Cigna reported higher revenue and lower profit in the fourth quarter of 2018—the first quarter where the health insurer's financial results reflect some contribution from its newly acquired pharmacy benefit manager Express Scripts.
Cigna CEO David Cordani also batted away concerns that HHS' proposal to eliminate drug rebates that PBMs negotiate from pharmaceutical companies for Medicare Part D and managed Medicaid customers could disrupt its bottom line.
While that proposal, if finalized, is expected to send shockwaves through the PBM industry, Cigna CEO David Cordani told investment analysts Friday it would "not have a meaningful impact on our growth or earnings trajectory" but does offer opportunity to strike up more value-based care programs with drugmakers.
Express Scripts, Cordani said, already returns to customers about 95% of all rebates negotiated from drugmakers. And about half of Express Scripts' customers today opt for a full pass-through rebate model. The PBM keeps about $400 million in rebates, he said.
Cigna's $67 billion acquisition of Express Scripts, which closed at the tail end of the quarter on Dec. 20, helped boost Cigna's top line thanks to a big increase in its pharmacy-related revenue. But expenses related to closing the deal weighed on Cigna's profit in the three months ended Dec. 31.
Bloomfield, Conn.-based Cigna reported that it spent $669 million in Express Scripts transaction-related costs in 2018, including $402 million in the fourth quarter.
"Cigna completed an exceptionally strong 2018, with revenue, customer and earnings growth, driven by continued innovation across the business," Cordani said in the written earnings announcement. "We enter 2019 further strengthened by our combination with Express Scripts and positioned to deliver outstanding growth fueled by accelerated innovation that will improve whole person health and affordability for customers and clients."
Fourth quarter revenue totaled $14.3 billion, an increase of 34.5% over the same period a year ago as Cigna grew the number of commercial and specialty insurance customers it serves and raised premiums to cover higher costs. But the biggest boost in revenue was provided by an increase in pharmacy management revenue, which more than quadrupled over the fourth-quarter 2017 to $3.3 billion from $779 million.
The increase reflected both revenue from Cigna's mail-order pharmacy business and 11 days of contributions from Express Scripts.
Going forward, Cigna will lose revenue to the tune of $459 million as its Anthem and Coventry Health Care customers move to new PBMs. Earlier this week Anthem announced it would terminate its PBM contract with Express Scripts ahead of schedule because of the Cigna acquisition, and would launch its in-house PBM in collaboration with CVS in March.
Cigna added 584,000 customers during the year, bringing its total medical membership to almost 17 million. Cigna picked up members in its commercial, government and international business lines.
Thanks to the Express Scripts deal, the number of Cigna's pharmacy services customers skyrocketed to 73.2 million from just 9 million in 2017.
Meanwhile, net income in the fourth quarter was $147 million, down 44.9% from Cigna's profit in the year-ago period. Aside from the impact of the Express Scripts deal, Cigna's net income in the fourth quarter 2018 did not include the windfall from corporate tax reform that bumped up its profit in the same period a year ago.
Cordani said the company held medical costs to an industry-leading low for the sixth consecutive year. Cigna's medical cost ratio was 78.9% for the year and 80.9% for fourth quarter 2018.
Full year revenue was $48.7 billion, up 16.4% year over year, while net income $2.6 billion in 2018, up 18.5% over 2017.
