Category Archives: Cigna

The Humana Wall Street/Medicare Advantage Love Story Seems to Be Ending

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Back in February, Dr. Philip Verhoef and I wrote an op-ed for STAT News warning both patients and investors to steer clear of the health insurance industry’s private version of Medicare, which the government continues to allow insurers to market as Medicare Advantage. 

As we enter the open enrollment period in which America’s seniors and disabled people are able to choose between the traditional Medicare program and a bewildering array of private plans, it’s a good time to remind you why you need to steer clear of Medicare Advantage. 

Millions of people enrolled in those private plans are now getting notices from their insurers that their plans will not be available in 2025 because

three of the biggest insurance corporations (Humana, CVS/Aetna and Cigna) – and probably several smaller insurers – have decided to stop selling MA plans in hundreds of communities across the country, which means that MA enrollees in all those places are going to have to go through the agonizing chore of finding a replacement. 

Why? Because Wall Street, which until this year was head-over-heels in love with Medicare Advantage, is now filing for divorce.

Investors have been running for the exits since they began seeing danger signs in for-profit insurers’ earnings reports in the last quarter of 2023. For at least two of the biggest players in MA – Humana and CVS – that exodus has in recent weeks turned into a stampede. The stock prices of those two companies have been in steep decline all year, and you can be certain the top executives of those companies are now in panic mode. 

People who’ve been following my work since I blew the whistle on the health insurance racket know I’ve been trying to educate seniors – and policymakers – for at least a dozen years, going back to my time at the Center for Public Integrity, about the many shortcomings of what I’ve often called Medicare Disadvantage. I’ve also called Medicare Advantage the biggest heist of taxpayers’ dollars in American history. It’s truly epic.

As Phil and I wrote for STAT: 

The truth is that MA has been a broken system since the beginning, especially for patients. The business worked only as long as insurers were able to extract inappropriately large payments from the Medicare fund through methods like upcoding, where plans list false or exaggerated diagnoses on patient charts to get more money while providing no additional care.

In fact, the MA model relies on providing as little care as possible in general, with insurers putting care approval behind a wall of delays and denials to save money and leaving patients suffering without necessary treatment. 

We wrote that op-ed just as the government began taking long-overdue steps to rein in some of those abuses and, to Wall Street’s shock, announced at the end of February that it would not be giving MA plans as much money going forward as the industry had expected. That announcement, coupled with the reins-tightening, really spooked investors.

But that wasn’t all that soured them on Medicare Advantage. The big MA insurers had to admit to Wall Street when they released quarterly earnings that despite their best efforts to delay and deny as much care as possible, seniors nevertheless were using more health care than before.

The insurers’ medical loss ratios were ticking up, meaning they were having to use more of their customers’ premiums (and Medicare fund money) paying claims than they had anticipated. And folks, Wall Street HATES it when insurers do that. 

Phil and I wrote that:

Before, investors had assumed MA plans could keep the business humming along, that private insurers would always be able to keep their enrollees’ use of medical goods and services in check, and that policymakers would always look the other way as the government doled out billions in overpayments annually. They now see that these assumptions are failing, and many have sold their holdings in these companies as a result. 

The selling has continued apace throughout 2024, and the biggest loser on Wall Street has been Humana, which currently has an 18% share of the MA market, second behind UnitedHealth’s 29%. CVS/Aetna’s shares have also been dropping like a rock.  

Humana got another kick to the stomach from investors this week when it admitted that it likely will lose billions of dollars in payments in the future because far fewer of its MA enrollees will be in so-called four-star rated MA plans – 25% in 2025 compared to 94% in 2024. The feds give four-star rated MA plans a lot more money than lower-rated plans. 

When the New York Stock Exchange closed yesterday, Humana’s share price had fallen to $241.37. That’s down more than 54% since the 52-week high of $530.54 it reached in October 2023. But get this: on Wednesday the share price reached a 52-week low of $213.31 before inching back up later in the day as some investors apparently saw a way to make money at some point down the road by buying at that low price. 

And folks, that was not just a 52-week low. The last time Humana’s share price was in that territory was on April 25, 2017, when the low for the day was $214.51. 

All this turmoil has led Bank of America Securities to downgrade the stock to “underperform,” another word for sell. Piper Sandler also downgraded the company yesterday. Those downgrades – and possibly more to come –  could cause the stock price to sink even further.

Having worked closely with Humana’s C-suite and investor relations people when I headed corporation communications there before going to Cigna, I can assure you the company’s top brass are grasping at any levers they can get their hands on to stop the freefall. I would not want to be one of them, and I certainly would not want to be one of their customers or investors. 

As I mentioned, Humana, UnitedHealth and CVS/Aetna are by far the biggest players in the MA game. Earlier this year, those three companies captured 86% of the 1.7 million new MA enrollees, thanks to spending untold millions of federal dollars on deceptive TV ads and other marketing schemes.

Humana is now dumping hundreds of thousands of its MA enrollees because they somehow managed to get the care they needed. The company is doing that for one single reason: to try to get back into Wall Street’s good graces. 

Next week we’ll look at how the other two big players in Medicare Advantage, UnitedHealthcare and CVS/Aetna, are faring on Wall Street. It is a tale of two cities, as you’ll see.

Cigna writes down VillageMD investment amid shrinking value

Posted on by • Posted in Cigna, Health Insurance Industry, Medicare, Medicare Advantage, Primary Care, Primary Care Delivery Model, Retail Clinic, Retail Healthcare, Walgreens • Leave a comment
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Walgreens’ decision to slash VillageMD’s clinical footprint has reverberated to the financial accounts of the primary care chain’s minority owner — Cigna.

Dive Brief:

  • Cigna has written off more than half of its multibillion-dollar investment in VillageMD amid the declining value of the primary care chain.
  • Cigna invested $2.5 billion into VillageMD in late 2022, with the goal of accelerating value-based care arrangements for employer clients by tying VillageMD’s physician network with Cigna’s health services business, Evernorth — hopefully reaping profits from shared savings as a result.
  • But on Thursday, Cigna wrote off $1.8 billion of that investment, citing VillageMD’s lackluster growth after its majority owner Walgreens elected to close underperforming clinics. The writedown drove Cigna’s shareholder earnings down to a net loss of almost $300 million, compared to profit of $1.3 billion in the same time last year.

Dive Insight:

Overall, Cigna’s first-quarter performance was solid, especially amid the mixed results of its insurer peers, analysts said. The Connecticut-based payer grew its revenue 23% year over year to $57.3 billion.

Yet Cigna’s bet on VillageMD is a new thorn in its side, as the investment’s value becomes increasingly bogged down by Walgreens’ operational decisions, along with broader challenges in the primary care sector.

Walgreens began closing underperforming VillageMD centers last year in a bid to force the segment to profitability, and quickly blew past its initial goal of 60 closures. Now, the retailer expects to close 160 clinics overall, majorly downsizing VillageMD’s footprint.

That decision is reverberating to the financial accounts of VillageMD’s minority owner — Cigna.

“The writedown was largely driven by some broader market dislocation that is hitting the space … as well as Village determining that they are going to pull in supply lines and constrain some of the growth in some of the new clinics that they were establishing,” CEO David Cordani told investors on a Thursday morning call.

However Cigna’s priorities for VillageMD remain unchanged, management said. Cigna is still aiming to link VillageMD’s primary care centers to its own clinical assets to build a high-quality provider network that can serve its own patients, and those of health plan and employer clients.

The partnership has already launched in four markets, and the companies plan to continue scaling, according to Cordani.

“At the macro level our strategic direction in terms of what we are seeking to innovate with Village has not changed despite the writedown of the asset,” Cordani said, though “no one likes a writedown of the asset.”

In the quarter, Cigna’s health benefits segment emerged unscathed by headwinds that buffeted other major payers: notably, spending and regulatory pressure in Medicare Advantage.

Seniors in the privately-run Medicare plans began returning for medical care in droves starting last year, sending insurer spending soaring. Meanwhile, the government is tamping down on reimbursement growth.

Yet the majority of Cigna’s business is with employer clients, which served as a “well-underwritten shelter from the MA storms,” TD Cowen analyst Gary Taylor wrote in a Thursday morning note.

Cigna is planning on getting out of Medicare coverage altogether, having agreed in January to sell its Medicare business to Chicago-based insurer Health Care Service Corporation. That deal remains on track, executives said, after a key waiting period for antitrust regulators to challenge the deal came and went in mid-April. The divestiture is expected to close in early 2025.

Cigna’s medical loss ratio — a marker of how much in premiums insurers spend on patient care — was 79.9% in the quarter, better than analysts had expected. Cigna did see higher utilization in areas like inpatient care for employer-sponsored members in the quarter, but the payer’s pricing decisions for its plans covered the trend, executives said.

Cigna cut its MLR guidance for 2024, along with raising earnings expectations. The insurer now expects an MLR between 81.7% and 82.5% this year, suggesting management is confident in their ability to control medical costs, J.P. Morgan analyst Lisa Gill wrote in a Thursday note.

Meanwhile, Evernorth’s revenue increased by more than a third year over year in the first quarter thanks to the migration of Centene’s lucrative prescription drug contract.

CVS, which previously held the contract, cited its loss as a factor in declining revenue and income for its pharmacy benefit management business on Wednesday.

Cordani specifically called out specialty pharmacy — which already represents a major portion of Evernorth’s revenue — as an “accelerated growth opportunity” for the business.

Roughly a week ago, Evernorth announced it will have an interchangeable Humira biosimilar for $0 out-of-pocket cost for eligible patients of its specialty pharmacy arm, Accredo.

Currently, 100,000 Accredo patients use Humira or a biosimilar for the frequently prescribed immune disease drug, which has long been the top-selling drug for its manufacturer AbbVie. In addition, all of its PBM clients and patients will have access to the biosimilars, according to Cordani.

Evernorth has also taken steps to ramp up coverage of GLP-1s, expensive diabetes drugs that have soared in popularity for weight loss. In March, the company announced cost-sharing agreement for GLP-1s covered in a condition management program, to insulate health plan and employer clients from the soaring costs of the medication.

The program has seen “strong interest,” and Evernorth has enrolled more than 1 million people in it to date, Cordani said.