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VillageMD, backed by Walgreens, has acquired medical practice Summit Health for nearly $9 billion earlier this weekwith the help of a renowned minority investor – Evernorth, the healthcare services arm of insurance giant Cigna, which invested $2.5 billion in the combined company.
The deal could have major ramifications for Evernorth’s push toward value-based care, according to Cigna executives and analysts.
Evernorth will become a minority shareholder in the combined company upon closing of the deal, with a low percentage of teenage ownership, Cigna chief financial officer Brian Evanko said Tuesday at Credit’s healthcare conference. Swiss. Cigna will also earn a mid-single-digit return on $2 billion of investment each year.
But beyond the financial justification, the investment should enable Evernorth to significantly accelerate value-based care arrangements in the commercial space, according to Evanko — not in Medicare, a program that houses the the weight of shared savings devices for payers.
“The savings shared through the value-based contracts we will have with Village is by far the most strategically attractive part of this opportunity for us,” Evanko said.
Unlike many other primary care physician groups, VillageMD focuses on the commercial market, which brings in two-thirds of its revenue. This plays to Cigna’s strength in the employer market, as the majority of its clients are commercial employers, according to Credit Suisse analyst AJ Rice.
As part of its investment, Evernorth will develop value-based agreements with VillageMD. The two will work together to optimize sites of care and patient outcomes through VillageMD’s physician network and Evernorth’s health services businesses, which include pharmacy benefits manager Express Scripts, specialty pharmacy Accredo and virtual care provider MDLive.
Evernorth already provides care directly to patients, including primary and specialty care through Evernorth Care Group health centers in Arizona and home care through Accredo and Care at Home, said Evernorth CEO Eric Palmer. to Healthcare Dive via email.
But the VillageMD partnership should allow Evernorth to build closer relationships with high-performing primary care physicians and accelerate its value-based deals, Palmer said.
And, marrying VillageMD’s medical network – which, with the addition of Summit, will include more than 680 provider locations in 26 markets – with Evernorth’s other healthcare services like chronic disease management and a network of behavioral health should make the business more attractive to customers.
The shared savings and risk-based contracts are extendable to Cigna’s provider partners, and will also be extended to other health plans Evernorth serves over time, according to Evanko. Evernorth health insurers’ clients include government-focused organizations centeneinsurtech Oscar Health and Kaiser Permanente.
In the short term, the contracts will focus on healthcare services, as opposed to Evernorth’s pharmaceutical capabilities. Evernorth also plans to integrate MDLive into shared savings agreements, to try to drive consumers to its lower-cost virtual care options.
Buthere is a possibility over time that some pharmacy assets could enter it,” Evanko said.
Cigna already has contracts with VillageMD in some of its medical networks. The two share a geographic overlap of around 30% to 40%, and as the providers grow, that overlap is expected to increase further, according to the CFO.
The expansion of the relationship mirrors the way Payors have grown through acquisitions in non-core areas – by diversifying globally, instead of entering new states or serving new niche populations on the plan side, said Nathan Ray, head of healthcare mergers and acquisitions at West Monroe.
For VillageMD, “Evernorth’s overall impact on the brand here is to be in the right place to provide scale and capital, not complicate it,” Ray said. “It’s a bit more of a game of participation and being surrounded by good people who are going in the right direction.”
Cigna’s $2.5 billion bid to bolster Evernorth’s value-based offerings follows concerns from market watchers that the payer could fall behind in the frenzy of mergers and acquisitions of insurers.
Evernorth in particular has been a key driver of Cigna’s recent revenue growth, with revenue growing at a faster rate than in Cigna’s health plan business. In the third trimester, Evernorth generated $35.7 billion in revenuerepresenting 79% of Cigna’s global revenue.
The investment in VillageMD is essentially neutral to Cigna’s earnings per share outlook for 2023 and 2024, Evanko said. Additionally, the financial modeling around this EPS impact assumes no significant contribution from the shared savings of value-based contracts with VillageMD – although this may change.
“To the extent that there is more value there, it provides an advantage to our business case in the years to come,” Evanko said.