Cigna Group (CI) May 13, 2026 Conference Transcript

All right, great. I want to thank everyone for joining us. It's my pleasure to be hosting this conversation with the Cigna Group today. Today, we have Brian Ivanko, who is the incoming CEO of the company. And we also have Ralph Jacoby and Jeff Rook in the audience as well. Well, but so maybe just jump right into Q&A if that's okay.

All right.

So, I mean, I guess one of the major overhangs, it seems, for the stock right now is just on the PBM business. There's a big transition going through from your model from, you know, the rebate-based model into this new signature model, rebate-free model. Can you talk a little bit about, you know, why you did it, what you're going to expect to get from it, and how we should think about the earnings impact as we transition.

Sure, Kevin, and thanks to you and Bank of America for hosting us this conference. We appreciate that. Maybe I'll give you a little bit of the background for how we got to the new signature model, and then I'll address some of those specific questions you were asking about. If you think about the challenges with pharmacy benefits in America, there's a few words that bubble to the top. Affordability, personalization, transparency, predictability. Each of those represent opportunities for the industry to perform better on behalf of patients, plant sponsors like employers, and all their family members. And so we stepped into that void and said, you know what? where we see the world going is, in the future, a simpler, more transparent, more personally relevant, more affordable for patients, a world without rebates, but instead having simple upfront discounts and the ability for the plan sponsor to have more budget predictability through a simple fee-based delinked pricing structure. And so that essentially provided the background for where we're driving with the signature model. And we think the whole industry will go there eventually in time. We were proud to lead the industry by announcing this in October. And subsequent to that, as you saw some of the legislative activity, you saw some of the FTC activity, it all very much aligns with that strategic direction. So, again, we see the industry heading there eventually, and it's just a matter of who goes first, who goes second, who goes third. So we were proud to lead the industry. Importantly, though, this is a fundamentally different model than the current rebate-oriented architecture that exists. So this is not 100% rebate pass-through, which we can do today, which we do today. This is not point-of-sale rebates, which we can do today, which we do today for some clients. This is a no-rebate world that's all predicated on upfront discounts that we negotiate with manufacturers. But to bring that to life, it's actually a pretty heavy lift. We have to go out and recontract with all the pharma manufacturers. We have to go out and recontract our pharmacy network with all the retail pharmacies, independent pharmacists, et cetera. We have to go out and recontract all our client contracts. And all that takes time, energy, investment, technology spend, legal spend, in order to bring it to life. So 26 and 27 will be transitional years where we're making those investments before the signature model starts to scale in 28. And we expect at least half of our Evernorth Pharmacy Benefit Services members will be in that model by the end of 2028. That'll be our standard offering in the future. We'll continue to allow the current legacy models to exist to the extent that a client's not ready to go into the new signature model. But 26 and 27 will be transitional years with that spending. 28, you'll start to see those costs dissipate. And then in the longer run, we would expect the profitability of our new model will be very comparable to the legacy model once that's fully scaled. So that's a bit of the picture that's in front of us, but importantly, it starts with those principles of affordability, personalization, transparency, predictability, and we see the world going in this direction because there are too many instances today where we see individuals not fill their prescription due to them being in a high deductible plan and the list price is a barrier. And so this allows us to step over all those challenges and see the future.

Okay, so maybe just drill into that comment about the margins, because so longer term, does that mean, you know, 2029 or 2030? Like, how long does it take to get the PBM margin to be similar to where it is today or historically?

Yeah, the way I would encourage you to think about the margin profile for our pharmacy benefit service business is in two categories. One, we have three very large clients that we serve, Centene, Prime Therapeutics, and the Department of Defense. We proactively renewed them and extended the duration of the contracts last year. And as a result of that, we have a more predictable set of clients with those three and a more predictable earning stream. but it's at a lower average profit level than the book average. And as a result of that, you can think of those as a bit of a separate cohort from all other. So that's about $65 billion of pharmacy benefit revenue. It's about $90 billion in total if you include specialty pharmacy and some of the other components. The other component of the book, we would expect to run, call it, 4% profit margins. And to your point of when, certainly by 29, we would expect the signature model, the legacy model, will be in that 4% profit margin zone for that other portion of the book, which is, if you go back in time, approximately where the industry has run, where the large competitors have run, and we believe is commensurate for the value creation as well as the risk that we absorb in those relationships.

Yeah, and you guys have talked about this rebate-free model. it seems like your competitors have also announced new models that are more of the 100% rebate pass-through. So, like, what do you believe that the rebate-free model is solving for that maybe the rebate pass-through model isn't?

Yeah, so to your point, we offer rebate pass-through models today 100%. Some want us to retain portions of that depending on the client relationship. And that will continue to be available for clients in the future if they're not prepared to go to the signature model or if they're unable to, if they have collective bargaining agreements, that sort of a thing. So we'll have two offerings available in the future, but the standard will be the signature model. One of the big differences is the predictability and the budgeting for the plan sponsor. So in the rebate model, there's still variability in what happens with the flow of funds relative to the settlement of the upfront rebates if it's a point of sale or the ability to know downstream because rebates are post-utilization true-ups. Exactly what happens there. This provides more predictability because you know the upfront net cost. It's been negotiated already with the manufacturers. And importantly for the patients, the price-assured capability, which we have embedded in the signature model, we have a version of it available today actually, but it's going to be a really central part of the signature model, guarantees patients the lowest possible out-of-pocket, whether it's the price we've negotiated from the manufacturer, if it's their co-pay, or if it's a cash pay option. And if it is a cash pay option, it'll apply to their deductible. So that capability is a really important part underneath the signature model. But I come back to your question. The predictability is even greater in this model versus in a rebate-oriented model.

Okay. And so just to be clear then about how this works, So if you're guaranteeing a price to a customer, that is the price that you have contracted with the pharmaceutical manufacturer. So it's not a situation of you're taking risk on the price, that if the manufacturer raises price mid-year, that's separate from your negotiation. And so it's all passed through, but it's set in advance rather than post-fact.

Correct. We've negotiated the net price with the manufacturers. And we're going through all the manufacturer recontracting as we speak.

And so then what do you think are the competitive implications of this model? I mean, when I think about this, it feels analogous to the ASO model where you kind of have transparent unit costs, and usually the companies with the lowest unit costs win. So is that what you would expect, that the largest players or the best unit costs are just going to win when the model moves in this direction?

I appreciate that question. If you step back and think of what are the value creators for any PBM or for us, our pharmacy benefit service business, there's really three primary ones, one being unit cost, so the ability to procure better unit costs than an employer, health plan, government entity could do on their own. So to your point of where you get some buying power advantages, certainly on the unit cost component in terms of if we bring more volume to a manufacturer, generally we can get a better net price. The second areas are clinical programs. So oftentimes these are overlooked in the pharmacy benefit space, but importantly, making sure patients adhere to their treatment protocols. In some cases, we take risk or we have value-based arrangements with manufacturers like our Safeguard Rx program or Encircle Rx program. Those clinical programs are another reason why we are hired by employers and health plans and government entities. And then the third one is all the benefits administration that we do, the formulary management, the network design, all of that work we're doing on behalf. So those are the three reasons why we create value, why we're hired to provide services in the pharmacy benefit services space. To your point, moving to a rebate-free, simpler fee-based model, it makes that first component, the unit costs, much more easy to see and compare. And so that should, over time, provide advantages to those who have better unit cost structure. Today, it's often difficult to do an apples-to-apples comparison with the different models that are in place. So we like that about the model because being the largest pharmacy benefit services player in the industry, we have great unit costs. So we like the competitive opportunity there. All that said, our longer-term EPS growth algorithms, our longer-term expectations for this business are not predicated on taking market share. So we are not betting on that. So to the extent that happens, that's upside to our long-term outlook.

Great. Can you talk a little bit about then the 2027 selling season? You've got this other option, which isn't available yet, but you're talking to people about it. So I guess what's the reception to the new model, and then how is the selling season on the old model going for 2027?

To your point, the new model will scale in 28. We'll have our fully insured Cigna health care customers moved into it in 27 because they essentially don't go through a buying process for the pharmacy benefit business. They have it as part of their all-in pricing. So the real feedback we'll get relative to bidding will happen starting in the fourth quarter of this year for 28 selling cycle since the buying process is long, particularly for large employers and health plans. So we'll start to get some real feedback in the fourth quarter of this year as it relates to the 28 competitiveness of the signature model. Two weeks ago, we had many of our large clients together, and we got some great real-time feedback, which has helped us to make course corrections if needed along the way. But it's not yet in the context of a selling cycle. It's more in the context of directionally, here's where we're intending to go. But there's a lot of interest and appetite for this because employers know the market needs to change. They know that the pharmacy benefit model of the past isn't the right model for the future. There's just too many examples of patients being exposed to the high list prices when they're in their high deductible plans and they're in the deductible phase. There's too many instances of that breakage. So the clients know the world needs to change, and it's more a matter of how quickly they get there. Now, to your question, the 27 selling cycle so far in pharmacy benefit services, we're off to a really good start. So we have more new clients, more new business measured by scripts, measured by lives at this juncture than we did last year or the year before at this point in the respective selling cycle. So we're off to a good start as it relates to 27. To your point, it's our legacy model with evolution as opposed to the signature model for 27. And retention looks to be tracking in line with historical norms, too, or mid-90s or higher retention for the 27. selling cycle in the pharmacy benefit services business.

And then I think one of the other questions that we get from people about concern around the PBM involves the recontracting. I think you mentioned the largest three contracts. I think people saw, okay, you recontracted your top three contracts. Why not the next three largest contracts? Is there now a race at the bottom as the market got more competitive? So how do you respond to that?

Yeah, the three largest contracts, contracts, which each of them are very unique and bespoke and have specific requirements that only a very small number of companies in the world can actually meet those requirements, have dynamics that I don't believe are indicative of the broader market. So to the core of your question, we do not see pricing dynamics that would lead to margins being cut at scale across the pharmacy benefit space. The 27 selling cycle, coming back to that question, has underscored that there appears to be good pricing discipline in the market right now across the pharmacy benefit space, which is why we believe that 4% margin profile is a durable level over the long run for the industry and for our book of business, with the exception of those three large clients. Each of the three large clients that have their own unique requirements, and when we did the recontracting, we were able to extend the durations. In some instances, we actually de-risked the nature of the contracts to make them more fee-based, more service-oriented in exchange for a lower expected return, which is one of the reasons our 25 to 26 earnings and pharmacy benefits are actually decreasing, which is driven predominantly by those three large contracts being renegotiated.

Okay, that's helpful. And then I guess maybe just last question on the PBM. You know, I think sometimes people think that the PBM needs to grow fast, but your long-term growth algorithm is 2% to 4% growth. And so I guess old model, new model, 2% to 4% growth, that's the same outlook as well.

At this juncture, and we'll have a formal refresh of all of our growth expectations in our investor day in September that we're intending to hold. But at this juncture, that looks like a very reasonable expectation, 2% to 4%. And if you kind of break that apart, just natural growth in terms of prescriptions per person tends to be low single digits, maybe 1% to 2% per year. And then on top of that, we'll have an inflationary component in the fee-based compensation that we'll receive from employers in the signature model. So 2% to 4% long-term expectation feels very achievable. And again, that's not predicated on any market share gains. So that would all be icing on the cake to the extent we did gain any share in the future.

Now, let's move to a little bit more exciting part of the business, the specialty business. You know, I guess, how do you think about the underpinning of that business? I mean, we've had some biosimilars recently. There's a lot of drugs coming through. So how do we think about the pace and timing of the growth of that business?

Yeah, the specialty business for us has been a great part of the portfolio the last several years. And over time, this has been the outsized growth component of the company. So right now, it's about 35% of the company's total income. It wasn't that long ago, that number was 20% to 25%. If you go back just four years, so as a percentage of the total, it's grown very quickly. And part of that is the strong secular growth in the space, which you've covered nicely in your research as well, Kevin. And this addressable market in total is now approaching $500 billion, the total addressable for specialty. So you kind of step back. That's larger than the individual Medicare Advantage market, right? If you just kind of do a – I'm comparing apples and oranges here, but in terms of total addressable market size, it's actually quite large and growing. So secular growth in this space, 7%, 8% over time, which has been powered by all the drug innovation of biopharma, as well as some of the larger manufacturers. And increasingly, specialty drugs are being used as a first line of defense by more prescribers. So now 4% to 5% of all Americans take a specialty drug. And again, it wasn't that long ago that number was 2% of all Americans. So more and more people are taking these high-cost, clinically-intensive specialty drugs. We have a great leadership position in this business with Acredo, which is our specialty pharmacy. And then we've been adding capabilities around that to further expand our presence in the specialty space.

And so we've seen Humira and Stellara come in. Are there any other drugs that you're kind of keeping an eye on as kind of like the next big thing for the biosimilar?

Yeah, Humira and Stellara have been great examples of a win-win here for society, for patients, for companies like ourselves, and for the plan sponsors who are funding the benefits, right? Because Humira was the largest, which finally biosimilars were available in 24. So we had a $0 patient out of pocket for that, which, again, great affordability proposition for the patient. The net cost came way down for the employer, the plan sponsor, relative to the branded Humira. And then we were able to make the same or more per prescription with our model. So that was a great example of affordability for the benefit of patients. Stellara last year was introduced with a $0 patient out-of-pocket as well in the second quarter of 25. And we've seen good uptake thus far in terms of the percentage of eligible patients who have moved into a biosimilar for Stolara, another one of those examples of a win-win. This year, although not a biosimilar, generic Revlimid is now available at a much greater scale. So in the past, supply constraints made it much less available. That's going to be another example of affordability benefits, but also one where we get the benefit within our specialty business. And then in the future, there's a few smaller ones on the horizon like Prolia and Ilea, and then you've got Keytruda, which is an oncology injectable, which 28 or 29, that will have biosimilar competition as well. So each of those are opportunities, and it's a bit of a building wave of all the drug innovation and the benefits of generics and biosimilars making their way through, which should improve affordability but also allow companies like us to thrive as a result of that.

And I think that sometimes we kind of think of specialty as like a one thing, but you've been investing in specialty the last few years. Can you talk a little bit about where you've been stronger historically, what you've been adding to that portfolio? If there's any other white space that you kind of look at as saying there's an opportunity.

Sure, sure. Yeah, so specialty space, that addressable market I made reference to, it's approaching $500 billion. You can think of it as about 60% patient administered. So it could be orals, it could be injectables, but the patient is essentially administering the drug themselves, right, in their home, that sort of a thing. And then the other 40% is provider administered. So this could be you go into the doctor's office for your drug to be infused or injected or other types of ways in which it's adjudicated. So 60% patient, 40% provider administered. We've historically been very strong in the 60% the patient administered. So our credo capabilities, we're one of the two largest specialty pharmacies in the world, pointed at that. The 40% that's provider administered, we've been a little bit less present historically. We have a distribution capability called CuraScript where we distribute specialty drugs to providers. That's a great business for us, been growing double digits for many years. But we've been adding to the portfolio, to your question, in recent years, capabilities that allow us to serve that provider-administered market differently. So we acquired a company called CarePath, which assists with our health system and hospital infusion services. And we made an investment, a strategic investment, a sizable one, last year in Shields. And Shields provides essentially clinical coordination, inventory management, and consulting services, for lack of a better term, to health systems and hospitals who run their own in-house specialty pharmacies to help them manage that profit pool more effectively. So we continue to bulk up in that area, but specialty and aggregate, when you put an umbrella across all of this, we see as an 8% to 11% annual growth engine for the company, riding those secular growth tailwinds, plus our own company-specific capabilities.

Are there areas that you still don't really operate in that you need to add capabilities?

If there were any that I would call out, there'd be more certain conditions where we have some opportunity to strengthen. So oncology is an example of one where we actually have less of a meaningful presence today in the oncology space than some others. But the capabilities we've been building over time and investing in give us a great overall platform here. So there's not a significant huge gap there. It's more some of the conditions where we can strengthen ourselves.

Yeah, I guess when we think about regulatory risk, the new model, at least to us, and the market doesn't 100% agree, it doesn't seem like. But it seems like the new model is de-risking the PBM side of things pretty dramatically. The growth is in the specialty business. When we think about the regulatory risk and political risk on the specialty business, I mean, I guess 340B comes to mind. Can you help us think about your 340B exposure? And is there anything else that you kind of see on the horizon as issues that you might have to manage?

Sure, sure. The specialty business, in addition to being a great growth engine, is also a really important part of American health care. because every single person we serve in the specialty business is clinically complicated and taking high-cost prescription drugs. So it's a little bit different than other parts of our company where sometimes we have people that don't utilize health care. In this, every single person we serve utilizes health care in an intensive way. So as a result of that, by definition, they need companies like us to be there for them. So when you think about regulatory risk, whether that's federal or state, The specialty tends to have a little bit less of it just for that reason, because you have such a reliance on the services we provide, the clinical support, the engagement. And many of our nurses are known on a first-name basis by the patients that they serve. We have 600 home infusion nurses that go to people's homes and help them infuse drugs. So for those reasons, it's a little bit less easy to scrutinize, if you will, or more difficult to scrutinize because of the services we provide. All that said, we do provide services to the 340B participants. We serve as a contract pharmacy in Accredo, not to a great degree, but we do have contract pharmacies in Accredo. And then we provide services to the health systems and hospitals we were talking about earlier to help them manage 340B capabilities. Overall, it's a relatively small part of the overall earnings for Evernorth and an even smaller part of the total Cigna group. But it is a set of services we provide. We do believe the 340B program has an important purpose in American health care. And even if there were adjustments to it, we view that as certainly something we would be able to navigate through without a significant point of pressure, for example, to the company. And the other dynamic, obviously, in this space is some of the state-based legislation working their way through on companies that own PBMs and specialty pharmacies. So we're using data, using facts, engaging constructively as much as we possibly can to show that the value creation is there for integrated care models. And we'll continue to fight those misguided bills that are working their way through some states.

All right. Great. And then maybe move to Cigna Healthcare then. Q1 seems like utilization looked relatively modest, but skewed by weather, by flu, by all these things. I guess, how do you think about your visibility into how Q1 actually played out, any initial color on, like, how April has gone?

Yeah, Cigna Healthcare off to a good start this year. So we were ahead of expectations in the first quarter, driven by the medical care ratio coming in a bit favorable. And really, the drivers of that, we had a little bit of weather-related care deferral. We had a little bit of favorability and respiratory. And then we had some timing dynamics with our exchange business, where we had more bronze in 2026 than we had anticipated we would have. And that has more of a steeper slope, if you will, on MCR seasonality, as you well know. So all of that contributed to the outperformance in the first quarter. Some of that was timing, though, which we expect will reverse over the balance of the year. So we did increase the guidance for Cigna Healthcare by $25 million for the year, which contributed to the EPS raise that we had in the first quarter release. So far, so good for April, so not really a lot to report in terms of variability compared to our outlook. So things are broadly tracking to expectations across both Cigna Healthcare and Evernorth. We continue to expect cost trends to remain elevated, so not accelerating from where they are, but elevated and persistently elevated. So our pricing, our planning continues to assume that for the balance of 26 and as we head into 27.

Okay, and then you guys are the only kind of pure play employer focused managed care company. So why have you chosen that as the place to be?

So you're right. In Cigna Healthcare, and Cigna Healthcare is about 40% of the company's income today. The lion's share of that is U.S. employer, employer-sponsored business. And we've proven if you go back over long periods of time, we've been able to grow over and above market rates. So depending on what timeframe you use, the market's grown 0% to 1% in terms of lives. In the employer-sponsored space over a long period of time, we've been able to grow, particularly at the lower end of the employer market, what we call our select segment, 50 to 500, at rates of growth meaningfully higher than that. So mid-single-digit, in some cases high single-digit rates of growth in that space. And really for us, that comes back to focus. So we've concluded we can't be all things to all people. We're not going to be able to be effective by spreading our bets across too many different end markets, whether that's in Cigna Healthcare, whether that's across the company in aggregate. And we feel like we're really good at serving employers in Cigna Healthcare. So one of the reasons we sold our Medicare business last year, one of the reasons we stayed out of Medicaid is we don't believe we have the expertise to run that business as effectively as others. and we don't see a path for it to scale to be a meaningful part of the Cigna Group franchise. And we've got great growth opportunities and specialties we just talked about, continued growth opportunities in Cigna Healthcare in the select segment, and this opportunity to transform our pharmacy benefits model while continuing to deliver for clients today. So that's really where we're focused right now. Of course, we'll continue to evaluate those choices because being out of the government business indefinitely is a big decision for the company to make. But for the current point in time, we're quite pleased with the portfolio composition and don't feel compelled to make any meaningful adjustments.

Okay. And then in the commercial book, there was the issue around stop loss in 2024. So can you talk about how that repricing has gone and where we are on that?

Sure, sure. And for those not familiar with our stop loss business, it's part of the Cigna Healthcare product suite. for those employers who self-fund benefits. Many of them will purchase risk protection on top of that. It could be individual stop loss for an individual claimant that exceeds a certain threshold, or it could be aggregate stop loss where the employer says, I want a cap on my total budget outlay. And so it's a great business for us over the long run in terms of the risk-reward trade-off. So we have about $8 billion of annual premium in the stop loss book. Specifically, we're the largest underwriter in the world of stop loss. All the business that we do is integrated, so we don't do carve-out stop-loss where we quote only the stop-loss. We only do integrated where we have the underlying medical and put the stop-loss around that. To your point, 24 was a difficult year for us where claim costs succeeded our expectations rather meaningfully that year. 25 was a year where by the time 24 emerged, we were not able to reprice enough of 25, so 25 was a bit of a cutover year, transitional year. 26, we've been able to get sizable price increases. And one of the things I've been really pleased with is the retention of our clients, despite those higher than historical price increases that have been necessary on the stop loss And then 27 will be the final year of the margin recovery on our stop loss portfolio. But 26, off to a good start, our guide reflects those dynamics. And 27, we'll complete the stop loss repricing.

Yeah, and it was like two-thirds this year, one-third next year. That was the...

Roughly, that's the right dimensioning generally.

And then everyone seems to be talking about AI. We'd love to kind of hear your views about AI, where you think the biggest opportunity is across your three businesses. And then is there anything people are getting too excited about with AI or their skis on?

Our belief at the Cigna Group is that data, advanced analytics, and AI are a critical unlock for the health care system over the long run. So we do not believe it's overhyped. In terms of the opportunities in healthcare, I can't speak to other industries, but certainly in healthcare, we believe that this is a critical part of driving more affordable, more personalized solutions in the future for customers and clients. There's a few ways I just point to that we're using it already. And then there's some other frontiers. We've been able to take meaningful costs out of the back office functions. So I shared a data point in our earnings release. Inbound calls per customer are down 20%. in two years in our Cigna healthcare book of business, and they're down 25% in our pharmacy benefit services business. So that's a function of more and more digital engagement upstream for customers. And when customers do call in, better first call resolution because we have AI tools available to our customer service representatives as they're engaging with patients. So that's an example in the back office of what we've done. Then there's a whole category of risk prediction. So using all of the data that we have under the Cigna Group umbrella, we've been able to take the models historically, which were constructed by data scientists and actuaries, and turbocharged those with AI capabilities. So we've gotten much more accurate risk prediction of who will be a high-cost claimant within our Cigna Healthcare book of business, which helps us with our stop-loss business we were just talking about. And it helps us to mobilize our clinical teams to engage earlier with those patients to help with their treatment protocols and their care journeys. And we found that that saved for the patients that engaged $2,000 per year just as a function of that. So that's an example of risk prediction pointed at the affordability challenge. And then there's a whole set of use cases we're exploring in the customer experience domain to help reduce some of the fragmentation of patient journeys, whether that's the Cigna Healthcare AI virtual assistant that we launched last year, whether that's capabilities that we're putting into our call centers where instead of having an IVR phone tree, now you have a responsive AI agent engagement. Those are the types of enhancements to the customer experience that we think AI will really help to turbocharge. So this is an area where we seek to lead. We're putting a lot of capital behind this. We're putting a lot of people behind this. We think it's a critical unlock for the system at large.

All right, great. I think that's all we have time for. Thank you very much.

Thank you, Kevin. Appreciate the time.