The Cigna Group (CI) Earnings Call Transcript & Summary

Good afternoon, and thanks for joining us in our healthcare services track. It's my pleasure to host Cigna. Cigna provides group health insurance, managed care and pharmacy benefit products and services, international health plans worldwide. The company recently rebranded their health services business now named Evernorth and completed the sale of its Group Life and Disability business in New York Life. The company had generated approximately $158 billion of revenue in 2020. And this afternoon, I'm primarily going to be speaking with CEO, David Cordani. Alexis Jones is on as well to be the police if we stray into nonpublic disclosure world. So keep an eye on this, I think. So David, welcome to the conference. Good to see you. Too bad it has to be virtual, but I wanted to let you make a couple of introductory remarks, and then we'll have a fireside chat.

Sure, Gary. Great to be with you, and thanks for the time. I look forward to our opening dialogue in terms of whatever's on your mind and whatever's in your colleagues' mind from that standpoint. Just a few things I did want to cover as we get rolling. One is, as we completed 2020, I want to underscore how proud I am of the way my Cigna colleagues showed up each and every day in support of our customers, our clients, our physician partners, our communities as well as the programs we've embarked upon in support of our own colleagues. 2020, as everybody knows, was a unique and challenging year from a COVID standpoint. And we structured ourselves to be guided by our mission to improve health, wellbeing and peace of mind of those we serve. And I'm -- I feel very fortunate to be part of this company in terms of the way we showed up for all the respective stakeholders. Against that backdrop, we're also proud of the fact that we delivered on our promises for our shareholders as well. And what I want to do is just spend a couple of minutes in terms of the way we see the marketplace evolving and the backdrop of what we've done to position ourselves. First and foremost, the last couple of years, we had a variety of strategic imperatives that sat in front of us. One, effectuate the combination of Express Scripts with Cigna. We've sufficiently completed that combination and completed our integration at the end of calendar year 2020. Two, we said we're going to divest of our group insurance portfolio to New York Life. We've successfully completed that by the end of the year. Three, deleverage our franchise over the 24-month period of 2019 and 2020. We completed that. And meanwhile, deliver on our growth objectives, our earnings objectives, delivering new innovative products to market as well as give back to the community. Additionally, what we did was, as we closed the calendar year, we positioned ourselves with some new leadership deployments by pulling from the deep repository of talent we have in our organization and redeploying and providing some additional opportunities for key leaders in our organization, both on my team and on the teams beneath those individuals that position us for sustained growth that we could talk about on a go-forward basis. Against that backdrop, we still operate in an environment, so you have the global map behind you, that globally, as well as back here in the United States, affordability is the #1 tension point for those we serve: customers, clients, governmental partners, et cetera. And against that backdrop, as we know, population around the globe continues to age and health burdens continue to amass from that standpoint. Additionally, we see 3 transformative curves that sit in front of us for the next strategic time horizon. One, pharmacological innovation will be the primary innovation in health care. We see that transpiring. In fact, we could see the rapid innovation take place just even step up to COVID. But beyond that, we see new Alzheimer's drugs and new treatments coming forward, and we think that rate and curve is going to accelerate. Two, we see now more acceptance globally for the connectivity between health and mental health from that standpoint. And three, with technological innovation, proliferation of data and multiple new modalities of engagement, we see the opportunity to transform care access with more longitudinal virtual care and augmented in-home care to support the physical aspects of care delivery. Lastly, I'll comment, as we look forward, we see an exciting growth trajectory in front of our corporation, and our growth story will be predicated on 4 buckets of activities: One, making sure we continue to deliver strong value to our existing clients against our value proposition. That yields differentiated retention. It yields the opportunity to deepen relationships. And of course, it yields the credibility to bring new relationships into the organization. Then added to that, we will continue to invest in innovation and partnerships to both expand our capabilities and expand our reach. And thirdly, we see tremendous opportunities to expand our addressable market or our strike zone against our business platforms. When you net all that together, it will yield strong differentiated top line growth, bottom line growth and attractive free cash flow as we position our corporation to be a significant free cash flow generator, and therefore, a significant amount of shareholder value. We'd be excited to have a more comprehensive conversation around that at our I Day in early March. But with that, Gary, I'll turn it back to you and go down whatever path you think are most important right now.

Great. Well, David, you're the first one to recognize the value of this global map that's behind me.

It's a nice backdrop. I'm a little jealous.

It takes a global perspective to recognize that. So I appreciate it.

I wonder how long it took you to draw it.

For those -- I can make a joke, but I won't, about somebody else that used to draw some maps earlier, but I won't. For those that didn't see it, March 8 is the next Cigna Investor Day that was just announced today. I wanted to just ask about just as we begin, the leadership transition you did have from Eric Palmer moving over to President of Evernorth and then Brian Evanko coming up to be CFO. I think a lot of folks know Brian from his history at the company and the access that you've provided. But can you give us just a short snippet of the strategic thinking behind those changes?

Sure. And thanks for going there. So first and foremost, at Cigna, we have a long track record and a long history of growing and developing talent. So providing diverse experiences for individuals to grow and develop, and it actually helps in the way we operate, because we don't operate in verticals in our corporation. We operate from the marketplace back in. And having more individuals from leadership positions throughout the organization, having multiple diverse experiences actually creates more connectivity, and you highlight some of the changes. Eric moving over to Evernorth to be President and COO, that's a reinforcement as well of the phenomenal growth opportunities we see in front of us. Brian, who has a financial background, who was several levels removed, previously CFO of our international operation, most recently ran our government businesses. That presents a great opportunity for Brian to return to finance in an enterprise leading role. Matt Manders, who has experience running our U.S. field operations, all lines of business, has taken over the responsibility for oversight of the government portfolio in addition to other responsibilities with dedicated seniors oversight. And Everett Neville, a part of legacy ESI organization on Tim's team, who was working with Matt, takes over strategy and M&A reporting directly to me. And then there's a cascading effect, Gary, I think, equally important of other leaders because of those moves, who take on additional or more diverse opportunities and responsibility. So it's on strategy. It's exciting. It's well received in the organization and positions us for another run of very attractive growth across the franchise.

Great. I also just wanted to ask about some of your interim news just in the last couple of weeks here around capital deployment. So Cigna established your first dividend, $1 a quarter. It's about $1 billion annual commitment, and then also some accelerated share repurchase activity looking to at least a couple billion dollars in the first quarter. Just walk us through the decision-making on those.

Sure. So again, we completed, as I mentioned in my opening remarks, over the last 2 years, a lot of what we said we're going to do: grow the franchise, service our clients and customers, of course; deliver new innovations; deleverage the franchise; and put ourselves in position as we step into 2021. In the first week of 2021, we stepped forward and then, obviously, we completed all those activities. Our view is that our free cash flow generation puts us in position now to have an end strategy. So to have an attractive dividend, we targeted a specific payout ratio from that standpoint relative to that $1 per quarter dividend from that standpoint. We also highlighted the fact that we were quite active in share repurchase in the month of November and December. We've repurchased about $1.2 billion of our stock in November, December. I would underscore that was reinforcing of the confidence we had in closing the group insurance combination and achieving our deleveraging activity and the underlying fiscal health and franchise. And then as you noted, we indicated that we will repurchase at least $2 billion of our stock in the first quarter, and we have about $3.9 billion of share repurchase authority. So I think it's the first installment of the next chapter of the corporation as we move forward with a very healthy free cash flow profile. And we see significant shareholder value creation through the deployment of that free cash flow.

I want to move on to some of your key markets, and I want to see if you can help us think through this in sort of the real-world way. I think most investors look at commercial group market either as a declining market or a zero-sum game market, yet Cigna consistently generates a share gain in that market. And really consistently, when we talk to brokers and employee benefit managers, ranks very highly, if not the highest, in terms of companies that are most innovative in terms of what you're doing in the commercial group market. So can you sort of talk to us how are you -- or what's in Cigna's DNA that drives that innovation and allows you to fairly consistently gain share in a commercial market that, in aggregate, doesn't have enormous growth characteristic?

Yes. So Gary, I appreciate the framing very much that you walked through, and it does start with a philosophy. So a couple of grounding points. One, we don't view that the commercial market is 1 large market or 3 markets: big, medium and small, right? So we view in segmenting markets as a philosophy we have as an organization. So micro segmenting the markets. And within the commercial marketplace, we try to identify employers who view that to be successful within their business, they need highly engaged, healthy, productive coworkers, and ideally doing that in an affordable, predictable fashion, right? If philosophically, you view that, that's what you need to run your business, you're going to orient a little differently around your employee benefits programs. Then we work with them to understand culture, strategy, health burden, readiness to change, openness to using incentives, disincentives, levels of engagement programs, and very importantly, then dynamically manage it. There's no static nature in terms of the way we go to market. Therefore, the vast majority of our services happen to be self-funded because that yields a level of transparency, and we view that transparency as a gateway to alignment. More alignment, more dynamism, more active engagement to those programs throughout the 365 days as opposed to let's tally up and see how we did at the end of the calendar year. And then thirdly, viewing that the health care services as a broad set of capabilities, right? It's not just a medical offering or a medical and pharmacy or medical pharmacy behavior with disease management. Their decision support, consumer support, health engagement, behavior modification programs that you're embedding in there, all with the objective of helping people maintain their health, improve their health or maximize their quality of life if they're dealing with a health condition. And back to the employer, trying to demonstrate we're making their business better. Our objective is to help an employer have a better business through those healthy, engaged, highly productive individuals in an affordable, predictable fashion. And that recipe, knock wood, has served us well for a decade. But it's relentless, right? You're relentlessly driving innovation and change in the marketplace with your health care partners; with products, programs and services; and with our client management teams and clinical management teams servicing our commercial clients. And we continue to see that as a growth market going forward.

Is there a way to think about what general trends we're seeing in the commercial market in terms of -- I guess, what you sort of think about sort of traditional benefit design. And maybe that's not a sophisticated enough way to think about it. Maybe it really needs to be more focus and customized, as you're alluding to. But if we think about sort of the last decade where high-deductible plan was kind of the trend and a lot of employers were pursuing it. And I think for the most part, employers have been disappointed by the results of that and maybe felt that consumers don't really shop, and it wasn't drive -- it maybe have been driving perverse incentives as opposed to positive incentives. So when we think about the commercial market in terms of benefit design, I guess, one, are there any trends you would highlight? Or is the answer really, it does have to be more employer, company-specific than more micro-driven?

Yes. So let's take your example for a moment. A high-deductible program or CDHP program is neither good nor bad. It's just a tool. So if that tool is used as a kind of a binary event, okay, we put a high-deductible plan in, we're going to get some good things. What the employer most likely is going to see is they'll see a 1-year trend deflection, which, to your point, may or may not be an efficient trend deflection, because you may have avoided some services and you may have people rationing services the wrong way. What you need to do is you need to build a suite of services around that, that incentivize more of the right utilization. So maybe 0 fiscal obligation for preventative care, maybe 0 fiscal obligation even within the fund relative to generic chronic medications from that standpoint because the evidence says you want 100% adoption there, and then dial the incentives a little differently relative to preference-centric care from that standpoint. So point 1 is your starting point, it's not good, not bad. The question is, what is it augmented with and what additional tools are brought to bear. As it relates to trends in the present state and going forward, the mental medical, so the mental health, medical health is front and center in every conversation. And COVID has taken it to another level, but it was present in advance of that. That's one. Two, specialty pharmaceuticals are present in every conversation because it represents the fastest-growing part of the overall cost equation, back to the comment I made before about pharmacological innovation. So seeking innovative solutions that work with the health care provider that don't just carve out the specialty pharmacy, but work with the health care provider; manage appropriate site of care, including home infusion, site of care and the care coordination capabilities. Those are 2, to limit and try to be succinct, 2 trends that are front and center in almost every employer conversation. Mental and medical coordination and dealing with it more than mental health coverage, but how do you redefine loneliness, depression, stress and have additional products, programs and services that come into play from that standpoint and have them highly coordinated and integrated. And then taking the most holistic perspective view of specialty pharmaceuticals exist in just about every conversation right now.

And on that behavioral point, how is Cigna positioned to help employers with sort of integrating that? You've got, I think, my notes, 37 million behavioral lives that you're playing some role with. But is there -- is it going to move away towards carve-out and more towards carve-in on that business? Or how do you feel the company's positioned to deliver that?

Yes. So a way to think about behavioral is historically in the marketplace, I would submit that behavioral existed in 1 of 2 ways. Either A, the coverage, and I use coverage on purpose, was integrated as part of the medical behavioral pharmacy offering. But you may not have had any services coordination around it, like extending, and as I said, stress, depression, et cetera, but dealing with the more traditional and necessary parts of behavioral. And then secondly would be a point solution, a carve-out stand-alone EAP or carve-out stand-alone component. We see both of those markets as necessary, but we see an additional market, what we'll call coordinated services from that standpoint. And in pursuit of that, we've actually taken within Evernorth, all of our behavioral health assets are now part of Evernorth. The leadership, the infrastructure, all the colleagues are transitioned as part of the Evernorth organization because those capabilities are obviously consumed by the Cigna medical side of the equation you made reference to, but are highly on strategy to Evernorth bringing solutions forward for large corporate entities, health plans, governmental agencies as well as risk-bearing health care professionals from that standpoint. So we have a broad set of capabilities. We continue to invest in those. But think about those as being part of the Evernorth services portfolio available both for Cigna commercial consumption, Cigna government consumption, but also stand-alone employer, a la carte, stand-alone health plan relationships and coordinated relationships and governmental entities on a go-forward basis. So we see that as an exciting growth opportunity.

David, do you see the Trump administration price transparency rules being material to the marketplace either in terms of negotiations with providers? Any additional transparency that would give you or would give them? Or on more sort of the B2C side, if you will, how consumers may or may not be able to actually use that information to any effective end?

And as you figure, say, first, we passionately support an environment of more transparency. I made reference to -- it is a mechanism with an ASO to get alignment. We have transparency tools in pharmacy. We have transparency tools in specialty care, et cetera, from that standpoint. Point 2 is that the rule, as it stands today, we do not believe provide us or our benchmark competitors a differentiated level of insight in terms of cost structure. There's a variety of ways to get visibility relative to competitive cost structure relative to consulting benchmarking exercises, the way in which you compete for transparent relationships and the like from that standpoint. And point 3, really important in your question, I don't believe they'll have the intended consequences of aiding the consumer to make informed decisions. Because, maybe to oversimplify, if I was to give you 2 choices: one, you walk into a restaurant and I'd say, here's a transparent pricing. And they give you the price of every item that is in the kitchen: the parsley, the oregano, the olive oil, et cetera, you'll have full price transparency, but it's not actionable for you for what you order. If I give you a menu that gives you a suite of choices and an aggregation of price for everything in those, that's actionable and you can make informed trade-offs. So we think more of the batches, bundles or components of care being brought to bear at shoppable moments for the consumer, that helps on the consumer side of the equation. Taking a hospital's charge master and making it into some Uber database is not going to be actionable at the consumer level. So intent, right. I don't think that helps the consumer.

And how is Cigna going to deliver then that actionable or that relevant sort of pricing package or that sort of episode to your customers?

So let's take today as an example, and it's ever innovating. So we're not declaring that we have it, check the box, move on. But today and for quite some time, a Cigna customer could go online and shop medications. And based on your specific medication, based upon your location and based on your specific coverage, tell you exactly what the medication costs and tell you whether or not that medication is cheaper at a different pharmacy. If you pump in a 3-mile radius, that pharmacy may have the same brand label on it, but may be priced somewhat differently from that standpoint. It will also present to you a generic alternative if the generic alternative exists from that standpoint. So that's one example. A second example was to take a series of episodes of care and provide to our customers the cost and quality indicators for specific episodes of care by bundling up the cost. So let's say, a knee replacement or hip replacement or otherwise, and to provide to a customer what the requisite level of total cost is, what their financial obligation is. And very importantly, provide the quality indicator for the physician providing the service or the facility based upon aggregate Medicare data that exists for quality indicators. Those are 2 concrete examples apples, that when you go back to your CDHP question before, when you augment with those tools, they become quite actionable when you're trying to activate a consumer. But without those tools, you don't have the ability to be an activated consumer. 2 concrete examples.

I want to talk a little bit about 2021, and I've got an investor portal here with investor questions, and already see 3 or 4 all sort of in the same vein. And the question is, how is Cigna thinking about medical care that was deferred in 2020 that might return at or above trend in 2021 either just because deferred things are being caught up or because there's been some deterioration of health condition, and when that does return, it returns at higher acuity. I know you guys recently reaffirmed your '21 earnings guidance maybe on the deployment 8-K if I recall correctly. So in the context of that earnings outlook, how have you thought about what trend looks like, what MLR looks like?

Well, you started out with the risk of or concern relative to deferral of necessary care. So let's start with that. Within our model, within our approach, we have a significant amount of resource that every day wake up trying to stimulate utilization. So trying to ensure that if preventative care is necessary, somebody is getting their preventive care. Trying to make sure that if we see a gap in care for a chronic member who's not taking their medication, we engage from that standpoint. So that model has been tested pretty heavily in 2020 given the amount of disruption. When we look at medication compliance, medication adherence, preventative screening for high-risk individuals from that standpoint, that's a big part of the positive dimension in health services even against the backdrop of disruption that we can figure in today. Point 2. Within the commercial marketplace, remind you that 85% of all of our commercial relationships are self-funded. It doesn't mean we don't worry about it, but it means back to we're aligned. So as there was movement in lower costs in 2020 that directly benefited the employer and the consumer, in 2021, a change in that curve will work employer by employer to try to get those predictions in place. Additionally, in Medicare Advantage, as an example, approximately 85% of all of our Medicare Advantage customers are in some form of a value-based care relationship with the health care provider, so a level of alignment. Having said all that, it comes out to some really complex estimation because these estimates are highly localized and highly specific to the client for the books of business from that standpoint. And our teams are making the most informed view of how we think the medical costs are going to change in 2021 versus 2020. But it's a highly localized and highly client-specific level of assumptions. And obviously, we think we've made informed decisions relative to the renewals we put in place with our clients.

We -- I wanted to ask you about something. We conducted an insurance broker survey late in the year that did suggest there was some -- this is the risk market we're talking about, obviously, but did suggest from price hardening and large group commercial risk market heading into 2021. And interestingly, Cigna was cited as least aggressive from a pricing perspective. Meaning, more conservative from an underwriting perspective. So I just wanted to get your thoughts on do you think Cigna sort of uniquely preserve underwriting discipline versus the market heading into '21? Or surveys can be surveys, is not necessarily representative, you don't think there's a point to draw from it?

My underwriters are probably pretty happy to hear you if they're publicly listening to this. But I wouldn't say unique, Gary. It's really [ important to various ] question. I'll never put us in the category of unique. We try to be quite disciplined. So even when you take the, you said large group commercial marketplace, if you think commercial, 85% of my business is ASO. Of the 15%, a portion of that is shared returns and the residual part of it is risk-based. Within the risk-based, we're typically not in blocks and pools. So we're rating based on the underlying experience case by case. We're looking at the contractual relationship we have. And Our underwriting team has had a lot of continuity and a lot of long-standing relationships. So we feel good about what we put into the marketplace, and we think we've been responsible.

I have a client question that might be a little broad, but it ties into a question I want to add. So I'd give you an out making it a little more specific. The question was what are the next countries and regions you'd expect to expand into over the next 3 to 5 years? My more specific question was I wanted you to talk about your strategy growing your M&A business. I'm sure that -- sure that is a business that fits your sort of geographic expansion plan. So if you want to -- if you can address, high-level, products, countries, regions, or certainly, I do want to hear about your outlook on [indiscernible].

Sure. So here, I want to ground back to my opening comments and then whet your appetite ideally a little bit for -- stay tuned for more at our Investor Day in early March from that standpoint. But as I commented in my opening comments, I talked about delivering differentiated value, partnering and innovating and expanding our strike zone. So within each of our businesses, we look at strike zone expansion. They could be geography. They could be buying group. They could be solution-based. And we'll take the concrete example you have of Medicare Advantage. So within Medicare Advantage, our Medicare Advantage growth strategy, which we are excited by and excited with, and is quite attractive in the 10% to 15% life growth range over the strategic horizon, is based upon growing in market with existing platforms; growing in market with a new platform we introduced in 2020, which is individual PPO. We added to the individual HMO offering. And then opening new markets. So back to net new market adds, adjacent counties, but then net new organic markets. Our opportunity to expand, as we articulated in 2019, is going from slightly less than 20% of the Medicare addressable marketplace to about 50% over a 5-year horizon. So we're actively engaged. And in the first year, we executed where we wanted to be. For 2021, we extend further. We know where we want to extend in 2022. We know where we want to extend in 2023. We're also aided by the fact that we have, broadly speaking, very good relationship with health care professional anchor partner relationships from our commercial relationships, in many cases, that are value-based and want us in market partnering with them on Medicare Advantage. So we see the MA market expansion plan being highly disciplined in front of us. We started 2020, further in '21. And we're on a track to go from 19% or 18% of the addressable market to 50% of the addressable market over that 5-year horizon. That's example 1. Example 2 in the U.S., I think we publicly articulated that we meaningfully expanded our public exchange footprint as we stepped into 2021, another illustration where we look across all of our lines of business: across commercial, Medicare, and then exchange business and identify additional opportunities. We'll profile that more for each of our platforms at our Investor Day as we look at the strike zone expansion part of our growth trajectory.

You've talked historically about not necessarily interest in sort of traditional Medicaid per se, but a lot of interest in value-based arrangements around Medicaid such that they exist. Do you feel like the market is moving in that direction, and there will be more opportunities to engage with state customers in that way?

We view it, as you've said, point 1, historically, we put Medicaid on the traditional side. So on the integrated side of the equation, as a lower growth priority for our franchise versus commercial and Medicare Advantage from that standpoint historically. Point 2, as we brought the companies together with Cigna and Express Scripts within our service chassis, and now, with Evernorth, we see the ability to grow Medicaid through the services we're able to offer. First and foremost, through health plans that have Medicaid blocks of business; and secondly, through state-based activities where states begin to look toward additional service, we use the term carve-outs or specialization of some services, be they pharmacy, be they behavioral or be they care management from that standpoint. So off of our existing chassis, we see that opportunity in front of us today. And we have proof points in the health plan space where we're servicing more health plans today than we were 2 or 3 years ago with our Medicaid chassis and books of business. And then to your -- the last part of your question, we do believe that as we go forward, more states will be looking toward derivatives or subsegments of their Medicaid population and looking for risk-based or performance-based partners to be able to deliver. And that could present an additional opportunity for our book of business beyond the services opportunities we've set.

Can I ask about a couple of regulatory questions? The first is around the Trump administration finalizing the rebate rule in Medicare Part D not to take effect until 2022. So I think an important part of this is gives you time to structure that business, price that business, et cetera. So kind of the 2-part question is, do you have any thought or visibility yet on whether the Biden administration will allow that rule to take effect? Do you feel like as long as you have until 2022, you're able to manage through whatever that changes? And third, should we expect Part D premiums to move up with -- if that rule takes effect?

So in no particular order, we -- it's another example of the intent of the rule, we think, is positive. It's an intent to improve affordability. The pragmatic aspect of how the rule is applied, we don't think is prudent. Moving from the premium side of the equation to the point of service side of the equation doesn't change affordability and actually increase costs. So you're going to have the increase in premium for all seniors, an improvement in cost for some seniors episodically, and an increase in cost for the federal government based upon all the independent scorekeeping that is taking place relative to that. That's point one. Point two is if it stays in effect being prepared to operationalize it for 2022, we could operationalize it for 2022 even though we don't think it is prudent. And point three, which is the first point you made, is we would expect the new administration to we look at a lot of the more recent activities of the prior administration and evaluate whether or not they think it is prudent. This is one that scorekeeps negative from an economic standpoint and from a CBO standpoint. And this administration has already articulated certain priorities of where they want to spend money, and this wasn't one of the top ones. So stay tuned for more.

I have an investor question asking about under the new administration, potential policy, legislative changes, is there anything you would highlight as a particular risk or opportunity?

It's -- I think it's too soon to be declarative relative to that. Obviously, this administration, we know one thing. We know day 1, COVID will occupy a massive amount of this -- the new administration's set of responsibilities and focus. And achieving President-elect's objective of 100 million people in the first 100 days will be quite consuming. The second piece, it tends to be responsive. We know that the President-elect himself has articulated energy toward further strengthening, as he sees, what Obamacare sought to do. So he's been consistent relative to that all the way back to the debates to the present state. So he has some conviction relative to that. That could show up in the form of further strengthening exchange subsidies, exchange eligibility, increasing the ceiling threshold relative to what the subsidies are. It could also take place through more fund stabilization for Medicaid expansion. I think we have to wait and see in terms of where the highest priority items come forth beyond COVID.

Can I ask a question around one place where there is some exposure to the Medicaid market is in the pharmacy services and the PBM segment? And we continue to see a lot of reports from states, from consultants that talk about the contracts they have with PBMs that are structured as spread pricing are far more profitable than contracts they have where there's pass-through pricing. And so basically, what happens is every time there's a rumor that something's going to happen to Medicaid spread pricing in a piece of legislation, and 10 or 15 investors call me, and they want to walk through all the potential implications and how that might impact Cigna. So it seemed to be very topical in the back half of the year. So I thought I'd give you a chance just to address it.

So spread pricing, as we've talked before, is one of many tools that can be used to finance the overall purchase. The commercial marketplace uses it. Some employers do. Some employers don't. Specific to the question on Medicaid, we have a small percentage in aggregate today. Although I referenced before, we see servicing Medicaid more as an opportunity going forward within the services portfolio, both directly through the health plan business we support as well as potentially direct to state obligation from that standpoint. But the headline here, Gary, is it is a small portion of what is in the service portfolio today, Medicaid in aggregate, and then within Medicaid, the subsegment of that, that is spread pricing. So overnight, that went away specifically spread pricing in Medicaid, specific spread pricing, it would be a relatively small ramification for the overall service portfolio we have.

I want to sneak in another investor question. I think I know the answer to this, but I'll let you clarify. The question is basically around what capital deployment assumptions were in that $20 to $21 guidance for 2021. And if you're now going to be paying dividends, does that mean by default, less share repurchase and potential EPS would be lower than whatever the range would have been before? I'm not sure it's -- I'm not sure the question is pointing to say -- whether you -- the dividend doesn't mean you can make the earnings guidance, but just in general, if more is going out for dividend, less for share repurchase, maybe the real question is, does it change that growth algorithm that you laid out for us a few years ago at your last Investor Day?

Yes. So big picture, the way you started with the question, when that target was put forward in 2018, if you go back, we're rather proud of the fact that we've been able to deliver '19, '20 and on track to deliver an attractive '21 against an amazingly disruptive environment. Two, the underpinning of that target was the fundamental growth of the organization, the synergies we expected to capture and the capital deployment modeled out as share repurchase, right? That was a fundamental blocking that the capital that was deployable would be deployed in an accretive way for the benefit of shareholders, and it was traditionally modeled out of share repurchase from that standpoint. And broadly speaking, that is what's transpired in 2019 and 2020. When we go through our year-end results with you in early February, we'll go through a detailed year-end results and we'll lay down the markers relative to the specifics of our 2021, I got to make sure I'm commenting on the right calendar year right now, outlook and expectations, and we'll give you the buildup of what that looks like. We'll take into consideration the fact that we now have a dividend payout that wasn't previously in the equation, and we'll have other puts and takes in there to be able to factor in. All in, we're excited that we're going to have another attractive top line, mid-line, bottom line and cash flow production in 2021.

Can we spend the last couple of minutes talking about Amazon pharmacy? I think some investors sort of struggle to understand. Amazon, in essence, is attempting to enter sort of the mail order pharmacy business, which is an important part of Evernorth and is a profitable business for you. On the other hand, Cigna's going to be providing the back end to Amazon's new discount card program. So I think there's still some confusion on is Amazon a competitor or is Amazon a customer? And I know Amazon is a customer for their own employees for Evernorth. And so how do you summarize what that relationship looks like for both?

So Amazon is a client. That's what we refer to as an employer. Amazon is a partner, and Amazon is a competitor. So let's pause for a moment. And so you step back and say, one of the guiding tenets we have executing our strategy, and it served us well over a long period of time, is we articulated internally that we seek to be the undisputed partner of choice. Seek, aspire, undisputed, differentiated choice to partner because we view that there are significant opportunities to partner with and work with others to create shared value so long that, that shared value is mutually beneficial. And sometimes, they put you in positions to be partnering with folks that traditional filters may say, "Well, you can't partner with that party, Amazon or anybody else because they may be a competitor." But in an environment of continuous change, in an environment of sustained innovation, in an environment of disruption, we think that's actually a healthy part of our DNA and a healthy philosophy. And we're pleased with the fact that Amazon chose us and we chose Amazon to expand some collaboration with. And we'll seek to drive mutual value for their Prime customers through their cash card, leveraging our capabilities. But we'll also recognize that we're going to continue to innovate within our own captive set of capabilities, and they're going to continue to innovate. And this may give rise to further collaborations with them. And philosophically, we're open to that. We think it's a bad philosophy to have in a dynamic market to actually close the door on the potential to collaborate or partner with so many different parties that may exist because they are or may be competitors. We think that's a very narrow way of looking at it. So we enthusiastically engaged and we celebrated this combination. And we'll continue to innovate with them. We'll continue to innovate on our own. And we'll continue to innovate with other partners going forward.

Yes, it seems consistent with your very open-minded approach to the Haven venture when that was announced a couple of years ago. Well, we're out of time. Really want to thank David and Alexis for joining us on the call today. We'll look to see you again in a month or so on earnings, and then in March for the Investor Day. Thank you very much.

Great. Thanks for walking through so much. Have a great day.

Thank you, Gary.