What’s in it for Evernorth? Cigna’s health services arm invests $2.5B in VillageMD-Summit

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Walgreens-backed VillageMD snapped up medical practice Summit Health for almost $9 billion earlier this week, with an assist from a big-name minority investor — Evernorth, the health services arm of insurance giant Cigna, which invested $2.5 billion in the combined company.

The deal could have major ramifications on Evernorth’s push to value-based care, according to Cigna executives and analysts.

Evernorth will become a minority owner in the combined company at the deal’s close, with a low-teens percentage ownership stake, Cigna CFO Brian Evanko said at the Credit Suisse healthcare conference on Tuesday. Cigna will also get a mid-single-digit return off $2 billion of the investment each year.

But beyond the financial rationale, the investment should allow Evernorth to significantly accelerate value-based care arrangements in the commercial space, according to Evanko — not in Medicare, a program that hosts the brunt of shared savings arrangements for payers.

“The shared savings through the value-based contracts that we’ll have with Village is far and away the most strategically interesting part of this opportunity for us,” Evanko said.

Unlike many other primary care physician groups, VillageMD is focused on the commercial market, which brings in two-thirds of its revenue. That plays to Cigna’s strength in the employer market, as the majority of its customers are commercial employers, according to Credit Suisse analyst A.J. 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 benefit manager Express Scripts, specialty pharmacy Accredo and virtual care provider MDLive.

Evernorth does already provide care directly to patients, including primary and specialty care through Evernorth Care Group’s health centers in Arizona and home care through Accredo and Care at Home, Evernorth CEO Eric Palmer told Healthcare Dive via email.

But the VillageMD partnership should allow Evernorth to create closer relationships with high-performing primary care physicians and accelerate its value-based arrangements, Palmer said.

And, marrying VillageMD’s medical network — which, with the addition of Summit, will comprise more than 680 provider locations in 26 markets — with Evernorth’s other health services like chronic condition management and a network of behavioral health providers should make the business more attractive to clients.

The shared savings and risk-based contracts are extensible to Cigna’s provider partners, and will also be extended to the other health plans that Evernorth serves over time, according to Evanko. Evernorth’s health insurer clients include government-focused Centene, insurtech Oscar Health and Kaiser Permanente.

In the near term, the contracts will be focused on healthcare services, as opposed to Evernorth’s pharmacy capabilities. Evernorth also expects to incorporate MDLive into the shared savings arrangements, to try to drive consumers to its lower-cost virtual care options.

But “there’s a possibility over time that some pharmacy assets could make their way into that,” Evanko said.

Cigna already contracts with VillageMD in some of its medical networks. The two share a roughly 30% to 40% geographic overlap, and as the providers expand, that overlap should increase further, according to the CFO.

The relationship expansion reflects how payers have been growing through acquisitions in non-core areas — diversifying overall, instead of entering new states or serving new specialized populations on the plan side, said Nathan Ray, healthcare M&A lead at West Monroe.

For VillageMD, “the overall impact of Evernorth on the brand here is to be in the right place to provide scale and capital, not to complicate,” Ray said. “It’s a little more of a participation play and being around good people moving in the right direction.”

Cigna’s $2.5 billion bid to beef up Evernorth’s value-based offerings comes following concerns from market watchers that the payer could be falling behind in the frenzy of insurer M&A.


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