Cigna Will End Drug Rebates in Many Private Health Plans (1)

Cigna Group will eliminate prescription drug rebates in many of its commercial health plans in 2027, upending an opaque, controversial practice that’s drawn the ire of President Donald Trump.

The insurer will expand the rebate-free model to clients of its pharmacy benefits business starting in 2028. The plan to eventually phase out rebates more broadly portends a seismic shift in the flow of billions of dollars among drugmakers, insurers and employers.

Cigna said it aims to lower patients’ costs at the pharmacy counter with up-front discounts rather than rebates collected from drugmakers long after a medication is dispensed. The company, which has faced criticism over rebates for years, said it’s responding to changes in the marketplace, including the Trump administration’s efforts to lower prices in the US.

Adam Kautzner

Photographer: Al Drago/Bloomberg

“The dynamic has changed in terms of where the market is headed,” Adam Kautzner, president of Cigna’s Express Scripts pharmacy benefits division, said in an interview. “We see this as an opportunity to lower the costs for Americans on branded drugs.”

Pharmacy benefit managers, or PBMs, contract with drugmakers and pharmacies to run prescription drug plans for employers, health plans and government programs. That system has long relied on rebates — payments drugmakers make to the PBM after a prescription is filled. The value of drug rebates and other discounts reached $356 billion last year, according to researcher Drug Channels Institute.

Pharmaceutical companies pay the rebates in order to get favorable placement on PBMs’ lists of covered drugs, a practice that critics have likened to kickbacks. The two industries have been embroiled in a vitriolic fight, with each side blaming the other for inflated US drug prices that far outstrip costs in other wealthy countries.

Drugmakers complain that patients don’t see the full benefit of rebates. PBMs say they pass nearly all of the money back to their clients, who can use it to lower premiums or offset other costs. Some employers say rebates create warped incentives, because PBMs are collecting money from the drugmakers with which they’re supposed to be negotiating.

Patients who have high-deductible plans can wind up paying the full cost of their medications when they fill prescriptions, while the rebate from that drug goes to their employer later on.

Kautzner said Cigna aims to eventually do away with all that for its private prescription drug plans. People with high-deductible plans will see a 30% discount on average for brand medications, he said.

The change will initially apply to about 2 million of Cigna’s fully insured health plan members. In 2028, it will become the standard option for Express Scripts clients, though they’ll be able to continue with rebate-based models if they choose. It won’t apply to drug benefits for government programs like Medicare and Medicaid.

The move is part of an industry effort to get ahead of regulations, and “could pave way for formal agreement” between the industry and Washington, TD Cowen analyst Charles Rhyee wrote. He said Cigna’s plan “strikes many similar notes” to prior announcements by CVS Health Corp.

Cigna shares rose 1.7% at 10:48 a.m. in New York.

Trump Target

The announcement comes months after Mehmet Oz, administrator of the Centers for Medicare and Medicaid Services, urged PBMs to voluntarily do away with what he called the “rebate-slash-kickback system.”

Read More: Oz Pushes Drug Middlemen to End Rebates Before Washington Acts

During his first term, Trump tried to do away with rebates by regulation. The effort faltered after court challenges. He attacked PBMs after he was reelected last year, calling them the “horrible middleman” and saying that they “don’t do anything.”

Cigna’s Express Scripts is the largest of the three leading PBMs, along with CVS’s Caremark unit and UnitedHealth Group Inc.’s Optum Rx. All three have been targeted by lawmakers and the Federal Trade Commission, which sued the companies last year alleging that rebates drove up the cost of insulin. The companies dispute that and the litigation, in an internal FTC tribunal, is pending.

David Cordani

Photographer: Tierney L. Cross/Bloomberg

Cigna Chief Executive Officer David Cordani praised Trump “for taking decisive action to help lower costs for brand-name medicines that have long been controlled by drug companies,” in a statement to Bloomberg News.

Cajoling from the Trump administration has led pharmaceutical companies including Pfizer Inc. and AstraZeneca Plc to offer some of their products at lower prices to government programs in exchange for a reprieve on potential tariffs. Drugmakers have also tested some “direct-to-consumer” programs for popular weight-loss medications and other products meant to offer discounts for people paying cash.

Cigna said it will ensure members don’t pay more than the discounted direct-to-consumer or cash prices offered by drug companies, if those are less than the company’s negotiated rate. It’s also expanding a program meant to ensure fair reimbursements to pharmacies.

Other PBMs have made moves to head off a tougher crackdown from Washington. Earlier this year, Optum Rx said it would move to pass 100% of rebates to clients. CVS Caremark has promoted a model intended to give rebates to patients when they fill prescriptions.

Replacing Rebates

For Cigna to replace rebates with up-front discounts, it will have to renegotiate contracts with drugmakers, employers and health plans. Kautzner said drugmakers will welcome the change, because reducing out-of-pocket costs will make it more likely patients fill their prescriptions and stay on their medications.

“They would also like to see a lower patient out-of-pocket cost,” he said. Kautzner said he expects Cigna will be able to negotiate better discounts with pharmaceutical companies going forward.

The goal is to get half of employer and health plan clients to adopt the model within three years, Kautzner said. Express Scripts has about 100 million members.

Because some clients use rebate payments to offset premium costs, eliminating rebates could risk raising premiums. Kautzner disputed that it would lead to higher costs.

“We do not expect that there will be any raising of premiums,” he said.

Rebate Benefits

PBMs have spent years defending the rebate system. The website of Cigna’s Evernorth division, which includes the PBM, says that “without the ability to deliver rebates, health care costs would be much higher.”

Kautzner said that rebates will continue to exist “for the foreseeable future,” though the company wants to move the industry to a simpler, more transparent approach. It’s one some smaller PBMs have long attempted to implement.

The Cigna Group headquarters in Bloomfield, Connecticut.

Photographer: Joe Buglewicz/Bloomberg

Cigna and its larger rivals have also opened up new revenue streams from drugmakers in recent years, in the form of other fees that aren’t called rebates but look similar. These fees, collected by affiliates called group purchasing organizations, are often structured as a percentage of the drug’s list price. Kautzner said other compensation the company gets from drugmakers would no longer be linked to list prices.

Read More: Drug Benefit Firms Devise New Fees That Go to Them, Not Clients

Kautzner said Cigna is “making investments” in the new model but declined to say how the change would affect its business going forward.

“We think it’s completely manageable,” he said. “We remain confident in the long-term durability of our margin profile.”

(Updates with analyst reaction, share move at end of first section.)

To contact the reporter on this story:
John Tozzi in New York at jtozzi2@bloomberg.net

To contact the editors responsible for this story:
Cynthia Koons at ckoons@bloomberg.net

Michelle Fay Cortez, Andrea Chang

© 2025 Bloomberg L.P. All rights reserved. Used with permission.