CI - The Cigna Group (CI) Presents at J.P. Morgan 42nd Annual Healthcare Conference Transcript

2024-01-09 13:54:10 ET

The Cigna Group (CI)

J.P. Morgan 42nd Annual Healthcare Conference

January 09, 2024 10:30 AM ET

Company Participants

David Cordani - President, Chief Executive Officer & Chair

Eric Palmer - Chief Executive Officer & President, Evernorth

Conference Call Participants

Lisa Gill - JPMorgan

Presentation

Lisa Gill

Good Morning. My name is Lisa Gill, and I'm Head of Healthcare Services for JPMorgan. It is with great pleasure this morning that we have with us Cigna Health.

With us this morning, we have CEO, David Cordani; as well as President of the Evernorth business, Eric Palmer. David is going to make a few opening remarks, and then we're going to jump into a fireside chat.

So with that, let me turn it over to David.

David Cordani

Good morning, everyone. Lisa, thank you. I apologize for my voice. I have a New Year's cold all over-the-counter medicine so far, so keeping medical cost trend down. So, no worries relative to that. I'll just make a couple of brief comments. There's a lot of topics to talk through. Eric and I look forward to having a good comprehensive conversation with you all.

A couple of things relative to the Cigna Group, first and foremost, we delivered a very strong 2023, and we're proud of that. It continues our track record of strong organic growth across our operating platforms, whether there are foundational businesses. There we have our PBM, our commercial business, our International Benefits business, and our Accelerate businesses, our fast-growing, highly scaled specialty medicine portfolio businesses as well as our government benefits business, and our Evernorth Care business.

Additionally, we continue to drive additional innovations by creating cross enterprise leverage, leveraging data, clinical capability, our talent, our client relationships to bring new innovations to market like Pathwell and other services that we may talk through.

We reiterated our guidance coming into this conference for 2023, as well as our outlook for 2024. So within that, our EPS outlook was reiterated relative to 2023, you could infer relative to that, because I know there's been some questions relative to how is medical cost utilization tracking broadly speaking for the fourth quarter, it's in line with our expectations. We can get into that, if you'd like, during the course of the conversation. Additionally, we step out of 2023 with a very strong revenue profile to carry into 2024.

We've had an EPS outlook for 2024 of at least $28 that we put out quite some time ago. We've been consistent, and we've maintained that, and we reiterated that as we step into 2024. At the end of the fourth quarter, when we report our earnings, as we always do, we will update those results, but we reiterated that result, which is at the high-end and above the high-end of our growth algorithm of a sustained 10% to 13% EPS growth on average over time, plus an attractive dividend.

I would note that, we're proud of the fact that, if you look back in the last decade, we've delivered on that growth algorithm of at least 10% to 13% over time. And again, the 2024 EPS outlook is above the high end of that range.

Lastly, I would underscore, our business portfolio has been very deliberately configured to be what we call a capital light service-oriented portfolio. The relevant thing for you to think about relative to from an investment mandate standpoint is we tend to operate businesses that are more service-oriented. Therefore, our operating cash flow is quickly converted to deployable cash flow at a higher rate than some business profiles. We think that's a strategic advantage, given the fluidity of the business model and the environment that sits in front of us.

A final theme, I will highlight on, and then I'll shift it back over to Lisa, is I'm sure we'll get into some of the new pharmacy innovations that are transpiring in the marketplace like GLP-1s. Our view several years ago was that the largest portion of health care innovation over the forthcoming decade in advance of us was going to be pharmacological in some way, shape or form, whether they're the makings of a GLP-1, new Alzheimer's medications, oncology medications, gene therapies, personalized medications, biosimilars, et cetera.

We saw a large curve transpiring multiple years ago, and we've positioned our Evernorth franchise to be in a leadership position to be able to help plan sponsors, employers, health plans, governmental agencies as well as integrated health care delivery systems to be able to optimize the clinical protocols, yet get the best possible value for financiers and for patients. I'm sure we'll get into some of those themes.

So in short, 2023 was a strong year. We performed well across our business portfolio. We expect to end that. We'll report fourth quarter earnings. In a few weeks, we reiterated our guidance and inferred in that is that our medical utilization is in line with our expectations. We step into 2024 reiterating our EPS outlook, which is above our growth algorithm and we've had that out there for several years. And I underscore the capital-light franchise that we operate that gives us a lot of flexibility in terms of being able to invest in the future.

With that there's plenty to talk about. Eric and I look forward to getting into a conversation with you all Lisa.

Question-and-Answer Session

Q - Lisa Gill

Great. Thanks so much for those comments, David. If I think back over the last couple of months there was speculation in the marketplace that maybe you would do a large-scale deal. Do you think in the current market you can get that kind of deal done, number one? And number two, is there still an appetite for Cigna to do another large deal?

David Cordani

Sure. So as you all would expect, I'm not going to get too deep into speculation of this article versus this article versus this article. I'll try to be responsive to the comment. First and foremost, we like our business portfolio as it's configured today. We've worked quite deliberately to position ourselves with foundational businesses that are established, have leadership positions, have strong capabilities and have a proven track record of sustained attractive growth and significant operating cash flow generation.

Secondly, we've augmented that with our accelerated business platforms. The leader of which is our specialty portfolio, which is growing tremendously, that I'm sure we will get into. And then we have two within the scope of the Cigna franchise, a $200 billion franchise are of smaller scope. That's our government benefits business at our Evernorth Care business. We've historically called those out as two areas where we would like to augment with additional M&A, but we like our portfolio and it's performing well.

To the core of your question, do we think a deal could get done in our space? It depends on the deal itself. And the marketplace has been tested outside of our industry that some deals have gotten across the finish line, albeit that most people believe that the current environment has a bit of a higher bar to get across from that standpoint. So we recognize that and we're good deliberate stewards of capital.

But I think important to note the strength of our portfolio, the deliberate positioning of our portfolio, the underlying organic growth of our portfolio puts us in a good position to have optionality in the future, but have the organic growth and capital deployment franchise continue to deliver really good value.

Lisa Gill

If I go back to your comments on the government side of the business, there's also speculation that you're going to exit Medicare Advantage. You're not in Medicaid today. Do you feel that being in the government side of the business is important to Cigna? Is it that size and scale matter and you're much smaller than competitors today as to why you would potentially exit that business?

David Cordani

Yeah. It's an important point. So let's separate this. And when you think about our franchise for those who don't know us as deeply. Just think about the synthesis of what I talked through, we have a benefit franchise, commercial benefits right are within the Benefits franchise, government benefits, global employer benefits and then a large services franchise Evernorth which Eric runs.

So to Lisa's question, we are very attracted to the government services portfolio on both sides, on benefits as well as services. And in fact, quietly over the last several years, we've deliberately worked to expand our capabilities on the services side. And we continue to grow significantly on the services side in support of -- in that case health plans, governmental agencies and increasingly integrated delivery systems who have government-sponsored business. It could be Medicaid, it could be Medicare, it could be exchange business. It could be unique subsets of businesses that our capabilities.

So we see the space as attractive on both sides of the portfolio. We've positioned our company with optionality and you've seen we've continued to grow on the services side of the equation. And then we'll evaluate within our portfolio where the highest and best use of capital is in support of ongoing growth. So we have the option on both sides is the important part to underscore and the services side is actually growing at a pretty significant level.

Lisa Gill

When I think about your comment on the services side and we think about medical services within the Evernorth business and I look at the investment you made in VillageMD, can you talk about how you see those businesses evolving? And you talked about asset light. So I wouldn't expect that you're going to go out and buy a big clinic model. Is that correct when I think about the comments that you made?

David Cordani

So let me ask Eric to take this question and just talk about the philosophical approaches where you start on in terms of our orientation around partnering with physicians and enabling a risk-bearing or a performance-based model. And then we could click that down into how we're creatively doing that with Village currently. So would be able to answer the question.

Eric Palmer

Great. Thank you. Good morning, everyone. So within Evernorth, we've got a portfolio of businesses that start with as David outlined a minute ago, the framework of our scale businesses think about our PBM think about the specialty pharmacy. Think about the additional services that we've been working to stand up rapidly over the last number of years now around behavioral care, around care in the home, around care in the workplace in terms of virtual care. We acquired MDLive now a couple of years ago.

So all of that portfolio being assembled with an orientation towards being a partner to reduce fragmentation in customer and payer experience, working to get to better health outcomes and really the work with VillageMD that you talked about gets right to the core of that.

So a bit over a year ago now we announced that we took a small stake in VillageMD as part of Village and some it coming together where we have strategic relationship with them where we're working to wrap and extend their practice. They're already really good at taking risk managing care effectively to better outcomes. We offer now additional resources of information, additional care extenders to make their system work even better, right?

So getting them connected well with behavioral resources or after-hours care are examples and also helping to make sure that there's actionable real-time information available around what's going on with the patient panel. We're well-positioned to do that because of the breadth of the number of services that we have on offer.

All of that's done in a way we don't have to own the clinic where we don't have to directly employ the primary care physician. And in fact we think it's important to recognize we'll never be able to own the best of everything in every market much better to have an open ecosystem that can connect effectively to the right partners to the right vendors to bring about the best health outcomes. So that's been our orientation.

David Cordani

At least punctuate went through for everybody. So what you heard is our preferred strategy we articulated is we prefer to partner with healthcare professionals and enable more complete high-cost, high-quality care. We are willing to own in key MSAs if we deem it's the only way to get the access profile to work but we prefer to partner.

And then lastly we seek to own in certain target areas, which we deem to be a national scope and is highly differentiated. The provision of specialty care in the home we own, more behavioral health resources we own, virtual care we own. So we're picking certain platforms where we seek to own that are valuable, but then we seek to wrap it around the physical medical professional.

Lisa Gill

And very quickly when I think about the VillageMD relationship and some of the things that you both talked about, do you see a clear benefit in your Cigna book of business?

Eric Palmer

In short yes. So a couple of different dimensions to that. So first of all by virtue of the relationship that we struck, we've achieved improved economics, right? So just a straightforward benefit.

But more importantly, the benefit of now deeper real-time information sharing that we can bring back through. That leads to fewer hospitalizations that leads to better adherence at least all those sorts of things. And the information flows there are very much tied in with the Cigna Health care relationship, so yes.

David Cordani

Lisa, if you take a bit more precision and medicine to where Eric went to, so take the curation of data and then go MSA by MSA and then sub-MSA level, meaning micro locality, and then take the information and have more precision to the optimized oncology sub-network given this diagnosis or the optimized cardiology pathway to care given this diagnosis. That's where the results are accelerating to take a very high-performing model already with Village and bring even more precision in terms of that micro specialization. And our customers on the Cigna Healthcare side are already seeing benefit from that.

Lisa Gill

When I think about the Evernorth side of the business you talked about how big the PBM is, how big specialty is. And when I think back to 2023, it was a big year. You won a very large contract in Centene. You expanded your relationship with the Department of Defense, renewed your contract with Prime Therapeutics and my understanding -- continuing to expand the service offering you have with Prime.

As we look forward to 2024 with the 2025 selling season, what's on the horizon? And again, congratulations, you're now once again the number one PBM, right? So with 2 billion prescriptions projected for 2024. So, what do you anticipate from a growth perspective? What are clients looking for? And how do we think about the 2025 selling season?

Eric Palmer

Sure. So, first of all thank you for that comment. We're really pleased with the momentum that we've been building and the trajectory that gives us as we go into 2025. So I would call out -- and again, we'll provide more detailed guidance here at our earnings release on February 2. But we call out continued really strong retention. Our clients are benefiting from and happy with the innovations that we've been driving over the course of last year.

We announced a number of new product initiatives last year, in addition to kind of business wins and expansions that you talked about as well. So expanding and offering different means of contracting with us, offering more simple solutions for those who are interested in that simplicity, offering and changing around our arrangements with independent pharmacists to ensure the access points are strengthened in terms of the critical role they play.

So that product innovation is an important tailwind for us as well as we go into next year. So in terms of kind of getting down to more of the specific elements of your question, we expect to continue to drive strong retention. So we call out strong retention as we go into next year. We have good momentum in terms of what the market looks like in terms of the growth channel for 2025 and beyond.

And I'm excited about the additional services gaining traction as well, right? So our behavioral offerings are things that previously were captive to Cigna Healthcare. They're open to direct to employers now. They're open to other payers and we have momentum in that space as an example. So, really good momentum across each of those different dimensions, and importantly, we're past some of those reset things that we've cycled or had called out a couple of years back.

Lisa Gill

If I think about the comment that you made around new programs coming to the market, I think sometimes investors look at this and they say transparency, simplicity, and I think when we talk to investors and I know you and I've had this conversation in the past that many times on the actual plan sponsor side, we all think they want transparency but they really want simplicity, right? They don't actually want to know exactly what a compound what the dollar amount was but rather want to understand what does the pharmacy pay for it, when am I paying for it? What am I paying for services?

I think if you look at the PBM industry over a 20-year period of time, we went from the majority of profits being rebates, right, than the majority of profits being generics to, when I sit here today it feels like the majority of profits are shifting towards services. And so, as I think about this evolution and I think about that shift in transparency and simplicity, can you maybe talk about how you see the margin structure shifting or changing over time?

Eric Palmer

Sure. So I think a couple of dimensions I would call out. So first of all, we orient all of our products and offerings around choice and modularity for what our clients are looking for. So different clients have different needs, different levels of sophistication, frankly in terms of the degree of expertise and resource they want to bring to managing the benefits. So we will offer and have positioned our product portfolio to line up with what the needs of our buyers are first of all. And then that translates into how do we get our incentives aligned.

And getting our incentives aligned means how do I make sure that we get rewarded when we do the job we committed to do for our clients, whether that's fulfillment based set of metrics or whether that's a set of metrics in terms of total cost or right a variety of different ways there. And we can then ensure that when we get our resources pointed in the same direction as where our clients want to go, we can earn a fair margin on our services.

I think to your macro point, if you just kind of look at it by bucket, more things going into alignment on clinical outcomes and service-based types of fees and rewards has probably been a bit of a theme as you compare to what the PBMs look like 15 or 20 years ago. But again, I wouldn't call that out as a force that can't be changed or evolved or aligned with what's important for our client. That point of alignment and choice is really the most important underlying theme I would call out.

David Cordani

At least two items maybe to punctuate a couple of points be made. For those who've known the industry for quite some time, if you think about the healthcare space, the traditional healthcare outside of the pharmacy space, you go back 15 years ago or so. The profit model has also evolved.

The profit models evolve massively from the – we'll call it the transactional profit model to the risk transfer profit model to the service profit model. There are some similarities there. They're not equal but there are some similarities there. And having the capabilities that enable you as Eric was articulating to meet one client at a time to meet their needs around affordability, predictability and their definition of simplicity, that's the magic of it. And how do you do it consultatively on scale to be able to – in some cases, it may be even just taking risk transfer on a small subset of the framework. But we saw that journey on the medical side of the equation and we'd like to believe we led that journey in terms of the service oriented, the shared risk oriented, et cetera and we'll seek to do so on the pharmacy side.

And lastly is you led into the question with it being more service oriented. When you think about specialty pharmaceuticals for investors that have visited our specialty operations, I asked him to think about the specialty operations less with the paradigm of the way they may have a paradigm or on a PBM and more of a paradigm of it's the provision of care and the coordination of a complex care equation that happens to originate from a pharmaceutical as opposed to a surgical intervention or otherwise, right?

And therefore it's more services-oriented. So we agree with you 100%. And it's having that continuum of services and being able to bundle them together for a client that matches their needs around affordability, their predictability and their definition of simplification.

Lisa Gill

To your point of bundling together, last summer there was a lot of noise when Blue Shield of California decided that we're going to unbundle this and we're going to create all of these savings by putting different pieces with different players in the marketplace. And Eric and I had a call together, where we talked about this. And I think a lot of people didn't realize.

I mean had they announced, look, we're going to move primarily to Prime Therapeutics and we're going to keep specialty with CBS, no one would have blinked, right? But instead they announced, we're going to break out claims processing to a new claims processing division. We're going to use Mark Cuban for cost plus. We're going to keep – PC [ph], we're going to do some things with Prime. Are there other clients that look at this and say, we want to do the same. We want to unbundle rather than bundle services? And if that were the case, is there any impact as we think about margins going forward?

Eric Palmer

I appreciate that question Lisa. And I remember that call visibly I mean that call -- I'll say, the headline of that call was actually a win for us. We have been trying to grow. Prime's a partner of ours that when our partners grow, we grow. So that's great. I wouldn't call out that there's been a big shift in the market. Not many entities have the sophistication, and the desire to take on assembling those different fragmented pieces.

In some ways, I actually kind of wish there was more momentum there, because we're positioned really well, to tackle the different solutions in a modular sort of way. Just like the relationship, we do some things for Prime. Prime does some other things on their own. That's a great example. We have relationships with a number of other partners, across some of our different solutions whether that's relationship, we announced a couple of years back with Kaiser Permanente or with the relationship that we've got.

Now we've been with Centene where we're taking on chunks of service and working to effectively connect, with others. So broadly though, the headline would be, not many entities have the sophistication to do that. But for those that do, we look forward to working with them.

Q – Lisa Gill

I would think it's very small. I mean I think many people know that we since 2007 have been surveying very large employers. And when asked about this, most of them said how can you possibly manage four or five different vendors? I have enough trouble is managing by one vendor. So it will be interesting, I guess to watch and see, how this plays out over time.

David Cordani

Lisa, there are some large employers that have 30 vendors.

Eric Palmer

Step more broadly

David Cordani

So a theme, that we see in the marketplace today is, what's referred to as point solution fatigue. So -- and innovation curves have this in a variety of industries, right? Things become fragged and broken out into subspecialization and then you step back and say, are you getting all the value you expected to get out of all these subcomponents, and can you see the value? And is the consumer, in some case, the end consumer your employee or a member or the physician, who's dealing with the fragmentation having too much friction relate to it.

And there's a little bit of a revisitation of that to determine where are the constellations of point solutions when they come together to create another step function of value, we're well positioned to be able to bring that forward on a regular basis as well.

Q – Lisa Gill

In your prepared comments, you talked about pharmaceutical innovation. GLP-1s is probably one of the larger classes that we've seen come to the market, in the last few years. But there are things that are needed around adherence, right? It's not an easy drug to take. We know that, if you stop taking it, it almost reverses pretty quickly. And there's been many studies that say, adherence hasn't been great. And some speculate that's why Lilly brought Lilly Direct to the marketplace to try to, really drive that adherence and have a more direct relationship with the patient.

Can you talk about some of the programs that you have specifically, around weight loss for GLP-1s because there's really not a question when we think about diabetes. But again, kind of going back to some of our independent work, we have large employers saying, we're not paying for weight loss, even when you try to ship benefits of what that can mean, whether it's cardiovascular or other areas of improvement for that patient. So maybe talk about some of the programs that you have whether it's around prior authorization, weight loss management or other things that you think you can do, when we think about new product innovation.

Eric Palmer

Sure, I'll start Circle Rx. Yes, absolutely. So, a couple of things. So one program, I would note that we're in the course of launching that will be coming out later this spring, is a program we called the Circle Rx, which is targeted cardio diabesity, right? So the intersection of those three conditions, which are obviously often linked together. That program works to target the individuals, who are at the highest risk, would have the most benefit from meaningful changes from access to the GLP-1, supports it with the right ongoing clinical and behavioral support for lifestyle mutilation and making sure that an individual is prepared to work through all of the effects of going through this kind of life-changing set of therapies and such and set up also with the right value-based reimbursement as well.

So, to the extent that there are not the benefits that are expected, there's an outcome-based set of economics that go along with that as well. So, that comprehensive program is going live in the first quarter of this year.

I'd also note just to rewind the clock a little bit, we've implemented before GLP-1s were acronym that rolled out people's tongues, a program called the Weight Value Care Management Program back in 2021 that was based off of some of these same things. It was targeted around [indiscernible] at the time, that program didn't catch a lot of attention because it was before -- this is in the air if you will of the kind of popular dialogue, but it's just another example of us being positioned to be not only having access, but supporting an individual and supporting a program.

Last couple of things I'd note is it is really important that there's the right level of clinical review that goes along with things. And we're well-positioned through clinical depth that we've got within Express Scripts and our broader clinical resources you might know as eviCore within our other clinical operations to do the right level of prior authorization and utilization management to meet the needs of the individual patient, to ensure that the therapies are targeted appropriately, and that line up with the work that our plan sponsors ask us to do. So, we're well-positioned to provide those services to provide access and appropriate access along the way.

Lisa Gill

You talked about value-based care within that. I mean you talked about paying for outcomes. Can you talk about how that works actually? Is it you're taking the risk? Is the manufacturer taking the risk? And then how do I think about like margin profile of things like that?

Eric Palmer

Sure. So, overall, put this in the frame of working to inline incentives and there are examples of times where manufacturers taking risk, there are times when we take risk on clinical outcomes based off of our known history and track record.

So, it can be either one of those types of types of arrangements but all with the orientation on getting to a predefined set of adherence measures or clinical measure movement or total cost movement where we know what we can do to improve cost outcomes and then be rewarded for that. So, that's -- it can be kind of either one in terms of the underlying kind of risk contracts.

David Cordani

And depending on the value-based care relationship we help with a medical provider, the medical provider depending on the shared risk arrangement and maybe sharing in that risk based on adherence annually you're setting performance thresholds with a physician panel relative to gaps in care closure or medication adherence or -- so, it's another way where you come back to where Eric articulated aligning incentives is powerful, misaligned incentives created a lot of friction.

Lisa Gill

We talked earlier about transparency simplicity. CBS has come out with a new pharmacy model it's called Cost Vantage. We had Walgreens here yesterday, your former colleague, Tim Wentworth was here and also talked about this idea that we've got to this point in pharmacy reimbursement where roughly $1 billion has come out each and every year and they feel like -- both companies feel like it's no longer sustainable. And I'm just curious from the other side of the table how you're thinking about that? And how you think about new cost-plus kind of models in retail pharmacy?

David Cordani

Yes. So, also I'll start. So, there's a lot of facts that need to be added to the framework that have been articulated relative to the cost-plus model, right? How is cost established? What's the plus? Where does the cost structure attach relative to it?

I think you take a couple of steps back, you think about a significant amount of shift that has happened in the marketplace over time in terms of the behaviors and actions of, in this case, retail pharmacies to keep or get more pharmaceutical flow and foot traffic coming through the stores, to be able to enable their business models to work.

In some cases that decreased the rate of growth for mail order. It changed some of the dimensions all to the benefit and choice for beneficiaries or patients from that standpoint. So this may be a recalibration relative to that.

Point two is that we don't look at the marketplace as good or bad you're going to look at it in terms of micro markets. So in rural communities there may only be one pharmacy. We stepped forward earlier this year and we said there's, 2000 rural pharmacies that are independently owned that we're going to proactively pay more.

Lisa Gill

Right

David Cordani

We open up the contract. We said we're going to proactively pay more. We're going to assist them for additional services, in terms of preventative care mental health screening and certain additional services from that standpoint because they're the only game in town.

In other markets like the physicality we're sitting in right now, there's a lot of physical choice that new models are going to shake through and then we'll be in best position to be able to offer choice to our clients.

Whether they're employer clients or health line clients in terms of how they want to configure their access profile relative to achieving what they want to achieve.

So I think it's a step in a direction. There's a lot of detail that needs to be able to play through. We have the capabilities to make sure we have the right access and value profile for the benefit of our customers and our patients.

Lisa Gill

In your opinion can this reignite mail? So for those of us that have been around for a long time we remember the trajectory, right? CVS and Caremark came together. They had maintenance choice. Walgreens followed with a 90-day script.

They did something initially with Express Scripts around that to give parity between mail and retailer mail previously was the better choice. Because you control the procurement of the drug and have a lot of control around it is there an opportunity here on mail when we think about maybe that's a little bit of a shift back towards mail versus retail?

Eric Palmer

Could be. So again, I think a lot of details have to be worked out here. But we like the mail capability and having that as an option to conveniently and in a quality and safe way to get medicines to people.

I mean, the stepping back out of our industry there's a lot more boxes showing up in my house in terms of things that are going to deliver and I think that's probably true for a lot of folks. So, that Home Delivery capability is a really good one to have. And to the extent that there's a shift here there could be a chance for some resurgence there.

Lisa Gill

I think one of the things years ago around mail was just the interface with the consumer right? And Express Scripts would admit that they just did not have the same consumer-facing engine as some of the other parties in the marketplace. And they thought that that hurt them in some ways around home delivery. Do you feel like your technology is better today?

Eric Palmer

I'm actually really proud of the work not only on the fulfillment and the like but also the investments we've made on front-end things and actually the opportunity to now connect when Express Scripts was stand-alone it would stand alone.

As part of Evernorth we've got a much wider breadth of things that we're interacting with our patients with whether that's on the telehealth visit through MDLIVE whether that's providing access to the thousands and thousands and thousands of behavioral health visits we facilitate every week whether that's just in the portals that now exist and much more seamless.

And the state of art technology has evolved over the course of the last number of years as well. So I think the chance to put more customer-friendly than 15 years ago kind of front end on a digital experience lines up really well with an area where we could have some growth.

Lisa Gill

Can we spend a minute talking about biosimilars? I mean I think a year ago when we sat together we thought there would be a lot more biosimilar utilization. Clearly have came back in response and really lowered the list price or I shouldn't say that increased the rebate for the net price to come down on Humira.

And I know you really when you think about what you're doing for your clients you're really trying to get to the net price on the product. As we think about the next 12 months, how are you thinking about biosimilars in the area of HUMIRA? And do you think we will finally get that adoption rate that we had talked about a couple of years ago and expected for HUMIRA?

David Cordani

So maybe I'll just make a couple of comments and ask Eric to peel this back a little. When you talk about a year ago, what we were clear was that the biosimilar evolution was going to create significant value and affordability improvements for the benefit of plan sponsors and beneficiaries, and that's happening. We're starting to see it transpire.

At our last Investor Day, we talked through the rate and pace and change of the marketplace. Profile of that over the next handful of years the U.S. lags other OECD nations relative to adoption. So we saw it as an opportunity to improve affordability, very importantly improve affordability in the marketplace as new high-cost medications in terms of gene therapies, the GLP-1s, et cetera or forthcoming. So we need to see movement here and we are seeing movement here.

To -- you may recall Lisa, we were a bit cautious in terms of we did not call 1/1/2023 as an inflection point that it was in a nice switch across, because we said there'll be an evolution here. There will be an evolution of the adoption curve, there'll be an evolution here in terms of action to behaviors of competitors that come along, and we will position ourselves to be able to deliver choice for the benefit of those we serve. But in the positioning of that choice, we will ensure that we're able to deliver real value.

That again, our plan sponsors and our customers are benefiting from today. And we think that that process is going to continue to evolve on a go-forward basis. Eric, you want to peel that back a little further?

Eric Palmer

Yes sure. So, I think that's a really good overview. And if you look at the continued introduction of additional choice that we're positioned really well to be able to move through and harness the power of competition, right? So that as more therapies come on for HUMIRA and as the next biosimilars come and come after that we expect. And we highlighted, again, at our Investor Day a couple of years ago the meaningful uptick from high single digits into something 20-plus percent of therapies that will have choice that will have alternatives that choice enables us to go to work to drive the economics to the benefit of our clients.

So we're really excited about that. And we're positioned tackle that problem really well both through the depth of our clinical resources and our -- the good work that our supply chain teams do day in and day out.

Lisa Gill

There's an enormous amount of scrutiny around the PBM industry. I think there has been several bills that, and I know like historically, you would think I a person that appreciates the PBM industry would say, we don't want anything to pass. But it got so watered down, I was like, just past this so we can move past what's going on in the marketplace.

But I'd love to hear your perspective on, one, what do you think will change legislatively? And two, the FTC has come out where previously they were very positive on the PBM industry, right, in the mid-2000s and talked about mail and the benefit of PBMs. And now Lena can came out and pulled her support for the PBM industry, and said, we're going to do a deep dive and publish something in 2024. Do you have any thoughts on like the angle that they're coming from or any other findings or anything else you can share?

David Cordani

So a couple of macro comments here. I won't get -- I won't answer the last part of your question just to be clear, because I don't know what they're going to publish. Not that I want to play games relative to it.

Stepping back the PBM ecosystem creates a significant amount of value, right, from an affordability, to an accessibility, to a medication adherence, to a clinical quality standpoint, and there have been multiple studies done through a variety of mechanisms over time that continue to revalidate that. That's the headline.

Is it a perfect system? No. No system is perfect from that standpoint. To we stepped forward earlier this year with some additional initiatives. One, I made reference to our independent Rx initiative, it surprised people. We took 2,000 pharmacies that were independently validated, as solely owned rural locations and the only access in the marketplace and we drove change here. That was responsive to a market need. We proactively came forward with additional disclosures on a transparency standpoint and this may sound technical, it's not meant to be. We actually did it through Form 5500 because they're established government accepted forms were disclosures, because we want to have more transparency that is constructive.

And then we've been actively engaged, as we always are on the Hill with elected officials and appointed officials relative to evolution of the marketplace that recognize that the need to preserve choice, but brings additional transparency and other capabilities to market. And I would not say that the current bills are watered down. I think they're more precise. Some of the early bills had everything in the thinking and you came back with what problem are we trying to solve for what stakeholder and how will this action solve that problem? And there's been more precision brought to bear against it.

As it relates to the study that's underway, we're confident that the facts will yield that the PBM industry not just ourselves, but we're the proud of ourselves and your kind relative to articulating us in the leadership position delivers a significant amount of value and we will ensure that we continue to support that with independently validated research as well as we drive more transparency, more choice, more access alternatives and more overall value for the benefit of clients and customers and patients.

Lisa Gill

I know we only have someone that left and we spend a lot of time on the Evernorth side of the business. But I do want to spend just a couple of minutes on the Cigna commercial side of the business. Obviously, we're in a new year, I'd just be curious, when you were cautious a few years ago about, where the economy was going to be and what that would mean for employment trends and they've held very strong. Can you maybe just spend two minutes talking about what people were looking for this year for 2024 and the benefit offering? And then secondly, you made a comment around utilization. And it feels to me like utilization issues or trends have really been more in the Medicare Advantage side than the commercial side. So, how would you characterize current commercial utilization trends?

David Cordani

So a couple of headlines here. One, we have been focused on excited about and successfully growing the commercial proposition for the last decade plus. We viewed it as a growth market with intense focus, micro segmentation, localization and innovation from that standpoint. And knock on wood, our results demonstrate that our focus on retention, expansion, relationship in addition to new relationships have yielded real value.

Two, a big part of our growth engine is what we call the Select segment. It's down market. Think about employers between on average 100 and 500 employees. So you can think about 200 to 1000 covered lives in that where we bring really innovative choice to market with transparency et cetera from that standpoint. To the notion to two points of earlier this year in 2023, we said that in the second half of '23, we thought that the employment landscape was going to start to soften a little bit. We had some of that built into our expectations. We didn't see that show in the third quarter. So we increased our membership outlook a little further in the third quarter, off of a really strong base for the full year and a really strong base for 2023.

We do expect to see a little bit of softening through the -- into the '24 time frame and that is built into our underlying expectation that we'll talk about over the near term. Back to what employers are looking for, upstream with the big national accounts, there is point solution fatigue. The ala carte 10, 20 or 30 alternatives is providing pressure to step back and provide a bit more integration to employers are more open to precision, so programs like our path well program that bring more precision to musculoskeletal or specialty disease et cetera. They're looking for more precision of certain episodes of care where step functions of quality and value could be brought forward.

And then tools that continue to get the right balance of consumer enablement, but not application to the consumer and physician accountability through value-based care, how do you get those programs to Eric's point to come back and be in alignment a lot of receptivity relative to that. We'd expect 2024 to be another year of good growth in our Select segment and our middle market business.

Lisa Gill

Great. Well with that, we're out of time. Thank you so much. Appreciate it.

David Cordani

Thank you all for your time.

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The Cigna Group (CI) Presents at J.P. Morgan 42nd Annual Healthcare Conference Transcript