I'm here with my colleague, Ryan Langston, and we're pleased to have Cigna as our next presentation and to present for the company of Ann Dennison, Chief Financial Officer, and Adam Kousner, President of Express Scripts and Evernorth Care Management. So maybe to kick things off, Ann, I think you wanted to have a couple comments?
ANN DENISON DENISON, Chief Financial Officer, 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. You know, we had 2025 with, you know, expectations that we shared, and we were able to, you know, 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, you know, the FTC settlement and what that means. We've been, you know, for over a year now building a new rebate free model which adam's going to talk a bit about we're excited for that we're excited for the fact that you know pbm reform when you put all these pieces together we're positioned very well in the context of you know 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, you know, confidence in two things. One, delivering on at least $3.25 a share in 2026, and then delivering on our 10% to 14% EPS long-term growth algorithm over the long term.
Great. And so I think maybe we're going to switch it up a little bit and maybe let Ryan kind of start talking a little bit about Cigna Healthcare, and then we'll move to.
So, you know, stop loss, obviously a huge topic in 2025. I think fourth quarter came just a little bit above maybe where we thought, but still, you know, overall, it seems like the repricing on that product has been successful. It sounds like it would be a little bit more successful going into 26. So maybe, you know, 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, you know, into next year.
Sure. So just as a reminder, you know, at the end of 2024, for. We had some, you know, unforeseen trend in the quarter that we weren't able to price for in the 2025 cycle. And so our commitment was about a 1 percent margin recapture over a two-year period, most of which will happen in 26 and in 27. And it's all about, you know, 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 you know we've got some more to do in 2027 but we're on track to you know to achieve our goals of recapturing that margin over the two-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?
Yeah, 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 three 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 is held true we plan we plan for that we continue to see those as the biggest you know growth in cost in both unit cost and in utilization across the book and so we've planned and priced for that going into this year and you know we're working so what our consumer the patient is at the center of everything we do so we are very focused on how do we bend how do we bend that curve what can we do in order to make you know those prices you know part of it's the rebate free model but we're
doing things on me you know 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 end you know 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 are 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, you looked 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. 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 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 when they are then billing to Cigna then you know that that's sort of what they're billing right there their invoice cost so you've negotiated that discount for your book of business with manufacturers can you talk about how then the formula 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 know 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 into 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 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 in a function a very similar way is 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 by the employer.
Can I ask kind of a simple question? I understand like the 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 coinsurance and payments to allow them to effectively capture the same value isn't that so so employers could certainly adjust their benefits so we were in a flat copay world and if you paid $25 for every brand right this wouldn't be needed but 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 up front, on average, a drug that has a discount today, it's about 30 percent off. So these members, for the 10 percent of branded drugs, and for those that have discounts within that 10 percent, it's going to dramatically reduce their costs. 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.
Yeah. 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, you know, one of the things you mentioned is, you know, we are delinking fees from the price of drugs, you know, and there's an administrative fee.
And I can understand maybe at the start that means you can kind of reprice at the 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 non-competitive 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, then what does that mean for 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 in 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 the big pieces right is the amount of investments that you've kind of called out over the next couple years I think you've cited it roughly call it 300 million per year like in this year and into the next year I guess two questions the first is sort of you know I think that was kind of an estimate that 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, and 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 you're roughly in the range. And what it represents for 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 you know the people that need to work on the re-contracting you know um as adam's talked about you know we're re-contracting with manufacturers and so there's a lot that goes into that so the investment is you know and it has already started to some extent um we'll see more of it in the back half of this year than we will in the in the front part of the year um and again we'll see roughly an equal amount in 27 and you asked about sort of does it you know just go away In 2028, it starts to dissipate, and we would expect it to go away over time, but not all in one shot.
I want to maybe jump back to 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 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.
MR. So we're thrilled to have the global settlement, the FTC, behind us. We certainly welcome the appropriations bill, 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 to 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. 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 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 plant sponsors, but maybe talk a little about what response from pharma manufacturers, you know, how's 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 won't be one, which is lower prices for the consumer. Today, they offset that with their copay 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 genuine drug manufacturers what they're paying today Incorporated 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 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 for 2028. Does, if I'm not mistaken, does that include the likes of Prime and Centene and sort of your big, you know, Tricare, or is that exclusive of those three?
So some of those plans are already on, yes, very transparent models. So as part of, we expect that many of those will continue to transition into the transparent models that they're already on today as part of what that base is. but we do expect still for a large percentage of our commercial book of business, core employers and labor unions to also transition to the new model in 2028 and beyond. We do want to continue to be responsive, though, and offer multiple different options to the market. But again, where PBM reform is going and where additional transparency requirements are going, this new model fully aligns with all of those pieces, and when you incorporate in concerns around fiduciary and those types of things and the unpredictability of the current rebate model, we expect that there's going to be a lot of uptake of this new model.
Got it. I want to ask a little bit separate question. Senators Warren and Hawley have reintroduced a bill in this Congress looking to separate not just you guys right but just in general you know managed care from owning PBMs or pharmacies doesn't seem like there's a lot of appetite on Capitol Hill necessarily for this but maybe talk through a little bit about what that means you know how could you respond or how would you think to respond our organization steadfastly continues to stand for ensuring that patients have affordable access to medications in a fully transparent environment.
Unfortunately, what Senators Warren and Hawley are calling for is in complete conflict with It actually reduces a consumer's ability to – for choice. It will increase the cost of medications and ultimately reduce overall transparency and could affect the health of those patients. So unfortunately for us, we aren't in agreement with those things. We actually challenged a similar type of bill that was in the state of Arkansas last year. And we didn't take that lightly, but we did file a lawsuit. The judge did grant us an injunction there. So limiting choice and increasing cost for patients is not something that we are in agreement with. I'm not going to expand any further on that one. That's fair.
Maybe I want to shift gears and talk a little bit more about specialty pharmacy. Obviously, specialty and care services, you're kind of guiding to the higher end of your long-term pre-tax income growth target of 8% to 12% this year. Maybe help us understand sort of what is underpinning sort of your expectations for that to start.
Sure. Sure. So as you said, we're guiding to the top end of the range, and there's two components to that. One is the Shields investment. The other is the core, and I probably should have said those in the opposite way, is the core business and the growth that we're seeing there. And so when you think about the core business and what's driving the growth there, biosimilar adoption has been a tailwind for that part of the business. and we've seen you know and as we look forward to 2030 we've got about a hundred billion dollars of drugs that are expected to go the biosimilar route so we continue to play a leading position in that space the adoption of biosimilars is a net positive to the organization there's a net detriment to PBM there's a positive to the consumer and then there's a positive to the specialty and care business but a net positive to us overall and and when you think about sort
of the bias in our pipeline you know what would you expect you know like what percentage would you expect to go through something like wallet or your own distributing your cure script you know or versus just you know bringing those products to market is it is an expectation that more of it goes through your own channel or you know how do you think about that?
If you look at the performance of the Qualint Humira Biosimilar it's been very very strong I would expect for Stellar you know very strong offerings in that space too.
And any others that are coming in the near term that you think is a good fit for for Qualint?
We're always looking at different opportunities that might fit the bill but the largest ones are certainly ones that we've talked about thus far those are those are the largest in the in flam class which have driven so much of the share so far there's there's less of an opportunity in biosimilar as you look out into 27 okay if you think about our 2026 guide that we've given you may we've got vast majority is already on the biosimilar and Solara is a little less than 50%.
So as we look, you know, for this year, built into our expectations, is growth in both of them with more penetration.
With more penetration, got it. Maybe switch gears a little bit to Shields. You kind of mentioned, and you mentioned a little bit earlier, it's kind of an interesting investment to get into sort of health system space. And I think part of it, it seems like health systems are really actively building out their specialty pharmacies. It's a revenue stream for them. It's a way to keep in touch with patients once they get discharged. Talk about sort of how that fits into your strategy going forward, particularly it would suggest a way to play the channel that's growing outside of what you're traditionally doing in specialty pharmacy, or is there a way to kind of integrate both together?
Yeah, Charles, I mean, you said it exactly right. So you think about the specialty space with over $400 billion of total addressable market, And then if you split that down into the direct-to-patient portion of it, that's 60 percent of it. That's the space that we play in already. The other 40 percent is the provider-to-patient space, which includes where Shields is and where we are not an industry leader in our current model. And so we're really excited about expansion into, you know, further into the other 40% of that addressable market. And we think there's a lot of synergy between what Shields does and where we can play. So if you think about CuraScript and our ability to, you know, distribute for, you know, Shields. And they're serving, you know, over 1,000 hospitals, 80 hospital systems across all 50 states. there's a lot of opportunity there. There are ways for us to help them with inventory management and other things in that same ecosystem, but we think there's a lot of synergies that we'll find working together and expanding our addressable market through the process.
Got it. Maybe in the last couple of minutes, switching gears a little to capital deployment, obviously investments coming related to rebate-free model, you kind of talked about not to expect any kind of significant levels of share repurchase in 26. Maybe just remind us why that's not necessarily possible given sort of what the cash flow profile looks like. And then maybe how would you expect that to pick up in 27 as we move past this first year?
Yeah, there's a couple of things to point out so we are expecting um uh cash flow from operations of you know at least nine billion dollars in this year um why we've sort of given the guide on cherry purchases in the way that we've done it is less about the investments that we're making you know we're always prioritizing and making investments it's more about the timing of our cash flows if you look at last year you'll you'll see our cash flows were back half year weighted and so we expect that again for 20 2026. We also ended 2025 with a 43% debt-to-cap ratio, and we want to get that down closer to 40. And so the combination of the back half weighting plus some debt repayments, you know, pushes our repurchases to the back half, and we get less of a bang for our buck in terms of share count because of the timing of them. For 2027, I think it will, you know, we think repurchases are really attractive. We want to do that as much as possible, especially at the price that we're at right now. And so obviously, we'll be focused on them for 27. It'll be about the timing of the cash flows, and we'd expect it to get back to more normal, given where we expect to be on our debt journey.
I see. So the timing of when you expect the cash flows is really more about debt pay down.
It's more about when the net cash flows are coming into the organization, but in addition to that, we've got debt pay down.
Is there anything in 27 that makes it kind of change again, or is it sort of more of an annual thing now that more of your cash flow comes in the back half?
I think we'll see a more back half weight, but we won't have the debt repayments in 2027. We're scheduled to get down to around 40 this year, and so we'll be able to put that capital to work a little earlier.
That makes more sense. Maybe last question here on the guide, just kind of coming back to that. Obviously, you've kind of got to at least $30.25.
Maybe help us understand what areas in your business you think potentially presents opportunities for for upside as we think through the segments yeah maybe I'd point to just a couple of things obviously our guide is our best view as we sit here today on the Cigna health care side you know a big component of the picture is the medical cost trend and has been elevated for multiple years now and so if there's you know if there's um you know some I don't know if the right term is relief but if it you know if it comes in better than we expected then there's potential upside i'd say you know within the ever north space both on the pbs side and the specialty side um it could be you know a story of volumes um we've got expectations we think our data and the way we're you know the way that we're um forecasting is pretty solid um but there's always a chance that um you know there's some outperformance in volumes there and you know biosimilar penetration is kind of the same um along the same range we've got an estimate but there could be it could go a little faster than we think okay great well I think we're pretty much right on time here so one thing and Adam thank you for joining us today thank you everyone