Results Center

Q1 2023 Financial Statement Changes

The Company’s financial information for the three months ended March 31, 2023 reflects the following items:

Effective for the first quarter of 2023, the Company realigned the composition of its segments to correspond with changes made to its operating model and how the business is managed. As a result of this realignment, the Company formed a new Health Services segment, which in addition to providing a full range of pharmacy benefit management (“PBM”) solutions, also delivers health care services in the Company’s medical clinics, virtually, and in the home, as well as provider enablement solutions. In addition, the Company created a new Pharmacy & Consumer Wellness segment, which includes its retail and long-term care pharmacy operations and related pharmacy services, as well as its retail front store operations. This segment will also provide pharmacy fulfillment services to support the Health Services segment’s specialty and mail order pharmacy offerings. The Company also discontinued its former segment reporting practice for activity under its Maintenance Choice® program. Following this segment realignment, the Company’s four reportable segments are: Health Care Benefits, Health Services, Pharmacy & Consumer Wellness and Corporate/Other.

Effective January 1, 2023, the Company adopted a new accounting standard related to the accounting for long-duration insurance contracts using a modified retrospective transition method. Refer to Note 1 ‘‘Significant Accounting Policies’’ in the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2023 for further information regarding the adoption of this accounting standard.

Effective for the first quarter of 2023, the impact of net realized capital gains or losses are excluded from adjusted operating income.

Prior period financial information has been revised to conform with the current period presentation.

Q1 2023 Financial Results

For the three months ended March 31, 2023 compared to the prior year:

Total revenues increased 11.0% driven by growth across all segments.

Operating income decreased 2.8% primarily due to the write-down of the Company’s Omnicare® long-term care business (“LTC business”), the decrease in adjusted operating income described below and an increase in acquisition-related transaction and integration costs compared to the prior year. The decrease in operating income was partially offset by the absence of a $484 million opioid litigation charge recorded in the prior year and a decrease in amortization of intangible assets compared to the prior year.

Adjusted operating income decreased 5.1% primarily driven by declines in the Pharmacy & Consumer Wellness segment, partially offset by increases in the Health Services segment.

Interest expense remained relatively consistent, increasing to $589 million from $586 million.

The effective income tax rate increased to 25.6% compared to 21.5% primarily due to the absence of the impact of certain discrete tax items concluded in the first quarter of 2022. The Company’s adjusted effective income tax rate remained relatively consistent compared to prior year.

The Health Services segment provides a full range of PBM solutions, delivers health care services in its medical clinics, virtually, and in the home, and offers provider enablement solutions.

The segment results for the three months ended March 31, 2023 and 2022 were as follows:

Total revenues increased 12.6% for the three months ended March 31, 2023 compared to the prior year primarily driven by increased pharmacy claims volume, growth in specialty pharmacy and brand inflation, partially offset by continued pharmacy client price improvements.

Adjusted operating income increased 14.2% for the three months ended March 31, 2023 compared to the prior year primarily driven by improved purchasing economics, including increased contributions from the products and services of the Company’s group purchasing organization, and increased pharmacy claims volume. These increases were partially offset by continued pharmacy client price improvements and decreased COVID-19 diagnostic testing in the segment’s MinuteClinic® walk-in medical clinics compared to the prior year.

Pharmacy claims processed increased 3.7% on a 30-day equivalent basis for the three months ended March 31, 2023 compared to the prior year. The increase was primarily driven by net new business, increased utilization and the impact of an elevated cough, cold and flu season compared to the prior year. These increases were partially offset by a decrease in COVID-19 vaccinations. Excluding the impact of COVID-19 vaccinations, pharmacy claims processed increased 4.8% on a 30-day equivalent basis for the three months ended March 31, 2023 compared to the prior year.

The Pharmacy & Consumer Wellness segment dispenses prescriptions in its retail pharmacies and through its infusion operations, provides ancillary pharmacy services including pharmacy patient care programs, diagnostic testing and vaccination administration, and sells a wide assortment of health and wellness products and general merchandise. The segment also provides pharmacy services to long-term care facilities and pharmacy fulfillment services to support the Health Services segment’s specialty and mail order pharmacy offerings.

The segment results for the three months ended March 31, 2023 and 2022 were as follows:

Total revenues increased 7.8% for the three months ended March 31, 2023 compared to the prior year primarily driven by increased prescription and front store volume, pharmacy drug mix and brand inflation. These increases were partially offset by continued pharmacy reimbursement pressure, decreased COVID-19 vaccinations and diagnostic testing and the impact of recent generic introductions.

Adjusted operating income decreased 27.9% for the three months ended March 31, 2023 compared to the prior year primarily driven by continued pharmacy reimbursement pressure, decreased COVID-19 vaccinations and diagnostic testing and increased investments in the segment’s operations and capabilities. These decreases were partially offset by the increased prescription volume described above and improved generic drug purchasing.

Prescriptions filled increased 2.5% on a 30-day equivalent basis for the three months ended March 31, 2023 compared to the prior year primarily driven by increased utilization and the impact of an elevated cough, cold and flu season compared to the prior year. These increases were partially offset by a decrease in COVID-19 vaccinations. Excluding the impact of COVID-19 vaccinations, prescriptions filled increased 4.5% on a 30-day equivalent basis for the three months ended March 31, 2023 compared to the prior year.

The Health Care Benefits segment offers a full range of insured and self-insured (“ASC”) medical, pharmacy, dental and behavioral health products and services.

The segment results for the three months ended March 31, 2023 and 2022 were as follows:

Total revenues increased 12.1% for the three months ended March 31, 2023 compared to the prior year driven by growth across all product lines.

Adjusted operating income decreased slightly in the three months ended March 31, 2023 compared to the prior year primarily driven by the continued progression towards normalized utilization and lower impact from favorable development of prior-years’ health care cost estimates in the three months ended March 31, 2023 compared to the prior year. These decreases were largely offset by higher net investment income and membership growth across all product lines in the three months ended March 31, 2023.

The MBR increased to 84.6% in the three months ended March 31, 2023 compared to 83.4% in the prior year reflective of the continued progression towards normalized utilization and lower impact from favorable development of prior-years’ health care cost estimates in the three months ended March 31, 2023 compared to the prior year.

Medical membership as of March 31, 2023 of 25.5 million increased 1.1 million members compared with December 31, 2022, reflecting increases across all product lines including an increase of approximately 900,000 members related to the individual exchange business within the Commercial product line.

The segment experienced favorable development of prior-years’ health care cost estimates in its Government Services and Commercial businesses during the three months ended March 31, 2023, primarily attributable to fourth quarter 2022 performance.

Prior years’ health care costs payable estimates developed favorably by $693 million during the three months ended March 31, 2023. This development is reported on a basis consistent with the prior years’ development reported in the health care costs payable table in the Company’s annual audited financial statements and does not directly correspond to an increase in 2023 operating results.

The Company revised its full-year 2023 GAAP diluted EPS guidance range to $6.90 to $7.12 from $7.73 to $7.93 and its full-year 2023 Adjusted EPS guidance range to $8.50 to $8.70 from $8.70 to $8.90. The Company also confirmed its full-year 2023 cash flow from operations guidance range of $12.5 billion to $13.5 billion.

The adjustments between full-year 2023 GAAP diluted EPS and Adjusted EPS include amortization of intangible assets, net realized capital losses, a loss on assets held for sale, acquisition-related transaction and integration costs related to the acquisitions of Signify Health, Inc. (“Signify Health”) and Oak Street Health, Inc. (“Oak Street Health”), office real estate optimization charges and the corresponding income tax benefit or expense related to the items excluded from adjusted income attributable to CVS Health.