CVS Health Reports Fourth Quarter And Full-Year 2023 Results

CVS Health Corporation (NYSE: CVS) today announced operating results for the three months and year ended December 31, 2023.

FOURTH QUARTER HIGHLIGHTS

• Total revenues increased to $93.8 billion, up 11.9% compared to prior year
• GAAP diluted EPS of $1.58 and Adjusted EPS of $2.12

KEY FINANCIAL DATA

FULL-YEAR HIGHLIGHTS

• Total revenues increased to $357.8 billion, up 10.9% compared to prior year
• GAAP diluted EPS of $6.47 and Adjusted EPS of $8.74
• Generated cash flow from operations of $13.4 billion

Note: Financial information as of and for the three months and year ended December 31, 2022 throughout this press release has been revised to conform with certain current period financial statement changes as described on page 17.

2024 FULL-YEAR GUIDANCE

Upon finalizing the medical cost trend analysis for the fourth quarter of 2023 and recognizing potential implications for elevated medical cost trends in 2024, the Company has:

• Revised GAAP diluted EPS guidance to at least $7.06 from at least $7.26
• Revised Adjusted EPS guidance to at least $8.30 from at least $8.50
• Revised cash flow from operations guidance to at least $12.0 billion from at least $12.5 billion

CEO Commentary

“With a focus on delivering care and value, we had a strong fourth quarter and full year in 2023 as we build a world of health around every consumer. We will continue to drive affordable access to care when, where, and how people want, while we improve transparency throughout the health care system.”
–Karen S. Lynch, CVS Health President and CEO

The Company presents both GAAP and non-GAAP financial measures in this press release to assist in the comparison of the Company’s past financial performance with its current financial performance. See “Non-GAAP Financial Information” beginning on page 12 and endnotes beginning on page 25 for explanations of non-GAAP financial measures presented in this press release. See pages 14 through 16 and page 24 for reconciliations of each non-GAAP financial measure used in this release to the most directly comparable GAAP financial measure.

Consolidated fourth quarter and full-year results

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

• Total revenues increased 11.9% and 10.9%, respectively, driven by growth across all segments.
• Operating income decreased 7.8% in the three months ended December 31, 2023 compared to the prior year primarily due to $193 million of acquisition-related transaction and integration costs recorded in the current year and the absence of a pre-tax gain of $250 million on the sale of the Company’s wholly-owned subsidiary bswift LLC (“bswift”) recorded in the prior year. These decreases were partially offset by the increases in adjusted operating income described below.
• Operating income increased 72.8% for the year ended December 31, 2023 compared to the prior year primarily due to the absence of $5.8 billion of opioid litigation charges and a $2.5 billion loss on assets held for sale related to the write-down of the Company’s Omnicare^® long-term care business (“LTC business”), both of which were recorded in the prior year. These increases were partially offset by $507 million of restructuring charges and $487 million of acquisition-related transaction and integration costs recorded in the current year, the absence of pre-tax gains of $250 million on the sale of bswift and $225 million on the sale of PayFlex Holdings, Inc. (“PayFlex”) recorded in the prior year, as well as the decreases in adjusted operating income described below.
• Adjusted operating income increased 3.6% in the three months ended December 31, 2023 compared to the prior year primarily driven by increases in the Pharmacy & Consumer Wellness, Health Services and Corporate/Other segments, partially offset by a decline in the Health Care Benefits segment. Adjusted operating income decreased 2.8% in the year ended December 31, 2023 compared to the prior year primarily driven by decreases in the Health Care Benefits and Pharmacy & Consumer Wellness segments, partially offset by increases in the Health Services and Corporate/Other segments. See pages 4 through 6 for additional discussion of adjusted operating income performance of the Company’s segments.
• Interest expense increased $138 million, or 25.0%, and $371 million, or 16.2%, respectively, due to higher debt in the three months and year ended December 31, 2023 to fund the acquisitions of Signify Health, Inc. (“Signify Health”) and Oak Street Health, Inc. (“Oak Street Health”).
• The effective income tax rate in the fourth quarter decreased to 24.3% compared to 26.0% in the prior year primarily due to the impact of certain discrete tax items in the fourth quarter of 2023. The effective income tax rate for the full year decreased to 25.1% compared to 25.9% in the prior year primarily due to the absence of certain nondeductible legal charges and basis differences on the sale of bswift and PayFlex in 2022. These decreases were partially offset by the absence of the impact of certain discrete tax items concluded in the year ended December 31, 2022.

Health Care Benefits segment

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 and years ended December 31, 2023 and 2022 were as follows:

• Total revenues increased 16.1% and 15.6% for the three months and year ended December 31, 2023, respectively, compared to the prior year driven by growth across all product lines.
• Adjusted operating income decreased 26.0% for the three months ended December 31, 2023 compared to the prior year primarily driven by growth in the individual exchange business, including the related impact of seasonality, and increased utilization in Medicare Advantage. These decreases were partially offset by higher net investment income in the three months ended December 31, 2023 compared to the prior year.
• Adjusted operating income decreased 12.0% for the year ended December 31, 2023 compared to the prior year primarily driven by increased utilization in Medicare Advantage when compared with pandemic influenced utilization levels in the prior year, as well as incremental investments in the business, including investments in service capabilities and member experience. These decreases were partially offset by higher net investment income in the year ended December 31, 2023 compared to the prior year.
• The MBR increased from 85.8% to 88.5% in the three months ended December 31, 2023 compared to the prior year and increased from 83.8% to 86.2% in the year ended December 31, 2023 compared to the prior year. These increases were primarily driven by increased utilization in Medicare Advantage, including outpatient and supplemental benefits, when compared with pandemic influenced utilization levels in the prior year, as well as Commercial and Medicaid trends returning to normalized levels, consistent with pricing expectations.
• Medical membership as of December 31, 2023 of 25.7 million remained relatively consistent compared with September 30, 2023, as declines in the Medicaid product line were largely offset by increases in the Commercial and Medicare product lines.
• Medical membership as of December 31, 2023 of 25.7 million increased 1.3 million members compared with December 31, 2022, reflecting increases in the Commercial and Medicare product lines, including an increase of 1.3 million members related to the individual exchange business within the Commercial product line. These increases were partially offset by a decline in the Medicaid product line, primarily attributable to the resumption of Medicaid redeterminations following the expiration of the public health emergency in May 2023.
• The segment experienced favorable development of prior-periods’ health care cost estimates in its Government Services and Commercial businesses during the three months ended December 31, 2023, primarily attributable to 2023 performance.
• Prior years’ health care costs payable estimates developed favorably by $675 million during the year ended December 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.

See the supplemental information on page 19 for additional information regarding the performance of the Health Care Benefits segment.

Health Services segment

The Health Services segment provides a full range of pharmacy benefit management (“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 and years ended December 31, 2023 and 2022 were as follows:

• Total revenues increased 12.3% and 10.2% for the three months and year ended December 31, 2023, respectively, compared to the prior year primarily driven by pharmacy drug mix, growth in specialty pharmacy, brand inflation and the acquisitions of Oak Street Health and Signify Health. These increases were partially offset by continued pharmacy client price improvements.
• Adjusted operating income increased 4.2% and 7.8% for the three months and year ended December 31, 2023, respectively, 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, as well as growth in specialty pharmacy, including increased contributions from specialty generics. These increases were partially offset by continued pharmacy client price improvements.
• Pharmacy claims processed increased slightly on a 30-day equivalent basis for the three months and year ended December 31, 2023 compared to the prior year primarily driven by net new business and increased utilization. These increases were largely offset by the impact of a Medicaid customer contract change that occurred during the second quarter of 2023 and a decrease in COVID-19 vaccinations.

See the supplemental information on page 20 for additional information regarding the performance of the Health Services segment.

Pharmacy & Consumer Wellness segment

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 and years ended December 31, 2023 and 2022 were as follows:

• Total revenues increased 8.6% and 7.5% for the three months and year ended December 31, 2023, respectively, compared to the prior year primarily driven by pharmacy drug mix, increased prescription volume, brand inflation and increased contributions from vaccinations. These increases were partially offset by the impact of recent generic introductions, continued pharmacy reimbursement pressure, a decrease in store count and decreased contributions from COVID-19 over-the-counter (“OTC”) test kits and diagnostic testing.
• Adjusted operating income increased 9.7% for the three months ended December 31, 2023 compared to the prior year primarily driven by improved drug purchasing, increased contributions from vaccinations, increased prescription volume and lower operating expenses. These increases were partially offset by continued pharmacy reimbursement pressure.
• Adjusted operating income decreased 8.7% for the year ended December 31, 2023 compared to the prior year primarily driven by continued pharmacy reimbursement pressure and decreased COVID-19 vaccinations and diagnostic testing. These decreases were partially offset by the increased prescription volume described above, improved generic drug purchasing and lower operating expenses in the year ended December 31, 2023.
• Prescriptions filled increased 1.9% and 1.5% on a 30-day equivalent basis for the three months and year ended December 31, 2023, respectively, compared to the prior year primarily driven by increased utilization, partially offset by a decrease in COVID-19 vaccinations and the decrease in store count.

See the supplemental information on page 21 for additional information regarding the performance of the Pharmacy & Consumer Wellness segment.

2024 Full-year guidance

The Company revised its full-year 2024 GAAP diluted EPS guidance to at least $7.06 from at least $7.26 and its full-year 2024 Adjusted EPS guidance to at least $8.30 from at least $8.50. The Company also revised its full-year 2024 cash flow from operations guidance to at least $12.0 billion from at least $12.5 billion.

About CVS Health

CVS Health is the leading health solutions company, delivering care like no one else can. We reach more people and improve the health of communities across America through our local presence, digital channels and over 300,000 dedicated colleagues – including more than 40,000 physicians, pharmacists, nurses and nurse practitioners. Wherever and whenever people need us, we help them with their health – whether that’s managing chronic diseases, staying compliant with their medications or accessing affordable health and wellness services in the most convenient ways. We help people navigate the health care system – and their personal health care – by improving access, lowering costs and being a trusted partner for every meaningful moment of health. And we do it all with heart, each and every day. Follow @CVSHealth on social media.