Cigna’s $67 billion acquisition of ESI: The largest transformation yet in the PBM market

On March 8, 2018, Cigna—the fourth-largest U.S. commercial health insurer—announced its acquisition of Express Scripts (ESI), the largest independent third-party pharmacy benefit manager (PBM) in the United States. Including ESI’s debt, the deal is valued at up to $67 billion. This transaction signals the near disappearance of large, independent third-party PBMs in the U.S. and validates Latitude Health’s earlier assessment of the U.S. PBM market: 'Fully independent third-party PBMs may struggle to sustain long-term growth; instead, PBMs controlled by or partially owned by payers will become the dominant market participants' (see Latitude Health’s December 2017 research report, 'Opportunities in Derivative Services Amid the End of the Payment Dividend'). Following the 2017 announcement of the merger between Aetna—the third-largest U.S. insurer—and CVS Health—the second-largest independent PBM—market speculation intensified regarding a potential sale of ESI. The primary challenge facing the PBM industry is that payers are gradually losing trust in independent third-party PBMs. For example, Anthem—the second-largest U.S. commercial insurer—has declined to renew its contract with ESI, the largest independent PBM; similarly, Aetna—the third-largest commercial insurer—has explicitly stated that third-party PBM services offer limited real value in cost containment. In 2016, thirty (now forty) major U.S. corporations formed the Health Transformation Alliance (HTA), an employer-led coalition dedicated to managing their own healthcare benefits. Although HTA still partners with PBMs—including CVS and OptumRx—it demands full transparency in pricing and processes, active participation in formulary development, and comprehensive auditing of every transaction—all aimed at reducing prescription drug expenditures. Such payer-driven demands have placed immense pressure on the PBM market, ultimately triggering profound structural change. In 2016, ESI’s total revenue reached $100.2 billion, a 2% decline year-on-year. Of this, $96.5 billion came from PBM operations, with the remainder derived from other services such as research and analytics, and patient assistance programs. Within ESI’s 2016 PBM revenue, $5.14 billion—51% of total revenue—came from retail pharmacy dispensing. However, this segment has been in continuous decline since 2014: down 3% in 2015, 9% in 2016, and 5% in the first three quarters of 2017.

Effectiveness of cost containment questioned: The PBM market faces massive upheaval

Second, rebates and discounts obtained from pharmaceutical manufacturers lack transparency—and constitute the PBM’s primary profit source. Given the high concentration of the PBM market and their large client bases, PBMs wield substantial influence over drug pricing and hold strong bargaining power when negotiating with manufacturers. Many manufacturers willingly trade volume for lower prices. Yet PBMs never disclose the exact amounts of rebates or discounts they receive; instead, payers reimburse them based on negotiated discounted prices—leaving considerable room for margin manipulation. PBMs use rebate and discount figures from manufacturers to determine which drugs appear on prescriptions. Since the discounts offered to payers are typically fixed, PBMs’ drug selection decisions often reflect rebate maximization—not necessarily optimal pricing or cost-containment goals. This opaque decision-making process remains the most widely criticized aspect of PBM operations. Third, pharmacy networks are built and managed entirely at the PBM’s discretion. While the U.S. retail pharmacy market is highly consolidated, numerous small- and medium-sized pharmacies remain active in the specialty drug space. Whether such pharmacies are included in a PBM’s network depends solely on negotiations over drug discount terms. Pharmacies failing to meet PBM discount requirements risk exclusion from the network. Moreover, an increasing number of PBMs operate their own chain pharmacies and actively exclude non-affiliated pharmacies to maximize internal profits. Although pressuring pharmacies on pricing ostensibly serves cost-containment objectives, the proportion of negotiated discounts retained by PBMs—as opposed to passed through to payers—remains unclear, thereby undermining payer interests. Finally, PBM rebates have become one driver of rising drug prices. As PBMs increasingly rely on pharmaceuticals as their core revenue growth engine, their rebate demands on manufacturers continue to escalate. Rebates refer to payments manufacturers make to PBMs for including specific drugs on their formularies—and PBMs base final drug selection on rebate magnitude. In recent years, manufacturers have willingly paid rebates simply to avoid having competitors’ products favored. To boost sales, manufacturers compete by offering ever-larger rebates; to offset rebate-related profit erosion, they raise list prices repeatedly. Thus, PBMs indirectly contribute to drug price inflation—a key reason behind growing payer dissatisfaction. In sum, PBMs act as central intermediaries linking payers, manufacturers, and pharmacies—leveraging opaque operational practices to maximize their own profits. Although PBMs do generate cost savings for payers, payers bear the greatest harm in this arrangement, fueling the strongest opposition—and accelerating market restructuring. Additionally, as public scrutiny of drug pricing intensifies, both the U.S. government and Congress are actively pursuing measures to curb rapid drug price increases. As upward pressure on drug prices eases, PBM revenues and profits will inevitably suffer—further weighing on their stock valuations. ESI—the PBM industry’s largest player—and CVS (whose PBM business accounts for 39% of its total revenue)—have both seen sustained stock declines since 2015. ESI’s market capitalization alone has evaporated by over $15 billion.

Element Solutions (NYSE:ESI) Posts Earnings Results, Beats Estimates By $0.02 EPS

Oct 21, 2026

Element Solutions reported quarterly earnings with an EPS of $0.50, surpassing estimates by $0.02, and revenue of $995.3 million. Following the announcement, shares rose while analysts maintained a bullish outlook with a price target of $46.18.

MarketBeat

2026-04-28

Element Solutions Inc Reports Q1 Revenue Exceeding Estimates

2026-04-28

Element Solutions: Q1 Earnings Snapshot

2026-04-28

Element Solutions (ESI) Stock Rises on Q1 2026 Earnings

2026-04-28

Element Solutions Announces Quarterly Earnings, Beats Expectations by $0.03 EPS

2026-04-29

Element Solutions Q1 2026 slides: electronics surge drives guidance raise