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John R. Fischer, Senior Reporter | February 02, 2024
Cigna has agreed to sell its Medicare Advantage business to HCSC for $3.7 billion.
After almost three months, The Cigna Group has struck a deal to sell off its Medicare Advantage business to Health Care Service Corp. for $3.7 billion in cash.
This includes its Medicare Advantage, Medicare supplement, Medicare drug plans, and CareAllies unit, which was formed in 2016 to assist providers in transitioning their workflows from fee-per-service to value-based care models. The deal also includes a four-year services agreement under which Cigna subsidiary Evernorth Health Services will continue providing pharmacy benefit services to the Medicare businesses following the completion of the transaction.
According to David Cordani, chairman and chief executive officer of the Cigna Group, the company will be able to focus on allocating resources to grow its Evernorth Health Services and Cigna Healthcare portfolios while positioning the Medicare businesses and CareAllies unit for better growth opportunities under HCSC.
“While we continue to believe the overall Medicare space is an attractive segment of the healthcare market, our Medicare businesses require sustained investment, focus, and dedicated resources disproportionate to their size within the Cigna Group's portfolio. We continue to see significant, meaningful growth opportunities for government services, including Medicare, in our Evernorth Health Services portfolio of businesses,” said Cordani in a statement.
Reports of a sale
started in November, with Cigna reportedly looking to unload the business due to changes in the U.S. reimbursement model, and because it anticipated decreases in 2024 business' rating due to changes in the government’s star rating system, which affects certain reimbursement decisions.
The Medicare Advantage business made up 4.4% of the company’s $179.4 billion revenue from external customers in 2022, far below the majority made by its commercial business and pharmacy benefits division. The sale is expected to be accretive to its adjusted earnings per share in 2025. Once finished, it will allocate the majority of the proceeds to share repurchase and other capital deployment priorities.
Cigna has had a stake in the Medicare Advantage market since 2011 when it acquired HealthSpring for $3.8 billion. In its Q3 2023 earnings call, it said it expanded the geographic footprint for the business from 20% to 40% in 2019 and saw its customer base rise 13% year-over-year. Still, profit margins for the division were below its 4% to 5% target and were expected to continue this way in 2024 due to administrative expenses for expanding it.
