Cigna reports strong fourth quarter, shrugs off potential impact of drug rebate rule proposal

Insurance giant Cigna posted strong year-end results following its merger with Express Scripts.

Cigna pulled in $49 billion in revenue for the year, a 15% increase over 2017. Its income from operations was $3.6 billion or $14.22 a share, up more than 30% over $2.7 billion, or $8.77 a share, in 2017.

While the year-end results did not meet analysts expectations, Cigna reported a strong fourth quarter with $14.3 billion in revenue for the quarter ending Dec. 31, up more than 35% compared to revenue of $10.6 billion in the same quarter of 2017.

The insurer reported earnings of $647 million, or $2.46 a share in the fourth quarter, up 33% from $483 million, or $1.83 a share in the fourth quarter of 2017. Revenue, customer, and earnings growth were driven by continued innovation across the business, said David Cordani, president and chief executive officer, in a statement: “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.”

RELATED: Cigna closes $67B Express Scripts acquisition, promising affordability and choice

In December, Cigna officially absorbed one of the largest pharmacy benefit managers in the country with its $67 billion purchase of Express Scripts. However, these fourth-quarter earnings come just a day after HHS announced a plan to eliminate drug rebates to pharmacy benefit managers to instead require them to be passed on to consumers, in what's expected to be a hit to the industry.

The Trump administration said it plans to eliminate safe harbor protections for drug rebates negotiated by pharmacy benefit managers. Department of Health and Human Services Secretary Alex Azar said in a statement that eliminating the safe harbors would increase transparency in the black box of the pharmacy supply chain. 

When asked about the proposed rebate rule, Cordani shrugged it off, saying it would "not have a meaningful impact on our growth or earnings trajectory" and said they are not considering it a "headwind" in 2019.

"The proposed rule, as it will be evaluated over the next 60 days, applies to Medicare Advantage and PDP. The mechanisms that exist in terms of the way rates are built up for Medicare Advantage, PDP, largely by design, flow and respect the rebates and pass-through the way the rates are built so we don't see a major implication to that business portfolio," Cordani said.

It does not apply to the commercial marketplace, Cordani said in regards to a question about whether the rule was expected to have a broader impact or potentially create a two-tiered system. 

RELATED: Trump administration to eliminate safe harbors for drug rebates to PBMs

He did say Cigna sees some opportunities in the proposed rule.

"For example, it provides a mechanism to even further accelerate value-based care programs with the pharmaceutical manufacturers," Cordani said. "You recall from the day we announced our proposed combination on March 8, we talked about how that is an important initiative that we passionately believe in. This will provide some accelerant to that. … But big picture, we do not see it having a material effect on the business portfolios as configured and are on track to deliver the 17% to 20% EPS growth in 2019."

However, being the first insurer-PBM to hold an earnings call since HHS announced the proposed rule, Cigna faced several additional questions about its potential impact. 

About 95% of all discounts and rebates within Express Scripts portfolio pass through and are shared and about half of all clients opt for full pass-through rebate relationships, Cordani said. That equates to about two-thirds the volumes and Express Scripts retains about $400 million before taxes.

"Those tools and levers continue to evolve, and you'll see us continue to move away from trying to maximize a single lever as opposed to maximizing the overall value which is total cost and total quality as we go forward," Cordani said.