loss ratio — a marker of spending on patient care — of 82.3% in the quarter.
That’s up slightly from the 81.2% Cigna notched the same time last year, but significantly better than the 89.5%, 88.6%, 87.6%, 86.3% and 85.1% recorded by Cigna’s more government-plan heavy peers in the second quarter.
Cigna is planning on getting out of Medicare coverage altogether, having agreed in January to sell its Medicare business to Chicago-based insurer Health Care Service Corporation. That deal remains on track to close early next year, management said on the call.
Cigna’s medical membership fell to 19 million people in the quarter, down about 500,000 members year over year. The losses are because Cigna raised premiums in some of its plans in the Affordable Care Act exchanges in a bid to improve profitability, causing some attrition, according to Evanko.
“We expected to see a reduction in customer volumes, as we have witnessed,” and expect growth in employer-sponsored plans to recover those losses through the balance of the year, the CFO said.
All in all, “we see this as a fairly solid quarter that should leave the company with a reasonable set up into the back half of the year,” wrote J.P. Morgan analyst Lisa Gill in a Thursday note. Cigna’s stock dipped 4% in morning trade following the results.
