By Sneha S K and Sriparna Roy (Reuters) -Cigna Group on Thursday warned of margin pressure over the next two years as its pharmacy benefit management business switches some customers to a new model that does not include the after-market discounts known as rebates. The comments send the health insurer’s shares down nearly 18%, hitting […]
Health
Cigna flags margin pressure in pharmacy benefit unit over next two years; shares fall
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By Sneha S K and Sriparna Roy
(Reuters) -Cigna Group on Thursday warned of margin pressure over the next two years as its pharmacy benefit management business switches some customers to a new model that does not include the after-market discounts known as rebates.
The comments send the health insurer’s shares down nearly 18%, hitting over two year low.
Earlier this week, the company said it will end prescription drug rebates in some types of health plans in 2027 and offer up-front discounts at its pharmacies, a shift it said would lower costs for patients.
Cigna said it has renewed contracts with three large clients, Prime Therapeutics, the U.S. Department of Defense and Centene, and made changes to the economic terms of the contracts as they face “significant financial and affordability pressures” in their government-sponsored plans.
Prime Therapeutics and Centene both offer government-backed Medicare plans for older adults and Medicaid plans for low income people.
The clients represent roughly $90 billion of annual revenue, the company said.
“As a result of these factors, we expect margin pressure within our pharmacy benefit service segment over the next two years,” said CEO David Cordani in a call with analysts.
CONTRACT RENEWALS COME AS A SURPRISE
However, the company added that even with the significant investments, it expects to grow its adjusted profit in 2026.
“While the new rebate model should relieve regulatory headwinds longer-term, the repricing of the three major clients is a surprise and reduces Evernorth’s long-term growth algorithm in the immediate term,” said Mizuho analyst Ann Hynes.
Cigna did not provide clarity on why the company proactively renewed and extended these three contracts, but the earnings pressure is a surprise and a disappointment, Hynes added.
Shares of peer CVS Health fell 4%.
While the question arises whether CVS will have to follow suit at some point on investments, said Leerink analyst Michael Cherny adding the sell-off in shares is overdone and expects positive commentary the company’s investor day while CVS also works to expand its overall offerings through its PBM unit.
The comments clouded the company’s third-quarter profit beat, which was driven by Evernorth strength. The company also reaffirmed its 2025 adjusted profit of at least $29.60 per share.
It earned a quarterly adjusted profit per share of $7.83, beating estimates of $7.65 per share, according to LSEG data.
(Reporting by Sriparna Roy and Sneha S K in Bengaluru, Amina Niasse in New York; Editing by Devika Syamnaath and Nick Zieminski)