Category: Payors

CVS Overhauls Drug Costs, Healthspire Rebrand

Posted on by Jason Barry

CVS Health’s recent investor day brought an avalanche of announcements that buried a strong performance update with major overhauls to its pharmacy and services segments.

The CVS CostVantage drug pricing model stole the show, with CVS making the shift away from complex pricing formulas to a “cost plus” markup that’s far more transparent.

  • Credit where credit’s due, Mark Cuban’s Cost Plus Drug Company put a ton of attention on the opaque pricing models used by most PBMs, prompting others like Cigna and CVS to reconsider their strategies (not to mention MCCPDC beat out CVS for Blue Shield of California back in August).
  • We’ll now have to wait and see how much CVS CostVantage actually helps consumers, but given that CVS is vertically integrated with 9k+ retail pharmacies and the nation’s largest PBM in Caremark, the early verdict is that it might just reshuffle where revenue ends up. “It’s squeezing the balloon in one place and it gets bigger in another.”

The launch of the CVS Healthspire brand was a close runner-up, and the new moniker now encompasses the entire health services business that includes MinuteClinic, Caremark, Oak Street Health, Signify Health, and its recently formed biosimilar company Cordavis.

  • The rebranding was probably overdue given CVS’ recent acquisition spree, and follows the lead of payor competitors with separate services arms like UnitedHealth Group (Optum), Cigna (Evernorth), and Elevance (Carelon).
  • Expect CVS’ future investor presentations to have more cohesive reporting between the Healthspire businesses and Aetna, currently the third largest payor in the US with over 25M health plan members.

An upcoming smartphone app was also teased as a way to give patients a central hub for CVS services, such as prescription refills, information on deductibles, and MinuteClinic appointment scheduling. This well-narrated hype video has the quick overview.

The Takeaway

CVS is going all-in on unlocking the synergies between its core care delivery, pharmacy, and payor businesses. Given the sheer size of its footprint and breadth of its assets, CVS has plenty of ability to cross-promote services and increase the lifetime value of its customers. The question now is execution, but CVS’ grand plan seems to be gaining momentum following a full year of major moves.

Cigna and Humana Eye Blockbuster Merger

Posted on by Jason Barry

The headline of the week – and possibly the year – goes to the Wall Street Journal’s scoop on the upcoming mega-merger between Cigna and Humana, which could create a new payor powerhouse before the end of next month.

Although “sources close to the matter” didn’t disclose the structure or terms, the combined company would be worth some $140 billion, making it the third largest player in the sector behind only UnitedHealth and Elevance.

Cigna hauled in upwards of $180 billion in revenue last year, mostly from its strong position in the commercial coverage market. The acquisition of Express Scripts in 2018 also made Cigna one of the biggest names in pharmacy benefits, and its Evernorth health services arm has been adding more fuel to the fire.

  • The glaring white space in that portfolio happens to be one of the biggest growth engines for insurers, the Medicare segment.
  • While Cigna’s been trying to build momentum in Medicare Advantage since picking up HealthSpring in 2011, just this month it announced that it’s “evaluating options” to offload its underperforming MA unit.

Humana is the second largest Medicare insurer, and last reported that its MA enrollment stands at about 5.9M members – 3x more than Cigna. 

  • On top of that, Humana’s CenterWell home-health business and growing network of primary care clinics give it a big leg up in managed-care and VBC, two areas that would complement Cigna’s Evernorth operations.
  • Despite those strengths, last year’s revenue was about half of Cigna’s at ~$93B, and Humana recently announced that it would be shedding its commercial business to focus on its core MA line.

It’s worth noting that this isn’t the first time Cigna and Humana have considered merging, but previous attempts circa 2015 either fell apart or were blocked on antitrust grounds. This time around, with Cigna exiting Medicare at the same time that Humana bails on commercial, the pair seem to be building a decent case that a merger wouldn’t decrease competition.

The Takeaway

Joining forces would vault Cigna and Humana into the top tier of integrated healthcare firms, not to mention give the M&A market a much needed jolt with 2023’s biggest transaction across all industries. We’ll apparently have all the details in the next few weeks, followed by what’s sure to be a lively antitrust case.

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