Cigna to End Drug Rebates in Many Private Health Plans
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.
By John Tozzi, Bloomberg News
Cigna 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.
Background on Rebates
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 U.S.
How Rebates Work
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.
Criticisms of Rebates
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 U.S. drug prices that far outstrip costs in other wealthy countries.
Impact on Patients
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.
Rollout of New Model
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.
Reaction from Government
Health and Human Services Secretary Robert F. Kennedy Jr. praised Cigna in a social media post for what he said was “greater transparency and lower drug prices on brand-name medicines” that aligns with administration’s vision.
Industry Efforts to Get Ahead of Regulations
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.
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.” During his first term, Trump tried to do away with rebates by regulation. The effort faltered after court challenges.
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.
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.
Conclusion
Cigna’s decision to end drug rebates in many private health plans marks a significant shift in the pharmaceutical industry. The move is expected to lower costs for patients and increase transparency in the system. As the industry continues to evolve, it will be important to monitor the impact of this change and ensure that it benefits all stakeholders.
FAQs
Q: What is Cigna’s new approach to prescription drug pricing?
A: Cigna will eliminate prescription drug rebates in many of its commercial health plans in 2027 and replace them with up-front discounts.
Q: How will this change affect patients?
A: Patients with high-deductible plans will see a 30% discount on average for brand medications.
Q: What is the current system of rebates, and why is it controversial?
A: The current system relies on rebates — payments drugmakers make to the PBM after a prescription is filled. Critics argue that this system is opaque and can drive up drug prices.
Q: How will Cigna’s new approach affect the pharmaceutical industry?
A: The move is expected to increase transparency and lower costs for patients, but it may also require drugmakers to renegotiate contracts with Cigna and other PBMs.
