The Cigna Group (CI) Earnings Call Transcript & Summary

Hi, everybody. I'm A.J. Rice, the health care services analyst at Credit Suisse. Thank you for joining us at our conference, and we're particularly pleased to have up next Cigna Healthcare. We've got Brian Evanko, Chief Financial Officer; and Alexis Jones, Head of the Investor Relations effort at Cigna. As you've seen, if you've been in other of the presentations, the way that someone can ask a question would be to e-mail me a question. So if you want to do that, I say that upfront because by the time we get to the end of the presentation, it may be tough, but [email protected], so I'll give that now. Thank you, guys, for participating again this year. Brian, I know you guys just reported the third quarter results. I don't know if there was a couple of quick takeaways you wanted to offer, and then we'll jump out into questions.

Thanks, A.J., and good morning, everybody. I appreciate you joining our session here. Just a quick summary of the headlines from our third quarter results, which we reported on Thursday. For one, we exceeded our expectations across the company for earnings in the quarter. So we were certainly very pleased with that, demonstrating continued strength in our Evernorth business, which is the health services platform inclusive of our Express Scripts, PBM, our Accredo specialty pharmacy as well as a variety of other health services capabilities. We exceeded expectations in the U.S. Medical segment as well. We had some nonrecurring benefits in the quarter from net investment income in the U.S. Medical segment, which helped to offset a little bit of pressure that we had in the medical care ratio in the quarter from the individual exchange, special enrollment period lives as well as the impact of the Delta variant on our commercial employer book of business. But overall, the strong performance in the quarter gave us the confidence to increase our full year earnings per share outlook up to at least $20.35, the prior was $20.20, so we had a $0.15 raise on the full year outlook. We also raised our revenue outlook for the full year to at least $172 billion, representing 11% year-on-year growth when you adjust for the divestiture of our Group Disability and Life business in 2020. And then, when you look forward in 2022, we provided an early indication that we're expecting at least 10% earnings per share growth off the all-in elevated performance of $20.35 here in 2021, and we expect that a 10% plus earnings per share growth to be comprised of approximately 5% to 6% of income growth and 4% to 5% of accretive capital deployment. So 10% to 13% earnings per share growth is our long-term growth rate range, and this will be 2 years in a row that we achieved that following the 2021 performance of at least 10% as well. And we're also committed to continuing to pay a meaningful dividend, which is currently yielding close to 2%. So with that, A.J., I won't take any more time here on the intro. You direct the conversation or wherever you might want to go.

Okay. And some of these will be granular and some will be high level. But in the second quarter conference call, the company had identified a COVID headwind of about $2.50 in EPS that Cigna was absorbing this year. Third quarter call, the company said it no longer wanted to break out that net COVID headwind. Why do you -- that was sort of a helpful thing for people to have, but why would you decide to move away from talking about that specifically?

Yes. I realize the specificity there was helpful to some in terms of triangulating our performance. As the pandemic has continued to unfold, and we're about to step into year 3 of the COVID pandemic, we realized that this was not going to be a transitory event in the sense that when -- if you rewind the clock to February 2020, I think many of us hope that it would be a 2020 phenomenon. And then we'd be on with normal life. And it's become clear that that's not the case. And that we will now have to live with COVID for at least a certain period of time going forward. And with respect to overall business, we found that COVID's become increasingly intertwined, with just the way we run the business. And there were more and more situations were trying to ascribe it to COVID versus something else became very difficult. So as an example, I made reference earlier to the special enrollment period, customers that we have in the individual exchange book, they created some pressure in our medical care ratio in the third quarter. But I would -- that's associated with the regulatory change, not necessarily a COVID headwind. And so we were having debates internally as to the score keeping of matters like that. And it became clear that not only was this not how we run our business, but to some degree, we were creating artificial metric. And so we thought it was more instructive moving forward to incorporate it to the way we talk about the business in totality. And so we'll talk about all-in medical costs. We'll talk about the all-in performance of U.S. Medical and the all-in performance of the company. And going forward, we'll not specifically size that. But importantly, we'll talk about our margin profile. So we expect in 2022 to expand our profit margins in U.S. Medical off where we were in 2021. So you can think of that as a recovery of what we would have talked about before, but a portion of that COVID headwind. But that comes through the form of pricing actions, affordability actions and, to some degree, a reversal of some of the pressures that we experienced in 2021. So that's a little bit more of the rationale for why we moved away from that. But again, going forward, we like the income growth opportunity and the margin expansion opportunities that are in front of us for U.S. Medical.

Okay. No, that's helpful. When you think about -- you mentioned 2 things that were responsible for the medical loss range and medical care ratio being where it was at the extended SEP, which seems like for everybody sort of calling that out, that has any meaningful exposure to the exchanges. And then you also had the increased COVID costs associated with the surge. I guess coming out of the second quarter, you were starting to see the beginning maybe when you reported, at least of the surge was most -- to the extent there was variance, was it mostly around that individual exchange? Or was there the COVID surge ended up being significantly higher than you thought it would be as well?

Yes, you're right about the 2 sources of pressure in the quarter for us, the individual special enrollment period lives which built up over the course of 2021 showed a significantly elevated MCR in the third quarter. Separate and distinct from that, though, is the pressure we saw from the Delta variant, which was more pronounced in our commercial employer book of business and more pronounced in the months of August and September. So July was a little bit of a later month. August and September were a little bit heavier month, and that created a bit of the uptrend in the MCR in the quarter. But we're also really pleased with the ability through the diversification of the overall franchise to be able to beat our overall earnings expectations and raised the full year outlook despite some of those pressures in the MCR in the third quarter.

And Cigna doesn't have a lot of exposure, well, it doesn't really have any with the divestiture in Texas to Medicaid, but in Medicare and then the different books that you're involved in, in commercial. Is just predicting the fallout of the COVID surge a little tougher in commercial because you got a lower vaccination rate, but you still have people that probably are less likely to defer than maybe you see in the M&A? Is that -- as you see these surges play out, is that 1 way to think about commercial versus, say, Medicare Advantage or even Medicaid, if you had any view on that?

Yes. You're right about our limited presence in Medicaid and the health plan space. Given our pending divestiture of Texas, we won't really have any presence in the health plan space post that. But we do have a sizable amount of service-based business through Evernorth, where we serve Medicaid lives through our Express Scripts PBM through the Evernorth medical benefit management chassis and other parts of evermore. So we do have some insight as to what the overall industry is seeing from a Medicaid standpoint as well as the Medicare and commercial standpoint. Overall, as you compare those different books of business, our commercial employer book has shown the least amount of care deferral throughout the pandemic. So even when there have been waves of COVID intensity, the amount of care deferral has been lesser on the commercial employer book than it has been on the Medicare book. It's been heavier on Medicare for sure. And this most recent wave of COVID, the Delta variant, did hit the commercial employer book a little bit harder because it tended to get to younger ages and more so than the earlier waves, which were more pronounced than the older ages. And so we had a little bit of a double whammy in the third quarter with the delta variant hitting our commercial book and not having as much of an offset from carrier deferrals. So I think directionally, I agree with your comments, where the care deferral and the smallest in commercial greater in Medicare and the data we do have would suggest there's been a meaningful amount of care deferral in Medicaid, again, through our service chassis looking at the industry.

Okay. As you think about '22, as you said, you stated you can grow 10% off the base. I think when you were talking last quarter about this $250 million, it seemed like you were not -- I mean you were assuming that the risk coding headwind pretty much reversed next year, and you pick that up in the MA book, Medicare Advantage book. But it seemed like you were at least implicitly assuming there was a fair amount of net COVID direct and indirect costs that you were carrying, what -- how would you describe that as you're now thinking about it coming out of the third quarter, looking at next year? Do you have an assumption of a fair amount of embedded COVID cost next year in that guidance toward the 10% you think?

Yes. So let me try to unpack it a little bit because I realize this is a reconciliation challenge for maybe what we said last quarter overall. But as you think about our 2021 results in totality, think of there being 4 discrete pieces that offset 1 another. 2 of them were favorable in 2021 and 2 that were unfavorable. So the favorable items that benefited us that are nonrecurring in nature are the nonrecurring investment income as well as the expense oriented or SG&A benefits that we had in 2021. So those 2 things were favorable contributions to our all-in '21 performance. We view there being 2 nonrecurring unfavorable items in there as well. One being the Medicare Advantage risk adjusted headwind that you made reference to. And secondarily, an element of the overall COVID pressure, which we expect to unwind in 2022. So those 4 pieces, you can think of as largely offsetting. So therefore, for 2021, we're getting back to our base of $20.35 through those 4 things offsetting. Then as we step into '22, we're expecting income growth of 5% to 6% all-in for the franchise. That will be comprised of income growth from Evernorth as well as income growth from U.S. Medical. So a portion of that income growth from U.S. Medical will be margin expansion that we expect to come through the form of an improved MCR as we both price business for where we think it needs to be across commercial, MA, the individual exchanges as well as continue to invest in affordability initiatives. So that's how it incurs you to think about the '22 outlook relative to '21. But we do expect there will continue to be COVID costs in '22. So all in, we expect there to be testing and treatment costs associated with COVID in '22, and we expect non-COVID utilization to be near the baseline, if you will, of what we talked about historically. So all in, we would expect the total cost picture to be slightly above the baseline in '22. That's embedded in our outlook in the 5% to 6% income growth and the 10% plus EPS growth that I made reference to.

Okay. There's a couple of things in that I'd like to follow up on. One is, I mean, we're just trying always to say, okay, this is where they were a quarter or 2 ago, and this is where they are today. So I understand the framing of these 2 factors are the headwinds, these are the tailwinds and they largely offset each other. Would you have said that a quarter ago as well? Or has there been an evolution in the last 3 months as you sort of seen everything play out the way it is? Or is that pretty consistent with the way you would have described it if you were using that framework last quarter?

I think 3 months of the lapse, we have more visibility into the 2022 operating environment as well as we now have a greater proportion of our business, essentially lockdown from a revenue standpoint. So for those reasons we have more visibility into the income outlook and the growth outlook today than we did 3 months ago. So I think that's an important point of departure. I talked about, I believe, on the second quarter call, at that point, we still had close to 2/3 of our commercial book to be priced in '22. Right now, we only have about 1/4 of the commercial book still open as it relates to the 2022 picture. So we've got a much clearer picture as to the revenue implication of that book of business, not to mention the MA and the individual book, of course, get priced over the summer through the bid process. So I would characterize it as greater visibility and across not only U.S. Medical but also high confidence in growing the Evernorth platform from both the top and bottom line standpoint in 2022.

When you talk about the percent coming from the operating side versus the capital deployment side, is there a way to talk about building blocks to get to that 5% to 6% contribution? Is that Evernorth will get us thus far of the different aspects of the medical business thus far? Is there any way to piece that together to get to the building blocks of 5% to 6%?

Well, we're not ready yet to give segment level guidance. That was a good way to poke at it. So I appreciate that. I think -- in the fourth quarter, we'll certainly do that and outline all the different pieces. But as I was saying early, we do expect income growth in both Evernorth and U.S. Medical, and we expect margin expansion in U.S. Medical given we view 2021 as being a depressed year relative to our long-term targets. So that's as specific as we'll be at this juncture.

Let me try 1 other thing. And if it's premature, that's fine. But we talk a lot about the headwinds and tailwinds, and you've given these inputs broadly in the business. The Evernorth business itself, I mean a lot of us talk about headwinds and tailwinds related to medical is more so than Evernorth. What would the headwinds and tailwinds for Evernorth or the PBM specifically, since that's a big part of it; B, as you think about '22? Are there things that happened this year that won't happen next year that we should remember? Are there new opportunities next year that may help the trajectory in some way or another?

Yes, the Evernorth business in totality is performing really well. So we're extremely pleased with the performance here at 2021. Our income guide is for at least 8% growth off of 2020, and the top line will also grow at a very high rate relative to our longer-term expectation. As we talked about in our Investor Day earlier this year, we expect 4% to 6% growth in both the revenue and the income line for Evernorth. So 2021 was a year that will surpass that target for both the top and the bottom line. So we're really pleased with the momentum we have stepping into '22. I'm sure you're familiar with our Prime Therapeutics partnership that launched in 2020. We have 1 final wave of implementations that will hit for 1/1/22. So that gives us another push from the standpoint of tailwinds. Two, we've got some new client wins, some in the health plan space, some of the employer space relative to our PBM, which we're happy about. We've talked about in the past now for several months, we have 2 known health plan losses, which push a bit in the other direction. That's more of a revenue headwind than an income headwind as you think about '22. And then on top of those things, we will continue to invest in the business strategically as we continue to diversify Evernorth over time. So while today, the scaled assets are the PBM, the specialty pharmacy and the mail order capability, over time, you will see more scaled businesses along the line of care solutions as we think about virtual care, home care, behavioral health, you'll see more scaled assets in the intelligence vertical, as we think about data and analytics, both as a service externally and for internal consumption and more in the way of benefits management services, if you think about Evernorth chassis. So we're making strategic investments to continue to diversify and generate additional opportunities for both external and internal consumption as well, which will place a little bit of a headwind into the income picture. But overall, all in, we'll grow both the revenue and the income for Evernorth in 2022.

Okay. I'd like to come back to Evernorth in a minute. But one of the things late last week, we had this Pfizer announcement advanced and positive data on a potential treatment for COVID. Stocks were moving in our space all over the place on that potential news. It sort of begs the question, if -- whether that drug or another drug were going to come along and just wipe out COVID on January 1 of next year. So it was no longer in the picture. There are some aspects of COVID that have been problematic for you. It's created some other opportunities. Would that make you more optimistic about your '22 outlook? Or would that make you less optimistic or about the same if it were just to go away on January 1 of '22?

Well, I think that's a scenario we all hope for, for sure. So whether it's the antivirals or even some of the more recent news about Regeneron's cocktail potentially working out there. So I think those are items that could help from the standpoint of our health plan business, given that the average cost of hospitalization continues to be call it, $20,000 for a Medicare beneficiary, $40,000 for a commercial beneficiary who's hospitalized with COVID. So if we're able to pay for an antiviral that's hundreds of dollars to defray something that's tens of thousands of dollars. That should be very helpful from the standpoint of our health plan performance. And as we talked about earlier, we expect in 2022 that all-in costs will run above where our typical baseline would have been. So in the absence of COVID, our pricing should be a little bit too high, if that were the case. So you should see a little bit of a tailwind if that scenario unfolded, A.J., but we're not banking on that by anywhere. But clearly, there's some optimism to be had there. And then through the Evernorth chassis, obviously, where we do quite a bit of drug procurement. It opens up some doors for us there as well to serve our health plan and employer and government clients in a different way through finding ways to prefer different drugs and drive competition. So there's certainly some exciting things there to unpack, but I think more dust needs to settle in terms of the viability of that hitting the market.

Yes. No, I think it's just -- it sometimes seems like there's a little bit of uncertainty, whether it's a net positive, net negative to take this out for different subsectors. And I think it's just interesting to say, what if it did happen that it was gone, what would it be? So we talked about the operating side of the 10% growth. There's the capital deployment side of 4% to 5%. You guys that you expect to help you next year you're buying -- you're on track to buy about $7 billion of stock this year. What is the embedded assumption roughly behind that 4% to 5%? I'm sure you get the full year benefit of all the buyout activity you've done this year; you have an asset sale that you said you'll use a bunch of that proceeds to buy back additional stock and then you have your ongoing buyback program. Can you give us a flavor for how much of any of that is driving the 4% to 5% and how much incremental upside there might be from some of those other things or how much they're not reflected in this at least?

Sure. So let me unpack the picture a little further on this one. And just to be clear, what we've talked about relative to 2022 is the company as it exists today prior to divestitures. So I think that will be part 2 of this part of the conversation as we unpack the impact of the pending international divestitures on capital deployment. So in 2021, when you include the accelerated stock repurchase program that we put in place in August, we'll have repurchased about $6.3 billion of shares this year. So that number, in addition to the dividends that we'll pay. So we have a quarterly dividend now of $1 per share will yield. In total, the total picture there will get you to about $7.6 billion of deployment between repurchase and share dividends this year, right? And so that's -- to date, that there could be more repurchase late in the year, but we haven't yet factored all that in. As it relates to 2022, the 4% to 5% of capital deployment, that is reflective of a combination of expected repurchase and also strategic M&A. So over time, we would expect there to be about a 50-50 split between repurchase and M&A in a given year that will flex this year in '21, we've clearly done a lot more repurchase and MDLIVE has really been the only substantive acquisition we've done in 2021 and any other year could flex depending on the specific circumstances. But the 4% to 5% of accretive capital deployment is reflective of either repurchase or strategic M&A that we expect to do in 2022 off the free cash flow that we'll generate in the year. Then on top of that, if you step back and contemplate the international divestitures, as we said in the press release when we announced them back in October, we're expecting the majority of those proceeds to be used for share repurchase, and that is what's driving the expectation of it being neutral to slightly dilutive to our '22 outlook. So we'll have a moment in '22, we cut over guide on the new basis. And as a result of that, you should expect a greater contribution from capital deployment in '22, assuming that the transaction closes at some point during the year because those proceeds will be used for likely for repurchase in the '22 calendar year. So hopefully, that helps to bifurcate the -- before the divestitures and the -- following the divestitures impact.

Is there an assumption that the buyback activity apart from the divestitures is similar next year to what we've seen this year?

Well, I mean, the 4% to 5% of accretive capital deployment, again, we have an assumption of what the repurchase economics look like. And then there's also the equivalent on the M&A side where we'd say we would expect it not to be worse, making a move on the M&A side versus repurchase. So that's sort of the frame of reference. This year, I think if you do the math on the $6.3 billion, it would be greater than 4% to 5% kind of think of it in that context. It's a smaller assumption, but when you include the impact of the divestitures, it starts to become a greater contribution again in '22.

And you've laid out, I think, in the second quarter call, you guys reiterated what your priorities for how M&A are maybe just worth reiterating those as you wind through the pandemic, are you more optimistic that you'll see something out there? Are there more discussions going on behind the scenes? Or is it about the same? How would you describe it?

Well, we continue to be active looking for opportunities to advance our strategy. As always, we view M&A as an accelerant of our path forward and an important lever to pull. And the 4 areas we talked about earlier in the year continue to be the same for that guide our actions today. And these can broadly be teed up as expansion of Evernorth services presence in the U.S. government space and international health care. You can broadly think of it in those 3 categories. The 4 specific areas that we look at are for 1 care coordination and alternate site of care capabilities. So again, you can think of this as Evernorth services broadly speaking. But MDLIVE is a good example of this. One of the mega trends we expect to continue for the next decade plus is more and more care moving to optimal sites, so virtual care, home-based care and helping individuals get to the right site of care from a cost and quality standpoint. So alternative sites of care coordination be 1 area. The second 1 being U.S. government programs and services. So you can think of this both through the Evernorth chassis, but also through the health plan chassis of U.S. Medical. And when we say government, we're talking Medicare Advantage individual exchange and also Medicaid if the circumstances were right. The third area is intelligence and technology capabilities. So again, thinking about the Evernorth health services chassis, the importance of interoperability between providers, payers, customers and the technology that underlies that as well as customer-facing and provider-facing technological solutions, again, in the health services domain beyond pharmacy. And then finally, international health care capabilities. So while we divested a portion of our international markets operations, those operations were supplemental oriented products are more -- had more of a life insurance field to them. International health care continues to be an area of great interest for us to continue to grow in the future. So those are the 4 specific priority areas for our M&A efforts.

You mentioned Medicaid and you've obviously -- you're divesting the Texas asset, which doesn't leave you with anything at this point. I mean, can we assume that moving forward, if you were to move forward in Medicaid, it would probably be an inorganic situation as opposed to you trying to pursue RFPs individually from here? Or what is the company's current thinking on Medicaid?

Yes. So as I made reference to earlier, within Evernorth, we serve millions of Medicaid lives today through the services chassis with PBM relationships as well as [ Evercore UM ] and PA services that we provide there. Health plan side, you're right. After the Texas divestiture will have basically no presence. We view that as an if not a win. So we don't feel the need to be in the Medicaid health plan space to accomplish our long-term objectives of 6% to 8% revenue and earnings growth on average per year and the 10% to 13% EPS commitment that we've discussed many times. So we don't feel the need to be there. But if we do, then we concur with your comments in terms of we would likely make an inorganic move if we were to step into the Medicaid health plan space. We don't believe that we have a right to win on an organic basis, going out, bidding 1 state at a time on Medicaid contracts. So if we were to step into that space, it likely would be inorganic.

Right. When you think about the -- your comments about the individual exchanges, the marketplace and so forth. As I said earlier, it's been a tough year for a lot of people because of the extended SEP and the way that's played out with some potential adverse selection. You said you priced for margin, and therefore, you're expecting potentially some attrition in the enrollment there next year. I know you've stated before a target margin sort of in the mid-single digits, I think, 4% to 6%. Do you think you could skip back to that next year? And your comments about enrollment, do you have a view on the entire market? Do you think -- I think we picked up about 2 million people in the special enrollment. Do you believe a lot of those people won't sign up for a traditional plan during the regular open enrollment this year? Do you think we'll see some attrition in the aggregate size of the market?

On the individual exchange market overall, we start by seeing a societal need for that market to be successful. And that's one of the reasons we've been participating even from the very beginning of the exchanges back in 2014, and we've gotten a lot of learnings over the 7-plus years that we've been in this space. But for individuals who don't have access to an employer sponsor plan or a government plan through Medicare and Medicaid, we think the individual market being healthy and sustainable is extremely important. And after the early years of the exchanges, the market stabilized, the margins were there. We're getting into a bit of a different cycle right now, the special enrollment period lives contributed to that. We're also seeing some pricing that we think is a bit aggressive in certain geographies from some competitors in '22. So we think we're likely in a different cycle right now as it relates to the individual exchange business. However, our expectation is we will be able to achieve 4% to 6% margins over the longer term in this business. And in '21, I think I mentioned in our release last week or on our call, our open enrollment business is performing well on the individual exchanges, the special enrollment period business due to the extended window is where we've seen the poor performance. So to your question on how we think about '22 for Cigna, as we look at how our offerings stack up from a price standpoint, geography to geography, we think we're likely to have some pressure on our enrollment compared to where we're likely to end '21. And to your question on the industry, our expectation would be flat to maybe a little bit of pressure in '22, given the attrition dynamics that we would anticipate. Many of the individuals that enrolled this year were previously on the chart. Even though they were eligible for tax credits, there was an awareness issue. And even inertia could potentially drive some folks out when they realize what their premiums could do in the absence of a change. So we think there could be some level of pressure on enrollment in aggregate in '22 for the industry. And for us specifically, we think there's likely to be a year of flat to decline in enrollment.

Okay. And I'm jumping around a little bit here. But with the MA enrollment, you're up year-to-date, I think, 8.4% -- you did expand geographies and product offerings this year. Do you think there -- it takes a couple of years of that before you see the benefit? So does that bode well for enrollment growth next year and MA? Or how would you describe what kind of trajectory you're on, you think, in the MA enrollment side?

Yes. For Medicare Advantage, we continue to be really bullish not only on the industry growth, but also on Cigna's role there, and we continue to believe that we not only have a right to win with our existing commercial employer and individual exchange customers as they age in. But in the general market as seniors move more and more to a Medicare Advantage from a traditional Medicare offering. So for all those reasons, we're very excited about this market. We've committed to a long-term growth of 10% to 15% per year on average. 2020 was the first year of that journey. We grew 18% to 19% last year. This year, we're obviously going to be a little bit lower than that, given the stat you quoted year-to-date in terms of enrollment. But on balance, we would expect to be 10% to 15% per year in terms of our growth. Next year, we'll step into 108 new counties. We'll also introduce individual PPOs in about 150 counties that we already have a presence in. So we're expanding both the geographic footprint and the product footprint. There's not necessarily a rule of thumb in terms of how many years it takes before we get to a mature point in a new geography, A.J. We do have some examples of it taking 2 or 3 years before we get to our kind of final destination market share, but it's tough to generalize that. We've had other geographies where we expect in year 1 and had good success. So I wouldn't necessarily generalize that. And as we look at the '22 competitive landscape, overall, the pricing, the benefits look reasonably rational across the geographic footprint that we participate in. There are pockets of greater intensity, but I'd say reasonably rational overall. So we continue to really like the space and are optimistic about the future for MA.

Okay. I did have an e-mail question come in here, I guess, it relates to all the discussion about changes in maybe Part D and even the commercial market and the PBM world. It says, could the company remind us how much in rebates are retained by Express Scripts/Evernorth now. I believe the prior disclosure, this was a while back, I think, was about 5% of rebates were retained. Any update comment on that?

Yes, I think there's a few different ways to measure the performance of rebates and the different mechanisms we have. And importantly, I just would remind everybody that our Evernorth business is built to have a lot of different value creation levers and a lot of different value capture levers. So we're not single-threaded on rebates. We're not single-threaded on spread pricing. We're not single-threaded on fee-based relationships. We have a variety of different mechanisms to create value for clients and customers. And -- but then essentially guide the relationship they want to have with us and with Evernorth. And so the statistic, I think, that's made reference to you there was specifically what percentage, if you look at the total dollars rebates, how many are retained by the company versus not. We haven't disclosed that since the time that we initially provided that estimate, which was a few years ago now. But the overall composition hasn't changed materially if you look at the business today compared to then. I would note, though, we have a much higher percentage of our client relationships that are in full pass-through rebate situations today than we did 3 to 4 years ago. So the proportion now is well in excess of 75% of our clients who are in full pass-through rebate situations. But importantly, the economics of that part of the company are not single threaded to rebates by any means. And we're well prepared to adjust the economic model as needed if regulations change or client preference has changed.

Okay. And maybe just to stick on that. I had the question. I think you guys have described for '22, about a mid-90% retention rate. That sounds pretty consistent with what you would have said in the last few years. When you think about things like drug spend under management, covered lives, et cetera. Do you think it will be up next year, sort of consistent next year? Or how would you describe it versus with that mid-single-digit -- I mean mid-90s retention rate?

Yes, a few thoughts here. So the mid-90s retention rates specifically on scripts. And it's a measure of the '21 book versus the retained scripts for '22. So it does not include new business that I made reference to earlier, we have new client wins as well. And also, importantly, the script count is a very specific measure of the PBM. It does not necessarily give you a picture of what's happening in the specialty pharmacy given specialty script counts are so low nor does it give you a picture of what's happening in the other parts of Evernorth in care solutions and intelligence and benefits management. So all in, as I said earlier, we expect to grow revenue and income in Evernorth. We would expect strength in specialty, in particular, as we step into '22. And while that script metric is mid-90s that should not imply to anybody that we're going to have a reduction in the business in aggregate because again, we'll grow the top and the bottom line for Evernorth in 2022.

I don't know whether you guys have disclosed this before, but how big is the specialty business in the context of the whole PBM or Evernorth or whatever. Because obviously, that seems like that's a pretty strong growth driver.

Yes, we have not supplied consistent data on this. But during our Investor Day, we described specialties being about 1/3 of Evernorth's revenue today, and it's been growing at a double-digit clip. And so this is an area -- we've had a top 2 market position for many years and we're also really excited about biosimilars and specialty generics continuing to drive affordability while also giving us the opportunity to create margin. So that's an important part of the company. We'll look for further opportunities to provide additional disclosures in the future on that, but a really strong part of Evernorth that we're excited about continued growth.

And you -- just a final thing to wrap up on you or Tony, on the third quarter call about the virtual first offering. We're hearing more and more about that, maybe I'm assuming that's leveraging off of MDLIVE, an acquisition you made over the last year or so. Can you tell us a little bit about where you're targeting that? What the opportunity is there? And you have a sense of the demographics of the take-up or how fast the take-up might be?

Yes, the virtual-first offering, which we just announced a week or so ago, we're going to start with self-funded clients just given filing requirements that are associated with our fully insured businesses, we -- it's a little bit easier for us to get out into the market quickly with our self-funded clients. So that will be available 1/1/22 for our larger self-funded clients who are interested in such an offering. Again, this is not meant to be exclusionary either. So while it's a virtual-first offering, traditional supply from the standpoint of bricks-and-mortar physicians, of course, will be in our network as well. But it's a $0 co-pay plan for individuals who leverage an MDLIVE primary care physician. And we believe this is just an example of where the market is heading over time coming back to the notion of site-of-care optimization. There are still too many procedures that are occurring in higher cost settings than they need to be. And so there are a number of consults that we believe can be virtualized with the same exact clinical quality at a lower cost. We're starting with primary care over time. We think that will move into more complex care, which was the rationale for the MDLIVE acquisition. The rationale for the MDLIVE acquisition was not urgent care or transactional care was to build for more complex care being virtualized in the future. And so again, this is a step 1 toward where we see the market going. Early interest has been strong with the few employer clients who have engaged with us on this, and we expect there to be continued momentum as we step into '22.

Interesting. Okay. Great. Well, Brian and Alexis, thanks so much, and thanks to Cigna for participating once again in our conference. And hopefully, next year, we'll be doing this live. So take care, and thanks again.

Thank you, A.J.

Thank you.