Medicare Advantage Audit Costly For Cigna

Nov. 04--Cigna Corp. third quarter profits were down compared to a year ago as costs to reform its Medicare Advantage and Medicare drug prescription programs were a drag on results.

Even excluding one-time costs like that, adjusted income from operations was $503 million, or $1.94 per share, compared with $593 million, or $2.28 per share a year ago. That beat analysts' expectations. Analysts polled by Bloomberg had expected $1.91 a share.

Cigna has been under sanctions from federal regulators since late January. The Centers for Medicare and Medicaid Services said Cigna had widespread and systemic failures that prevented seniors from accessing medical services and prescription drugs. It said that the ways Cigna operated in restricting access to drugs and services created "a serious threat to enrollees' health and safety."

The company said it expects to spend $100 million this year trying to fix the problems. It has spent money on adding staff, hiring consultants and on technology.

CEO David Cordani told stock analysts Thursday morning that he doesn't expect Medicare Advantage customers to leave the company during this year's open enrollment in substantial numbers. One analyst noted that when Aetna was under sanctions, it lost 20 percent of its customer base when the seniors had the chance to switch.

"Our model is largely based very mature physician collaboration models," he said, and because the Medicare Advantage customers have "a very deep relationship" with their doctors, they tend not to leave, he said.

"Once our customers are with us for a year or more, they tend to be with us a long, long time," he said.

The Medicare Advantage population at the company was 519,000 at the end of the quarter, down 5 percent from a year ago.

The Medicare drug prescription business has had major attrition so far, however, and is down 32 percent compared to a year ago, with fewer than 1 million customers left by the end of the third quarter.

Cordani said he would also fight CMS' recommendation that its star ratings be downgraded substantially. If those recommendations go into effect, just 20 percent of the Cigna Medicare Advantage customers would be in highly rated plans in 2018. He said their clinical results, customer satisfaction and retention don't line up with the low ratings.

In other one-time costs, Cigna spent $108 million on merger transaction costs during the quarter. Cordani said very little about the Anthem merger on the call. U.S. antitrust regulators have sued to stop the $48 billion purchase of Bloomfield-based Cigna by Indianapolis-based Anthem, and that trial is scheduled to begin in less than three weeks.

As Cordani looked ahead to 2017, he said, "We'll either be in a so-called plan A where we'll be able to effectuate the combination, or a so called Plan B where the government impedes" the merger.

If the government stops the merger, Cordani said, the company will have more than $7 billion in cash it can use to buy other companies, buy back stock, or make other investments.

The largest part of Cigna's business, employer health insurance plans, is performing well, and the amount of money being spent on medical care is moderating, particularly in expensive specialty drugs, the chief financial officer said. The number of people covered by those policies is up by 2 percent compared to the third quarter of 2015, mostly driven by growth in international customers.

Cigna has been a minor player in Obamacare, and will be selling in seven markets next year -- leaving three regions and entering three others. It has 176,000 individual health insurance customers in the United States, down 18 percent from a year ago.

"We have been cautious and slow in this space," Cordani said, as they expected the development of the new program to be choppy, and unlikely to be profitable for companies. He said so far, he's been proven right. He said that in 2017, Cigna expects to lose money on Obamacare, and it's watching and learning "to determine whether there's a sustainable future here."

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