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CVS Health Reports Third Quarter 2024 Results

November 06, 2024 | Last Trade: US$56.83 1.06 1.90

Financial Highlights

  • Third quarter total revenues increased to $95.4 billion, up 6.3% compared to the prior year
  • Third quarter GAAP diluted EPS of $0.07 and Adjusted EPS of $1.09
  • Third quarter GAAP diluted EPS and Adjusted EPS include charges to record premium deficiency reserves of approximately $1.1 billion ($0.63 per share) in the Health Care Benefits segment
  • Generated year-to-date cash flow from operations of $7.2 billion

CEO Commentary

"Our integrated model accelerates our ability to uniquely do what is most important to today's health care consumers: deliver lower cost of care, a simpler experience and better outcomes. Our third quarter results reflect strong performance in the Health Services and Pharmacy & Consumer Wellness segments, and also highlight the continued need to work across our enterprise and address macro challenges to the Health Care Benefits segment. My commitment to our CVS Health colleagues and our customers is to drive focused execution of our integrated strategy to improve the health of the 185 million people we are privileged to serve." — David Joyner, CVS Health President and CEO

WOONSOCKET, R.I., Nov. 6, 2024 /PRNewswire/ -- CVS Health Corporation (NYSE: CVS) today announced operating results for the three months ended September 30, 2024.

Financial Results Summary

 

Three Months Ended

September 30,

In millions, except per share amounts

2024

 

2023

 

Change

Total revenues 

$         95,428

 

$         89,764

 

$           5,664

Operating income

832

 

3,690

 

(2,858)

Adjusted operating income (1)

2,547

 

4,456

 

(1,909)

Diluted earnings per share

$             0.07

 

$             1.75

 

$           (1.68)

Adjusted EPS (2)

$             1.09

 

$             2.21

 

$           (1.12)

Third quarter GAAP diluted EPS of $0.07 decreased from $1.75 in the prior year and Adjusted EPS of $1.09 decreased from $2.21 in the prior year, primarily due to a decline in the Health Care Benefits segment's operating results, which reflect continued utilization pressure and premium deficiency reserves of approximately $1.1 billion recorded in the third quarter of 2024, related to anticipated losses in the fourth quarter of 2024 within the Medicare and individual exchange product lines. The premium deficiency reserves are expected to be substantially released during the fourth quarter of 2024, benefiting results in that period.

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 11 and endnotes beginning on page 22 for explanations of non-GAAP financial measures presented in this press release. See pages 13 through 15 for reconciliations of each non-GAAP financial measure used in this release to the most directly comparable GAAP financial measure.

Consolidated third quarter results

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

In millions, except per share amounts

2024

 

2023

 

Change

 

2024

 

2023

 

Change

Total revenues 

$  95,428

 

$  89,764

 

$    5,664

 

$ 275,099

 

$ 263,963

 

$  11,136

Operating income

832

 

3,690

 

(2,858)

 

6,148

 

10,370

 

(4,222)

Adjusted operating income (1)

2,547

 

4,456

 

(1,909)

 

9,248

 

13,307

 

(4,059)

Net income

71

 

2,265

 

(2,194)

 

2,963

 

6,321

 

(3,358)

Diluted earnings per share

$      0.07

 

$      1.75

 

$     (1.68)

 

$      2.35

 

$      4.88

 

$     (2.53)

Adjusted EPS (2)

$      1.09

 

$      2.21

 

$     (1.12)

 

$      4.23

 

$      6.62

 

$     (2.39)

For the three months ended September 30, 2024 compared to the prior year:

  • Total revenues increased 6.3% primarily driven by growth in the Health Care Benefits and Pharmacy & Consumer Wellness segments, partially offset by a decline in the Health Services segment.
  • Operating income decreased 77.5% primarily due to the decrease in adjusted operating income described below and restructuring charges of approximately $1.2 billion recorded in the current year.
  • Adjusted operating income decreased 42.8% driven by a decline in the Health Care Benefits segment, primarily due to increased utilization and premium deficiency reserves recorded in the third quarter of 2024 related to anticipated losses in the fourth quarter of 2024, partially offset by increases in the Health Services and Pharmacy & Consumer Wellness segments. See pages 3 through 5 for additional discussion of the adjusted operating income performance of the Company's segments.
  • Interest expense increased $59 million, or 8.5%, due to higher debt in the three months ended September 30, 2024, primarily driven by long-term debt issued in May 2024.
  • The effective income tax rate increased to 32.4% compared to 25.0% primarily due to lower pre-tax income in the three months ended September 30, 2024 compared to the prior year.

Restructuring program

  • During the third quarter of 2024, the Company finalized an enterprise-wide restructuring plan intended to streamline and simplify the organization, improve efficiency and reduce costs. In connection with this restructuring plan, during the three months ended September 30, 2024, the Company recorded restructuring charges of approximately $1.2 billion, comprised of a $607 million store impairment charge for additional retail pharmacy stores it plans to close in 2025, $293 million of costs associated with corporate workforce optimization, including severance and employee-related costs, and $269 million of other asset impairments and related charges associated with the discontinuation of certain non-core assets.

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 and nine months ended September 30, 2024 and 2023 were as follows:

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

In millions, except percentages

2024

 

2023

 

Change

 

2024

 

2023

 

Change

Total revenues

$  32,996

 

$  26,296

 

$    6,700

 

$  97,707

 

$  78,920

 

$  18,787

Adjusted operating income (loss) (1)

(924)

 

1,536

 

(2,460)

 

746

 

4,901

 

(4,155)

Medical benefit ratio ("MBR") (3)

95.2 %

 

85.7 %

 

9.5 %

 

91.7 %

 

85.5 %

 

6.2 %

Medical membership (4)

      

27.1

 

25.7

 

1.4

  • Total revenues increased 25.5% for the three months ended September 30, 2024 compared to the prior year driven by growth in the Medicare and Commercial product lines.
  • During the third quarter of 2024, the Company recorded premium deficiency reserves of approximately $1.1 billion, primarily in its Medicare and individual exchange product lines related to anticipated losses for the 2024 coverage year. The $1.1 billion premium deficiency recorded was comprised of $394 million of operating expenses related to the write-off of unamortized acquisition costs and $670 million of health care costs.
  • During the three months ended September 30, 2024, the Health Care Benefits segment had an adjusted operating loss of $924 million compared to adjusted operating income of $1.5 billion in the prior year. The change was primarily driven by increased utilization, the approximately $1.1 billion of premium deficiency reserves described above, the impact of higher acuity in Medicaid following the resumption of redeterminations and the unfavorable impact of the previously disclosed decline in the Company's Medicare Advantage star ratings for the 2024 payment year. These decreases were partially offset by an increase in net investment income.
  • The MBR increased to 95.2% in the three months ended September 30, 2024 compared to 85.7% in the prior year driven by increased utilization, the $670 million (220 basis points) of premium deficiency reserves recorded as health care costs described above, higher acuity in Medicaid and the unfavorable impact of the Company's Medicare Advantage star ratings for the 2024 payment year.
  • Medical membership as of September 30, 2024 of 27.1 million increased 178,000 members compared with June 30, 2024, reflecting increases in the Commercial and Medicare product lines.
  • Prior years' health care costs payable estimates developed favorably by $788 million during the nine months ended September 30, 2024. 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 2024 operating results.
  • Days claims payable were 44.6 days as of September 30, 2024, a increase of 1.5 days compared to June 30, 2024. The increase was primarily driven by the impact of the premium deficiency reserves recorded as health care costs in the third quarter of 2024 described above.
  • The U.S. Centers for Medicare & Medicaid Services ("CMS") released the Company's 2025 star ratings in October 2024. The Company's 2025 star ratings will be used to determine which of the Company's Medicare Advantage plans have ratings of four stars or higher and qualify for bonus payments in 2026. Based on the Company's membership as of September 2024, 88% of the Company's Medicare Advantage members were in plans with 2025 star ratings of at least 4.0 stars, compared to 87% of the Company's Medicare Advantage members being in plans with 2024 star ratings of at least 4.0 stars based on the Company's membership as of September 2023.

See the supplemental information on page 17 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 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 and nine months ended September 30, 2024 and 2023 were as follows:

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

In millions

2024

 

2023

 

Change

 

2024

 

2023

 

Change

Total revenues

$  44,129

 

$  46,891

 

$   (2,762)

 

$ 126,585

 

$ 137,697

 

$ (11,112)

Adjusted operating income (1)

2,204

 

1,878

 

326

 

5,482

 

5,452

 

30

Pharmacy claims processed (5) (6)

484.1

 

579.6

 

(95.5)

 

1,418.2

 

1,743.5

 

(325.3)

  • Total revenues decreased 5.9% for the three months ended September 30, 2024 compared to the prior year primarily driven by the previously announced loss of a large client and continued pharmacy client price improvements. These decreases were partially offset by pharmacy drug mix, increased contributions from the Company's health care delivery assets and growth in specialty pharmacy.
  • Adjusted operating income increased 17.4% for the three months ended September 30, 2024 compared to the prior year primarily driven by improved purchasing economics, partially offset by continued pharmacy client price improvements and the previously announced loss of a large client.
  • Pharmacy claims processed decreased 16.5% on a 30-day equivalent basis for the three months ended September 30, 2024 compared to the prior year, reflecting the previously announced loss of a large client.

See the supplemental information on page 18 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 and nine months ended September 30, 2024 and 2023 were as follows:

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

In millions

2024

 

2023

 

Change

 

2024

 

2023

 

Change

Total revenues

$  32,423

 

$  28,872

 

$    3,551

 

$  90,986

 

$  85,578

 

$    5,408

Adjusted operating income (1)

1,596

 

1,389

 

207

 

4,016

 

3,936

 

80

Prescriptions filled (5) (6)

431.6

 

407.1

 

24.5

 

1,269.6

 

1,217.6

 

52.0

  • Total revenues increased 12.3% for the three months ended September 30, 2024 compared to the prior year primarily driven by increased prescription volume, including increased contributions from vaccinations, and pharmacy drug mix. These increases were partially offset by continued pharmacy reimbursement pressure, the impact of recent generic introductions and decreased front store volume, including the impact of a decrease in store count.
  • Adjusted operating income increased 14.9% for the three months ended September 30, 2024 compared to the prior year primarily driven by increased prescription volume, including increased contributions from vaccinations, as well as improved drug purchasing. These increases were partially offset by continued pharmacy reimbursement pressure and decreased front store volume in the three months ended September 30, 2024.
  • Prescriptions filled increased 6.0% on a 30-day equivalent basis for the three months ended September 30, 2024 compared to the prior year primarily driven by increased utilization.
  • Same store prescription volume(6)(12) increased 9.1% on a 30-day equivalent basis for the three months ended September 30, 2024 compared to the prior year.

See the supplemental information on page 19 for additional information regarding the performance of the Pharmacy & Consumer Wellness segment.

Teleconference and webcast

The Company will be holding a conference call today for investors at 8:00 a.m. (Eastern Time) to discuss its third quarter results. An audio webcast of the call will be broadcast simultaneously for all interested parties through the Investor Relations section of the CVS Health website at http://investors.cvshealth.com. This webcast will be archived and available on the website for a one-year period following the conference call.

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.

Cautionary statement concerning forward-looking statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of CVS Health Corporation. Statements in this press release that are forward-looking include, but are not limited to, the information under the headings "CEO Commentary" and "Financial Results Summary" and the information included in the reconciliations and endnotes. By their nature, all forward-looking statements are not guarantees of future performance or results and are subject to risks and uncertainties that are difficult to predict and/or quantify. Actual results may differ materially from those contemplated by the forward-looking statements due to the risks and uncertainties described in our Securities and Exchange Commission ("SEC") filings, including those set forth in the Risk Factors section and under the heading "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2024, June 30, 2024 and September 30, 2024 and our Current Reports on Form 8-K.

You are cautioned not to place undue reliance on CVS Health's forward-looking statements. CVS Health's forward-looking statements are and will be based upon management's then-current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. CVS Health does not assume any duty to update or revise forward-looking statements, whether as a result of new information, future events, uncertainties or otherwise.

- Tables Follow -

CVS HEALTH CORPORATION

Condensed Consolidated Statements of Operations

(Unaudited)

 
 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

In millions, except per share amounts

2024

 

2023

 

2024

 

2023

Revenues:

       

Products

$      59,674

 

$      61,298

 

$    169,610

 

$    179,984

Premiums

30,925

 

24,657

 

91,983

 

74,117

Services

4,279

 

3,532

 

12,108

 

8,977

Net investment income

550

 

277

 

1,398

 

885

Total revenues

95,428

 

89,764

 

275,099

 

263,963

Operating costs:

       

Cost of products sold

52,948

 

54,688

 

151,019

 

159,679

Health care costs

29,922

 

21,499

 

85,578

 

63,729

Operating expenses

10,557

 

9,876

 

31,185

 

29,329

Restructuring charges

1,169

 

11

 

1,169

 

507

Loss on assets held for sale

 

 

 

349

Total operating costs

94,596

 

86,074

 

268,951

 

253,593

Operating income

832

 

3,690

 

6,148

 

10,370

Interest expense

752

 

693

 

2,200

 

1,968

Other income

(25)

 

(22)

 

(74)

 

(66)

Income before income tax provision

105

 

3,019

 

4,022

 

8,468

Income tax provision

34

 

754

 

1,059

 

2,147

Net income

71

 

2,265

 

2,963

 

6,321

Net (income) loss attributable to noncontrolling interests

16

 

(4)

 

7

 

(23)

Net income attributable to CVS Health

$            87

 

$        2,261

 

$        2,970

 

$        6,298

        

Net income per share attributable to CVS Health:

       

Basic

$         0.07

 

$         1.76

 

$         2.36

 

$         4.90

Diluted

$         0.07

 

$         1.75

 

$         2.35

 

$         4.88

Weighted average shares outstanding:

       

Basic

1,259

 

1,287

 

1,258

 

1,284

Diluted

1,259

 

1,290

 

1,262

 

1,289

Dividends declared per share

$        0.665

 

$        0.605

 

$        1.995

 

$        1.815

CVS HEALTH CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

 

In millions

September 30,
2024

 

December 31,
2023

Assets:

   

Cash and cash equivalents

$             6,875

 

$             8,196

Investments

2,805

 

3,259

Accounts receivable, net

36,179

 

35,227

Inventories

17,649

 

18,025

Other current assets

3,835

 

3,151

Total current assets

67,343

 

67,858

Long-term investments

28,939

 

23,019

Property and equipment, net

12,728

 

13,183

Operating lease right-of-use assets

16,231

 

17,252

Goodwill

91,272

 

91,272

Intangible assets, net

27,817

 

29,234

Separate accounts assets

3,334

 

3,250

Other assets

4,763

 

4,660

Total assets

$         252,427

 

$         249,728

    

Liabilities:

   

Accounts payable

$           15,713

 

$           14,897

Pharmacy claims and discounts payable

23,917

 

22,874

Health care costs payable

15,237

 

12,049

Policyholders' funds

913

 

1,326

Accrued expenses

20,174

 

22,189

Other insurance liabilities

1,051

 

1,141

Current portion of operating lease liabilities

1,912

 

1,741

Short-term debt

800

 

200

Current portion of long-term debt

4,910

 

2,772

Total current liabilities

84,627

 

79,189

Long-term operating lease liabilities

15,258

 

16,034

Long-term debt

59,824

 

58,638

Deferred income taxes

3,632

 

4,311

Separate accounts liabilities

3,334

 

3,250

Other long-term insurance liabilities

5,162

 

5,459

Other long-term liabilities

5,484

 

6,211

Total liabilities

177,321

 

173,092

    

Shareholders' equity:

   

Preferred stock

 

Common stock and capital surplus

49,510

 

48,992

Treasury stock

(36,813)

 

(33,838)

Retained earnings

62,038

 

61,604

Accumulated other comprehensive income (loss)

209

 

(297)

Total CVS Health shareholders' equity

74,944

 

76,461

Noncontrolling interests

162

 

175

Total shareholders' equity

75,106

 

76,636

Total liabilities and shareholders' equity

$         252,427

 

$         249,728

CVS HEALTH CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 
 

Nine Months Ended

September 30,

In millions

2024

 

2023

Cash flows from operating activities:

   

Cash receipts from customers

$      264,538

 

$      260,300

Cash paid for inventory, prescriptions dispensed and health services rendered

(145,469)

 

(153,051)

Insurance benefits paid

(80,357)

 

(61,658)

Cash paid to other suppliers and employees

(28,933)

 

(26,038)

Interest and investment income received

1,288

 

1,174

Interest paid

(2,391)

 

(2,049)

Income taxes paid

(1,429)

 

(2,616)

Net cash provided by operating activities

7,247

 

16,062

    

Cash flows from investing activities:

   

Proceeds from sales and maturities of investments

7,634

 

5,547

Purchases of investments

(12,677)

 

(6,625)

Purchases of property and equipment

(2,013)

 

(2,120)

Acquisitions (net of cash and restricted cash acquired)

(85)

 

(16,492)

Other

75

 

43

Net cash used in investing activities

(7,066)

 

(19,647)

    

Cash flows from financing activities:

   

Commercial paper borrowings (repayments), net

600

 

Proceeds from issuance of short-term loan

 

5,000

Repayment of short-term loan

 

(5,000)

Proceeds from issuance of long-term debt

4,959

 

10,898

Repayments of long-term debt

(1,706)

 

(2,734)

Repurchase of common stock

(3,023)

 

(2,013)

Dividends paid

(2,535)

 

(2,353)

Proceeds from exercise of stock options

342

 

242

Payments for taxes related to net share settlement of equity awards

(181)

 

(175)

Other

(22)

 

(210)

Net cash provided by (used in) financing activities

(1,566)

 

3,655

Net increase (decrease) in cash, cash equivalents and restricted cash

(1,385)

 

70

Cash, cash equivalents and restricted cash at the beginning of the period

8,525

 

13,305

Cash, cash equivalents and restricted cash at the end of the period

$         7,140

 

$       13,375

CVS HEALTH CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 
 

Nine Months Ended

September 30,

In millions

2024

 

2023

Reconciliation of net income to net cash provided by operating activities:

   

Net income

$         2,963

 

$         6,321

Adjustments required to reconcile net income to net cash provided by operating activities:

   

Depreciation and amortization

3,450

 

3,232

Stock-based compensation

403

 

461

Restructuring charges (impairment of long-lived assets)

840

 

152

Deferred income taxes and other items

(912)

 

(163)

Change in operating assets and liabilities, net of effects from acquisitions:

   

Accounts receivable, net

(986)

 

(3,920)

Inventories

355

 

1,305

Other assets

(850)

 

(518)

Accounts payable and pharmacy claims and discounts payable

2,169

 

2,466

Health care costs payable and other insurance liabilities

2,878

 

4,679

Other liabilities

(3,063)

 

2,047

Net cash provided by operating activities

$         7,247

 

$       16,062

Non-GAAP Financial Information

The Company uses non-GAAP financial measures to analyze underlying business performance and trends. The Company believes that providing these non-GAAP financial measures enhances the Company's and investors' ability to compare the Company's past financial performance with its current and expected future performance. These non-GAAP financial measures, which are included in this press release and which may be referred to on the conference call discussing the Company's third quarter financial results, are provided as supplemental information to the financial measures presented in this press release and discussed on the conference call that are calculated and presented in accordance with GAAP. Non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP. The Company's definitions of its non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies.

Non-GAAP financial measures such as consolidated adjusted operating income, adjusted earnings per share ("EPS") and adjusted income attributable to CVS Health exclude from the relevant GAAP metrics, as applicable: amortization of intangible assets, net realized capital gains or losses and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance.

For the periods covered in this press release, the following items are excluded from the non-GAAP financial measures described above, as applicable, because the Company believes they neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance:

  • The Company's acquisition activities have resulted in the recognition of intangible assets as required under the acquisition method of accounting which consist primarily of trademarks, customer contracts/relationships, covenants not to compete, technology, provider networks and value of business acquired. Definite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the carrying value may not be recoverable. The amortization of intangible assets is reflected in the unaudited condensed consolidated statements of operations in operating expenses within each segment. Although intangible assets contribute to the Company's revenue generation, the amortization of intangible assets does not directly relate to the underwriting of the Company's insurance products, the services performed for the Company's customers or the sale of the Company's products or services. Additionally, intangible asset amortization expense typically fluctuates based on the size and timing of the Company's acquisition activity. Accordingly, the Company believes excluding the amortization of intangible assets enhances the Company's and investors' ability to compare the Company's past financial performance with its current performance and to analyze underlying business performance and trends. Intangible asset amortization excluded from the related non-GAAP financial measure represents the entire amount recorded within the Company's GAAP financial statements, and the revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. Intangible asset amortization is excluded from the related non-GAAP financial measure because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised.
  • The Company's net realized capital gains and losses arise from various types of transactions, primarily in the course of managing a portfolio of assets that support the payment of insurance liabilities. Net realized capital gains and losses are reflected in the unaudited condensed consolidated statements of operations in net investment income (loss) within each segment. These capital gains and losses are the result of investment decisions, market conditions and other economic developments that are unrelated to the performance of the Company's business, and the amount and timing of these capital gains and losses do not directly relate to the underwriting of the Company's insurance products, the services performed for the Company's customers or the sale of the Company's products or services. Accordingly, the Company believes excluding net realized capital gains and losses enhances the Company's and investors' ability to compare the Company's past financial performance with its current performance and to analyze underlying business performance and trends.
  • During the three and nine months ended September 30, 2024, the acquisition-related integration costs relate to the acquisitions of Signify Health and Oak Street Health. During the three and nine months ended September 30, 2023, the acquisition-related transaction and integration costs relate to the acquisitions of Signify Health and Oak Street Health. The acquisition-related transaction and integration costs are reflected in the Company's unaudited condensed consolidated statements of operations in operating expenses within the Corporate/Other segment.
  • During the three and nine months ended September 30, 2024, the restructuring charges are primarily comprised of a store impairment charge, corporate workforce optimization costs, including severance and employee-related costs, and other asset impairment and related charges associated with the discontinuation of certain non-core assets. During the third quarter of 2024, the Company finalized an enterprise-wide restructuring plan intended to streamline and simplify the organization, improve efficiency and reduce costs. In connection with this restructuring plan, the Company completed a strategic review of its retail business and determined that it plans to close additional retail stores in 2025, and, accordingly, it recorded a store impairment charge to write down the associated operating lease right-of-use assets and property and equipment. In addition, during the third quarter of 2024, the Company also conducted a review of its various strategic assets and determined that it would discontinue the use of certain non-core assets, at which time impairment losses were recorded to write down the carrying value of these assets to the Company's best estimate of their fair value. During the three months ended September 30, 2023, the restructuring charges are primarily comprised of a stock-based compensation charge. During the nine months ended September 30, 2023, the restructuring charges also include severance and employee-related costs and asset impairment charges. The restructuring charges associated with the store impairments are reflected within the Pharmacy & Consumer Wellness segment, other asset impairments and related charges are reflected within the Corporate/Other and Pharmacy & Consumer Wellness segments and corporate workforce optimization costs are reflected within the Corporate/Other segment.
  • During the three and nine months ended September 30, 2024 and 2023, the office real estate optimization charges primarily relate to the abandonment of leased real estate and the related right-of-use assets and property and equipment in connection with the Company's continuous evaluation of corporate office real estate space in response to its ongoing flexible work arrangement. The office real estate optimization charges are reflected in the Company's unaudited condensed consolidated statements of operations in operating expenses within each segment.
  • During the nine months ended September 30, 2024, the opioid litigation charge relates to a change in the Company's accrual related to ongoing opioid litigation matters.
  • During the nine months ended September 30, 2023, the loss on assets held for sale relates to the long-term care ("LTC") reporting unit within the Pharmacy & Consumer Wellness segment. During 2022, the Company determined that its LTC business was no longer a strategic asset and committed to a plan to sell it, at which time the LTC business met the criteria for held-for-sale accounting and its net assets were accounted for as assets held for sale. During the first quarter of 2023, a loss on assets held for sale was recorded to write down the carrying value of the LTC business to the Company's best estimate of the ultimate selling price which reflected its estimated fair value less costs to sell. As of the third quarter of 2023, the Company determined the LTC business no longer met the criteria for held-for-sale accounting and accordingly the net assets associated with the LTC business were reclassified to held and used at their respective fair values.
  • The corresponding tax benefit or expense related to the items excluded from adjusted income attributable to CVS Health and Adjusted EPS above. The nature of each non-GAAP adjustment is evaluated to determine whether a discrete adjustment should be made to the adjusted income tax provision.

See endnotes (1) and (2) on page 22 for definitions of non-GAAP financial measures. Reconciliations of each non-GAAP financial measure to the most directly comparable GAAP financial measure are presented on pages 13 through 15.

Reconciliations of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures

 

Adjusted Operating Income

(Unaudited)

 

The following are reconciliations of consolidated operating income (GAAP measure) to consolidated adjusted operating income, as well as reconciliations of segment GAAP operating income (loss) to segment adjusted operating income (loss):

 
 

Three Months Ended September 30, 2024

In millions

Health Care

Benefits

 

Health

Services

 

Pharmacy &

Consumer

Wellness

 

Corporate/

Other

 

Consolidated

Totals

Operating income (loss) (GAAP measure)

$        (1,229)

 

$       2,055

 

$                784

 

$          (778)

 

$                832

Amortization of intangible assets

294

 

149

 

64

 

 

507

Net realized capital (gains) losses

1

 

 

 

(20)

 

(19)

Acquisition-related integration costs

 

 

 

41

 

41

Restructuring charges

 

 

747

 

422

 

1,169

Office real estate optimization charges

10

 

 

1

 

6

 

17

Adjusted operating income (loss) (1)

$            (924)

 

$       2,204

 

$            1,596

 

$          (329)

 

$            2,547

  
 

Three Months Ended September 30, 2023

In millions

Health Care

Benefits

 

Health

Services

 

Pharmacy &

Consumer

Wellness

 

Corporate/

Other

 

Consolidated

Totals

Operating income (loss) (GAAP measure)

$          1,115

 

$       1,727

 

$            1,322

 

$          (474)

 

$            3,690

Amortization of intangible assets

294

 

150

 

65

 

 

509

Net realized capital losses

119

 

 

2

 

21

 

142

Acquisition-related transaction and

integration costs

 

 

 

94

 

94

Restructuring charges

 

 

 

11

 

11

Office real estate optimization charges

8

 

1

 

 

1

 

10

Adjusted operating income (loss) (1)

$          1,536

 

$       1,878

 

$            1,389

 

$          (347)

 

$            4,456

  
 

Nine Months Ended September 30, 2024

In millions

Health Care

Benefits

 

Health

Services

 

Pharmacy &

Consumer

Wellness

 

Corporate/

Other

 

Consolidated

Totals

Operating income (loss) (GAAP measure)

$            (227)

 

$       5,034

 

$            3,076

 

$      (1,735)

 

$            6,148

Amortization of intangible assets

881

 

448

 

192

 

1

 

1,522

Net realized capital losses

82

 

 

 

7

 

89

Acquisition-related integration costs

 

 

 

203

 

203

Restructuring charges

 

 

747

 

422

 

1,169

Office real estate optimization charges

10

 

 

1

 

6

 

17

Opioid litigation charge

 

 

 

100

 

100

Adjusted operating income (loss) (1)

$              746

 

$       5,482

 

$            4,016

 

$          (996)

 

$            9,248

  
 

Nine Months Ended September 30, 2023

In millions

Health Care

Benefits

 

Health

Services

 

Pharmacy &

Consumer

Wellness

 

Corporate/

Other

 

Consolidated

Totals

Operating income (loss) (GAAP measure)

$          3,683

 

$       5,132

 

$            3,388

 

$      (1,833)

 

$          10,370

Amortization of intangible assets

883

 

316

 

195

 

2

 

1,396

Net realized capital losses

296

 

 

4

 

45

 

345

Acquisition-related transaction and integration costs

 

 

 

294

 

294

Restructuring charges

 

 

 

507

 

507

Office real estate optimization charges

39

 

4

 

 

3

 

46

Loss on assets held for sale

 

 

349

 

 

349

Adjusted operating income (loss) (1)

$          4,901

 

$       5,452

 

$            3,936

 

$          (982)

 

$          13,307

Adjusted Earnings Per Share

(Unaudited)

 

The following are reconciliations of net income attributable to CVS Health to adjusted income attributable to CVS Health and calculations of GAAP diluted EPS and Adjusted EPS: 

 
 

Three Months Ended

September 30, 2024

 

Three Months Ended

September 30, 2023

In millions, except per share amounts

Total
Company

 

Per
Common
Share

 

Total
Company

 

Per
Common
Share

Net income attributable to CVS Health (GAAP measure)

$          87

 

$        0.07

 

$      2,261

 

$        1.75

Amortization of intangible assets

507

 

0.40

 

509

 

0.39

Net realized capital (gains) losses

(19)

 

(0.02)

 

142

 

0.11

Acquisition-related transaction and integration costs

41

 

0.03

 

94

 

0.07

Restructuring charges

1,169

 

0.93

 

11

 

0.01

Office real estate optimization charges

17

 

0.01

 

10

 

0.01

Tax impact of non-GAAP adjustments

(433)

 

(0.33)

 

(177)

 

(0.13)

Adjusted income attributable to CVS Health (2)

$      1,369

 

$        1.09

 

$      2,850

 

$        2.21

        

Weighted average diluted shares outstanding

  

1,259

   

1,290

        
 

Nine Months Ended

September 30, 2024

 

Nine Months Ended

September 30, 2023

In millions, except per share amounts

Total
Company

 

Per
Common
Share

 

Total
Company

 

Per
Common
Share

Net income attributable to CVS Health (GAAP measure)

$      2,970

 

$        2.35

 

$      6,298

 

$        4.88

Amortization of intangible assets

1,522

 

1.21

 

1,396

 

1.08

Net realized capital losses

89

 

0.07

 

345

 

0.27

Acquisition-related transaction and integration costs

203

 

0.16

 

294

 

0.23

Restructuring charges

1,169

 

0.93

 

507

 

0.39

Office real estate optimization charges

17

 

0.01

 

46

 

0.04

Opioid litigation charge

100

 

0.08

 

 

Loss on assets held for sale

 

 

349

 

0.27

Tax impact of non-GAAP adjustments

(738)

 

(0.58)

 

(701)

 

(0.54)

Adjusted income attributable to CVS Health (2)

$      5,332

 

$        4.23

 

$      8,534

 

$        6.62

        

Weighted average diluted shares outstanding

  

1,262

   

1,289

Supplemental Information

(Unaudited)

The Company's segments maintain separate financial information, and the Company's chief operating decision maker (the "CODM") evaluates the segments' operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance. The CODM evaluates the performance of the Company's segments based on adjusted operating income. Adjusted operating income is defined as operating income (GAAP measure) excluding the impact of amortization of intangible assets, net realized capital gains or losses and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance as further described in endnote (1). The CODM uses adjusted operating income as its principal measure of segment performance as it enhances the CODM's ability to compare past financial performance with current performance and analyze underlying business performance and trends.

The following are reconciliations of financial measures of the Company's segments to the consolidated totals:

In millions

Health Care

Benefits

 

Health

Services (a)

 

Pharmacy &

Consumer

Wellness

 

Corporate/

Other

 

Intersegment

Eliminations (b)

 

Consolidated

Totals

Three Months Ended

           

September 30, 2024

           

Total revenues

$     32,996

 

$   44,129

 

$         32,423

 

$        142

 

$        (14,262)

 

$      95,428

Adjusted operating income (loss) (1)

(924)

 

2,204

 

1,596

 

(329)

 

 

2,547

September 30, 2023

           

Total revenues

$     26,296

 

$   46,891

 

$         28,872

 

$        105

 

$        (12,400)

 

$      89,764

Adjusted operating

income (loss) (1)

1,536

 

1,878

 

1,389

 

(347)

 

 

4,456

            

Nine Months Ended

           

September 30, 2024

           

Total revenues

$     97,707

 

$ 126,585

 

$         90,986

 

$        368

 

$        (40,547)

 

$     275,099

Adjusted operating income (loss) (1)

746

 

5,482

 

4,016

 

(996)

 

 

9,248

September 30, 2023

           

Total revenues

$     78,920

 

$ 137,697

 

$         85,578

 

$        376

 

$        (38,608)

 

$     263,963

Adjusted operating income (loss) (1)

4,901

 

5,452

 

3,936

 

(982)

 

 

13,307

_____________________________________________

(a)

Total revenues of the Health Services segment include approximately $2.7 billion and $3.2 billion of retail co-payments for the three months ended September 30, 2024 and 2023, respectively, and $8.9 billion and $10.7 billion of retail co-payments for the nine months ended September 30, 2024 and 2023, respectively.

(b)

Intersegment revenue eliminations relate to intersegment revenue generating activities that occur between the Health Care Benefits segment, the Health Services segment, and/or the Pharmacy & Consumer Wellness segment.

Supplemental Information

(Unaudited)

 

Health Care Benefits segment

 

The following table summarizes the Health Care Benefits segment's performance for the respective periods:

 
     

Change

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

Three Months Ended

September 30,

2024 vs 2023

 

Nine Months Ended

September 30,

2024 vs 2023

In millions, except percentages and basis points ("bps")

2024

 

2023

 

2024

 

2023

 

$

 

%

 

$

 

%

Revenues:

               

Premiums

$ 30,914

 

$ 24,645

 

$  91,947

 

$  74,079

 

$    6,269

 

25.4 %

 

$ 17,868

 

24.1 %

Services

1,659

 

1,464

 

4,684

 

4,285

 

195

 

13.3 %

 

399

 

9.3 %

Net investment income

423

 

187

 

1,076

 

556

 

236

 

126.2 %

 

520

 

93.5 %

Total revenues

32,996

 

26,296

 

97,707

 

78,920

 

6,700

 

25.5 %

 

18,787

 

23.8 %

Health care costs

29,443

 

21,114

 

84,359

 

63,329

 

8,329

 

39.4 %

 

21,030

 

33.2 %

MBR (Health care costs as a % of premium revenues) (3)

95.2 %

 

85.7 %

 

91.7 %

 

85.5 %

 

950

bps

 

620

bps

Operating expenses

$   4,782

 

$   4,067

 

$  13,575

 

$  11,908

 

$        715

 

17.6 %

 

$   1,667

 

14.0 %

Operating expenses as a % of total revenues

14.5 %

 

15.5 %

 

13.9 %

 

15.1 %

        

Operating income (loss)

$  (1,229)

 

$   1,115

 

$  (227)

 

$  3,683

 

$    (2,344)

 

(210.2) %

 

$ (3,910)

 

(106.2) %

Operating income (loss) as a % of total revenues

(3.7) %

 

4.2 %

 

(0.2) %

 

4.7 %

        

Adjusted operating income (loss) (1)

$  (924)

 

$   1,536

 

$      746

 

$  4,901

 

$    (2,460)

 

(160.2) %

 

$ (4,155)

 

(84.8) %

Adjusted operating income (loss) as a % of total revenues

(2.8) %

 

5.8 %

 

0.8 %

 

6.2 %

        

Premium revenues (by business):

               

Government

$ 22,331

 

$ 17,208

 

$  66,269

 

$  52,680

 

$    5,123

 

29.8 %

 

$  13,589

 

25.8 %

Commercial

8,583

 

7,437

 

25,678

 

21,399

 

1,146

 

15.4 %

 

4,279

 

20.0 %

The following table summarizes the Health Care Benefits segment's medical membership for the respective periods:

 
 

September 30, 2024

 

June 30, 2024

 

December 31, 2023

 

September 30, 2023

In thousands

Insured

 

ASC

 

Total

 

Insured

 

ASC

 

Total

 

Insured

 

ASC

 

Total

 

Insured

 

ASC

 

Total

Medical membership: (4)

                       

Commercial

4,751

 

14,155

 

18,906

 

4,702

 

14,099

 

18,801

 

4,252

 

14,087

 

18,339

 

4,198

 

14,075

 

18,273

Medicare Advantage

4,438

 

 

4,438

 

4,342

 

 

4,342

 

3,460

 

 

3,460

 

3,438

 

 

3,438

Medicare Supplement

1,291

 

 

1,291

 

1,294

 

 

1,294

 

1,343

 

 

1,343

 

1,352

 

 

1,352

Medicaid

2,077

 

436

 

2,513

 

2,090

 

443

 

2,533

 

2,073

 

444

 

2,517

 

2,173

 

452

 

2,625

Total medical membership

12,557

 

14,591

 

27,148

 

12,428

 

14,542

 

26,970

 

11,128

 

14,531

 

25,659

 

11,161

 

14,527

 

25,688

                        

Supplemental membership information:

                    

Medicare Prescription Drug Plan (stand-alone)

4,898

     

4,903

     

6,081

     

6,092

The following table summarizes the Health Care Benefits segment's days claims payable for the respective periods:

 
 

September 30, 2024

 

June 30, 2024

 

March 31, 2024

 

December 31, 2023

 

September 30, 2023

Days Claims Payable (7)

44.6

 

43.1

 

44.5

 

45.9

 

50.3

Supplemental Information

(Unaudited)

 

Health Services segment

 

The following table summarizes the Health Services segment's performance for the respective periods:

 
       

Change

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

Three Months Ended

September 30,

2024 vs 2023

 

Nine Months Ended

September 30,

2024 vs 2023

In millions, except percentages

2024

 

2023

 

2024

 

2023

 

$

 

%

 

$

 

%

Revenues:

               

Products

$ 41,208

 

$ 45,019

 

$  118,417

 

$  133,371

 

$  (3,811)

 

(8.5) %

 

$   (14,954)

 

(11.2) %

Services

2,922

 

1,872

 

8,171

 

4,326

 

1,050

 

56.1 %

 

3,845

 

88.9 %

Net investment income (loss)

(1)

 

 

(3)

 

 

(1)

 

(100.0) %

 

(3)

 

(100.0) %

Total revenues

44,129

 

46,891

 

126,585

 

137,697

 

(2,762)

 

(5.9) %

 

(11,112)

 

(8.1) %

Cost of products sold

40,381

 

43,738

 

116,678

 

129,425

 

(3,357)

 

(7.7) %

 

(12,747)

 

(9.8) %

Health care costs

936

 

612

 

2,428

 

995

 

324

 

52.9 %

 

1,433

 

144.0 %

Gross profit (8)

2,812

 

2,541

 

7,479

 

7,277

 

271

 

10.7 %

 

202

 

2.8 %

Gross margin (Gross profit as a % of total revenues) (8)

6.4 %

 

5.4 %

 

5.9 %

 

5.3 %

        

Operating expenses

$       757

 

$       814

 

$   2,445

 

$   2,145

 

$        (57)

 

(7.0) %

 

$        300

 

14.0 %

Operating expenses as a % of total revenues

1.7 %

 

1.7 %

 

1.9 %

 

1.6 %

        

Operating income

$   2,055

 

$   1,727

 

$   5,034

 

$   5,132

 

$        328

 

19.0 %

 

$        (98)

 

(1.9) %

Operating income as a % of total revenues

4.7 %

 

3.7 %

 

4.0 %

 

3.7 %

        

Adjusted operating income (1)

$   2,204

 

$   1,878

 

$   5,482

 

$   5,452

 

$        326

 

17.4 %

 

$          30

 

0.6 %

Adjusted operating income as a % of total revenues

5.0 %

 

4.0 %

 

4.3 %

 

4.0 %

        

Revenues (by distribution channel):

               

Pharmacy network (9)

$ 24,136

 

$ 27,981

 

$ 66,448

 

$ 83,050

 

$  (3,845)

 

(13.7) %

 

$ (16,602)

 

(20.0) %

Mail & specialty (10)

17,214

 

17,004

 

52,127

 

50,378

 

210

 

1.2 %

 

1,749

 

3.5 %

Other

2,780

 

1,906

 

8,013

 

4,269

 

874

 

45.9 %

 

3,744

 

87.7 %

Net investment income (loss)

(1)

 

 

(3)

 

 

(1)

 

(100.0) %

 

(3)

 

(100.0) %

Pharmacy claims processed (5) (6)

484.1

 

579.6

 

1,418.2

 

1,743.5

 

(95.5)

 

(16.5) %

 

(325.3)

 

(18.7) %

Generic dispensing rate (6) (11)

86.8 %

 

87.5 %

 

87.8 %

 

88.1 %

        

Supplemental Information

(Unaudited)

 

Pharmacy & Consumer Wellness segment

 

The following table summarizes the Pharmacy & Consumer Wellness segment's performance for the respective periods:

 
       

Change

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

Three Months Ended

September 30,

2024 vs 2023

 

Nine Months Ended

September 30,

2024 vs 2023

In millions, except percentages

2024

 

2023

 

2024

 

2023

 

$

 

%

 

$

 

%

Revenues:

               

Products

$  31,823

 

$ 28,043

 

$ 89,195

 

$ 83,442

 

$    3,780

 

13.5 %

 

$    5,753

 

6.9 %

Services

600

 

831

 

1,791

 

2,140

 

(231)

 

(27.8) %

 

(349)

 

(16.3) %

Net investment income (loss)

 

(2)

 

 

(4)

 

2

 

100.0 %

 

4

 

100.0 %

Total revenues

32,423

 

28,872

 

90,986

 

85,578

 

3,551

 

12.3 %

 

5,408

 

6.3 %

Cost of products sold

26,032

 

22,797

 

72,627

 

67,301

 

3,235

 

14.2 %

 

5,326

 

7.9 %

Gross profit (8)

6,391

 

6,075

 

18,359

 

18,277

 

316

 

5.2 %

 

82

 

0.4 %

Gross margin (Gross profit as a % of total revenues) (8)

19.7 %

 

21.0 %

 

20.2 %

 

21.4 %

        

Operating expenses

$  4,860

 

$    4,753

 

$ 14,536

 

$ 14,540

 

$        107

 

2.3 %

 

$          (4)

 

— %

Operating expenses as a % of total revenues

15.0 %

 

16.5 %

 

16.0 %

 

17.0 %

        

Restructuring charge

$      747

 

$       —

 

$      747

 

$      —

 

$        747

 

100.0 %

 

$        747

 

100.0 %

Loss on assets held for sale

 

 

 

349

 

 

— %

 

(349)

 

(100.0) %

Operating income

784

 

1,322

 

3,076

 

3,388

 

(538)

 

(40.7) %

 

(312)

 

(9.2) %

Operating income as a % of total revenues

2.4 %

 

4.6 %

 

3.4 %

 

4.0 %

        

Adjusted operating income (1)

$  1,596

 

$    1,389

 

$   4,016

 

$   3,936

 

$        207

 

14.9 %

 

$          80

 

2.0 %

Adjusted operating income as a % of total revenues

4.9 %

 

4.8 %

 

4.4 %

 

4.6 %

        

Revenues (by major goods/service lines):

               

Pharmacy

$  26,666

 

$ 22,977

 

$ 73,463

 

$ 67,371

 

$    3,689

 

16.1 %

 

$    6,092

 

9.0 %

Front Store

5,196

 

5,371

 

15,847

 

16,597

 

(175)

 

(3.3) %

 

(750)

 

(4.5) %

Other

561

 

526

 

1,676

 

1,614

 

35

 

6.7 %

 

62

 

3.8 %

Net investment income (loss)

 

(2)

 

 

(4)

 

2

 

100.0 %

 

4

 

100.0 %

Prescriptions filled (5) (6)

431.6

 

407.1

 

1,269.6

 

1,217.6

 

24.5

 

6.0 %

 

52.0

 

4.3 %

Same store sales increase (decrease): (12)

               

Total

15.5 %

 

8.8 %

 

9.1 %

 

10.4 %

        

Pharmacy

19.5 %

 

11.9 %

 

12.1 %

 

13.0 %

        

Front Store

(1.1) %

 

(2.2) %

 

(2.5) %

 

1.6 %

        

Prescription volume (6)

9.1 %

 

2.7 %

 

7.1 %

 

3.7 %

        

Generic dispensing rate (6) (11)

88.2 %

 

88.3 %

 

89.5 %

 

89.1 %

        

Supplemental Information

(Unaudited)

 

Corporate/Other segment

 

The following table summarizes the Corporate/Other segment's performance for the respective periods:

 
       

Change

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

Three Months Ended

September 30,

2024 vs 2023

 

Nine Months Ended

September 30,

2024 vs 2023

In millions, except percentages

2024

 

2023

 

2024

 

2023

 

$

 

%

 

$

 

%

Revenues:

               

Premiums

$          11

 

$          12

 

$          36

 

$          38

 

$          (1)

 

(8.3) %

 

$          (2)

 

(5.3) %

Services

3

 

1

 

7

 

5

 

2

 

200.0 %

 

2

 

40.0 %

Net investment income

128

 

92

 

325

 

333

 

36

 

39.1 %

 

(8)

 

(2.4) %

Total revenues

142

 

105

 

368

 

376

 

37

 

35.2 %

 

(8)

 

(2.1) %

Cost of products sold

 

 

 

1

 

 

— %

 

(1)

 

(100.0) %

Health care costs

49

 

61

 

142

 

163

 

(12)

 

(19.7) %

 

(21)

 

(12.9) %

Operating expenses

449

 

507

 

1,539

 

1,538

 

(58)

 

(11.4) %

 

1

 

0.1 %

Restructuring charges

422

 

11

 

422

 

507

 

411

 

3,736.4 %

 

(85)

 

(16.8) %

Operating loss

(778)

 

(474)

 

(1,735)

 

(1,833)

 

(304)

 

(64.1) %

 

98

 

5.3 %

Adjusted operating loss (1)

(329)

 

(347)

 

(996)

 

(982)

 

18

 

5.2 %

 

(14)

 

(1.4) %

Supplemental Information

(Unaudited)

 

The following table shows the components of the change in the consolidated health care costs payable during the nine months ended September 30, 2024 and 2023:

 
 

Nine Months Ended

September 30,

In millions

2024

 

2023

Health care costs payable, beginning of the period

$       12,049

 

$       10,142

Less: Reinsurance recoverables

5

 

5

Less: Impact of discount rate on long-duration insurance reserves (a)

(23)

 

8

Health care costs payable, beginning of the period, net

12,067

 

10,129

Acquisitions, net

 

1,098

Add: Components of incurred health care costs

   

Current year

85,541

 

64,183

Prior years (b)

(845)

 

(679)

Total incurred health care costs (c)

84,696

 

63,504

Less: Claims paid

   

Current year

71,356

 

52,952

Prior years

10,886

 

9,207

Total claims paid

82,242

 

62,159

Health care costs payable, end of the period, net

14,521

 

12,572

Add: Premium deficiency reserve

670

 

Add: Reinsurance recoverables

65

 

4

Add: Impact of discount rate on long-duration insurance reserves (a)

(19)

 

(26)

Health care costs payable, end of the period

$       15,237

 

$       12,550

_____________________________________________

(a)

Reflects the difference between the current discount rate and the locked-in discount rate on long-duration insurance reserves which is recorded within accumulated other comprehensive income (loss) on the unaudited condensed consolidated balance sheets.

(b)

Negative amounts reported for incurred health care costs related to prior years result from claims being settled for amounts less than originally estimated.

(c)

Total incurred health care costs for the nine months ended September 30, 2024 and 2023 in the table above exclude $70 million and $62 million, respectively, of health care costs recorded in the Health Care Benefits segment that are included in other insurance liabilities on the unaudited condensed consolidated balance sheets and $142 million and $163 million, respectively, of health care costs recorded in the Corporate/Other segment that are included in other insurance liabilities on the unaudited condensed consolidated balance sheets. Total incurred health care costs for the nine months ended September 30, 2024 also exclude $670 million for premium deficiency reserves related to the Company's Medicare, individual exchange and Medicaid product lines.

Endnotes

(1) The Company defines adjusted operating income as operating income (GAAP measure) excluding the impact of amortization of intangible assets, net realized capital gains or losses and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance, such as acquisition-related transaction and integration costs, restructuring charges, office real estate optimization charges, opioid litigation charges and losses on assets held for sale. The CODM uses adjusted operating income as its principal measure of segment performance as it enhances the CODM's ability to compare past financial performance with current performance and analyze underlying business performance and trends. The consolidated measure is not determined in accordance with GAAP and should not be considered a substitute for, or superior to, the most directly comparable GAAP measure, consolidated operating income. See "Non-GAAP Financial Information" earlier in this press release for additional information regarding the items excluded from consolidated operating income in determining consolidated adjusted operating income.

(2) GAAP diluted earnings per share and Adjusted EPS, respectively, are calculated by dividing net income attributable to CVS Health and adjusted income attributable to CVS Health by the Company's weighted average diluted shares outstanding. The Company defines adjusted income attributable to CVS Health as net income attributable to CVS Health (GAAP measure) excluding the impact of amortization of intangible assets, net realized capital gains or losses and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance, such as acquisition-related transaction and integration costs, restructuring charges, office real estate optimization charges, opioid litigation charges, losses on assets held for sale, as well as the corresponding income tax benefit or expense related to the items excluded from adjusted income attributable to CVS Health. See "Non-GAAP Financial Information" earlier in this press release for additional information regarding the items excluded from net income attributable to CVS Health in determining adjusted income attributable to CVS Health.

(3) Medical benefit ratio is calculated by dividing the Health Care Benefits segment's health care costs by premium revenues and represents the percentage of premium revenues spent on medical benefits for the segment's insured members. Management uses MBR to assess the underlying business performance and underwriting of its insurance products, understand variances between actual results and expected results and identify trends in period-over-period results. MBR provides management and investors with information useful in assessing the operating results of the Health Care Benefits segment's insured products.

(4) Medical membership represents the number of members covered by the Health Care Benefits segment's insured and ASC medical products and related services at a specified point in time. Management uses this metric to understand variances between actual medical membership and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of medical membership on the Health Care Benefits segment's total revenues and operating results.

(5) Pharmacy claims processed represents the number of prescription claims processed through the Company's pharmacy benefits manager and dispensed by either its retail network pharmacies or the Company's mail and specialty pharmacies. Prescriptions filled represents the number of prescriptions dispensed through the Pharmacy & Consumer Wellness segment's retail and long-term care pharmacies and infusion services operations. Management uses these metrics to understand variances between actual claims processed and prescriptions dispensed, respectively, and expected amounts as well as trends in period-over-period results. These metrics provide management and investors with information useful in understanding the impact of pharmacy claim volume and prescription volume, respectively, on segment total revenues and operating results.

(6) Includes an adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription. 

(7) Days claims payable is calculated by dividing the Health Care Benefits segment's health care costs payable at the end of each quarter by its average health care costs per day during such quarter. Management and investors use this metric as an indicator of the adequacy of the Health Care Benefits segment's health care costs payable liability at the end of each quarter and as an indicator of changes in such adequacy over time.

(8) Gross profit is calculated as the segment's total revenues less its cost of products sold, and, for the Health Services segment, health care costs. Gross margin is calculated by dividing the segment's gross profit by its total revenues and represents the percentage of total revenues that remains after incurring direct costs associated with the segment's products sold and services provided. Gross margin provides investors with information that may be useful in assessing the operating results of the Company's Health Services and Pharmacy & Consumer Wellness segments.

(9) Health Services pharmacy network revenues relate to claims filled at retail and specialty retail pharmacies, including the Company's retail pharmacies and LTC pharmacies, as well as activity associated with Maintenance Choice®, which permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS pharmacy retail store for the same price as mail order.

(10) Health Services mail and specialty revenues relate to specialty mail claims inclusive of Specialty Connect® claims picked up at a retail pharmacy, as well as mail order and specialty claims fulfilled by the Pharmacy & Consumer Wellness segment.

(11) Generic dispensing rate is calculated by dividing the segment's generic drug claims processed or prescriptions filled by its total claims processed or prescriptions filled. Management uses this metric to evaluate the effectiveness of the business at encouraging the use of generic drugs when they are available and clinically appropriate, which aids in decreasing costs for client members and retail customers. This metric provides management and investors with information useful in understanding trends in segment total revenues and operating results.  

(12) Same store sales and prescription volume represent the change in revenues and prescriptions filled in the Company's retail pharmacy stores that have been operating for greater than one year and digital sales initiated online or through mobile applications and fulfilled through the Company's distribution centers, expressed as a percentage that indicates the increase or decrease relative to the comparable prior period. Same store metrics exclude revenues and prescriptions from LTC and infusion services operations. Management uses these metrics to evaluate the performance of existing stores on a comparable basis and to inform future decisions regarding existing stores and new locations. Same-store metrics provide management and investors with information useful in understanding the portion of current revenues and prescriptions resulting from organic growth in existing locations versus the portion resulting from opening new stores.

 
Chimerix

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