Cigna Writes Down VillageMD Investment Amid Shrinking Value

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.