What does Evernorth offer? Cigna’s health services division has invested $2.5 billion in VillageMD-Summit

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VillageMD, backed by Walgreens, acquired medical practice Summit Health for nearly $9 billion earlier this week with the help of a prominent 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 implications for Evernorth’s pursuit of value-based care, according to Cigna executives and analysts.

Evernorth will become a minority owner in the combined company when the deal closes, with a low percentage of ownership by teenagers, Cigna CFO Brian Evanko said at the Credit Suisse Healthcare Conference on Tuesday. Cigna will also receive an average single-digit return of $2 billion on 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 we will have with Village are by far the most interesting strategic 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 adds to Cigna’s strength in the employer market, as the majority of its customers 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 care sites and patient outcomes through VillageMD’s physician network and Evernorth’s health services businesses, which include pharmacy benefit manager Express Scripts, specialty pharmacy Credo and virtual care provider MDLive.

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

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

And the combination of 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 such as chronic disease management and a network of behavioral health providers should make the business -attractive to customers.

Shared savings and risk-based contracts can be expanded to Cigna’s provider partners and will also be expanded to the other health plans Evernorth serves over time, according to Evanko. Evernorth’s health insurance company clients include government business Hundredsinsurtech Oscar Health and Kaiser Permanente.

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

But “there an opportunity over time for some pharma assets to work their way into that,” Evanko said.

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

The expanding relationship reflects how payers are growing through acquisitions in non-core areas — diversifying overall, rather than entering new states or serving new specialty groups on the plan side, said Nathan Ray, West Monroe’s head of health mergers and acquisitions.

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

Cigna’s $2.5 billion bid to boost Evernorth’s value-based offerings comes after market watchers’ concerns that the payer may be left behind in the insurance M&A frenzy.

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