CVS Health, Cigna Tout Benefits of PBM-Insurer Integration

by Leslie Small

Cigna Corp. and CVS Health Corp. — organizations that both recently combined a PBM and a health insurance business — are striving to prove to investors that they're seeing valuable benefits from such vertical consolidation.

Executives from CVS, which purchased Aetna Inc. in late 2018, during the company's third-quarter 2019 earnings call said that having such a diversified enterprise is helping it win over PBM clients for its Caremark division.

For the 2020 PBM selling season, "our focus was to go to market with a more integrated medical-pharmacy offering," said Karen Lynch, CVS Health executive vice president and Aetna president, according to a transcript of the call from Thomson Reuters. To that end, she noted that Caremark saw "increased traction in overall pharmacy penetration" for its employer-sponsored business, particularly among Aetna’s existing medical-benefits clients.

While CVS has won $4.9 billion in gross new business during the 2020 PBM selling season, — up from the $3.8 billion that it previously projected — "net new business is projected to be down -$6.4B overall (vs. -$7.4B previously)," due to the loss of Centene Corp.'s business and other non-renewals, Citi Research analyst Ralph Giacobbe wrote in a Nov. 6 note.

Cigna, which purchased Express Scripts Holding Co. in 2018, said a major driver of its better-than-expected quarterly financial results was the performance of its health services segment, which includes its PBM business. That book of business reported pretax operating earnings of $1.4 billion, which beat Wall Street's consensus of $1.36 billion and far surpassed the $67 million it earned in the third quarter of 2018 — before Cigna's purchase of Express Scripts closed.

"We were most encouraged by the PBM earnings step-up, increasing confidence [Cigna] will achieve its 2019 [earnings] target," Jefferies analysts wrote in an Oct. 31 research note. Cigna raised its 2019 earnings per share estimate to a range of $16.80 to $17.00.

From RADAR on Drug Benefits