Cigna is prepared to weather a government crackdown on pharmacy benefit managers despite its Express Scripts subsidiary’s reliance on spread pricing and drugmaker rebates, CEO David Cordani said Friday.
Bipartisan leaders of the Senate Health, Education, Labor and Pensions Committee are scheduled to consider a legislative package next week that would ban spread pricing and force PBMs to pass through all rebates to employer clients. The Senate Finance Committee and two House panels also are eying legislation to rein in PBMs.
Cigna’s Express Scripts subsidiary is the second-largest PBM by market share and generates 20% of its pre-tax profits from rebates and retail spread pricing, a portion that has declined over time, Cordani said during a call with investors.
“We are confident we will be able to flex rapidly if necessary, but we also want to reassure we are a voice for employers and will still work to provide choice for them as to how they finance their programs,” Cordani said.
The company increased its annual profit guidance by 10 cents to at least $24.70 per share after its health insurance arm recorded lower medical costs than expected, driven by higher premiums and lower spending on COVID-19, influenza and the respiratory syncytial virus, Chief Financial Officer Brian Evanko said during the call. Cigna reported an 81.3% medical loss ratio during the first quarter, down slightly from 81.5% a year before.
Net income rose 5.8% to $1.2 billion, or $4.24 per share, and revenue increased 5.7% to $46.5 billion, driven by higher premiums for health insurance exchange policies and a boost in pharmacy services.
Express Scripts served 98.7 million pharmacy patients during the quarter, a 4.6% increase, due to new clients and growth in specialty pharmacy services for complex conditions such as rheumatoid arthritis.
The PBM recently introduced employer models that do not use spread pricing, pass through rebates and pay higher fees to rural pharmacies. The PBM is still evaluating how Florida’s recent ban on spread pricing will impact local contracts, Cordani said.
“We are confident if some of these payment vehicles are altered by regulatory change or client preference, [Express Scripts] has a broad set of capabilities that create value and create attractive returns,” Cordani said.
Cigna’s health insurance business covered 17.8 million U.S. members in the first quarter, an 11.3% increase driven by exchange enrollments, which more than doubled to 786,000 after the company entered the exchanges in Indiana, South Carolina and Texas and competitors exited some of Cigna’s markets. The company covered 16 million people in job-based health plans during the quarter, a 10% increase. The insurer expects its employer membership to decline in the second half of the year as the threat of a recession looms, Evanko said.
Medicare Advantage membership rose 6% to 584,000, below the industry average of 8%.