More on Strategic Planning

Cigna, CVS Health CEOs bank on pharmacy benefit managers for cost savings

Pharmacy benefit manager alignments will help control the big expense of prescription drugs, Cigna and Aetna executives said.

Susan Morse, Senior Editor

Credit: Google Street ViewCredit: Google Street View

Cigna's strong earnings during the first quarter will continue once the insurer acquires Express Scripts, CEO David Cordani said on Thursday's earnings call. 

This being the time for quarterly earning calls, health insurance rivals Aetna, Humana and UnitedHealthcare all cited growing numbers of Medicare Advantage members are drivers of their respective revenues. 

As with those other insurers, Cigna has benefited from its Medicare Advantage business, as well as a strong commercial showing and lower tax rate. Cigna's medical customer base grew by 327,000 customers in first quarter, to a total of 16.2 million.

When Cigna announced in March plans to buy the pharmacy benefit manager Express Scripts for $54 billion, some analysts expressed skepticism over the insurer's ability to improve performance. 

Pharmacy is the most widely used benefit, Cordani said during today's call, and specialty pharmacy is the fastest growing medical cost category. 

Over the next decade, specialty drug costs are expected to more than triple, from $300 billion today to more than $1 trillion, he said. This is a top concern for employer clients but it also presents an opportunity for value creation.

The Express Scripts acquisition is expected to close by the end of 2018 and adding it to Cigna will help control drug costs by creating deeper alignment with other health plans, service providers, physicians, hospitals and pharmaceutical manufacturers, Cordani said. Cigna employs more than 4,000 clinicians and Express Scripts more than 3,000 clinicians. 

Cordani said the deal, "Advances our proven go strategy by accelerating our ability to provide greater affordability along with expanded choice and broader distribution reach, all with greater predictability."

Mergers and partnerships between insurers and PBMs as a way to control cost also include CVS Health's proposed $69 billion acquisition of Aetna. 

The combination,  expected close during the second half of this year, will create $750 million in expected year two synergies, according to CVS Health CEO Larry Merlo.

Merlo said during CVS Health's Wednesday earnings call that the merger is on track through regulatory review, integration planning and shareholder approval that was received on March 13. 

"Currently, we're in the process of responding to a second request for information from the Department of Justice, which we received on February 1," Merlo said. "The scope of the request was not unexpected and we are working to provide all the information requested by the regulators."

Required forms have been submitted to 28 state departments of insurance. States that require hearings are starting to schedule and hold these hearings and some have already granted approval, Merlo said. The Florida Office of Insurance Regulation, a large and important state for both companies, gave its approval on April 13. 

For integration planning, CVS Health and Aetna have established a steering committee comprised of executive leadership from both companies to provide guidance and strategic direction to an Integration Management Office team. The team has numerous objectives, including how to capture the opportunities for growth and innovation and medical cost savings using existing assets such as MinuteClinic.

Cigna on Thursday reported income from operations for the first quarter of $1 billion, compared to $719 million from the same period the year before.

"Cigna's strong first quarter performance was driven by the continued, effective execution of our proven growth strategy, which we expect to further accelerate through our pending combination with Express Scripts," Cordani said. 

Total revenues in the quarter were $11.4 billion, an increase of 9 percent over first quarter 2017, led by continued strong business growth in Cigna's commercial business and global supplemental benefits segments. 

First quarter operating revenues for its global health business increased 10 percent over first quarter 2017.

Twitter: @SusanJMorse
Email the writer:

Show All Comments