Cigna posts revenue jump, but Wall Street not so impressed
Having finalizing its acquisition of Express Scripts, Cigna announced total revenues of nearly $49 billion in 2018, a 15% increase over the previous year. The insurer on Friday reported nearly $14.3 billion in revenue for the fourth quarter, but one analyst labeled the results and 2019 "underwhelming" and shares were down.
Cigna said it expects adjusted revenues to skyrocket to between $131.5 billion and $133.5 billion in 2019.
The Bloomfield, Connecticut-based payer finished the year with increases in its insurance membership — a jump from slightly less than 16.4 million members to nearly 17 million members.
Jefferies analysts said Cigna's numbers weren't impressive, particularly given Anthem beat expectations in its release Wednesday and UnitedHealth Group also posted better-than-expected year-end results. Cigna "has a strong track record of beating and raising throughout the year, but we would have liked a higher starting point," they wrote.
Regarding the HHS proposal Thursday to stop PBMs from benefiting from Medicare and Medicaid rebates and instead pass those savings directly to the consumer, Cigna CEO David Cordani told investors Friday the company isn't concerned about the proposal because wouldn't directly affect the commercial market, which is a large piece of Cigna's business. Also, Express Scripts already passes back about 95% of the rebates to consumers.
The proposed rebate rule won't have "a meaningful impact" on the company or its growth, Cordani said, suggesting there are opportunities associated with the change, including accelerating value-based programs with pharmaceutical companies.
Jefferies and other analysts dispute that, however. The policy change would be a major shake up to drug pricing negotiations that could spill over into commercial sectors and potentially end those rebates as well.
Cigna views pharmacy as a growth opportunity in 2019, especially after the purchase of Express Scripts in December. That deal helped grow Cigna's pharmacy and Medicare Part D services in Q4.
Payers have increasingly moved into the pharmacy benefit manager market. The purchase of the PBM allows Cigna to move its medical and pharmaceutical benefits under one umbrella and echoes one rationale behind CVS Health purchasing Aetna. Meanwhile, Anthem is dropping Express Scripts and launching its own PBM, IngenioRx, in the second quarter of this year — nine months earlier than expected .
Payers expect bringing medical and pharmacy under one roof will lead to cost savings, including for specialty drugs. The expanded businesses could also guard against a major company like Amazon diving into healthcare.
Cigna finished 2018 with 584,000 more medical members. While other payers are shifting focus away from commercial for more Medicare Advantage and Medicaid business, Cigna enjoyed growth in each of its medical segments: commercial, government and international.
The health insurance segment increased revenues by 13% in Q4 year over year. The commercial segment's customer growth, specialty relationships and premium increases led to the added revenues. Cigna finished the year with a 78.9% medical care ratio and had an 80.9% MCR for the fourth quarter.
Government health plans remain a small portion of Cigna's business, with about 1.4 million members. One reason is that Cigna was banned from offering Medicare Advantage plans for more than a year. However, similar to other payers, Cigna views government plans, especially MA, as a growth opportunity.
Eric Palmer, Cigna's executive vice president and CFO, said Friday the payer expects to add between 300,000 and 400,000 members in 2019, including mid-single digit MA enrollment growth. Cigna also expects to see a drop of 70,000 individual members this year.
Cordani said the payer's three key areas of focus this year are to optimize pharmacy opportunities through Express Scripts integration; use the breadth of available data to improve connectivity and predictability; and leverage new growth opportunities and expand its reach, including through its integrated work with Express Scripts.