Cigna’s End to Drug Rebates Spurs Questions on Premiums, Impact

Cigna Group’s announcement that it will end the highly criticized practice of accepting back-end drug manufacturer rebates prompted surprised cheers from some corners of the drug supply chain, even as industry observers questioned whether the company’s plans will truly improve transparency and reduce prices.

Cigna’s pharmacy benefit manager subsidiary Express Scripts—one of the nation’s largest PBMs—plans to phase out rebates for its fully insured plans by 2027. The company also plans to phase them out with self-insured employer plans by 2028. Bloomberg News first reported the announcement Monday.

Pharmacy benefit managers control the prescription drug benefit for health plans, negotiating percentage-based rebates off of a drug’s list price in exchange for preferential cost-sharing terms for a plan’s patients. Critics of the practice say the rebates drive prices higher, with PBMs and plans pocketing the rebate money. Defenders say the rebates help plans keep premiums low.

The announcement is the latest in a string of moves by PBMs to revamp the traditional business model in the face of sustained backlash from consumers, regulators, and lawmakers on both sides of the aisle. But the criticism of PBMs doesn’t end with rebates, and critics fear the companies are simply evolving new ways to secure rebate revenue.

Shawn Gremminger, president and CEO of the National Alliance of Healthcare Purchaser Coalitions, said the move seems like a significant restructuring of the PBM business model.

“What I still haven’t figured out yet is what is the ‘but’? What is the angle?” he said. “And maybe that’ll become more clear as more details come out.”

He contrasted Cigna’s estimate that the elimination of rebates will save high-deductible health plan members an average of 30% on drug costs with PBMs’ yearslong argument that rebates lower the cost of drugs.

“Isn’t that fascinating how quickly they stop saying that the traditional rebate-driven model saves money?” he said.

Cigna did not respond to a request for comment.

Impact on Premiums

Cigna’s new approach will pass on manufacturer discounts to the patient at the point-of-sale, rather than distributing them evenly across all enrollees to keep premiums down.

Insurers and PBMs have previously said this strategy would increase premiums, but Adam Kautzner, president of Express Scripts pharmacy benefits division, told Bloomberg News he didn’t think that would happen.

Ian Spatz, national adviser at consultancy Manatt, said Cigna’s announcement sounds significant, but questioned how the insurer would make up the lost revenue without raising premiums.

“It certainly makes sense to me that either employers are going to have to contribute more, or plan members are going to have to contribute more through premium increases,” he said. “So it’s very hard to understand how it wouldn’t have an effect on one of those two things.”

Cigna also plans to offer patients the least expensive option at the pharmacy counter, adopting a GoodRx approach that will apply even if the cash price or a drug company’s direct-to-consumer price is lower than an enrollee’s copay.

A string of drug manufacturers have introduced direct-to-consumer sales platforms in recent years, but they offer little benefit to most consumers, except in instances of drugs that are not widely covered by insurance. President Donald Trump, who attempted to end rebates during his first term in 2019, is capitalizing on the movement with his personally branded website, TrumpRx, to encourage direct-to-consumer sales.

The administration is also planning to propose a rule aimed at instilling more transparency in PBM revenue.

Will Employers Buy In?

Adam Fein, who is president of the Drug Channels Institute, lauded the announcement as a “big win for patients,” but cautioned that employers will have to agree to end rebates as well.

“Today, most plan sponsors prefer to use manufacturers’ rebates to reduce premiums rather than lowering out-of-pocket costs for the patients whose prescriptions generated the rebates,” he said in an email.

Gremminger speculated that “some, but not most” employers will agree to the new structure. Only a relatively small slice of employers forgo the current rebate structure, he said, even though a crop of smaller PBMs with more transparent business models have entered the market.

Cigna’s move is far from a “cure-all,” Fein said, noting that PBMs have been shifting profits away from rebate revenue to other manufacturer fees, specialty drug dispensing fees, and negotiation fees from group purchasing organizations based overseas.

The group purchasing organizations are part of the reason the Federal Trade Commission under President Joe Biden last year sued Cigna and two other major PBMs owned by CVS Health Corp. and UnitedHealth Group Inc., accusing the PBMs of inflating the cost of insulin in exchange for drugmaker rebates. The companies deny the claims and countersued the agency.

“To fix the system’s structural flaws, payments and fees to wholesalers, pharmacies, and PBMs must be based on a drug’s lower, net price rather than its list price,” Fein said.

It remains to be seen whether the other two PBMs follow suit or whether drugmakers will lower their prices in return, since the drug industry frequently blames high prices on PBM rebates.

“I’m very interested to see whether other PBMs follow this lead,” Spatz said, “or whether they will attempt to take away business from employer sponsors who don’t want to make this change.”

The Pharmaceutical Research and Manufacturers of America did not say whether it expected drugmakers to lower list prices, but said Cigna’s plan is a “step in the right direction that will lower the out-of-pocket costs for patients at the pharmacy.”

CVS Health and UnitedHealth have said they pass through nearly all rebates, though it’s not clear how many of their self-insured plan sponsors pass those rebates to consumers at the point of sale.