The Cigna Group (CI) Earnings Call Transcript & Summary

Next session and -- for joining us here today. And I'm here with my colleague, Ryan Langston, and we're pleased to have Cigna as our next presentation and to present from the company we have Ann Dennison, Chief Financial Officer; and Adam Kautzner, President of Express Scripts and Evernorth Care Management. So maybe to kick things off, Ann, I think you wanted to have a couple of comments.

Sure. I'll be very brief. I just want to say a few things. So we reported our fourth quarter full year '25 about a month ago. Really pleased with the results that we achieved in 2025. 2025 with expectations that we shared, and we were able to keep those expectations steady and deliver on them in 2025, which I think is a differentiator for now in this space. We're excited about the FTC settlement and what that means. We've been for over a year now, building a new rebate-free model, which Adam is going to talk a bit about. We're excited for that. We're excited for the fact that PBM reform, when you put all these pieces together, we're positioned very well in the context of the way that we're looking forward. We've been very deliberate in how we've shaped our portfolio of businesses. And as we think about the long term, we have confidence in 2 things: one, delivering on at least $30.25 a share in 2026 and then delivering on our 10% to 14% EPS long-term growth algorithm over the long term.

Great. so I think maybe we're going to switch over a little bit and maybe let Ryan kind of start talk a little bit about Cigna Healthcare and then we'll move to...

Okay.

Sure. Stop loss, obviously, a huge topic in 2025. I think fourth quarter came in just a little bit above maybe where we thought, but still overall, it seems like the repricing on that product has been successful. It sounds like it'd be a little bit more successful going into '26. So maybe in terms of recapturing margin and getting that business back where you want it, maybe in '26, even into '27. Maybe talk about the steps you've taken and maybe further steps you could take as we move into next year?

Sure. So just as a reminder, at the end of 2024, we had some unforeseen trend in the quarter that we weren't able to price for in the 2025 cycle. And so our commitment was about 1% margin recapture over a 2-year period, most of which will happen in '26 and in '27. And it's all about for us striking the right balance between pricing and persistency and recapturing that margin over time. And so we were successful in the 2026 cycle. We've got some more to do in 2027, but we're on track to achieve our goals of recapturing that margin over the 2-year period.

Great. And then just from the fully insured standpoint, that part of the book performed decent pretty well in 2025. I guess maybe what are trends that you're assuming for the guidance in that range for that book? And maybe just any particular pockets of utilization we should be worried about, plus or minus?

Yes. I mean -- so we've talked about this a bit when you look at sort of trend in that book and more broadly, I'd point to the 3 largest contributors to trend that have held true for at least the last couple of years. One is behavioral health. Two is our specialty injectables, so specialty medicine. And then the third is inpatient surgeries. And that has held true. We plan for that. We continue to see those as the biggest growth in cost -- in both unit cost and in utilization across the book. And so we planned and price for that going into this year. And we're working -- so our consumer, the patient is at the center of everything we do. So we are very focused on how do we bend that curve? What can we do in order to make those prices -- I mean part of it is a rebate-free model, but we're doing things on the -- across the ecosystem in order to try to bend that cost curve.

Got it. Charles?

Okay. Obviously, rebate-free model you mentioned earlier, obviously, been a big topic here. I guess the first question, since the introduction of that at the third quarter, maybe talk a little bit sort of the reception from plan sponsors in regards to that?

Sure, Charles. Happy to do that. We're thrilled with the introduction of our new rebate-free model that we launched back in October. Receptivity so far has been very strong from a client perspective. They're certainly interested to learn more as our benefit consultants. It's unlike anything else that has ever been entered into in the market in decades. So it is new, it's fresh, it's different. And yes, we did start with the consumer and addressing the challenges that a consumer has today around access, affordability and ultimately improving overall patient outcomes. We've also been responsive to many of the components that you'll see within PBM reform. So we're delinking our fees. So it's going to be a simple administrative fee that will be charged for our services. We are addressing the unpredictability of rebates today. So if you look at Inflation Reduction Act, if you look at what's happening with most favored nation biosimilars, rebates themselves have become a bit unpredictable in the market. We've had to adjust rebate guarantees because of it. So from a client perspective, that's resonating. It also addresses with this new model, the fiduciary component. And so there have certainly been concerns around fiduciary from an employer perspective. It addresses those types of challenges. But regardless of the positive feedback so far, we are still going to continue to offer a rebate model, too, because we want to make sure we're responsive to the market. We meet our clients where they are, and many of them might be on a different change curve than others. When you factor in PBM reform, though, we've been one step ahead of the market. We expect that most of the market will have to move in this type of direction to a flat fee administrative type of market for the long term.

And maybe just to help the audience, in a rebate-free model, right, the understand the way I understand it is that you are capturing sort of the discounts at the point of basically purchase between the pharmacy and the manufacturer, right? And so that when they are then billing to Cigna, then that's sort of what they're billing, right, their invoice cost. So you've negotiated that discount for your book of business with manufacturers. Can you talk about how then the formulary still works within this kind of structure?

Sure. Yes, happy to do that. So the new rebate-free model is, you could call it a supplemental discount. So we're going to negotiate that directly with drug manufacturers, no differently than we negotiate other discounts with them today. But this discount isn't going to be retrospective. It's not going to be based off a reconciliation or be opaque. It's going to be cleaned. It's going to be upfront. Members will be able to see it on the app when they go in to price those products and be able to then get that lowest net cost. So that component of it is really exciting as we look forward to the future and the overall member access and member affordability, and it's responsive from a legislative perspective. From a formulary perspective, it essentially will function the same way as it does today. So we will still be focused on lowest net cost. This new model is going to still have a function for lowest net cost. So I would -- we expect formularies decision-making to be to function in a very similar way as how they function today. We'll still be leveraging competitive classes and the competition in those classes and aggressively negotiating for those discounts. They just manifest as an upfront discount that's going to be benefited by the consumer today versus a rebate that today may only be enjoyed by the employer.

Can I ask kind of a simple question? I understand like what we're doing here allows the member to benefit from their upfront cost. But isn't that really just a benefit design function? Like there's nothing stopping employers today to change their deductibles or their co-insurance and payments to allow them to effectively capture the same value. Isn't that true?

So employers could certainly adjust their benefits. So if we were in a flat co-pay world and know you paid $25 for every brand, right, this wouldn't be needed. But we all know the proliferation of deductibles, high co-insurances, and that's been the trend in the market. This is responsive to that trend. And by us negotiating these discounts upfront, on average, a drug that has a discount today, it's about 30% off. So these members for the 10% of branded drugs and for those that have discounts within that 10%, it's going to dramatically reduce their cost. And it goes right at most of the cost that's in the system today because although only 10% of prescriptions in America are brand drugs, they account for about 88% of the total cost, which is an astonishing figure.

Yes. I think one big question that we always get a lot is sort of what does the margin profile of the PBM look like into the future, particularly as you implement this new model. And one of the things you mentioned is we are delinking fees from the price of drugs and there's an administrative fee. And I can understand maybe at the start, that means you can kind of reprice -- you set that fee of what you were kind of making beforehand. But when we look at drug price inflation versus, let's say, CPI, obviously, that's probably going to be a difference. How do you preserve sort of the economics as we go forward would you say?

So first off, I would say with the Inflation Reduction Act and other changes that are happening in the market, drug price inflation, especially in competitive classes, you're going to continue to see likely higher prices when they come out, but less inflation going forward than what we've seen historically. Noncompetitive classes where effectively a drug has a monopoly, you may start -- you may continue to see that type of inflation. In terms of our pricing, yes, we are delinking our fees. We are going to have simple administrative fees. Those may be per member per month or they may be a per prescription. So whatever a client wants to do, we'll be able to be responsive to those pieces. We will be able to -- since we know our margin profile today and for the different types of business and what does that mean from an administrative fee. And so that will be converted. So we expect that margin profile to be comparable. We do expect that we can continue to realize efficiencies every year like we hold ourselves accountable to be able to do. But there also may be certainly, yes, an increase in those fees going forward year-over-year. On top of that, though, we're continuing to build out additional products and services, especially in our clinical services area where we're taking risk on improving patients' adherence, improving formulary compliance and their overall health. We have today medical data on over 40 million Americans, prescription data on over 100 million Americans. And so leveraging all of that data, we're continuing to create new products and solutions, which create additional upside as we sell in those additional products and services. But that fee, you can think of as being comparable where it is today and where it will be tomorrow within the new model.

Got it. One of the big pieces, right, is the amount of investments that you've kind of called out over the next couple of years. I think you've cited at roughly, call it, $300 million per year in this year and into next year. I guess 2 questions. The first is sort of I think that was kind of an estimate that you gave beforehand, maybe talk about sort of what you're deploying so far in terms of that $300 million target this year? Maybe what are you spending it on in the near term? And then second, should we expect these investments to continue past '27? Or does this actually become more of a tailwind as we think about '28?

Maybe I'll start, Adam, if you can add anything that you'd like to add. So as a reminder, coming out of the third quarter, we started to share this information. We didn't give a point estimate on the investments, but roughly in the range. And what it represents for 2027 -- 2026 and 2027 is basically the investments that we are doing to support the launch of the entire new model, and that's transformational, as you can imagine. So investing in technology, that needs to be retooled in order to handle this new model, investing in the people that need to work on the recontracting. As Adam has talked about, we're recontracting with manufacturers. And so there's a lot that goes into that. So the investment -- and it has already started to some extent. We'll see more of it in the back half of this year than we will in the front part of the year. And again, we'll see roughly an equal amount in '27. And you asked about sort of does it just go away? In 2028, it starts to dissipate, and we would expect it to go away over time, but not all on one shot.

Okay. I want to maybe jump back something that Adam, you kind of mentioned before. If we think about the settlement with the FTC and the requirements there as well as the PBM reform measures passed in the appropriations bill, right? A lot of it is around increasing transparency requirements, more visibility for plan sponsors as well. Maybe talk about sort of what you need to do outside of the rebate-free model to comply with those and sort of -- obviously, the rebate-free model aligns very well with those, but maybe talk about sort of what changes in the traditional model that you need to undertake to be compliant.

Yes. So the -- we're thrilled to have the global settlement with the FTC behind us. We certainly welcome the appropriations bill and PBM reform and what that may mean for patients long term. Both of those pieces, we walk into eyes wide open, yes, with the new model being fully responsive. And you look at the key elements of those pieces, which are the rebate-free, but the additional transparency that we will continue to now be able to offer and expand delinking our fees, the pass-through moving all ERISA plans to pass through once the appropriation bill goes into effect. And so we're already moving in that direction, right? So many of the key elements of the delinking, the full pass-through, those are all components that we are addressing today. Additionally, we are continuing to work to expand and make sure whether it's within the FTC compliance of we're going to be connecting to TrumpRx. We're also going to be connecting to many other direct-to-consumer and cash solutions across the market. We're expanding the functionality of what's called Price Assure. So Price Assure will go out and look for the lowest price, whether it's cash, direct-to-consumer or within the benefit. It's going to pull that lowest price into the benefit. The benefit to the patient is we're going to do the 18,000 safety and quality benefit checks in that prescription. We're going to guarantee them the lowest price that exists out in the market. We're going to apply it to their deductible. So it's a big win from that perspective. We keep the script. The employer is able to keep that script in the ecosystem. And for the patient, they get the lowest price plus all the safety and quality. So those are the types of changes we're making within the traditional benefit today and our ability to ensure that we can continue to offer a sustained benefit that is going to transition to pass-through as well long term post 2028 as regulations are finalized for the appropriations bill. But we welcome those pieces. We're well ahead of the market there. Us having new options and offerings and having spent the last year of thinking about this and putting into action a piece does keep us well ahead of where the market is, and that's resonating with clients and benefit consultants because we're continuing to be innovative and responsive to what needs to get done.

I asked at the beginning sort of the response from plan sponsors, but maybe talk a little about what the response from pharma manufacturers? How has that been?

Yes. So we are actively engaged on a daily basis of talking with drug manufacturers about the new model, the rebate-free component of the model. Again, we're still going to be negotiating rebates. We're still going to have market-leading rebates, and that will be available within the traditional model. We're targeting the largest manufacturers to start with. So we've tiered the manufacturers. We've had very productive conversations. We are going to have to recontract the whole market, same for pharmacies. But conversations are progressing well. They understand the benefit of this because they want what we want, which is lower prices for the consumer. Today, they offset that with their co-pay discount cards and those types of things. There's less of a need for those things if I'm lowering patient out-of-pocket on average by 30% on these branded drugs. That means we can go and extract more of that discount from drug manufacturers what they're paying today, incorporate it into the base supplemental discount that we'll be negotiating for tomorrow. We also will be increasing the level of adherence for patients. There are about 10% of prescriptions that today go unfilled because of cost usually, and they're left at the pharmacy counter. We're going to reduce that number by putting these types of actions in place, which is going to expand affordability, access. Ultimately, that's good for drug manufacturers as well, and it's good for patients. So there's a win all the way around that's resonating really well so far with manufacturers.

You guys put out a target of 50% of your clients by -- for 2028. Does -- if I'm not mistaken, does that include the likes of Prime and Centene, and sort of your big TRICARE? Or is that exclusive of those 3?