Operator:

Ladies and gentlemen, thank you for standing by for the Cigna Group Second Quarter 2024 Results Review. At this time all callers are in listen-only mode. We will conduct a question-and-answer session later during the conference. [Operator Instructions] As a reminder, ladies and gentlemen, this conference, including the Q&A session, is being recorded. We'll begin by turning the call over to Ralph Giacobbe. Please go ahead.

David Cordani:

Thanks, Ralph. Good morning, everyone, and thank you for joining our call today. For the second quarter, we again delivered strong performance as we continue to build on our momentum. Today, I'll discuss our performance for the quarter and key strategic drivers of our growth, demonstrate how the strength and durable nature of our model is fueling our success. Then Brian will review additional details on our results and our outlook for the rest of the year, and we'll move to your questions. So let's get started. For the second quarter, I'm pleased to report that the Cigna Group delivered total revenue of $60.5 billion and adjusted earnings per share of $6.72. We achieved these positive overall results in a dynamic environment, and I'm proud of our team for continuing to focus on those we serve, ensuring that they get care of the need, to get their medications at an affordable cost and they get the support they need in order to make the best decisions about their health and vitality. All of this requires a relentless focus on innovation, disciplined execution and a passionate commitment to our mission. During the quarter, our Evernorth Health Service businesses demonstrated continued strength with our market-leading specialty and pharmacy benefit services capabilities. Within Evernorth, I'll start with our accelerated growth specialty and care businesses, which provides specialty drugs for the treatment of complex and rare diseases, distribution of specialty pharmaceuticals as well as clinical programs to help clients improve health and vitality. We saw strong growth in the quarter with adjusted income growing 12% year-over-year, reflecting continued demand for our services while we also continue to invest in broadening our offerings and expanding our reach. In Accredo, our specialty business, our growth continues to be fueled by secular tailwinds as well as Accredo's differentiated strength which makes us the market leader in the space. Biosimilars, for example, represent a force of change and a substantial opportunity for continued growth and impact. At the end of June, we began dispensing our interchangeable biosimilar for Humira. Our program has zero dollar out-of-pocket cost for patients, saving them on average $3,500 per year. To deliver these savings, we have agreements in place with multiple manufacturers that will produce biosimilars for Evernorth pharmaceutical distributor, Quallent Pharmaceuticals. Now the biosimilar opportunity goes well beyond Humira. By 2030, we expect an additional $100 million of annual specialty drug spend in the U.S. will be subject to biosimilar and generic competition. And Accredo is well positioned to deliver differentiated value for our clients, customers and patients. In our care services businesses, we are continuing to grow and expand in key areas of increased demand, including behavioral health, virtual and home care. For example, in summer, we further expanded Evernorth behavioral care group to an additional seven states. We are seeing positive patient outcomes from our unique clinician matching capabilities based on individual needs and preferences with fully 84% of patients experiencing clinically significant reductions in the depression and anxiety symptoms. Now shifting to Express Scripts, our foundational pharmacy benefit services businesses, we are seeing continued strong client demand given our breadth of clinical and supply chain expertise as well as our proven partnership orientation. This quarter, Express Scripts built on a long track record of innovating for those we serve with continued enhancements and new solutions. For example, given the high cost of GLP-1 drugs, we're continuing to see meaningful interest from our clients in EnCircleRx, now with more than 2 million lives already enrolled. Our program starts with our longitudinal data to target patients who will most benefit from these medications and we provide patients with resources to make lasting changes to help maximize the effectiveness of these medications, both in the short and long-term. Another example of our innovation orientation is a recent announcement of Express Scripts oncology benefit services, which will be available in 2025. Our new solution helps patients navigate the challenges of cancer care by providing a single oncology benefit, integrating pharmacy, medical and behavioral health treatments. Our patient centered approach will help to ensure the earliest possible detection guide individuals to high-quality providers and coordinate care across clinical teams. Now moving to Cigna Healthcare, our health benefits platform, we continue to deliver solutions that create value and better outcomes for clients and customers, coupled with highly competitive total cost of care. Similar to others in the industry and as we've anticipated, we are seeing increased utilization in our book of business. I would note that our results are largely in line with the elevated levels in our planning and pricing assumptions. Our U.S. employer foundational growth business continues to perform in line with our expectations. Over this year, I've met with hundreds of clients across the U.S. and globally. And while the needs of every client are unique, there are a few consistent themes across every discussion. First, continued focus on affordability, particularly in light medications like GLP-1 and gene therapies coming to market. Next, an increased need of improved access and importantly, coordination of behavioral health services. Third is mounting point solution fatigue. And fourth, the opportunity and need for leverage of our longitudinal data and clinical programs to help keep people healthy and vital. Our solutions continue to resonate well given our highly consultative approach to help clients choose the right set of solutions, our proven capabilities to support their workforce and our innovative programs that help to keep costs down. As a result, we are further gaining share and continue to see outsized opportunities, for example, in our Select segment. Another capability of our U.S. employer business to deliver integrated and tailored benefits for our clients and customers, our modular solutions that incorporate innovative services from Evernorth, including Behavioral health, virtual care and pharmacy. Our Pathwell suite of solution, which continues to drive exceptional value is a prime example. Pathwell specialty is another way we are reducing costs associated with specialty drug therapies, while also providing improved care and clinical outcomes for patients. With our Accredo nurses, nearly 50% of our Pathwell specialty patients, who've transitioned their site of care, now receive treatment in the comfort and convenience of their home. We are pleased with how the market continues to recognize the value we are delivering through solutions like Pathwell. Turning to our Medicare Advantage business. We continue to make great progress regarding the sale of this business, and I'm pleased that we remain on track to close in the first quarter of 2025 as planned. Next, I want to take a few minutes to talk about the current environment surrounding pharmacy benefit managers and the relative landscape. At the heart of this debate is the cost of pharmaceuticals. As we previously discussed, a key force of change in health care is the surge of pharmacological innovation. For context, prescription drug coverage is the most frequently used care benefit. And on average, it used 15x per year per person resulting in billions of dollars -- billions of prescriptions per year annually in the United States. Today, and for the foreseeable future, and most meaningful advances extending and improving quality of life will come through gene therapies, breakthrough and treatments for cancers and other conditions as well as personalized medicines. In the U.S., for example, there are already more than 20 gene therapy and cell therapies available. However, there are nearly 1,000 more in the pipeline. Additionally, as we know, GLP-1s are growing rapidly, helping to treat diseases and complications that stem from obesity and diabetes. This class of drug is on tap to be the #1 pharmacy benefit trend driver for plans of all sizes this year. And the impact will grow with some forecasting nearly 10% of the U.S. population using GLP-1s in the next 10 years or sooner. The applications rippling from these fast-growing pharmaceutical trends across the entire health care system are undeniable. And one of the biggest unanswered questions is how could society afford this continued trajectory? Our role is to negotiate with pharmaceutical manufacturers as well as pharmacies to ensure that individuals are able to access pharmacological innovations at a fair and affordable price. In fact, pharmacy benefit companies are the only part of the drug supply chain who work to drive cost down. To underscore this, new drugs coming to market with unsustainable prices in 2023, were up $300,000 on a median basis, up over 35% over 2022. And last year, median brand drug price increases were greater than 5% more than the rate of inflation. Let me repeat this. Last year, the median annual price for new drugs coming to market was $300,000, up 35% over 2022. Meanwhile, in 2023, Express Scripts change in pace and cost sharing was relatively flat on average. Express Scripts patients with employer sponsored drug coverage pay, on average, $15 out of pocket for a 30 day supply. And for clients, Express Scripts delivered more than $38 billion in savings annually. Stepping back, our industry negotiations to drive these results can at times generate friction in the system. Friction that is spilled into and now has reached tightened levels in the political arena and media with industry winners and losers being declared at every report and every headline. We believe that the facts and results and outcomes delivered to our clients, customers and patients will rule the day. However, the environment calls on us to be more proactive. This means ensuring that what we do and the value we bring is more widely and better understood. And we continue to evolve our model to address legitimate pain points and opportunities. For example, in 2023, 1% of the patients in the United States experienced out-of-pocket costs above $2,000 a year. From our point of view, that's too many. We accept the responsibility to accelerate innovation to make medications more affordable, while continuing to improve health outcomes in finding solutions for every person we serve. Make no doubt our team will continue to lean into the challenge for the benefit of our patients, clients and the health care ecosystem and we are proud of the work that our team does every day and the role we play and the results we're able to achieve. Now let me pause and summarize before transitioning to Brian. When you combine our compelling growth potential and strong execution focus, we have confidence in our ability to meet our 2024 and long-term growth targets. We have a proven track record of delivering differentiated value for those we serve by innovating new solutions like in EnCircleRx and our Pathwell suite as well as expanding meaningful partnerships. As a result, in the second quarter, we delivered on our financial commitment with adjusted EPS of $6.72, and we remain on track to deliver our guidance for full year adjusted earnings per share of at least $28.40 for 2024. Further, our company has attractive sustainable growth opportunities over the long-term, and we remain on track to deliver average annual adjusted EPS growth of 10% to 14% and building on our track record of achieving 13% adjusted EPS growth over the last decade, all while we generate cumulative operating cash flow of $60 billion over the next five years, while continuing to meaningfully invest capital for the benefit of shareholders. We also continue to make strategic investments in strengthening our capabilities in our foundational and accelerated growth business and remain focusing on harnessing the breadth of our capabilities of our organization to meet the evolving needs of those we serve. Overall, our strong performance through the first half of the year reflects the balance in our company portfolio and the significant value creation that positions us for sustained and differentiated growth. With that, I'll turn it over to Brian.

Operator:

Our first question comes from Justin Lake with Wolfe Research.

Brian Evanko :

Justin, it's Brian. So I'll start by saying we're pleased to have delivered another solid quarter of MCR performance at Cigna Healthcare which ran toward the lower end of our MCR guidance range when you exclude the prior year Medicare risk adjustment revenue impacts in the quarter that I mentioned earlier. Now within the quarter, total cost of care was broadly in line with expectations. There are a few puts and takes that I call out if we get into specific cost drivers. So we continue to see elevated usage of facility-based services, including emergency room. Additionally, we saw a continuation of elevated utilization of mental health care services, which we do see as a positive over the longer term given the correlation to whole person health. You'll recall in the first quarter, I highlighted slowing growth in surgical costs. During the second quarter, we continued to see abatement in the rate of growth of surgical costs although costs still didn't grow. Now taken all together, we are seeing sustained high cost trends, yet these are broadly in line with our guidance as we planned and priced for the elevated utilization levels that began in 2023 to continue throughout 2024. Now specifically in the second quarter, we did not witness aggregate acceleration or deceleration of care patterns within the quarter. I also would not note any month-to-month variability relative to the year-to-date experience that we've seen. So overall, we remain confident in the full year MCR range outlined in our guidance.

Lisa Gill :

I want to start with the 2025 selling season on the pharmacy side. You made comments around GLP-1. We continue to see new indications there. I'm just curious, one, when we think about the opportunities in '25, how would you characterize that to what kind of programs are people buying going into 2025? And then lastly, David, you made a comment that the facts need to be more widely understood when it comes to the pharmacy business. What are your plans around making those facts more wiping known? Because as you know, I agree with you that both Congress as well as the media reports don't fairly reflect what the benefits are of the business.

David Cordani :

I appreciate the call out. First and foremost, let me reiterate we're proud of the work we do daily, and I'm greatly appreciative of our team that gets up everyday serving our patients and customers through employer relationships, health plane relationships, governmental entity relationships and increasingly through partnerships and collaborations to health care professionals. Second, we will and need to continue to innovate for the benefit of those we serve, whether that's through the likes of ClearCareRx, our patient insurance program, our EnCircle program, our independent pharmacy program, all of which are first in the space. Now specific to your question, we challenged ourselves to be much more aggressive and complete relative to communication and engagement in support of our clients, be they employers or health buying customers collaborate even more deeply and intensely with the independent pharmacies and subsegmenting the independent pharmacists who are truly independent and rural working on the hill, of course. And then lastly, more aggressively leveraging credible third-party independent analysis of what our industry does and specifically what we do on behalf of those we serve in a fact-based incredible way. So you should expect to see us a bit more complete and aggressive ensuring that we're amplifying that. But make no doubt, we also need to continue to innovate as we have, and we will continue to innovate for the benefit of those we serve.

A.J. Rice:

I might just flip over and ask you about the any distinctive you're seeing in the health benefit selling season across your book, and a large group and select, et cetera. And then also, you called out for quite a while now, fatigue on point solutions. I wonder, I understand how you're addressing affordability and understand how you addressing behavioral health integration. But on the point solution question, is there anything that is -- or do you think you'll consider buying some of these point solutions and then offering them as part of your integrated offering? Do you sort of see yourself getting in the middle of helping employers choose between the myriad of point solutions? How are you addressing that?

David Cordani :

Sure. So first, if you think about some of the solutions we identified both in today's call and in prior conversations, you can think about our digital health formulary, as a way that we connect capabilities and work to connect them seamlessly. You can think about the way the Encircle program is designed. It's designed to have actually coordination and continuity that is patient-centric the oncology program that we will roll out in 2025 is another example of taking specific care need or episode of care and redesigning the pathway to care in a much more coordinated basis, staying focused on the patient and the health care professional. The Cigna Behavioral Group offering that I referenced has much more continuity and coordination of the care experience, starting from the access to the medical professional, the matching and the coordination and there'll be new offerings. You can think about all those as largely having been built organically as we continue to invest back in the organization. To the core question through acquisition, you could think about that as well, you never roll it out largely not fueled through acquisition, although there could be episodic coordination of point solutions. And then I would graph in the middle, I'd remind you that we operate the Cigna Ventures organization where we have a now meaningful track record of partnering with organizations where they are, by definition, almost point solutions and helping collaboratively to co-innovate with them as we go forward. So stepping back, largely organically driven proven track record and the acceleration of new innovations that are coming to market for the benefit of those we serve to meet that demand.

Andrew Mok:

With all the changes coming to Part D, there could be significant changes, not only to membership, but also formulary managing for next year. How does the shifting risk to Part D sponsors impact Evernorth more broadly? And how are you helping clients navigate these changes?

Eric Palmer :

Evernorth and Express Scripts specifically has a long history of supporting health plans to offer Medicare Part D plans. We've got a great track record of a treatment and strong stars outcomes for them and supporting our plans and their offerings and helping them with the tools to manage formularies and model the impacts of changes for example. We're continuing to make investments to help ensure our plans are well positioned with the continued evolution of Part D coverage. We even with the most recent round of changes from the IRA like the administrative requirements associated with the copay smoothing just as one example. This continues to be an important part of the Evernorth and Express Scripts business that we're positioned to continue to help our plans succeed and thrive as they work through these changes.

Scott Fidel :

I was hoping to maybe just touch on the marketplace and a couple of things there. One, just with the [Hips] 2023 risk adjustment true-up, if you can tell us what the net impact was to earnings if there was any relative to how you had accrued for that? And then also, just when thinking about the commentary on cost trends. Maybe if you could overlay that into the marketplace in terms of if you're seeing a similar trend there and how that's influencing your view on exchange margins for the full year. I think that prior view had been probably still a bit below long-term target there for marketplace margins this year, just interested in an updated view on margins for the year.

Operator:

Our next question comes from Ryan Langston with TD Cowen.

Brian Evanko :

Ryan, it's Brian. Congratulations on your new role. As it relates to the individual exchange lives intra year, maybe I'll just step back and give you kind of a year-to-date perspective, and then I'll get into the sequential component of your question. So as we discussed during our first quarter results call, the primary driver of the year-to-date change in Cigna Healthcare customer volumes is our individual exchange book. You'll recall that we repositioned this business in 2024, including taking some needed pricing actions in certain geographies in order to improve profitability and we expected to see a reduction in customer volumes as we have witnessed. And sequentially, the individual exchange business drove the majority of the modest decline in the second quarter customer volumes. Now you should think of the primary driver of that being non-payment of premiums as a result of some of the pricing actions we took in a couple of the larger geographies. So it's essentially the delayed effect of those grace periods kicking in. It was an immaterial impact to our financial results in the quarter. Over the course of the balance of this year, we would expect to see continued strong growth within our U.S. employer under 500 Select segment, which should result in sequential growth in U.S. employer and Cigna Healthcare lives for the balance of the year. So taken all together, we're pleased with the overall balance in the Cigna Healthcare portfolio. As it relates to 2025 in the picture there, we've just recently completed all the pricing and rate filings network design. And until we really see all the competitive dynamics, it's hard to know how that will shake through we would expect our margins to be similar or potentially a little bit better next year in the individual exchange book as we look forward. But too early to know exactly how we'll shake out from a membership standpoint.

Josh Raskin :

I'd be curious to get your views on the potential for ICRA and specifically how that could impact the small group or select market? And maybe how does stop-loss fit into that equation?

Operator:

Our next question comes from George Hill with Deutsche Bank.

Eric Palmer :

George, it's Eric. First, I'm going to comment on any specific negotiations with any pharmacies or things along those lines. But as you know, we've got a wide array of choices and options for our clients. That extends to how we've constructed our network as we look to balance access and affordability that best meets the needs of our clients and their patients. So we work to assemble a range of different network options under a range of different reimbursement types that match up with the needs for cost access and the associated trade-offs and touch there for our clients. So overall, that approach has served us well. We work to continue to innovate to bring new solutions to market. An example of a new solution there would be like late last year, we announced our ClearNetwork Solution. ClearNetwork provides a comprehensive simple solution in that, the pricing is based off of independent, externally created index and then it's got a simple margin that's shared between us and the pharmacy. So it's a new offering we put in the market last year that's generating interest. But again, overall, the portfolio of offerings that we continue to pull together resonates with our buyers and is part of the reason we've continued to grow the pharmacy benefits services, chassis nicely over the last few years.

Unidentified Analyst:

This is Adam on for Kevin. So you raised guidance in Q1 on what seems like a smaller beat at least for street expectations, but you didn't raise guidance this quarter. Can you give a little more color on why maybe you wouldn't raise and how things came in versus your expectations? And if there's anything to read into on the PYD or on the -- maybe on DCPs being down. Any color would be helpful.

Operator:

Our next question comes from Erin Wright with Morgan Stanley.

David Cordani :

It's David. Let me start. You have a lot in your question and appreciate it, given the importance of the space. First, just to reiterate, the Specialty and Care part of the portfolio represents really 30% of our enterprise today. And we're quite excited about the growth potential for that business. We see the product business portfolio as a provision of care business that leverages in many cases, and we're talking about the specialty services. As noted, we had strong growth in the second quarter of 12% and as we discussed for quite some time, the breadth of our capabilities position us well relative to changes in the marketplace, more specifically the biosimilar opportunity. Now you have multiple questions here that I'll ask Eric to peel back a little bit relative to the more specific opportunities we see both in terms of our core business through Accredo as well as through CuraScript as we're expanding our capabilities in our portfolio. Eric?

Operator:

Our next question comes from Stephen Baxter with Wells Fargo.

David Cordani :

It's David. As we discussed back in 2023, as the year was unfolding, just by way of context, we were very mindful of the potential for some softening of the employer marketplace. And then to your point, in group trends softening a little bit. And when we state of quite close to monitoring it, it didn't really manifests itself in any material way, given employers we're still working to get to a full level of employment. For 2024, we've taken a similar cautious curious monitoring approach and built a little bit of consideration relative to softening. And by and large, we have not seen that to date. So the membership headlines that we've delivered represent good fundamental strength as Brian noted previously, the change in our membership is largely driven by our as expected, dampening of the marketplace, as you would call it, our individual exchange business. But we remain closely monitoring any dampening tied to the economy and thus far haven't seen anything material to call out there.

David Windley :

Brian, in your comments, I think I heard you say that the excess reserves from 1Q have basically developed in line with your expectations. I think I also heard you say that you didn't see any, say, intra quarter trends or a particular month in the quarter that stood out as an anomaly. And I think in looking at our -- your progression looks like MLR implied for the second half is maybe in the neighborhood of 200 basis points above the first half historical normal, maybe about half of that. So just wanted to understand if the higher MLR expectation for the second half is kind of cautious posture or if you're expecting certain things to accelerate in the second half that would drive that. And maybe a last question would be relative to pricing, would you view yourselves as pricing to forward view of trend as you head into next year? Or would you be pricing to expand margin? Another long question.

Operator:

Our next question comes from Jessica Tassan with Piper Sandler.

Eric Palmer :

Jessica, it's Eric. So I guess stepping back, our approach is focused on getting -- offering choice and value and getting to the lowest cost and best available solution from a patient perspective. So a couple of things I would note. First of all, our biosimilar offering is interchangeable. And so that facilitates an easier election if a patient chooses to choose a biosimilar, it's an easier process by being interchangeable, so that would be one thing I would note as a differentiator for us. More broadly, we're here to facilitate and ensure patients have access to the medicines that they need. So if the Skyrizi or Rinvoq will be in a position to fulfill that as well. But overall, we're working to make sure that we've got the right access to all of the medication. As we look ahead, ensuring we've got on a fully developed portfolio of all of the available biosimilar offerings will be important, and we'll continue to be in a position to lead here.

Lance Wilkes :

Could you just give me a little more color on some of the faster growth areas in Evernorth, in particular, if you could talk a little bit about GLP-1 coverage outlook for -- during the selling season for next year, so fee growth has been really strong. How much of that is coming from traditional PBM versus care services growth? And are you seeing any of that in Accredo?

David Cordani :

Looking ahead, we expect the use of these medications to continue to grow. And that is part of the growth algorithm for Evernorth overall. Stepping away from GLP-1 specifically, we see broader growth opportunity in specialty with continued growth, both through new therapies through biosimilars coming to market as well as us continuing to expand our relationships whether that's through our CuraScript, specialty distributor or through other direct opportunities. So overall, growth across a number of different fronts within Evernorth that we're pleased to be in a position to deliver. Brian, do you want to pick up the second part of Lance's question?

Operator:

Thank you. I will turn the call back over to David Cordani for closing remarks.

Operator:

Ladies and gentlemen, this concludes the Cigna Group's second quarter 2024 results review. Cigna Investor Relations will be available to respond to additional questions shortly. A recording of this conference will be available for 10 business days following this call. You may access the recorded conference by dialing (800) 839-1190 or (203) 369-3031. There is no passcode required for this replay. Thank you for participating. We will now disconnect.

Kevin Fischbeck:

All right. I want to thank everyone for joining us today. It's my pleasure to be hosting The Cigna Group. Presenting today, we have Brian Evanko, who is the CFO of the company as well as President and CEO of Cigna Healthcare. We also have Hasan Riaz and Ralph Giacobbe for the company as well in the audience. So I think we should jump right into Q&A. I guess maybe take us -- one of the things that we're trying to figure out here at the conference is just kind of the backdrop for utilization. There's a lot of moving pieces and seems like some degree, different points of view about where we are in the utilization perspective. Can you just talk a little bit about what you're seeing utilization, I guess, first in the core commercial book but then also any color on the Medicare Advantage side as well?

Kevin Fischbeck:

Okay. And any different color on the Medicare Advantage side versus the commercial side?

Kevin Fischbeck:

And I guess let's talk about the commercial side for a minute. I mean, you're one of the few companies that really talks about commercial as a growth business. And to your credit, you have been growing commercial well. I mean, but what is the opportunity that you guys see in the marketplace overall? What type of growth can you think you can deliver in commercial?

Kevin Fischbeck:

Yes, I guess in Q1 when I looked at your commercial membership, the membership was down pretty much in every segment except for I guess the Select business. So what happened there? Why weren't we seeing better membership trends when the economy is doing relatively well? And then how should we think about the rest of the year?

Kevin Fischbeck:

And so then does that mean that the market's getting more competitive in that marketplace or is this just digesting recent growth?

Kevin Fischbeck:

And so as far as the rest of the year goes, do you expect membership to kind of trend up from here as the year goes on, is that?

Kevin Fischbeck:

Okay. And then you guys are getting out of the Medicare Advantage business and you don't have a Medicaid business. Can you just talk about your views on the government business? Like why isn't that part of your portfolio strategy today? And it seems like almost every company has a diversified portfolio. Aren't there benefits of having that?

Kevin Fischbeck:

Is that true for Medicaid as well as Medicare or do you have a different view about those programs?

Kevin Fischbeck:

All right. Can we talk a little bit about Evernorth then for a minute? You guys have kind of broken out that PBM business separately from the special two business. Can you talk a little bit about the decision to do that and why you think that's important for investors to understand?

Kevin Fischbeck:

And I guess maybe to that point, I think since this was the first quarter where we could look at it, it's optically looked a little bit strange when the PBM business grew so much off the Centene contract, but the specialty business didn't seem to get the same lift. Can you talk about why specialty didn't get the same bump that PBM did?

Kevin Fischbeck:

Okay. And when you think about that 8% to 12% growth algorithm, like how should we think about it? What are the key drivers to that?

Kevin Fischbeck:

That at last one, so the first two were actually kind of specialty drug driven the last one, that's a medical management overlay, not a pharmaceutical?

Kevin Fischbeck:

And so it seems like everyone is talking about adding more of these services and these carve out benefits. I mean, what you -- how would you characterize the competitive environment today for these types of things like behavioral? It seems like, again, Elevance is doing it, United has been doing it, you're doing it like how do you win in that market?

Kevin Fischbeck:

Okay. Can you talk a little bit about, the PBM environment? You guys just won a large contract. Anything to highlight there as far as over the next year or two that anything you have up for re-procurement or any larger contracts that might be coming to market?

Kevin Fischbeck:

And as far as the Centene contract, I guess last year was a drag, you should prepare for it. This year it's talking more break even and next year you should be at target margins. Is that are you still on track for that dynamic?

Kevin Fischbeck:

All right. Great. Can you talk a little bit about, just going back to the Health Plan business, the exchanges? You guys pulled back noticeably on the exchanges in a couple of states. Where are the margins today and how do you view the exchanges going forward?

Kevin Fischbeck:

Is that would you expect to be at target next year [indiscernible] repricing?

Kevin Fischbeck:

I think you guys have a longer term view that that business will grow, is it 10% to 15%?

Kevin Fischbeck:

Is that the only part of your commercial business that was kind of under target? Are you generally speaking back to target margin and commercial outside of exchanges?

Kevin Fischbeck:

Okay. It's interesting. It feels to me like Cigna is in a pretty good spot right now. When I think about next year, there's not really any obvious headwinds that I can see to your business. So next year you're going to have trends going to remain high, unit costs seem to be driving commercial trend and that's probably going to be high again next year. So that's good for revenue growth. You've got the Centene contract ramping up. It sounds like the RFP pipeline is going well on the PBM side. So it seems like everything's kind of going well in your favor. Is there anything we should be thinking about from a headwind perspective that, is an offset or anything that keeps you up at night as far as next year's growth goes?

Kevin Fischbeck:

Yes. And then, you talked a bit about the share repo that you're doing this year. You guys are in the process of doing the first $5 billion. What's the appetite or ability to do it to continue share repo on the back half of the year? And your good debt to cap is in Q1 was 44%. You guys usually talk about 40% as the target. How does that play into how you think about share repo and the timing?

Kevin Fischbeck:

And I guess when you think about -- you guys talk about 65% of your cash flow either going to M&A or share repo. And I appreciate, viewing your own stock as attractive. We do too. But if you think about M&A, one of the pushbacks that I have on Cigna's strategic capital deployment, it just seems like that there should be something out there that could kind of push the company forward. But since you bought Express Scripts, you've raised more money in asset sales than you've deployed on acquisitions. And so it feels like everyone around you is kind of more aggressive on deploying capital. So what are your thoughts about, I don't want to say it's an arms race, but like -- are you missing out on anything? Is there anything that you look at today and say, yes, it would be better to have this or that?

Kevin Fischbeck:

I guess I understand getting into new markets or getting to new geographies. What does it mean, say, to improve your competitive positioning? Like what does that mean?

Kevin Fischbeck:

Okay, I think that is all we have time for. Thank you very much.

Operator:

Ladies and gentlemen, thank you for standing by for the Cigna Group's Fourth Quarter 2023 Results Review. [Operator Instructions] As a reminder, ladies and gentlemen, this conference, including the Q&A session, is being recorded. We'll begin by turning the conference over to Ralph Giacobbe. Please go ahead.

David Cordani:

Thanks, Ralph. Good morning, everyone, and thanks for joining our call today. 2023 was a very strong year for our company with consistent performance and sustained growth. We executed with discipline across our businesses. We delivered for our customers and patients, our employer clients, our health plan partners in the others we serve. And with our expertise and diverse breadth of capabilities, we continue to improve affordability and clinical outcomes as well as continuing our work to expand access and choice. As we look forward, we're carrying momentum into 2024 and we expect another strong year of performance in growth. Now today, I'll focus my comments on key strategic drivers of our performance last year and how we continue to evolve and advance our business to sustain our impact on growth. Brian will then walk through additional details about our performance for 2023 as well as our outlook for 2024. Then we'll take your questions. Now before I go into our results, I want to comment on the announcement we made earlier this week, we reached a definitive agreement to sell our Medicare businesses to HCSC. We expect this transaction to close in early 2025, following customary legal and regulatory approvals. And while we continue to see the seniors market as an attractive growth market, we concluded that our Medicare businesses well large at about $12 billion in revenue would require sustained investments and focus and capital as well as dedicated resources that were disproportionate with their size within the Cigna Group's portfolio. Additionally, with Evernorth's broad high-performing service portfolio, we will continue to serve the needs of seniors and grow our business. I would note that as part of our agreement, HCSC will be served by Evernorth for continued services for the customers we are selling. Additionally, we're expanding the reach of Evernorth's portfolio and see significant continued growth opportunities in Government services, including Medicare. Now as we consider the performance of our Medicare Advantage business in 2023, in the fourth quarter, results were in line with our expectations. And for the year, we balanced high-quality and competitive benefits offerings, continued target market expansion, and disciplined pricing activity. Now with that, let's move into our 2023 headlines. Probably for 2023, we exceeded our financial commitments. Full year total revenue, we delivered $195.3 billion. Full year adjusted earnings per share was $25.09 and cash flow from operations of $11.8 billion. This performance extends our track record of delivering consistent positive results, in the face of dynamic market conditions. It speaks to the power of our franchise and the purposeful way we've constructed our company, continuing to build on the strength of Cigna Healthcare, while also shaping and expanding our Evernorth Health Services platform to lead the way in addressing evolving needs in the marketplace. As a result of our focus, discipline and sustained execution, over the past decade, we've delivered adjusted EPS growth of more than 13% on an annualized basis. In the five years since our acquisition of Express Scripts, we've achieved or surpassed every goal we established for the combined company. Through 2023, we've grown revenue by over $50 billion and met or exceeded our adjusted EPS objectives each year. And we've returned $27 billion to shareholders through share repurchase as well as attractive dividend payments. In 2023, after increasing our outlook for adjusted EPS twice over the course of the year, we had a strong finish and delivered full year adjusted EPS that was better than expectations. In short, we've demonstrated the ability to profitably evolve our business and services that we provide over many years, which enable us to continue to deliver on our commitments and growth. Now I'll discuss our performance in greater detail. I'll start with Evernorth. In our Express Scripts business, we successfully implemented the single largest contract ever in the pharmacy benefits industry. Throughout 2023, thousands of coworkers collaborated and worked with dedication, so we'd be ready to begin fulfilling, well over 400 million annual prescriptions for 20 million Centene customers starting at the beginning of this year. Additionally, Centene was amongst hundreds of additional clients that were ready to serve in 2024 and I'm proud to say we're off to a strong start. The good work of our team has helped us meet the needs of our customers and reinforce the trust that Centene and of the clients place in our company. Another Evernorth highlight for 2023, is that we once again advanced industry-leading innovation. Last spring, we launched a series of innovations, including ClearCareRx, to support affordability, additional transparency and broader choice as well as independent Rx to partner and enable more closely with independent pharmacies. Then in November, we have further an expanding choice for clients funding their pharmacy benefits with Express Scripts clear network. We were the first to launch a scaled pharmacy network model offering cost-based pricing. In addition, our accelerated growth businesses with Evernorth fueled our momentum as well. Accelerated growth in Accredo specialty pharmacy and CuraScript SD businesses and in our care services businesses contributed to Evernorth's strong top and bottom line results. With Accredo and CuraScript SD, we are supporting patients and providers with safe and effective use of the growing volume of high-cost clinically compliant specialty drugs. We also continue building out our care service platforms to ensure patients can access care when and how they need it, while also remaining connected with physical sense of care. Our MDLIVE virtual platform, for example, is now available to over 60 million individuals as part of their benefits offering and is supporting the growing volume of care, including over 2.2 million virtual visits in 2023. Our results clearly demonstrate that with Evernorth's leading capabilities were valued and flexible partner for health plans, employers, governmental organizations and health care providers. In Cigna Healthcare, we drove revenue and customer growth through disciplined pricing and medical cost management. We serve employers and individuals who trust us to guide them through the health care system. Our leading clinical care programs could use to support our customers and patients, equipping them with the right information and insights they need to make the best choices for their health and vitality. Our ongoing pricing and continued progress in affordability initiatives in 2023 resulting in a medical care ratio that was better than expectations. Our U.S. Commercial Employer business had an outstanding year with continued strong growth. This was driven by our team's continued success in strengthening our competitive position through improved affordability and leveraging our high-performance networks and digitally enabled services as we expand care access, coordination of care and overall value. Our individual exchange business performed broadly in line with our expectations for the fourth quarter. And with the actions we've taken, we are on track to deliver improved profitability in 2024. In international health, we achieved another positive top and bottom line results. Our high-quality and localized health solutions, supported by our global provider network continue to resonate very well with the globally mobile population and employees of multinational corporations as well as intergovernmental organizations. Now turning to 2024. We will sustain our growth in high performance by sharply focusing on the greatest opportunities with a well-balanced portfolio of complementary businesses and a clear durable strategic growth framework. First, we will drive continued steady predictable growth from our high-performing foundational growth businesses. Pharmacy benefit, U.S. commercial employer and our international health business. Our clients depend on our pharmacy services, for example, and our expertise as well as our leadership in lowering cost for prescription drugs and addressing growing needs such as the high demand for the GLP-1 class of drugs for weight loss in diabetes. We have a long history of guiding appropriate access to medications and providing specialized clinical support and we will continue to build on these efforts with new programs such as our EnCircleRx program. We're also supporting customers in additional ways, including by offering enhanced digital tools to help them better understand the value of their pharmacy benefits. We've been successful in growing our U.S. Commercial Employer business for more than a decade and continue to view this as a growth market for the Cigna Group. We continue to leverage the strength in coordinating a growing number of point solutions for our clients and improving clinical outcomes for our clients. Additionally, we continue to act as a disruptive innovator for small and middle-sized client needs. Second, we will build on further momentum for our accelerated growth portfolio, our fast-growing scaled specialty pharmacy business and our care service businesses. We have tremendous opportunities in these large and expanding markets with our differentiated specialty capabilities, supporting patients with high cost and clinically complex treatments. And within Care Services, we're advancing our capabilities in behavioral health, virtual and home care, as well as coordinated care programs for specific conditions. In summary, for 2024, we will grow our customer and revenue base again and our earnings and operating cash flow at the higher end of our long-term strategic targets. We've increased our expectations for full year 2024 adjusted EPS to at least $20.25, we expect our consolidated adjusted revenues to grow at least 20%, and we expect to generate at least $11 billion of operating cash flow. And we will continue to return capital to our shareholders, including a 14% increase in our quarterly dividend. Now before I wrap it up and turn it over to Brian, I also wanted to mention the announcement we made last month about expanding roles for Brian and Eric. Brian has been our Chief Financial Officer for the past three years and will continue in that role. He will also expand his responsibilities as President and CEO of Cigna Healthcare. Eric is expanding his responsibilities as Executive Vice President of Enterprise Strategy for the Cigna Group, while also continuing as President and CEO of Evernorth Services. Brian and Eric's expanded positions, as well as other leadership changes we announced provide further clarity of our priorities and strategy, as well as the extent of reach and impact lucid to have. Importantly, it also reinforces the depth of our management bench. At our Investor Day on March 7 in New York City, you'll hear more from me, Brian and Eric, as well as other key leaders from across our company. We look forward to sharing with you our views of the expanded addressable markets we see and how we've positioned the Cigna Group to advance our next chapters of attractive growth. Now I'll briefly summarize. With the momentum we carried out of 2023, we are raising our guidance for EPS in 2024. We are building on a strong year of disciplined execution, performance and growth across our company. We deliver for our customers and clients and partners. We kept our commitments to our shareholders, including delivering adjusted EPS for 2023 of $25.09, which was above our outlook, and we generated $11.8 billion of cash flow from operations. We have sharpened the focus of our portfolio further to ensure that we are positioned to drive another strong year for our company. We are building on a consistent track record of disciplined execution, innovation and differentiated partnerships. We've increased our outlook for 2024 and now expect EPS of at least $28.25, and we will continue to advance the strategic deployment of capital, including using the majority of our discretionary cash flow for share repurchase in 2024. We'll have another strong year of performance, continue our track record for more than a decade of delivering against our 10% to 13% long-term adjusted EPS growth target, while maintaining an attractive dividend. And with that, I'll turn it over to Brian.

Operator:

[Operator Instructions] Our first question comes from A.J. Rice with UBS. You may ask your question.

David Cordani:

Thank you. Good morning. It's David. You have a lot in that question. And I appreciate it. Let me try to address some of the high points. First and foremost, we are really pleased with the nature of the transaction we're able to structure with HCSC. We see it as a win-win. And it's a clarification to our strategy within our portfolio. As I noted in my prepared remarks while we view the market as an attractive growth market. The required capital investment resources focus relative to its size within our portfolio, coupled with the continued elevated regulatory environment, our decision was it was best to enter this transaction. Point two is, very importantly, we've been quite deliberate now for several years, working to expand the service portfolio and the value proposition within Evernorth for health plan partners as it relates to their government services, be it Medicare, be it duals, be it Medicaid, et cetera. And we're demonstrating a very attractive proven track record of growing our government reach but through the services franchise, and we will continue to fuel that on a go-forward basis and see that as an attractive trajectory for us. As it relates to your latter part of your question, I'll reframe our M&A criteria. I want to make sure I put that in the context of our capital deployment criteria. We continue to view, first, capital deployment priorities, investing in our business. Brian referenced the CapEx deployment of about $1.5 billion. Second, we always evaluate M&A for its appropriate attributes, which I'll come back to in a moment. And then third, returning capital to shareholders. And as Brian noted, in 2024, in addition to raising our dividend by 14%, we expect to return the majority of our excess capital to shareholders through share repurchase with at least $5 billion in the first half of the year. Lastly, in your action pack question, as we think about the criteria for transactions, we think about three criteria

Operator:

Thank you. Our next question comes from Stephen Baxter with Wells Fargo. You may ask your question.

David Cordani:

Steve, good morning, it's David. You're asking for a 10-year crystal ball. I think in the dynamism of the marketplace, most people come back to in terms of rolling three-year views of a given market. But stepping back, first and foremost, the Medicare Advantage offering, broadly speaking, in the marketplace is a very attractive offering for seniors. And it has a long-term proven track record of delivering attractive benefits. And importantly, clinical coordination when you get to the Medicare beneficiaries, typically dealing with a higher level of clinical burden that's necessary for coordination. And the care outcomes, the quality outcomes, the overall value outcomes are positive. So broadly speaking, from a societal standpoint, we see MA as an important asset for the U.S. to continue to be served, supported financially and grow. Secondly, the marketplace will see ebbs and flows in terms of the funding mechanism. We see the early look at the rate letter at the moment in time. That's a moment in time, either acceleration or potentially deceleration for that marketplace. Third is, if you look at the senior satisfaction level, NPS broadly - Net Promoter Score broadly is attractive for Medicare Advantage. Therefore, as I noted previously to A.J.'s point, we worked really aggressively to ensure that we have a broad and we will continue to broaden the portfolio of services in support of health plans and integrated value-based care providers to be in support of value-based care, be it for Medicare Advantage tools or the commercial population. So we see the marketplace as a growth market. Its respective growth will ebb and flow depending on reimbursement to some level from the government, lending toward benefit richness. And then ultimately, as you know, the last comment I would make is the primary wave of the baby boomer aging has reached a peak and is slowing. It's still attractive, but that primary wave has reached its peak and is slowing somewhat. Take it as a whole, we see this as an expansion opportunity for Evernorth.

Lisa Gill:

Thanks very much, and good morning. I want to focus on Evernorth and maybe just understand some of the key drivers as we think about 2024. So first off, you talked about specialty in 2023. Can you talk about what your expectations are about growth in specialty in 2024? What you're doing around services? You touched a little bit on GLP-1. But you had a really big contract with CNC coming on board, but you also had an overall good 2024 selling season. So any of the key elements you can help us to understand as to what the drivers are for that strong AOI growth in Evernorth?

Operator:

Thank you. Our next question comes from George Hill with Deutsche Bank. Your line is open. You may ask your question.

Brian Evanko:

Good morning George, its Brian. So let me just take the MA question first and then I'll get into the MCR. So as noted in my comments earlier, the Medicare Advantage business will continue to be reported through Cigna Healthcare through 2024. So all of our guidance whether that be the revenue guidance, the customer volume guidance, the earnings guidance, all assumes that the Medicare business will continue to be reported through Cigna Healthcare on an asset held-for-sale basis so, just to clarify that. So, all the metrics that you see line up with that basis. Within the MCR specifically, the midpoint of our guide obviously has a slight up-tick from where we were in 2023. Now important to step back and thank the 2023 MCR performance was favorable to expectations and the primary driver of the Cigna Healthcare income outperformance. We're just really pleased with the both quarter and full year coming in favorable to expectations. And as I mentioned earlier, the 81.3% full year MCR was 70 basis points better than the midpoint of where we had started the guidance early in 2023. So you can think of the primary driver of the slightly higher projected 2024 MCR as being our stop-loss products within the U.S. Commercial Employer business. As I mentioned earlier, these ran favorable to our target profit margins in 2023. And due to lower-than-expected cost trends in high-dollar claimants. For 2024, our planning assumptions are for the stop-loss products to normalize back into their typical target profit margin range. Secondarily, there is some product mix shift within the Cigna Health care portfolio between 2023 and 2024 that will impact the overall Cigna Healthcare MCR. Although, I would note that we expect the overall Cigna Healthcare profit margin percentage to be higher in 2024 compared to 2023. And we'd expect that to land near the low end of our targeted 9% to 10% range in 2024. And then finally, when you think about our MCR guidance, as always, our guidance does have an appropriate level of prudence to start off the year.

Operator:

Thank you. Our next question comes from Josh Raskin with Nephron Research. You may ask your question.

David Cordani:

Good morning Josh, it's David. Let me take a portion of your question and then ask Eric to expand. And I'm going to come at the latter piece of it in terms of care allies and BBC, et cetera. First, your statement is correct. The thing about the care allies is specifically focused on the MA portion of value-based care. So therefore, there's alignment there. Stepping back on value-based care, we have a long history and again, a proven track record of delivering very strong positive results for the benefit of our clients, our customers and patients off of our value-based care orientation for commercial, for individual exchange, as well as for Medicare Advantage. As you know from our prior conversations, that's been a partner and enabled model as opposed to an owned model, broadly speaking. In terms of owning the care delivery versus partnering enabling. Additionally, I'd ask you to think about the commitment around that continuing. So our collaborative accountable care relationships for our commercial business and our exchange business continues on and our investment in and expansion of our Evernorth Accountable Care of capabilities as we support healthcare delivery system partners around their value-based care. That continues, including our strategic partnership with Village. So on the value-based care side of the equation, no change in strategy for us. this specific subset of our assets was solely aligned to the Medicare Advantage business. I'll ask Eric to talk about the direction relative to PDP and our multidimensional services relationship there. Eric?

Operator:

Thank you. Our next question comes from Scott Fidel with Stephens. You may ask your question.

David Cordani:

Scott, good morning, it's David. I think your umbrella tenant is right. So as I noted in my prepared remarks, the decision allows for sharpening of focus as we lean into our portfolio going forward. As you think about the investments, though, we have a long track record of making multiyear investments within our portfolio. So think about investments in a digital-first orientation and data-led capabilities continuing to invest in development of new programs and capabilities, be it what we talked about before with ClearCare or Pathwell capabilities. expanding the infrastructure and scale for a broader addressable market expansion and our proven CuraScript SD expansion as we face off and support a broadening array of health care professionals and integrated delivery systems. And I mentioned to Josh, the Evernorth Accountable Care capability. So think about, broadly speaking, our investment strategy continuing to fuel a variety of items and finally, sustained affordability, be it on the medical class pharmacy cost for administrative leverage that we get out of machine learning and AI through that lens. As it relates to the question around exchange or otherwise, we've always viewed the exchange business as sitting between commercial as well as the government. Obviously, the government influences a meaningful portion of that through the benefit design and otherwise, yet we are able to successfully leverage our collaborative accountable care relationships. And as we've demonstrated now for about a decade, with the exchange business by taking a very targeted focus within that market from its inception in 2014 to today, we continue to see that as a complementary aspect to our business. We will take very targeted positions, market by market as long as we have the right collaborative care relationships in place and have to be a complementary part of our portfolio. So I don't see the exchange posture is changing as a result of this. And broadly speaking, I don't think the investment strategy and the corporation changes as a result of it, it does create more capacity, though, as you articulated to accelerate in some of the categories I made reference to. I hope that helps, Scott.

Operator:

Thank you. Our next question comes from Kevin Fischbeck with Bank of America. You may ask your question.

Brian Evanko:

Good morning, Kevin, it's Brian. So as it relates to the net decline we have projected in the 2024 Cigna Healthcare customers. You can think of the primary driver of this being the individual exchange business. As we discussed late last year, we took some needed pricing actions in certain geographies in the individual exchange portfolio, and this will result in net customer declines for this business in 2024. Within the U.S. Commercial Employer business, we expect customer volumes to be up modestly. But you should think of this by subsegment being split a bit. So we expect to see a net decline in our national accounts business, but this will be more than offset by the continued strong growth within our Select segment. And as a reminder, we continue to see opportunities for above-market growth in the Select segment, where our market share is still just 7%. And - when you think about the MA customer volume specifically, as we approach the 2024 bid cycle, as we always do, we apply a local market county level approach relative to how we price and set benefits. And so for most geographies, this resulted in stable benefits. A few areas, we had some targeted pullbacks just in light of the funding environment in 2024. And what we saw was in some of our local geographies, there was some very aggressive competitor behavior, which resulted in less net growth than what we had originally expected for the Medicare Advantage business. So taken all together, we would expect to see net customer volumes down slightly for year-end 2024 in comparison to year-end 2023 within the Medicare Advantage space specifically. But when you put all these pieces together, we're pleased with the overall balance in the Cigna Healthcare business right now is we expect to see profit margins expand year-over-year as I mentioned earlier, while we're serving a meaningful volume of customers that's grown markedly over the last two years.

Erin Wright:

Great. Thanks. On Evernorth, how are you thinking about the implications of cost-plus models and what that means at the PBM level and how does that influence your discussions with customers? Or just around your pharmacy network relationships. And just more broadly, just around transparency. And obviously, you talked about that in your prepared remarks in more transparent offerings at the PBM level and how do you think those offerings are gaining or not getting traction across your customer base? Thanks.

Operator:

Thank you. Our next question comes from Justin Lake with Wolfe Research. You may ask your question.

David Cordani:

Justin, good morning, it's David. There's a lot in your question. Let me try to frame our thought process today and as we go forward. First, to date, we have a very clear proven track record of delivering a total cost, total quality, including clinical quality and service quality solution that resonates really well in the marketplace, whether it's in the benefit side of the equation or on the services side of the equation and our results reinforce that. Point two is we've successfully executed an approach that is on the delivery and fulfillment, a mix of partner and owned we continue to evolve our portfolio. But philosophically, we do not believe have not, do not and continue to not believe that you have to own everything to be able to fulfill. As you might recall, if you reflect back on prior conversations within our portfolio at Investor Days, we framed actually the amount of services that Evernorth, for example, was fulfilling at a point in time for the Signet Healthcare portfolio. And we frame the expansion opportunity to the point of your question that existed in front of us, and we continue to expand those services. Our model though is also importantly not predicated on only having economic alignment for guaranteed cost. We're able to do it successfully for self-funded or shared funding mechanism as well. So point two is we see the ability to continue to grow that over time with our Evernorth services portfolio. Point three is as it relates to services to continue to invest in. We've been very clear that certain services, we see additional step function opportunities to invest in and continue to grow. Most importantly, our proven scale, specialty capabilities. The rate of spending growth and clinical complexity around that is off the charts. We have a leadership position there that will continue to grow, and we will continue to be the market leader in that space through our assets. Secondly, the need statements around behavioral health in the most comprehensive way. The market expects now a much more coordination of behavioral and physical health and we will continue to expand services that we have within our leading capabilities. And third, just to stop at three for illustration is the breadth of virtual services. the ability to connect and coordinate and expand services as we go forward. So we agree with your point. I'll end with agreement with your point of continuing to invest in our services capabilities to be able to support the right services but we do not believe you have to own all aspects of the care delivery equation to be able to deliver that on a go-forward basis. So hopefully, that gives you a framing. As you might expect, we'll spend time on this at our Investor Day on the seventh because it's an important part of our strategy today and an important part of our growth strategy going forward.

Lance Wilkes:

Great. Thanks. Could you talk a little bit about over in the Cigna Healthcare side of the business employer, how penetration rates are going with the specialty products in self-insured? And if there are any interesting trends as you go into 2024 here as you look at the selling season in 2025 with respect to that. And then as you've gone through the selling season, any changes in employer priorities? And then also just a quick clarification on if you could just explain, there's a little drop in fees in the PBM. So that was just a clarification. The other one is a real question. Thanks.

David Cordani:

Sure. Just to amplify and add one more. The amplification is that point solution fatigue, that plays through in terms of opportunities for our Evernorth team as well as our Cigna Healthcare team. So around that, think about the ability to leverage solutions to get more value, better service, better clinical outcomes, overall value and affordability. Secondly I just wanted to reinforce a critical point when we think about penetration or cross-selling, sometimes it's thought through and you didn't state this, but sometimes it to through under the notion of you're just cross-selling products. The integration of the products to deliver more value to the clients and customers is mission-critical. So that shows up in better service quality, better clinical quality, improved affordability. And I would highlight that our sustained differentiated MLR performance is, in many cases, aided by our proven ability to integrate certain services they come together with benefit the clients that enables us to generate a high level of cross-selling and a high level of penetration. Thanks, Lance

Operator:

Thank you. Our next question comes from Gary Taylor with TD Cowen. You may ask your question.

Brian Evanko:

Good morning Gary, its Brian. So, as it relates to the stop-loss book, as you know, this is a really important part of the Cigna Health care portfolio, and we finished 2023 with $6 billion of premium in that product line which to the earlier question, Lance attaches itself to our self-funded offerings in many instances. This book will naturally have some variability to it. So I wouldn't get overly fixated on 1 quarter's performance. There tends to be a little bit more settlement activity that transpires in the fourth quarter. So we had a little bit more of the favorability work its way through in the quarter, whereas if you smooth out over the course of the year, you don't have quite the same dynamic, which is one of the reasons why when you do the bridge from 23% to 24%, you shouldn't run rate the fourth quarter experience from that standpoint. So I mentioned earlier some of the moving pieces in the year-over-year MCR reconciliation, the 90 basis points increase from where we landed at the end of 2023 to the midpoint of the 24% guide. A key component of that 90 basis points is an up-tick that were anticipated in the stop-loss product which to the point earlier, is a function of our assumption that, that will normalize back to more traditional levels of profitability on the stop-loss products. So I think that's broadly the way I would encourage you to think about the dynamics at play here with that product line.

Dave Windley:

Hi. Thanks for squeezing me in. And I appreciate that. The premise of my question here is that your Evernorth profit guidance for 2024 looks pretty highly visible to us. So my questions underneath that are one that you had guided 23% to include a ramping contribution from biosimilar, how should we expect that to continue, should that continue to ramp in magnitude? A then the second part was the significant onboarding costs for the Centene contract in 2023. Are you fully past those? Are those completely gone? Brian, you mentioned some Evernorth onboarding maybe unrelated, but Evernorth onboarding. In your remarks, I just wanted to kind of understand the relative size of those, so those two things, please.

Brian Evanko:

Yes. Thanks, David. Good morning, Dave. So overall, our AOI growth in Evernorth is expected to be about 9% as implied by the $7 billion or more of income that we expect in the year. And you can think of that as having the benefit of Centene related costs, now essentially normalizing back to a point where the profitability of that relationship will be in the range of breakeven. And then on top of that, we will have income performance. That's more in line with our traditional algorithm of 5% to 7% average annual income growth. And that reflects the benefit of all the multiyear trends that Eric talked about earlier, whether those be biosimilars, GLP-1 drugs, specialty generics, et cetera. So we certainly are seeing continued benefit from the biosimilar wave in 2024. But as I mentioned earlier, there's a bit of a specific and unique effect of the large amount of additional volume we're getting with the new client relationships in 2024. So Eric, maybe you can expand on that dynamic a bit.

Operator:

Thank you. I will now turn the call back over to David Cordani for closing remarks.

Operator:

Ladies and gentlemen, this concludes the Cigna Group's fourth quarter 2023 results review. Cigna Investor Relations will be available to respond to additional questions shortly. A recording of this conference will be available for 10 business days following this call. You may access the recorded conference by dialing 800-839-9317 or 203-369-3605. There is no passcode required for this replay. Thank you for participating. We will now disconnect.

Operator:

Ladies and gentlemen, thank you for standing by for the Cigna Group's Third Quarter 2023 Results Review. [Operator Instructions]. We'll begin by turning the conference over to Ralph Giacobbe. Please go ahead.

David Cordani:

Thanks, Ralph. Good morning, everyone, and thank you for joining today's call. We had another quarter of strong performance, and we remain on pace for a year of sustained momentum in 2023. With the strength of capabilities across our health services and benefits platforms, we are continuing to deliver on our mission for those we serve as we continue to grow our company. Today, I'll highlight key drivers supporting our performance during the quarter our priorities and opportunities for expanding our impact and continue to advance our growth and our view of 2024, including some of the expected tailwinds and headwinds. Brian will share additional perspective about our third quarter performance as well as our outlook for the rest of the year. So with that, let's get started. In the third quarter, we delivered $49 billion in total revenue, adjusted earnings per share of $6.77, continued strong cash flow generation across our franchise, all while continuing to reinvest back in our business to fund growth, expansion and ongoing innovation. These results are strong, and they show how we're continuing our track record of strong, sustained performance. With our Evernorth Health Services and Cigna Healthcare Benefits platform, we are executing well in a dynamic period and fueling customer growth with our deep clinical expertise, innovative solutions and breadth of market-leading capabilities. Our results during the quarter demonstrate how we're continuing to deliver on our commitments for our customers and patients our clients as well as our shareholders. We are raising our full year 2023 outlook for EPS, customer and revenue growth, as well as cash flow from operations. With our continued affordability initiatives, we are also now guiding to an improved medical care ratio for 2023. Our businesses are performing well, and we now expect to deliver adjusted earnings per share of at least $24.75 for full year 2023. Now I'll turn to how we are working to sustain our growth and impact. With our durable strategic growth framework, we harness complementary capabilities from across the Cigna Group. We have scale to mature businesses that drive foundational growth, and businesses in faster-growing market segments that contribute accelerated growth. We fuel additional growth through cross enterprise leverage as we bring together the power of our talent, client relationships, differentiated capabilities and innovation from across our company. Next, I'll share how we have deliberately shaped our portfolio of businesses that are well positioned for today's market needs. Additionally, I'll highlight some of the ways we continue to drive our sustained success as we look to the future. Evernorth Health Services continues to demonstrate a proven ability to create value with differentiated pharmacy care and benefits capabilities. We had a strong pharmacy benefit selling season for 2024, and our teams are already actively engaged in the 2025 season. We are continuing to innovate and provide our clients with expanded choice as well as market-leading value. Many of the clients we serve leverage Evernorth's unique suite of solutions to support the needs of their customers. Centene is one new relationship we discussed before, and our teams have been collaborating effectively on implementation work, which is going very well as we prepare to serve approximately 20 million Centene customers beginning in January. We have a leadership position in addressing a substantial market opportunity with the expanded wave of pharmacological innovation that is reshaping the health care landscape. Many of the treatments that are coming to market are pressuring affordability with high list prices from drug manufacturers. At Evernorth, we are driving better experience, clinical outcome and affordability for patients and clients, given our deep clinical expertise, strong relationships with pharmaceutical manufacturers, as well as with physicians. The surge of demand for the GLP-1 drug class for weight management offers a good example of how we provide value. Our InCircle Rx program is an innovative solution that addresses the complexity and costs associated with obesity, diabetes and cardiovascular disease, a prevalent combination of conditions that's also known as cardio diabesity. Growing at Evernorth's clinical expertise, breadth and depth of data and analytical insights, InCircle Rx guides patients to the most effective care and helps improve affordability for clients. Beyond the GLP-1 drug class, we expect to see many different manufacturers bringing forth a growing number of new drugs, including gene therapies, additional treatments for cancer as well as others for Alzheimer's and other conditions. We are uniquely well positioned to make medicine more accessible, affordable and clinically coordinated for those we serve as well as to continue to drive growth for our company. Now in our international health business, another foundational business within a portfolio. We are supporting continued growth in target markets and expanding our portfolio of solutions. During the quarter, for example, we introduced a new affordable health plan, customized specifically for the globally mobile seniors population. Additionally, in the foundational portfolio, our U.S. commercial business continues to harness cross-enterprise leverage capabilities for the benefit of their clients. As we look forward to 2024, we know that additional -- in addition to affordability, one of the top priorities for many employers is expanding access, coordination and overall effectiveness of behavioral health programs and solutions. The benefit of our commercial clients to customers, we are leveraging innovations and capabilities that exist in our accelerated businesses. For example, stress, anxiety, [indiscernible], other mental health conditions create challenges for employers who need a healthy, engaged workforce, and we continue to expand the behavioral health solutions we offer through Evernorth Care businesses. One of the newer solutions is Confide behavioral health navigator. It's resonating well with clients, helping us both retain and win new business. Confide is guided by a proven model of a more proactive, high-touch service level, effective monitoring and targeted follow-up engagement. We will launch additional enhancements next year to provide digital tools that are personalized to the needs of individual patients that improve matching them with the right therapists and also offer greater convenience and accelerated scheduling opportunities. Additionally, as we continue to advance our focus on vitality, including our latest research addressing the capacity of individuals across multiple dimensions, it reinforces that mental health, for example, is one of the most significant drivers. We know that adults without significant mental health challenges are 10x more likely to have high vitality. Now if you're an employer, this means higher engagement, higher productivity, lower turnover as well as lower medical costs. In addition to addressing growing behavior health needs in Evernorth Care, we are also acting as a positive disruptor in care delivery and care management to improve experience, outcomes and access from a patient's perspective. We're developing innovative care models and clinical programs with continued investments, for example, to expand our digital and virtually-led capabilities, while making sure they are coordinated and connected with physical sites of care. For example, we continue to innovate and build on leading virtual care platform and plan to further accelerate new capabilities in 2024. Turning to another accelerated growth business. I'll touch on specialty pharmacy. Last quarter, we talked with you about Accredo's extensive clinical expertise in the assets that provide us with a competitive advantage in this fast-growing specialty pharmacy market, which continues to be an important source of growth for our company. We also have additional capabilities contributing to our leadership and growth opportunities in this space. Accredo focuses predominantly on supporting patients who receive specialty drugs in their home. Sometimes, these complex medications also need to be administered in physician's offices or hospital outpatient settings. Today, we support providers and health systems with our CuraScript specialty distribution capability and we continue to see meaningful growth in this aspect of our specialty pharmacy services. Finally, an additional accelerated business is our U.S. government portfolio services. We are pleased with our recent Medicare stars quality rating showing that we again have over 2/3 of our members in 4-star or higher plans. This is recognition of the value we provide to seniors in supporting access as well as high-quality care. With open enrollment now underway for both Medicare Advantage and the individual exchange business, we are balancing competitive benefit offerings, targeted market expansion and pricing discipline activity. So to summarize, we are performing well across our diverse enterprise. And these highlights reinforce how our strategic framework guides us in accelerating innovation, expanding client relationships and continuing to broaden our reach. Now as we look to 2024, we expect another strong year of performance for the Cigna Group as we build on momentum with EPS, revenue and cash flow growth. We'll share more detailed guidance with you on our fourth quarter earnings call as we always do. The tailwinds and headwinds we expect in the year ahead remain largely consistent with our prior conversation, and we continue to be confident in our ability to deliver adjusted EPS of at least $28 per share in 2024. Notable tailwinds include growth-related contributions, including the full launch of Centene, which starts on January 1, a growing positive impact of biosimilar contributions, and an improved margin profile in our individual exchange business. In terms of headwinds, we will continue to make strategic investments across our portfolio of businesses to drive sustained innovation as well as position ourselves for long-term growth. Now I'll just briefly summarize our performance for the quarter. We had another strong quarter, and it builds on good momentum throughout the course of the year. We delivered adjusted EPS of $6.77, as well as strong customer, revenue and cash flow growth. Our company continues to deliver for the benefit of those we serve, and we have been able to increase our outlook for adjusted EPS to at least $24.75 for full year 2023, and we expect to deliver adjusted EPS of at least $28 in 2024, which is consistent with our past discussions. We are well positioned with a clear durable strategic framework that leverages the power of our differentiated services within our benefits portfolio and services portfolio. And now Brian will share additional perspective about our performance in the quarter and our outlook for the rest of the year. Brian?

Operator:

[Operator Instructions]. Our first question comes from Lisa Gill with JPMorgan.

David Cordani:

It's David. I'll take the legislative question, a little tee up relative to the GLP-1 question in the broader marketplace, and I'll ask Eric to expand on the InCircle Rx program. Specific to legislation, as you know, we haven't continued to expect to operate in a very active regulatory and legislative environment. As a result, we remain active and constructively engaged in the ongoing dialogue. And by way of framing, before I get the specific, potential legislative activities, we positioned our company with a breadth of capabilities, both modular configured and otherwise, and value creation and value capture capabilities that we believe will be able to thrive and grow under a variety of environments. I'd highlight an area where we have a lot of passion, and that is to ensure that and amplify the fact that any legislative regulatory activity should not remove choice, especially from the commercial market for employers as well as health plans given that they are large sophisticated organizations and fund the vast majority of the comprehensive benefit costs. Having said that, there is intensified activity around transparency, and we are highly supportive of transparency so long it is targeted and constructive, meaning it could drive requisite level of actions on a go-forward basis. As it relates to the innovation that's taking place, as I noted in my prepared remarks, we believe we are exceptionally well positioned. We took very deliberate actions 5 years ago by acquiring Express Scripts, 3 years ago by launching Evernorth, our continued ongoing investment in our specialty capabilities, et cetera, are all oriented around positioning toward both today's class of drugs that we're seeing like the GLP-1s, but future innovations, be they for Alzheimer's, additional cancer therapies, gene therapies, et cetera. And we believe we're well positioned to support both commercial clients as well as health plans. InCircle Rx is a wonderful new innovation. It's the first of its kind in the marketplace and highly supportive of clients. Eric, can I ask you to expand on that?

Operator:

And this question comes from Justin Lake with Wolfe Research.

Brian Evanko:

Justin, it's Brian. Just to clarify, your second question was specifically on the individual exchanges, correct, in terms of the margin profile?

Brian Evanko:

Yes. Yes. So first off, as it relates to the Cigna Healthcare customer guide increasing by 200,000 customers, I'd start by saying we're really pleased with the strong momentum across the health care book with our year-to-date customers running ahead of expectations. And that builds off a really strong year we had in 2022, where we added nearly 1 million customers in the Cigna Healthcare business, primarily in our U.S. commercial business. To your point, we have continued to show sequential growth in our U.S. government businesses in the third quarter, particularly individual exchanges. But we've also seen favorability in our U.S. commercial membership, as we have not seen the disenrollment levels we had incorporated into our prior outlook. You may recall that we had been anticipating some economic weakness late in 2023, but this has not yet materialized in any notable impact on our customer volumes. So all in, we're really pleased with 9% projected full year customer growth in Cigna Healthcare, a portion of which is related to the individual exchanges, but a portion of which is related to the strength in our U.S. commercial business. As it relates to the individual exchange margin profile, just for a little bit of context, you can think of this as being approximately a $5 billion block of business for us in 2023. And as we shared in our second quarter call, we anticipate the individual exchange book to run below our target margins in 2023, and our long-term target for this business is 4% to 6%. A primary driver of this is the increased risk adjustment payable that we expect to owe, with the majority of that impact driven by our 2 largest states, notably Texas and Georgia. Now for 2024, we've taken sizable price increases in both of these 2 large states, and we would expect some degree of margin expansion in the individual book overall. The exact amount of the margin improvement will be a function of our geographic mix and our duration mix in 2024, and we're likely to have fewer customers in the individual exchange products in 2024 compared to where we are in 2023. But hopefully, that helps a bit, as you think about how to model the '24 Cigna Healthcare outlook.

Kevin Fischbeck:

Great. In the tailwind side of things. You talked about revenue growth, including the Centene launch. You've talked so far about the exchanges as well as kind of other kind of one-time items. Does that mean that we should generally think about the rest of the businesses growing more or less in line with those long-term growth targets? Or is there any other business where you would highlight a specific headwind or tailwind to the revenue growth outlook for next year?

Operator:

Our next question comes from AJ Rice with UBS.

David Cordani:

AJ, it's David. You've packed a lot in there. I'm going to ask Brian to start by framing the economics year-over-year on the Centene relationship, our investment, the year-over-year performance, et cetera. Asking to transition that over to Eric, he could talk about how the relationship is going importantly. And I'll ask Eric to amplify a little bit relative to the biosimilar impact we're seeing in the latter part of this year and into next year. Brian?

Eric Palmer:

Sure. we've said from the beginning that the adoption of biosimilars is going to be more extended and slower process. And the experience to date has been consistent with our expectations. We've driven meaningful savings for the benefit of our customers and clients so far this year, and we continue to see this opportunity ramp throughout the course of next year, and as part of the market ongoing. We've talked in other settings about the meaningful opportunity for biosimilars, not only for [indiscernible] but for other conditions, and expect there to be more competition over time where up to 25% or 30% of the spend in the specialty market, we'll have competition, compared to something like less than 10% today. So in short, this is an area that we're well positioned to drive meaningful value for the benefit of our customers and clients that we have seen unfolding consistent with our expectations. And we're positioned to lead through over the course of the coming years.

Stephen Baxter:

I was hoping you could expand a little bit on the MLR outperformance in the quarter. I guess, could you talk a bit more about what you saw on utilization? I guess, how did the seasonal patterns and the third quarter compared to a more normal pre-COVID environment? And then, it looks like you assumed a decent step-up in Q4, pretty consistent with what you've seen in the past couple of years. Can you talk a little bit about the assumptions there on utilization?

Operator:

Our next question comes from Josh Raskin with Nephron Research.

David Cordani:

Josh, it's David. Let me speak to the commercial large market, and then frame your specific question relative to early traction with Village. And then I'm going to ask Eric to just describe a little bit more broadly the evolving relationship and the strategic work we continue to advance with Village. First, specific to the commercial marketplace and the selling season. You did miss it, we didn't profile the 2024 outlook in any level of detail. Stepping back, as Brian noted in his prior comment, we're really pleased with the 2023 results, now increasing the outlook for our overall lives for our Cigna Healthcare care portfolio, yet again, in excess of 1 million half lives, and coming off of a 2022 number, approaching 1 million lives. For 2024, I give you some directional indicators at this point in time. First, big picture for the enterprise. We expect it to be another attractive year of growth for the Cigna Group in aggregate, specific to the commercial marketplace, we expect within the commercial marketplace portfolio, our results continue to be led by our sustained strong performance. The combination of our select segment and our middle market segment where our value proposition and our products and services are resonating quite well. Strong retention and good new business adds within that portfolio. And then specific to National Accounts. Currently, our outlook for 2024 is on the benefit side of the equation, after some outsized growth in 2023, 2024 will look a little bit more normalized relative to prior years. And to remind you, strategically for that segment, we've expected to see that segment be a flat to slightly shrinking segment in the market in aggregate within the employer landscape. Our strategy has us maintaining share and deepening our relationship with our clients through our further expanding portfolio of specialty services. So to put a circle around it, it will be another strong year of growth for the Cigna Group in aggregate, and the commercial portfolio in 2024 will be led by the sustained strength of the select and the middle market business. Specific to Villages, a quick tee up to your comment. Our commercial employers today already are seeing a step function to benefit from our relationship with Village and then the Village Summit acquisition in the nature in which we've structured that relationship. So we were able to deliver a step function of value to our commercial clients already, be they self-funded, be they shared returns, be they guarantee cost from that standpoint. And then the team is aggressively at work to further enhance the value proposition there. And Eric, I'll just ask you to provide a little color in terms of the way in which the teams are working together to advance the value-based care traction.

Operator:

Our next question comes from Scott Fidel with Stephens.

David Cordani:

Scott, it's David. Just a couple of comments, and I'll ask Brian to peel back a couple of your specific points. First, as I noted in my prepared remarks, we're pleased with the Stars position, the stable, strong Stars position we have, and continued traction of our ongoing focus to expand our geographic footprint. And then I'll ask Brian to expand on a little bit more significantly, as well as our ongoing investments in terms of our broad set of capabilities. 2023 was a very good year of growth for us in terms of this business portfolio, and our market expansion plans are on track for 2024. Brian, could I ask you to expand on that a little bit?

Operator:

Our next question comes from Gary Taylor with Cowen.

Brian Evanko:

Gary, it's Brian. So certainly, your point is well taken in terms of large price increases can have impacts on the customer volumes in disproportionate ways. We have to see how this cycle plays out in terms of the elasticity of the customer growth relative to those pricing actions. To David's comments earlier on our tailwinds, this is one of several tailwinds that we have. So I would encourage you not to over-index on the customer volumes in terms of our ability to deliver against the $28 of earnings per share. Just if you think about the context of this, it's a $5 billion block of business. Target margins, that's $250 million of profit. The midpoint of the 4% to 6% range. So if you think about the delta there, relative to the year-over-year, we're talking about $100 millions of income growth at the enterprise level. So I just -- I would encourage you not to overindex on this one specific factor. But we're confident we're going to see the margin expansion. We're confident we'll see the income tailwind, and we'll give you more updated guidance on the fourth quarter call.

Nathan Rich:

I wanted to follow up on the comments around GLP-1 through obesity, and the potential value of Evernorth can deliver for clients there. I guess, could you go into a little bit more detail on the nature of discussions you're having with the drug manufacturers right now on pricing and getting that to a level that could expand access? And what role, maybe, the outcomes trials will play in those discussions in terms of potentially -- from your kind of commercial customers, their desire to expand access to these therapies for their populations?

Eric Palmer:

Great. So with respect to this, Stepping back, I would have you think about the impact here that will need to unfold, will be around improving affordability. As has been said and reported across a variety of different channels, these therapies are effective, but they're also very expensive. We would expect that over time, we'll be well positioned to harness the power of competition to improve the affordability to bring the cost down. That's an important element. But then in addition to that, we're positioned to wrap and support these patients with additional services, clinical services, the right approach, the right targeting to ensure the maximum effectiveness here. So I don't know that it's constructive to talk about any of the kind of ongoing dialogue with manufacturers. But rest assured, that we are very engaged with the variety of pharma manufacturers in this space, looking at ways to expand access and improve affordability, just like Express Scripts is a long history of doing, as new innovations have come to the market and the pharmacy space, and we'll continue to be a leader there.

David Windley:

Mostly a clarification. On the government utilization, maybe particularly Medicare Advantage, it sounds like it was in line with your expectations. But I wondered if you could comment if you are seeing elevated -- in the elevated outpatient that gets called out by others in the space, and that was just, again, in line with your expectations. And then in terms of managing utilization inside of service. You mentioned good success in managing side of service and Pathwell. Is Pathwell the primary vehicle by which you're doing that? And what is the kind of customer adoption or the penetration, I guess, of Pathwell in your side of surface utilization management?

Operator:

Our last question comes from Lance Wilkes with Bernstein.

David Cordani:

Lance, it's David. I'll take the first part of your question. I'll ask Brian to address the second part of your question. . First, specific to Part D broadly, with the size, shape and scope of our enterprise today, it's a portion of our enterprise, but I would call it as not a significant part of our overall portfolio. That's not to dismiss the importance of it from a societal standpoint, by any stretch of imagination. But when you look at the scope of our enterprise approaching $200 billion of revenue this year, I would not call it as a significant component. Secondly, inferred in your question, I would submit that we've underrealized or underleveraged the potential to effectively convert PDP lives or enroll PDP lives into MA. That's an untapped opportunity that exists within our portfolio today relative to our level of activity and initiation. Lastly, in your comment, we do recognize that the PDP landscape is disrupted, based on some of the legislative and policy activities that have transpired. And we will effectively position our portfolio, obviously, to be responsive to that disruption. But we have the tools to be able to manage within our portfolio in totality. I'll ask Brian to pick up the second piece of your question, just relative to the script volume and the puts and takes in the portfolio this past quarter.

Operator:

Thank you. I'll now turn the call back over to David Cordani for closing remarks.

Operator:

Ladies and gentlemen, this concludes the Cigna Group's Third Quarter 2023 Results Review. Cigna Group's Investor Relations will be available to respond to additional questions shortly. A recording of this conference will be available for 10 business days following this call. You may access the recorded conference by dialing 800-839-1171 or 203-369-3030. There is no passcode required for this replay. Thank you for participating. We will now disconnect.

Operator:

Ladies and gentlemen, thank you for standing by for The Cigna Group's Second Quarter 2023 Results Review. At this time, all callers are in a listen-only mode. We will conduct a question-and-answer session later during the conference and we'll review procedures on how to enter queue to ask questions at that time. [Operator Instructions] As a reminder ladies and gentlemen, this call, including the question-and-answer session, is being recorded. We'll begin by turning the conference over to Ralph Giacobbe. Please go ahead.

David Cordani:

Thanks, Ralph. Good morning, everyone, and thanks for joining our call today. For the second quarter, again, we delivered a strong performance, fueled by continued growth across our diverse portfolio of businesses. Today, I will review key strategic drivers contributing to our momentum and why we believe we are well-positioned to sustain our growth as we continue to support the health and vitality of those we serve with our differentiated solutions and capabilities. Brian will cover additional details about our financial performance in the quarter and our 2023 outlook. As part of our ongoing effort for you to hear more from members of our leadership team Eric Palmer, President and Chief Executive Officer of Evernorth Health Services, will be joining our call and is available to take your questions. With that, let's get started. In the second quarter, we delivered total revenues of $48.6 billion, adjusted earnings per share of $6.13 and cash flow from operations of $2.5 billion. We are pleased with our performance overall during the quarter and through the first half of the year. With focus on affordability and innovation, we are continuing to strengthen our competitive position and grow our businesses. In Evernorth Health Services, we saw another strong quarter of our market-leading pharmacy, care and benefits portfolio. Express Scripts, our pharmacy benefits business, harnesses our deep relationships, extensive clinical expertise and is delivering innovations and innovative solutions for those we serve. We've long been a leader in supporting access to prescription drugs and, to further enhance our efforts, we took a series of actions in the quarter, including launching Copay Assurance to support further affordability for patients, and ClearCareRX to provide our clients with broader choice. We also introduced [Independent Rx] (ph), which is a first-of-its-kind support program for rural pharmacists that recognizes the critical role they play in improving access for millions of Americans. We will continue to lead the way through the current environment of elevated legislative and regulatory activity and we are encouraged by the positive recognition of our work to make safe, effective and affordable access of prescription drugs within reach for millions of people who need them. Our client retention is also strong, and we are continuing to build and expand new relationships. For example, we are making good progress for implementation with Centene, which begins on January of 2024. Our teams are working collaboratively and we are on track as we prepare to further improve affordability in serving 20 million Centene customers. In the quarter, we had strong growth in Accredo, our specialty pharmacy business. In a moment, I'll profile the deep clinical expertise and capabilities that make Accredo a differentiated leader in this space. Turning to Cigna Healthcare, we delivered another quarter of organic customer growth, reinforcing how well our consultative approach and capabilities continue to resonate in the market. Our U.S. commercial business continues to build momentum. We've had sustained success with commercial customer growth outpacing the overall market and 2023 is shaping up to be another very strong year for this business. With our affordability initiatives and deep consultative sales approach, we are delivering highly competitive total cost of care for employer clients, as well as providing programs supporting healthy engaged workforces that they need. In U.S. government, our Medicare Advantage business is achieving above-market customer growth with high-quality affordable plans and targeted investments that we continue to make to further strengthen our network and offerings. In our individual exchange business, we will continue taking a focused approach by engaging customers to improve health outcomes and managing risks in the expanding population we serve. In the quarter, while our medical care ratio was generally in line with expectations, we did have an increase to our 2023 risk adjustment payable. Relative to the risk [adjuster] (ph) impact, we expect this to be a 2023 event, and we've already taken actions for 2024. And in our international health business, we drove continued innovation and growth in target markets with solutions for the [globally mobile] (ph) population and employees of multinational corporations as well as intergovernmental organizations. Overall, our second quarter results showed that The Cigna Group is performing well with underlying strength in our complementary businesses. We believe we are well-positioned to continue growing our company and delivering on our commitments. With the strength of our results, we are increasing our outlook for full year revenue and customer growth, as well as cash flow from operations, and we are reaffirming that we are on track to deliver adjusted EPS of at least $24.70 for full year 2023. Now, I will talk about how we are working to sustain our momentum with our differentiated and diversified capabilities and our durable strategic growth framework. Our framework guides us in continuing to respond to customer, patient and client needs, as well as capturing growth opportunities within our foundational businesses and our accelerated growth businesses. Additionally, we harness the power of our talent, client relationships and partnerships, as well as an expanding technology portfolio for cross-enterprise leverage. Technology increasingly provides us with opportunities to accelerate innovation and growth. Artificial intelligence and machine learning, for example, are capabilities further enhancing ways for us to support patients and their clinical care teams, as well as drive additional efficiency initiatives. Today, I'll talk more about one of our accelerated growth businesses, Accredo, our flagship specialty pharmacy, where we have a competitive advantage in an area of growing needs and opportunity. Earlier this summer, we welcomed a group of investors to Warrendale, Pennsylvania at one of our Accredo clinical care sites. The visit provided an opportunity to see the breadth of our specialty capabilities and the depth of our clinical expertise, a critical driver for the positive outcomes and impact we achieve for patients requiring complex and high-cost treatments for chronic conditions. Here are a few headlines from the day at Warrendale. First, Accredo has a proven track record of growth. Nearly five years ago when Express Scripts combined with Cigna, Accredo was approximately a $30 billion business. Today, Accredo has grown to approximately $60 billion. And in 2023, serves approximately 900,000 patients with some of the most complex conditions and needs. Accredo now represents about 40% of Evernorth's total revenue, and because of its unique strengths, Accredo has grown faster than the overall marketplace. Second, these secular tailwinds in the market create significant growth opportunities as we look to the future. Those who need specialty drugs make up about 5% of the population and they drive more than 40% of total healthcare costs across medical, behavioral and pharmacy services. This is fueling expected mid to high single-digit annual growth in what is already a specialty pharmaceutical market of approximately $380 billion. Biosimilars represent force of change and a substantial opportunity for further growth and impact, and we will leverage them for greater affordability for clients and patients. We've long been a leader in supporting greater adoption of biosimilars as we did with the wave of generic medications when they became available decades ago. And like generics, we believe biosimilars will drive much-needed affordability improvements for those we serve and thereby create more financial capacity to pay for new pharmaceutical innovations today and as we look to the future. Third is the breadth of our clinical capabilities and use of data that further fuels precision and impact. We built and strengthened our clinical capabilities and far-reaching operating model over decades. Within Accredo, we have therapeutic resource centers with clinical teams of pharmacists, nurses, dietitians and social workers specializing in different disease states, such as blood and neurological disorders and multiple types of cancers. Unlike many of our competitors, we directly employ hundreds of field-based infusion nurses. Today, they are located within 75 miles of approximately 90% of the U.S. population. And as they care for patients inside their homes, they provide better, more coordinated and personalized experiences, including addressing social determinants of health. With the clinical care model focused on each individual patient, we are able to provide a level of personalized clinical support that is vital in specialty pharmacy. Many new high-cost drugs for oncology, gene therapies and rare conditions are coming to market, further pressuring affordability for clients and requiring greater support for patients that take these complex medications safely and effectively. I would note, drug manufacturers also recognize our expertise and capabilities, as well as our superior outcomes that we produce with our unique, coordinated clinical model. Putting all this together, we are excited about the accelerated growth opportunities we have with Accredo's differentiated specialty pharmacy, and view it as a powerful growth engine for our company today and into the future. Now, stepping back to the enterprise level, I'll briefly recap. We drove strong earnings that built on our momentum from the first quarter and last year. We delivered adjusted EPS of $6.13, strong customer, revenue and cash flow growth. Our progress gives us confidence to reaffirm our guidance of adjusted EPS of at least $24.70 for full year 2023, and we also remain on track for adjusted EPS of at least $28.00 in 2024. This reinforces how we are creating value for our customers and clients and leveraging differentiated capabilities to give us flexibility to continue performing well in a dynamic environment. Now, Brian will share additional perspective about our performance in the quarter and our outlook for the rest of the year. Brian?

Operator:

[Operator Instructions] Our first question comes from Mr. Scott Fidel with Stephens. You may ask your question.

Brian Evanko:

Good morning, Scott. It's Brian. I'll try to take each of those bites kind of one at a time. So, as I mentioned in my comments, in the quarter, we had an $80 million impact from the risk adjustment payable matter in 2023, which reflects essentially a true-up for the first two quarters of the year. But that was largely offset in the quarter by the favorable true-up we had on the 2022 risk adjustment settlement. The other residual piece within the individual exchange business is we had some favorable claim cost experience in the first half of the year. So, the $80 million was offset largely by the 2022 risk adjustment settlement, but also, to a lesser degree, by favorable cost trend within our individual exchange business, which reflects a younger, healthier population than what we had in 2022. So claim costs there, certainly within check, but we had the larger payable, which creates the pressure point for the year. As it relates to the profit margins and how to think about where we are in '23 and the rate increase impact on '24, just for some context here, you can think of this business being approximately a $5 billion block for us in 2023 in terms of premium revenue. And we had shared on a prior call that we were anticipating the individual exchange book to run below our target margins within 2023. As you noted, our long-term target for this business is 4% to 6%. For the remainder of this year, we're expecting another $80 million of risk adjustment payable impact across the second half, which, as I mentioned, will be offset by the strength across the broader Cigna Healthcare portfolio, including expense efficiencies. But when you put all this together, the individual exchange margins in 2023 will be below our prior estimates. And for 2024, we have taken sizable price increases in our two largest states. So we would expect some degree of margin expansion in the individual exchange book overall in '24 relative to '23. The exact amount of that margin improvement will end up being a function of our geographic and customer mix in 2024 as we are likely to have fewer customers in the individual exchange business in 2024 relative to where we are in 2023. So, thanks for the question. Hopefully, you can follow all those moving pieces.

A.J. Rice:

Hi, everybody. I know at this point in the year, large employers are well on their way to thinking about their '24 outlook as -- both from health benefits and also on the pharmacy benefit side. I wondered if given you've got a great window on all of that, anything interesting to call out in terms of priorities for employers around benefit design, focus on particular categories of healthcare, whether -- I know sometimes it's diabetes, sometimes family planning. Anything on the cost management focus? I know there's a lot of discussion about GLP-1s, and wonder whether they're focused on trying to manage that more effectively. And then, just overall expectations in those customers around cost trends and -- are they assuming it's sort of a more normalized outlook going into '24, or are they making any assumptions about pent-up demand or anything?

Eric Palmer:

Great. Thanks, David. Good morning, A.J. I'll start with the GLP-1. GLP-1s are definitely top of mind for many of our clients. There's been a meaningful uptick in utilization here. And as I think you know, we have coverage for these medications on our formularies from early on for value-based arrangements with pharma manufacturers. We've seen contributions for the benefit of patients and our clients by result of those -- the structures. We have recently launched a program called ENCIRCLERX, which brings together management of the GLP-1, cardiac, diabetic conditions, obesity. So these conditions often tend to be interrelated, to bring together a benefit plan design, the clinical support as necessary and the overall resources we can bring to help these patients, better manage their health and ultimately get to a better plan costs. So, at GLP-1 and the broader cardiac, obesity, diabetes space is a real area of focus. I would also note, as David touched on in his comments, continued interest in behavioral solutions. That's an area that we've got strong expertise within Evernorth, and we're excited about the opportunities in that market and the need to help manage behavioral care more effectively. Those will probably be the top couple of specific themes I would call out at this point, A.J.

Operator:

Thank you Mr. Rice. Our next question comes from Mr. Justin Lake with Wolfe Research. You may ask your question.

Brian Evanko:

Good morning, Justin. It's Brian. I'll start, and I think David will pile on in terms of the stop loss component. So, as it relates to our medical cost payables or reserves, nothing particular I'd flag here. We continue to employ a consistent methodology as it relates to how we set our reserves. There'll be some natural variability in this metric as product mix shift tends to occur from quarter-to-quarter. And I know the days claims payable metric is one that's commonly looked at. We don't target or forecast any specific level of DCP rather this is more the output of our detailed assumption setting that's -- then aggregated up to the enterprise level. So, we remain comfortable with our reserving methodology and confidence in the adequacy of the balance sheet. As it relates to stop loss, you're right, we're seeing nice growth in that product line. We've got 13% year-on-year premium growth. We're on track to achieve our target profitability in that business this year. So nice performance, and it continues to resonate with our clients. David, anything you want to add in that regard?

Operator:

Thank you, Mr. Lake. Our next question comes from Ms. Lisa Gill with JPMorgan. You may ask your question.

Brian Evanko:

Good morning, Lisa. It's Brian. I'll start. I think that's a multiparter, and then Eric is going to chime in with some comments on the sales season. But as it relates to the quarter, overall, Evernorth continues to perform really well. So, I'd start there. Largely in line with our expectations when you put all the different moving pieces together. The individual components you kind of called out there, Eric referenced earlier, GLP-1 utilization does continue to build, which in the Evernorth business is a positive contributor to our earnings at this point in time, whether that be for diabetic indications or non-diabetic indications. So that's certainly a net positive relative to the Evernorth business in 2023. On the biosimilar side of the house, you should think of, thus far, relatively low adoption of Amjevita in the first half of the year. On the second half of the year, we obviously added two additional biosimilars into the National Preferred Formulary. And one of the reasons we expect acceleration in income growth in the third and fourth quarter is the impact of greater biosimilar adoption as well as improved overall positioning relative to the dynamics of competitiveness across the four drugs that will be on the National Preferred Formulary. But in the second quarter, I wouldn't characterize biosimilars as a particular driver of the margin profile. On the Centene impact, we remain very much on track relative to the implementation against our commitments. As we mentioned before, we expect to spend about $200 million over the course of 2023. You should think of that as gradually building quarter-to-quarter over the course of the year. And so, the money is being spent as we speak. And all those factors did impact the second quarter. But again, nothing in particular I would call out being significantly deviating from our expectations compared to what we expected three months ago. Eric, maybe you can pick up both on Centene and the selling season.

Lisa Gill:

Great. Thank you.

Kevin Fischbeck:

Great. Thanks. I wanted to get a little more color on the increased enrollment outlook. I guess you've indicated in the past that you're being a little bit concerned about recessions and determinations. Were those -- anything changed there to drive that? Or was it new customer growth? Just a little color. Thanks.

Kevin Fischbeck:

Great. Thanks.

Josh Raskin:

Hi, thanks. Just clarification on the exchange true-ups and the impact there. I just want to make sure I get this right. I assume you've got a bigger payable, but that probably means that your claims costs are coming in a little bit better. So I just want to see if there's actually -- and offset from the receivable from last year. So I just want to see if there's actually an EPS impact expected for this year. And then my real question is, just could you speak to your MA bid strategy for 2024? I'm specifically interested in how you're thinking about benefit design in light of rates and the risk model changes? And then, if there's anything to talk about the VillageMD partnership, if that impacts any way you're bidding in certain markets?

David Cordani:

Sure, Brian, thanks. Good morning, Josh. So, you had two questions. Specific to MA and our bid strategy, I'll just speak more broadly. I'm not going to go into detail specifically, Josh, just to manage expectations given the time cycle and the competitive nature. First and foremost, as I noted, we're pleased with our growth in 2023, point one. Two, as we look to 2024 to some of the points you made reference to, we expect to see larger-than-average local market variability in terms of offering and positioning by competitors. And at this point, I would highlight and reinforce that we remain convicted to and comfortable with our bid assumptions relative to underlying medical costs based upon what we've seen through the first two quarters of the year and our outlook for the year. I'd also note that our [stars] (ph) position coming into the cycle is consistent and strong and our early look at the stars on a go-forward basis remains consistent and strong from that standpoint. Specifically to your last point around Village, first and foremost, I'd ask you to think about initiating the relationship with Village, we seek to have a long-term strategic positive impact. I would note that day one for the benefit of our customers who are experiencing Village and Summit relationships, they began to see benefits immediately by the nature of the structure of our relationship. And then, we continue to collaborate, innovate on value-based care, whether it's leveraging some Evernorth capabilities like behavioral, virtual or other services, and/or go more deeply into individual markets around more precisely leveraging data and insights to curate sub-specialty networks to get the best possible quality and cost and affordability. That benefit will continue to mount as we go forward, and to the core of your question, contribute to market by market, our posture in MA. But specifically, we're driving this initiative with Village and with our Evernorth team to benefit our commercial space as well. So, we're pleased with the early traction, a lot of work to do, and it will continue to yield dividends both today and into the future. Thanks, Josh.

Operator:

Thank you, Mr. Raskin. Our next question comes from Mr. Nathan Rich with Goldman Sachs. You may ask your question.

Eric Palmer:

Good morning, Nathan. It's Eric. I'll start. So, as you noted and implied in your question, biosimilars are a really important opportunity to drive competition and for us to then help to make that competition efficient to drive improvements to the affordability of these high-cost specialty medicines. Now, in 2023, we've continued to co-prefer Humira on the formulary. Towards the beginning of the year, we added Amjevita to our National Preferred Formulary and recently added Cyltezo and Sandoz's products, both the low and high [indiscernible] versions onto the NPF. So that's the activity that's gotten us to this point to date. I would note, we work through with the manufacturers on the terms of those to drive to the best available cost, the best available expense for our clients. And we have visibility into that pretty early on. So, we've navigated and made our arrangements in constructing the placement such as we came into this year. And so, I wouldn't want you to think about there being dynamics kind of playing out simultaneously. These are things we have negotiated in advance. We have visibility into as the products come into the market and we work to leverage the competition to continue to improve affordability for the benefit of the clients we serve. Over time, as we drive even more products, more competition, we'll work to continue to bring improved levels of affordability to our clients and continue to construct our offerings in a way that best meet their needs. I hand it over to Brian on the second part of your question.

Operator:

Thank you, Mr. Rich. Our next question comes from Mr. Steven Valiquette. Your line is open. You may ask your question.

Brian Evanko:

Good morning, Steve. It's Brian. So, as you noted, we planned and priced for more normalized utilization levels in 2023, and our claims experience is largely consistent with that expectation. So, within the MA book specifically to the core of your question, we have seen elevated utilization of both outpatient and professional services all year. But important this should be viewed in the context of what we had forecasted and priced for. So, the overall cost trends are largely in line with our expectations in both our second half 2023 guidance and our 2024 bids. Anticipate that, that dynamic will continue, as it relates to specifically within outpatient and professional surgeries are the area that I'd call your attention to, in particular, orthopedic and cardiovascular, we did see some level of favorability in inpatients. So those are a few of the subcategories that I'd call your attention to, but all in line with what we had anticipated coming into the year.

Operator:

Thank you, Mr. Valiquette. Our next question comes from Mr. Stephen Baxter with Wells Fargo. You may ask your question.

Brian Evanko:

Hey, Steve, it's Brian. So, a few things I'd call your attention to in regards to the profitability margins relative to revenue. We had an expansion of our relationship with the Department of Defense that was effective on January 1, and we had some additional spending that we're kind of working our way into in terms of growing into that. So that certainly weighed down the income growth a bit in the first half of the year. To your point, the rate and pace of investments, particularly around the accelerated growth businesses in Evernorth, both the healthcare services as well as the Accredo specialty pharmacy also impacted the income growth. And then for the back half of the year, we expect accelerated income growth, again, mid-single digits in the third quarter, mid- to high-single digits in the fourth quarter, largely driven by the increased ramp for biosimilars. And I would note that, that's not predicated on any meaningful share shift. We have strong visibility to that income emerging in the back half of the year.

George Hill:

Yeah. Good morning, guys, and thanks for taking the question. I know it's a small piece of the business, but the other revenue inside of Evernorth grew 35% this quarter, accelerating actually versus the prior quarter. I guess it's becoming, to some degree, a meaningful portion of the segment. I guess, could you talk about what's driving that growth? And how should we think about the margin profile that's attached to that business?

Eric Palmer:

Brian, thanks. You've hit the headlines in terms of the main drivers here financially. Well, just to note, on the fee-based portion of the PBM in particular, this is an area that we've continued to accelerate. David made reference in his prepared remarks around our ClearCareRx program. This builds off of a couple of years of experience that we've got in providing fee-based fully-aligned mechanisms in terms of providing the pharmacy benefit, and so those fee types of arrangements will come through there. I would say, have you think about the margin profile for that business is very consistent with the other businesses in Express Scripts and the like. And then likewise, the growth in our MDLive and behavioral platforms continue to be an area of real focus for us and continued momentum into that driver as well. And I would have you think about those margins is also generally in line with the Evernorth segment overall. So, we continue to be excited about the opportunity and the momentum that we're building in all of the different lines across the Evernorth portfolio, and you're seeing the growth there come through that line.

Operator:

Thank you, Mr. Hill. Our last question comes from Mr. Lance Wilkes with Bernstein. Your line is open. You may ask your question.

Brian Evanko:

Good morning, Lance. It's Brian. I'll start, and then David, if you want to chime in with anything, feel free. So, for a long period of time, as I think you know, our specialty products within Cigna Healthcare been a really core part of the value proposition as we seek to expand client relationships. So, we have few clients that only purchase medical services from us more and more purchase a full suite because we've demonstrated over time our clinical models perform best when we have a fuller suite of services. As it relates to what we're seeing in terms of trends in terms of utilization, behavioral health has certainly been growing at a strong clip, not just this year, but for the past few years. Part of that is by design as we engage with our customers. And over time, that's a good thing because the more utilization we see in behavioral health services, it helps to defray core medical costs over time. We've also seen an uptick in dental utilization this year as well, but all of these things are within, again, the boundaries of what we had forecasted and planned for and priced for within our Cigna Healthcare book of business, which is why you're seeing our commercial employer business continue to perform so well financially. And again, that line is on track to achieve target margins here in 2023. David, anything you want to pick up on here?

Operator:

Thank you, Mr. Wilkes. I will now turn the call back over to David Cordani for closing remarks.

Operator:

Ladies and gentlemen, this concludes Cigna Group's second quarter 2023 results review. Cigna Investor Relations will be available to respond to additional questions shortly. A recording of this conference will be available for 10 business days following this call. You may access the recorded conference by dialing 800-839-1335 or 203-369-3357. There is no passcode required for this replay. Thank you for participating. We will now disconnect.

Operator:

Ladies and gentlemen, thank you for standing by for Cigna's First Quarter 2023 Results Review. At this time all callers are in a listen-only mode. We will conduct a question-and-answer session later during the conference and review procedures on how to enter queue to ask questions at that time. [Operator Instructions]. As a reminder, ladies and gentlemen, this conference, including the Q&A session, is being recorded. We'll begin by turning the conference over to Ralph Giacobbe. Please go ahead.

David Cordani:

Thanks Ralph. Good morning everyone and thanks for joining today’s call. We begin 2023 with momentum and in the first quarter we again delivered strong performance and continued our long track record of innovating for customers, clients, and partners. Today I will discuss some of the key drivers fueling our growth during the quarter and we also talk about how we are leading the way to address evolving state health care needs with a flexible financial model providing multiple avenues to deliver and capture revenue. Specifically, I will describe how the durable and flexible pharmacy benefit services we harbor continue to drive in the marketplace. Finally, we will provide additional details about our financial results and discuss our outlook for 2023 and then we will take your questions. With that let’s get started. In the first quarter we delivered $46.5 billion in total revenues, $5.41 in adjusted earnings per share, and we are ranging our full year 2023 guidance for adjusted EPS, revenue and customer growth. We are pleased with the strong start across Evernorth Health Services and Cigna Healthcare and we look forward -- as we look forward, we expect another very good year for the Cigna Group. Evernorth comprising pharmacy benefit services, specialty pharmacy, and Evernorth Care again contributed strong growth while retaining, expanding and winning new relationships for the employers, health plans, and governmental organizations we serve. Our foundational pharmacy benefit service business continued the strong performance demonstrating the value we provide to our clients and patients. Specialty pharmacy which accounts for approximately 40% of Evernorth's total revenue drove outside its growth with a continued rise in new to market specialty drugs and increasing demand. Evernorth Care represents one of our most significant long-term growth opportunities given the growing needs a virtual care as well as for example behavioral health services. Insignia Healthcare, our health benefits platform, we achieved another quarter of revenue and customer growth with strong performance across our U.S. commercial, U.S. government, and international health businesses. With our focus on affordability and disciplined pricing, we are pleased with their medical cost performance and our medical care ratio which was 81.3%. Our U.S. commercial business is on pace for another good year. Our affordability initiatives continue to strengthen our overall competitive position and this has helped fuel our strong customer growth. Our momentum also is a reflection of how employers of all sizes rely upon our consultative approach and the breadth of our solutions to support the health, engagement, and productivity of their workforces. In U.S. government, our Medicare Advantage business is achieving above market growth in 2023 from a high quality and affordable plans, our geographic expansion, and the maturation of markets we previously expanded into. In a dynamic individual exchange market we also have substantial growth in our individual and family plan business, allowing us to bring Cigna Healthcare capabilities to a larger customer base. And in International Health, our earnings growth has been strong for the past few years and we expect positive top line and bottom line contributions again in 2023 given our high quality and localized health insurance solutions supported by our global provider network. Overall, we're pleased with the quality, strength, and resilience demonstrated in our results and importantly, how they position us for another year of sustained growth and attractive value creation. Looking ahead, we are confident in our increased outlook for the year as well as our ability to sustainably deliver 10% to 13% compounded EPS growth over our strategic horizon along with providing an attractive dividend. Today, I want to spend a few minutes on Express Risk, our pharmacy benefits business within Evernorth, including our recent announcements about how we are continuing to provide greater affordability, choice, and transparency for our clients and customers. Pharmacy services have an essential and impactful role in a time when in medical care, physical or behavioral are increasingly relying upon the use of pharmaceutical interventions. It's also important to recognize that successful care coordination programs for pharmacy services often create significant benefit and value for the medical services. We recognize the ongoing attention and legislative debate regarding the rising costs of prescription drugs. We are taking an active leadership role and I want to be clear about how we are using our differentiated capabilities to create and capture value out of the drug supply chain on behalf of our clients and customers. First is the strength of our model, which is to deliver solutions and care coordination that address specific client needs and expand relationships with our full suite of services and capabilities, fueling our sustained attractive growth over time. Second, we are committed to enabling and prioritizing choice for our clients as we drive down costs. And third, we continue to build on our long track record of innovation to drive greater affordability, access, transparency and improved clinical outcomes. Stepping back, our Pharmacy Benefit Service business is achieving attractive growth because we're able to secure a diverse group of any growing client base, leading with the strength of our supply chain, clinical and care management programs. With our proven model Express Groups client retention rates are consistently in the mid-90s or higher and we've been able to continuously grow our pipeline and win new business, from medium size to the largest employers, from the local health plans to national players, and even the largest government sponsored programs. We've expanded our efforts to advocate on behalf of our clients and customers particularly as it relates to financing models which are key areas of focus for some of the current legislative proposals. The Express Scripts business model starts with the commitment to enabling and prioritizing choice in benefit design and financing options for clients who are the primary financers of their employee benefit programs. This includes providing them the option to finance the cost of their programs by allowing us to share in the discounts we secure on their behalf, be it rebates or spread pricing. Our clients choose amongst these models based upon their needs for managing risk and greater predictability for the pharmacy costs as well as their cash flow. For context, across the breadth of our Express Scripts Pharmacy Benefit Service portfolio today over 95% of rebate dollars are passed through to clients. The key point is that each client chooses the financing mechanism that works best for them. They have choices in how they pay for the value we deliver and many find that using rebate sharing or spread pricing generates a stronger level of alignment incentives in addition to being able to plan for predictable cash flow that it generates. Proposes to limit the availability and scope of these options will result in less choice for thousands of employers, health plans and government, the clients we serve and increase their costs over time. As it relates to Express Scripts, we are confident in our ability to earn sustainable and attractive margins for our services under a variety of legislative scenarios. We are able to create value through the breadth of our capabilities from supply chain to benefit design, driving competition amongst drug manufacturers to bring costs down, and deliver better health outcomes through our clinical programs. One area of focus for multiple stakeholders has been the amount of income we earn from rebate retention and retail spread. To put this in context, we expect about 20% of Evernorth's 2023 pretax adjusted earnings to come from Express Scripts retention of rebates and retail spread. This percentage has trended down over time and we expect it to continue trending downward. This is fueled by our ongoing innovation and greater diversification of our Evernorth businesses. I would also remind you that these financing options that we provide the clients are developed in exchange for lower service fees. So said otherwise if these programs decrease further overtime fee based income would increase. Therefore, we are confident that if some of these payment vehicles were reduced or removed by regulatory change or client preference, Express Scripts has a broad set of capabilities that create value and will continue to earn an attractive return. Let me provide some specific examples that reinforce our flexibility and durable model and how we tap into our long track record of innovation for better outcomes on behalf of our customers and clients who are seeking greater affordability and transparency for prescription drugs. First, we're taking several steps to expand transparency. Express Scripts new ClearCareRX fully demonstrates the flexibility we have for prescription drug benefits where clients pay exactly what Express Scripts pays pharmacies for prescriptions. They receive 100% of drug rebates that Express Scripts obtained by negotiating with pharmaceutical companies. They pay one service fee to cover the administration of pharmacy benefits, product services, reporting analytics and the program is supported by a fully audible mechanism. In addition, clients also benefit from guarantees to keep Express Scripts accountable for clinical and financial performance measures, including improvements in overall inheritance rates and patient outcomes. Additional steps to drive even greater transparency include providing clients with enhanced financial and feed disclosures regarding their spread pricing programs when they exist. Along with today's release about our first quarter financial results, you will also find additional disclosures we are providing about Express Scripts model in our quarterly regulatory filings and on our new microsite. We will also offer a new digital pharmacy benefits statement for customers starting in 2024. The statement will share drug pricing information, out of pocket costs and the net value delivered by Express Scripts on behalf of customers. With respect to the broader issue of drug pricing, to be clear, we were fully aligned with lowering costs of prescription drugs for customers. For example, Express Scripts Patient Assurance program launched in 2019 capped out of market costs for eligible members of select diabetes and cardiovascular medications. In 2022 alone, customers taking insulin saved more than $18 million because of this program. Now with the introduction of our new copay assurance plan, we are taking further action to cap out our pocket costs for customers in client prescription drug benefits at $5 for generic drugs, $25 for preferred brand medications, and $45 for preferred specialty medications. Finally, we also have a series of groundbreaking initiatives to further support pharmacists in rural communities across the United States. We are offering increased reimbursement to true independent pharmacists and partnering in opportunities to expand their clinical practices to further support care needs of the local communities. We are also convening an advisory committee of community pharmacists. These initiatives will encourage better care, expanded access to lower prices for rural Americans, as well as increasing a more sustainable revenue stream for independent pharmacists. We are encouraged by how our recent actions have been received by a wide range of stakeholders, including clients, our pharmacy network partners and policymakers. They recognize our commitment as a leader and trusted partner that could use to create value through our deep expertise in designing programs for specific client needs, driving innovation, and broadening our reach. In summary, we are demonstrating our leadership in the competitive pharmacy benefits market that is such a critical building block for the American healthcare system. We are serving specific client needs through the strength of our model and the effectiveness of our care coordination programs, allowing us to drive sustained attractive growth. We are continuing to advocate for clients and their ability to choose the appropriateness of programs that work best for the business as we help to lower costs. And we are continuing to innovate in driving greater affordability, transparency, and improved outcomes for those we serve. Now let me briefly recap our performance for the quarter and our outlook. In the first quarter, we continue to execute and perform well. We delivered for our customers, clients and partners and our business kept our commitment to our shareholders. We delivered adjusted EPS of $5.41 per share and we're pleased to have increased our full year outlook or adjusted EPS, revenue and customer growth as well as an improved medical care ratio. We are confident in our ability to continue to deliver and capture value in the dynamic and changing environment. We've shaped our business model to navigate varying economic conditions and our differentiated capabilities within Evernorth to provide us with the flexibility to meet unique client needs and potential changes caused by regulatory requirements. Additionally, our business is driving growth that is generating strong cash flows and we are confident that we will further create value for successful and effective capital deployment. With that, I'll turn the call over to Brian.

Operator:

[Operator Instructions]. Our first question comes from Ms. Lisa Gill with J.P. Morgan. You may ask your question.

David Cordani:

Lisa, you put a lot in there. Good morning and thanks for the questions. Let me try to touch on each. First, as we step back, as I noted, we're quite proud of the results that we have delivered and continue to deliver in view of the PBMs using that acronym, but the pharmacy service organizations are the organizations that relentlessly work to improve affordability for the benefit of a broad constituency group. I think to your first question, if we step back, well, we could point to tremendous results in terms of clinical trends, outcome, affordability on average, less than $1 increase in out-of-pocket costs for individuals. We do recognize, and I think this is part of the legislation or the legislative energy, the program still don't work for everyone. So for example, while the programs are designed to generate overall affordability, if there's a high deductible plan is an illustration and in the month of January, someone has -- it is a deductible and has a significant out-of-pocket for our pharmaceutical experience that creates a financial dislocation for an individual, that's a failure of the system, right. We need to step up to that. We need to innovate because that's an unintended consequence of the failure of a system. So we could talk about the averages that we're proud of from an affordability, but we need to make sure we continue to innovate till it works for everyone or we could talk about the fact that we have leading breadth of network access through our pharmacy networks, coupled with our home delivery, yet when you look at the uniqueness of America in some rural locations may not have the access or accessibility in a specific case. And therefore, the market is not working for those individuals. Hence, you see some of the innovations we step forward on. Our copay assurance program directly goes at the out-of-pocket predictability for individuals under a variety of circumstances. Our rural pharmacy and independent pharmacy initiatives go directly at specific actions to support individuals. So the averages when we sit and look at the data is accepted, we need to do better, and we're stepping forward as a leader to do better from that standpoint. As it relates to employers, our retention rates and our new business growth rates reinforce the fact that by and large, employers see us as being successful. I would note that our ClearCareRx program that we just rolled out, that was two years in design and we worked with about a dozen sophisticated large employers to design those programs to work for them and work for us and how we can roll those out and scale. And as we sit here today, we have hundreds of clients together with our Evernorth team and our Express Scripts team talking about future innovation. So there remains high receptivity and high receptivity to the advancements we're making in terms of further transparency in clinical programs, but they like their choice. They like having the choice of financing mechanisms, which we are aligned with. And then finally, maybe just to manage time, on the 2024 selling season, 2024 will be another year of growth for us in the Evernorth service portfolio. We will see strong retention. As I noted, our retention has historically been in the mid-90s or better. We will see strong retention and we will see good growth as our products and programs resonate in the marketplace. Lisa, thanks for the questions.

Steven Valiquette:

Great, thanks. Good morning. So regarding the Evernorth results in the first quarter, you mentioned they were in line with the expectations. Just with the script volume though being down, just curious to get more color on that? And also, I know you're not giving script volume guidance for the full year, but just curious if the trends in the first quarter are good run rates for the full year? Thanks.

Steven Valiquette:

Perfect, thanks.

Nathan Rich:

Thanks, good morning. I wanted to go back to the PBM and the regulatory focus, David. You mentioned that not all pharmacy benefit designs work for everyone. And the target, I think, of much of the legislation is focused on lowering out-of-pocket cost for patients. You've had plan options in the past that address some of these areas. I know you said that clients like having that choice. But are there -- is there any middle ground in terms of different solutions that you couldn't maybe roll out more broadly that would address some of these pain points kind of proactively ahead of maybe being forced legislatively? And I guess kind of my follow-up to that is client preferences I think kind of changed relatively slowly over time. I guess if we did see legislation go in place, how quickly could you kind of shift the client -- shift clients to new payment models to kind of adjust to a new regulatory backdrop?

Operator:

Thank you Mr. Rich. Our next question comes from Mr. A.J. Rice with Credit Suisse. You may ask your question.

David Cordani:

A.J. good morning. You tucked a lot of questions in there, but let me start from the top. Relative to value-based care, before I hit the Village first, we've had a long commitment and positive track record relative to value-based care programs. Our orientation, as you may recall, is oriented around partnering, using data in collaborating with additional care extended resources to drive better, more consistent clinical outcomes and therefore overall value. Today, think about order of magnitude approaching 75% of our MA lives are in a value-based program. And depending on what you're looking at commercial or individual exchange, 40% or 50% of lives benefiting from the value-based program. And I'd underscore that we're seeing benefits from that in our continued market-leading lower medical cost trend. Specific to Village, we're pleased to advance and even further partnering more deeply with Village and collaborating with them. There are many ways in which we'll collaborate with Village to further accelerate value-based tier care traction off of their already successful model. I would note and highlight one of the portions that we are really excited about with Village is they've proven their current value-based care approach for commercial as well as Medicare Advantage. And our model with them has the ability to design and benefit from not only commercial and Medicare Advantage, but ASO and guaranteed cost as we bring more Evernorth services and collaborate with them as we curate more specialty networks, etcetera, going forward. As it relates to the part of your question, are there benefits in our current pricing as a result of our village initiative, they are starting to yield benefits already, starting to contribute to pricing in specific markets where the initiatives are underway is the headline. As it relates to your last question relative to big strategy, rate notice, etcetera, you should think about our view is our net rate for 2024 approximates the industry average. We take all the puts and takes that are framed in. Secondly, as you know, we're in the latter part of the bid cycle right now, so it would be premature and inappropriate for me to speak in any depth relative to our specific pricing strategy for 2024. We're pleased with our growth in 2023. We're pleased to see the 10% that we wheeled today and the traction in some of our markets that are maturing, and we will work on a market-by-market basis relative to the bid strategies and look forward to updates as we get into the second half of the year. Thanks, A.J.

Justin Lake:

Thanks, good morning. And I'll just echo how much we appreciate the comments on the PBM transparency there. I wanted to follow up with a couple of things on the PBM. The first is -- and so 20% of your profits come from those spread contracts and rebates. If the government did pass what they're talking about this year, how would -- how are your contracts structured such that you could pivot away, is that something that would have to happen over time, what would the near-term impact be versus the longer term? And then secondly, I've gotten a lot of questions on 340B given what one of your peers talked about is a pretty meaningful headwind versus their expectations this year. So curious if you can give us some color there in terms of maybe what percentage of earnings come from 340B or how your outlook has changed there within your [indiscernible]? Thanks.

Operator:

Thank you Mr. Lake. Our next question comes from Ms. Erin Wright, Morgan Stanley. You may ask your question.

Brian Evanko:

Good morning Erin, it's Brian. So first of all, I just would reiterate, we're really pleased with the strong growth momentum across the Cigna Healthcare portfolio. When you think of our U.S. commercial Medicare Advantage and our U.S. individual business is all showing strong year-to-date results running ahead of expectations in aggregate for enrollment levels. And that builds upon our really strong performance in 2022, where we added nearly 1 million customers across the Cigna Healthcare platform. As I mentioned, we are not yet seeing signs of economic pressure in our book, for example, the disenrollment levels in the most recent months are very much in line with historical norms. But as I mentioned, we have assumed some level of elevated disenrollment in the back half of the year in order to be prudent. And in addition to that, we typically see some in-year attrition within the U.S. individual book over the course of a given calendar year. And as I mentioned, we still see organic growth in net client counts in the U.S. commercial business, particularly as the select segment continues its sales cycle through the balance of the year. And finally, we have not yet incorporated any assumption of potential volume for Medicaid redetermination. So that represents pure upside for us. And so should we not see economic weakness transpire later in the year or should we pick up some unexpected customers from the Medicaid redeterminations we may have some upside in our Cigna Healthcare customer accounts. Final comment I'll give you just in terms of sensitivities. In prior economic downturns, we've seen for every 1% change in the unemployment rate, our commercial employer levels enrollment levels will move by either 0.5% to 1% as it relates to 1% move in the unemployment rate. So it gives you a sense for the sensitivity relative to the size of the book as you think about how to model the rest of the year.

Kevin Fischbeck:

Great, thanks. It seems like cost cut really wasn't a problem for you in the quarter, but still after earnings season is basically over, still trying to reconcile the strong numbers from the providers and the med tech companies with a relatively solid numbers from the managed care industry. Can you help reconcile what seems to be an apparent conflict and any color on cost trend, particularly, I guess, through the quarter and into this quarter would be helpful? Thanks.

Operator:

Thank you Mr. Fischbeck. Our next question comes from Mr. Gary Taylor with Cowen. You may ask your question.

Brian Evanko:

Good morning Gary, it's Brian. I'll take your first question. I think David will comment on the situation that you referenced in Florida. As it relates to the incremental disclosures, so really, those were designed today to give all of our investors some further context on the earnings sources within Evernorth, just given the amount of misinformation in the ecosystem. And so alongside our 10-Q that we filed today, you'll find a supplemental disclosure that provides some additional qualitative information as well as some metrics that we think are important to help various stakeholders understand what the PBM does and doesn't do. And hopefully, we find that investors look at that as useful information. As it relates to some of the additional data points David and I shared, for example, the 20% of pretax adjusted earnings associated with PBM retained rebates and spread. As we referenced, that percentage has declined over time. At this point, we're not necessarily intending to update that every quarter in the Q but we will obviously give you context for how the earnings sources are evolving over time as that business continues to grow. David, do you want to comment on the...

Gary Taylor:

Thanks, appreciate it.

Stephen Baxter:

Hi, Yes, I wanted to ask about ClearCareRx. I guess, first, how quickly do you think this model will be adopted, is there any kind of target for this that you can share? And then obviously, your clients are sophisticating of access to pools to evaluate your economics during RFPs. But how do you think about competitive dynamics of the industry as a whole over time could be progressing to explicit fee-based pricing models? Thanks.

Operator:

Thank you Mr. Baxter. Our next question comes from Mr. Josh Raskin with Nephron Research. You may ask your question.

Brian Evanko:

Good morning Josh, it's Brian. So overall, the strong individual customer growth in 2023, you can think of as a combination of a few things. So one, obviously, the industry had some strong growth rates from 2022 into 2023. We also had some new market entries and there were some competitors that exited certain geographies where we participate in. And if you think about the sources of that, our growth came from a combination of existing geographies and those three new states that we stepped into, which were Texas, Indiana, and South Carolina here in 2023. We did see the majority of our growth come from three states in particular. So Texas, Georgia and Florida drove the majority of the growth not any one specific city, we're in multiple locations in those states. Fortunately, we have a long history in these geographies that goes well beyond the U.S. individual business, meaning our commercial and MA businesses has been operating in those locations for some time. So our provider engagement and clinical programs should benefit these individual customers as well. Now for purposes of the claims experience and the margins, etcetera, for the 2023 calendar year, we continue to expect the margins on this book will run below our long-term goal, which is 4% to 6% in our Cigna Healthcare income and MCR guidance reflects this. So we expect to run below that 4% to 6% long-term goal. Given the substantial amount of new customers we've added in 2023, we think this is a prudent assumption to make from the standpoint of the margins running below that long-term target. While it's early in the year so far, the claims are largely in line with our expectations through the first quarter. And importantly, as you think about the first quarter actuals as well as our full year outlook, we've assumed that we will be in a risk adjustment payable position for the 2023 plan year despite the fact that we were in a receivable position for the 2022 plan year. So again, we think that's a prudent assumption to make at this early juncture in the year until later. And in 2023 when we see some industry-wide risk adjustment data that will help us to recalibrate that assumption. As you think about the longer run, this is a book of business that does represent a source of future embedded earnings power that will help contribute to the segment's long-term margin expansion and income growth. So overall, a good start to the year. Still a long way to go for the full year, and we think we've taken a prudent posture as it relates to the accruals.

Scott Fidel:

Hi, thanks. Good morning. I would be interested if you could maybe just drill in a bit more into your latest thinking on both the GLP-1 drugs and then the emerging Alzheimer's drugs, maybe give us just some insights from both the Cigna Healthcare and Evernorth business segment perspectives? Thanks.

Operator:

Thank you Mr. Fidel. Our last question comes from Kevin -- Mr. Kevin Caliendo with UBS. You may ask your question.

Brian Evanko:

Good morning Kevin, it's Brian. So the 20% that we made reference to is the PBM retained rebates and the retail spread that comprise the Evernorth segment's contribution specifically. So as with all of our clients of Evernorth, whether they be the Cigna Healthcare affiliated health plan or our unaffiliated health plan clients, they choose how they would like to use the pharmacy value that we create for them. So to your question, if there are pharmacy earnings in the Cigna Healthcare segment, that's not reflected in the 20% metric we're specifically dimensioning the Evernorth contribution. And then like I said, the Cigna Healthcare health plan decides how they choose to deploy any value that's created from Evernorth to sister company. David, maybe you want to pile on here?

Kevin Caliendo:

Appreciate it, thanks guys.

David Cordani:

Thanks again for joining our call today. Let me just reinforce a couple of quick points. One, we are confident that we will deliver our increased adjusted EPS, revenue and customer growth outlook for this year. To do that, our team remains focused on everyone we serve and is executing with good focus and discipline, all while we continue to innovate. We will also continue our leadership in working to improve health care, including our increased transparency, choice and clinical programs to drive down further drug costs for our customers, our patients and our clients. I would want to underscore that the progress we continue to make all starts with in is fueled by the dedication and commitment of our 70,000 coworkers around the world who I want to thank for their commitment and demonstration every day to working to make a very positive difference in the people's lives we are able to serve both formally through our commercial relationships as well as in the communities we serve each and every day. Finally, thank you for joining our call. And as always, we look forward to our continued discussions in the future.

Operator:

Ladies and gentlemen, thank you for standing by for Cigna's Fourth Quarter 2022 Results Review. [Operator Instructions] As a reminder, ladies and gentlemen, this conference, including the Q&A session, is being recorded. We'll begin by turning the call over to Ralph Giacobbe. Please go ahead.

David Cordani :

Thank you, Ralph. Good morning, everyone, and thanks for joining today's call. 2022 was a pivotal year of performance and growth for our company. Evernorth further expanded its health service reach and impact, and Cigna Healthcare demonstrated tremendous resilience in the dynamic market. Together, the breadth and complementary nature of our portfolio enabled us to exceed our revenue and earnings outlook and return meaningful capital to our shareholders. This provides us with momentum as we begin 2023 and we expect another year of customer and earnings growth as we innovate and expand our broad portfolio of services and capabilities. Today, I'll provide perspective about our key drivers for our 2022 performance and how we're positioned for sustained growth going forward. Then Brian will walk through additional details about our 2022 financial results and discuss our '23 outlook. Then we'll take your questions. So let's jump in. As we reflect on our performance for 2022, I'm proud of what the company and Cigna team delivered overall. We grew full year revenues to approximately $181 billion. We delivered full year adjusted earnings per share of $23.27 reflecting a 14% rate of growth. We returned $9 billion to shareholders through a combination of share repurchase and dividends, and we sharpened the health service focus of our international business through the divestiture of our life accident and supplemental benefits businesses across seven markets. This performance demonstrates how well our Evernorth and Cigna Healthcare platforms are strategically positioned for sustained attractive growth. In 2022, Evernorth delivered strong top and bottom line growth and also won, renewed and expanded several large multiyear client relationships for 2023 and beyond. The depth of Evernorth's capabilities and expertise is highly valued by our clients and partners and enables us to deepen existing relationships across our entire portfolio of businesses. Cigna Healthcare, our health benefits platform also had a strong year, delivering customer growth along with differentiated medical cost performance for the benefit of our customers and clients. Our U.S. Commercial business had a standout performance achieving outsized customer growth while maintaining pricing discipline and driving margin improvement. This reflects our ability of our Commercial team to work consultatively to help employers of all sizes manage affordability, all while we support healthy, highly engaged employees for the benefit of their businesses. Overall, we're pleased with the strength of our 2022 performance across our enterprise. As we look to 2023, we continue to deliver and capture meaningful value in multiple ways. First, we expect sustained growth through our foundational businesses, Pharmacy Benefit Services, U.S. Commercial and International Health. These are mature scaled businesses that have established core relationships with corporate clients, health plans and governmental agencies. The value proposition for these businesses continues to resonate very well in the marketplace. In Pharmacy Benefit Services, we expect continued contributions in 2023 through the strength of our unique solutions and partnership orientation. With the strong selling season across our employer, health plan and governmental agency portfolio, we will continue delivering greater affordability to more customers and patients. Additionally, we are investing meaningfully to put in place the teams and resources to make prescriptions more accessible and affordable for approximately 20 million Centene customers starting in 2024. In the U.S. Commercial business, we also had a strong 2023 selling season across all our market segments and across all funding types, self-funded risk and shared return arrangements. As a result, we anticipate driving another year of earnings, customer and revenue growth. And in International Health, we expect continued revenue and earnings contributions through our leadership in meeting the health and wellbeing needs in attractive growth markets and for the globally mobile. Second, we expect outsized growth from our accelerated businesses, Accredo Specialty Pharmacy, Evernorth Care Services and U.S. government. These businesses have differentiated capabilities and platforms addressing accelerated secular growth trends. With Accredo, we were able to lower cost for patients and plans while preserving choice and flexibility for those who could benefit from new drugs. This includes our work to increase the availability of biosimilars. We've seen a handful of these lower-cost alternatives for biologic drugs launched in the past few years and understand the exceptional value they deliver for the benefit of clients and customers. 2023 will mark the start of a growing market opportunity for biosimilars, a trend that we expect to continue ramping up in 2024 and beyond. This includes HUMIRA, a treatment for a range of inflammatory conditions and one of the top-selling drugs globally over the past decade. Now there's a biosimilar alternative that we've co-preferred on a national preferred formulary creating significant savings opportunities for clients and customers. We will continue our leadership in advocating for greater availability of biosimilars, which over time, we expect to drive even more savings and benefit for patients and clients. In Evernorth Care Services, we are continuing to enhance and expand our portfolio of capabilities in care management and care delivery. Last year, MDLIVE virtual patient visits grew meaningfully, including a substantial increase in primary care visits. Demand and satisfaction with virtual care is rising and we will continue expanding our MDLIVE platform to provide even more of these options for the benefit of our customers. Evernorth Care Services is also accelerating our value-based care capabilities through our recently announced partnership with VillageMD. Our wrapping Evernorth health service capabilities with VillageMD's network of physicians, we will help guide more patients to high-quality care experiences at lower overall total costs. We expect this partnership to begin rolling out over the course of this year. In the U.S. government, another accelerated business, we expect strong growth in 2023 as we expand services and our geographic presence across a large and growing addressable market. This includes Medicare Advantage, where we will introduce enhanced services and benefits, and we nearly doubled the size of our provider network over the last two years as we expand into new geographies. Additionally, as we have demonstrated continued consistent commitment to participating in the ACA exchange marketplace, in a dynamic environment, our Individual & Family Plan business, we will see outsized customer growth in 2023. The third growth driver for us in 2023 and beyond is enterprise leverage. This is where our businesses work together to create or capture more value than anyone could achieve on their own. Here, think about our ability to look across our enterprise and client relationships to broaden and deepen them by leveraging our entire suite of capabilities. A great example is a new large service-based relationship for Cigna Healthcare where we were able to expand our support for a long-served Evernorth client. Additionally, the depth of clinical expertise success in advancing innovation and breadth of solutions within Evernorth, all combined to help further improve Cigna Healthcare's value proposition. For example, in 2022, by harnessing Evernorth's capabilities and programs, Cigna Healthcare delivered exceptional affordability, a key reason it continues to be competitively attractive option for employers of all sizes. This ability to deliver meaningful value is what makes Evernorth a partner of choice to a wide range of health plans, large employers and other clients. Another way we generate enterprise leverage is with our longitudinal portfolio data, which enables us to accelerate innovation and create new solutions for our clients and customers. This is specifically how we developed our Pathwell programs where we're able to integrate Cigna Healthcare's high-performing provider networks and benefits management with Evernorth's analytical and clinical expertise as well as personalized digital support. This equips Pathwell to lower cost while connecting patients with the right care, anticipating their future needs and helping them recover more quickly. Pathwell’s focus in 2023 includes musculoskeletal conditions and patients who take injectable or infusible biologic drugs. Early feedback here has been very positive, and we expect to support millions of patients throughout these programs with better experience, clinical quality, costs, resulting in improved overall value. These examples illustrate just some of the impact we've already achieved with our cross-enterprise leverage, and we'll continue acting on additional opportunities in the years ahead to expand relationships, accelerate innovation for the benefit of our customers, patients and clients. Now I'll briefly summarize. 2022 was a strong year of performance and growth for our company. With our Evernorth and Cigna Healthcare platforms, and our durable growth framework, we are well positioned to meet the needs of our customers, clients and partners as we look to the future. We are delivering on our commitments to our shareholders with our 2022 adjusted EPS of $23.27 and returning $9 billion in share repurchase and dividends. And we are also responding to evolving needs of those we serve in the coming years in the Healthcare environment of accelerated change. We have a differentiated innovation pipeline that will allow us to build on our momentum and create value, continue to advance our growth strategy. We are confident 2023 will be another year of strong performance for our company as we expect to deliver customer and earnings growth. Our EPS outlook of at least $24.60 and the 10% increase of our quarterly dividend reinforced our commitment to sustained impact and growth for the benefit of all of our stakeholders. And with that, I'll turn the call over to Brian.

Operator:

[Operator Instructions] Our first question comes from Mr. A.J. Rice with Credit Suisse.

David Cordani :

Good morning, A.J., it's David. So first and foremost, stepping back, we're pleased with the relationship and the ability to partner with a proven organization that has a nice growth track record. Two, you think about the work taking place collaboratively in phases, with the first phase of well underway working through and successfully securing approvals and contracts with building momentum, whereby we will put in place with Village, capabilities such that we could enable more targeted access to preferred or higher-performing specialists within the Cigna Healthcare Life portfolio and the direct serve portfolio of our relationships as Phase 1 and expand some of the capabilities to coordinate care, whether it's expansion of virtual capabilities, expansion of behavioral capabilities or otherwise. There's a second phase of work, so the innovation will continue, whereby we work with Village to codify and build some new products that have exclusivity relative to their proven physician leadership and physician-directed programs that have even a more targeted value proposition not just for the benefit of Cigna Healthcare on the benefit side, but offered for the benefit of health plans we serve in a broader sense and for Village. One of the wonderful parts of the way the relationship is built through leveraging the Evernorth capabilities, we'll be building a lot of the shared savings together with Village. And as such, be able to benefit from those shared savings through our Evernorth program. So to recap, good momentum already, good collaboration already, good progress already. You're right, we don't market as a significant revenue or earnings driver in 2023 for us, but we will see progress in 2023, especially through the second half of the year and a building contributor in 2024, and we look forward to providing you more of an update as we look to 2024.

Gary Taylor :

I also wanted to ask about VillageMD. So David, we'll keep you on that track just a little bit longer. My question -- I guess I have a couple of questions about it. One is, I know historically, your inclination was Cigna didn't need to own delivery assets even though your peers are increasingly moving in that direction, and this investment does obviously give you some ownership of a delivery asset. So just wanting to understand how much your thinking has evolved along those lines? And then secondly, I just kind of want to understand a little better long term. Village obviously has this large growth national expansion plan, how do you -- but payer agnostic. So does it really just become a important partner and a part of a preferred primary care network? Or how do we think about the next several years, like what that relationship means to the Cigna Healthcare and to Evernorth?

Operator:

Our next question comes from Ms. Erin Wright with Morgan Stanley.

Brian Evanko :

Erin, it's Brian. So as it relates to the headwinds and tailwinds you're right to call out the strategic investments. So we continue to invest an outsized amount of money in areas such as our Evernorth Care services platform to enable things like VillageMD that David just discussed alongside our specialty pharmacy business, which continues to grow at very attractive rates. And so, that's all been factored in alongside the Centene related implementation costs. But importantly, we have tailwinds that allow us to introduce our guide today with at least 4.5% income growth for the Evernorth segment, inclusive of those pressure points on the spending side. As it relates to the cadence of Evernorth earnings, you should think of the back half weighting that I referenced is primarily driven by the biosimilar ramp effect that I described, but not entirely, there's also some effect of the cadence of operating expense spending over the course of the year that also impacts the timing. But the biosimilar contributions, we do expect to be more back half weighted, which is a key driver of the difference in the cadence.

Kevin Fischbeck :

I wanted to ask a little bit about the customer growth, that's a pretty strong number there. And so when you think about the enrollment growth, I guess, first on the ACA side, how comfortable are you about the risk profile and the pricing on that type of growth? And then as far as the commercial growth, is there -- I know it's ASOs so it's less risk -- worried about risk there, but just want to understand your thought process around how redeterminations impacted your growth expectations there? Maybe how much of that growth you expect there is in group versus kind of new customer wins?

Brian Evanko :

Sure, David. Good morning, Kevin. So maybe just a little bit more detail here in terms of how to think about the 1.2 million plus net customer growth. And then I'll hit your question on the ACA exchange profitability as well. So first off, I'd be remiss if I didn't say we're really pleased with another year of strong growth that we expect here in 2023 and following growing almost 1 million net customers or 5% in 2022. And as we mentioned earlier, we expect net growth in 2023 across all of our major U.S. business segments with the individual exchange business expecting at least 300,000 net customer growth. Our MA net growth has started strong. We expect at least a high single-digit percentage growth rate for 2023, in line or better than industry growth rates. And we expect at least 250,000 net new customers generated by core growth across our U.S. Commercial portfolio. So if you take those three components together, they represent about half of our expected full year net growth of 1.2 million plus customers. And then the balance of the 2023 customer growth, you can think of as the net effect of some moving pieces, including the larger client relationship expansion that David mentioned in his prepared remarks. I mean we have good line of sight into this 1.2 million plus to David's point, we are not banking on any meaningful amount of volume for Medicaid redeterminations. As it relates to the morbidity and/or risk pool of the IFP business or individual business that we're adding, our 2023 customer growth outlook reflects a combination of a few things being industry growth our own new market entry as well as competitors exiting certain geographies that we participate in. As you think about where our margin profile stands, in 2022, the margins on this book are below our long-term goal. Our long-term goal is to remind you is 4% to 6%. We took a step forward in '22 from where we were in '21, given that '21 was a depressed margin year. But we're still below our long-term goal. And for purposes of '23, we continue to expect the margins on this book will run below our 4% to 6% long-term goal in our Cigna Healthcare income and MCR guidance reflects this. Just given the substantial amount of new customers we've added, we thought it was prudent to assume margins will be below our long-term target for this calendar year. But this is a book of business that does represent a source of future embedded earnings power that will help to contribute toward the long-term growth in the Cigna Healthcare segment income

Scott Fidel :

I guess you guys get the first crack to comment on the preliminary 2024 MA rates and just interested in your initial observations on those. Obviously, we sell the final rates ahead and whether that influences your thoughts on your 10% to 15% long-term Medicare Advantage enrollment growth target at all, max?

Operator:

Our next question comes from Mr. Justin Lake with Wolfe Research.

David Cordani :

Justin, a little color relative to pacing and then I'll ask Brian to talk about more to your second question. As Brian noted, we have good visibility into the membership volume. And when you think about the -- outside of the individual exchange business, what we've seen growth across all of our funding types. Still the lion's share of it is ASO including the service-based relationship with a large customer. So in essence, a meaningful portion of that volume will be realized in the first quarter of 2023, and then they'll be puts and takes throughout the course of the year. We'll look forward to providing you updates on. Now individual lines of business will move throughout the course of the year. But by and large, if you think about -- our expectation is that we'll have good performance relative to that on the first quarter of the year and then some puts and takes throughout the course of the year with some additional growth and maybe some additional disenrollment as we factored in some impact in our outlook for a bit of an uptick in disenrollment as we look at the current fragility of the U.S. economy. So good visibility for Q1. I'll ask Brian to talk a bit more around the margin.

Operator:

Our next question comes from Ms. Lisa Gill with JPMorgan.

David Cordani :

Lisa, good morning. So to your first question, the co-preferred position that we have taken on our national preferred formulary is a mechanism to aid the transition, preserve and expand choice with aligned economics back to our clients and for the benefit of our customers and patients. I'd also note that that's our National Preferred Formulary, which is our largest single formulary. We support and administer multiple formularies that are customized for individual clients from that standpoint and avail choice. I'd also suggest that this will be fluid. It will flex over time. Third, as we've demonstrated within our PBM and our broad pharmacy portfolio services, we have the tools to align the incentives whereby when we enable choice and create value. Meaningful portion of that value are passed back to clients, customers and patients and a sustainable portion of the value is retained by us and the current position that we have taken aligns in that way. So it's not -- we have to have a reason of our brand drug versus the biosimilar, we have the mechanisms to afford additional choice, additional flexibility and to align the incentives. As it relates to the second part of your question, I would just give you by way of trend as opposed to an individual benefit design configuration or change, buyers in the space, be they corporate buyers, health plan buyers, et cetera, are seeking to push for more what we talk about internally all the time, coordination of services and continue to challenge point solutions. That plays very well for us. So when you think about an illustration of that, the Pathwell program around biosimilars, the Pathwell programs around biologics, the Pathwell programs around injectables is a way to further coordinate services with precision or a subset of patients and deliver more value from that standpoint, you have to harness data, you have to harness clinical capabilities, you have to harness digital capabilities. You have to harness network and benefit management capabilities. And again, the combined organization is well positioned for that. So I would say more precision in benefit programs on a go-forward basis that bring more targeted coordination, harnessing data and harnessing specific sub-segments. And again, we are well positioned for that and Pathwell is an illustration of that direction.

Joshua Raskin :

I want to go back to Village and the partnership there. And I'm just trying to think about how Village and Cigna Healthcare work together and sort of how you have impact on their strategy? And are there targeted growth strategies in markets that may be stronger than, say, your MA book? And then, Dave, I think you said 75% of the Medicare Advantage business is in some sort of value-based care. How much of that is actually full risk or full capitation relationships?

Operator:

Our next question comes from Mr. Stephen Baxter with Wells Fargo.

David Cordani :

Good morning, Nick, it's David. I'll just give you a little directional indicator here. So throughout 2022, broadly speaking, we saw the kind of net effect of hiring still the lead dimension in terms of playing through. Although as we've talked quarter-to-quarter throughout the course of 2022, we recognized there was a softening in the economy. As we get through the latter part of the year and the end of the year, that pretty much muted down and approximates canceling itself off. So the net hiring versus the net disenrollment moved to a slight negative. As I mentioned in a prior comment, our projection for 2023 assumes a further uptick or a further softening of disenrollment as we look at the economy, we don't -- within our book as we go case by case and relationship by relationship, we don't see large dislocations, but we think it's prudent to plan for some further softening throughout the course of the year, and that's fully factored in to our projection. I wouldn't call out one individual sub-segment. The National Press would say that small employers are continuing to hire in terms of fight to get to full levels of employment. So we can see some indicators relative to that. But broadly speaking, I would suggest you to think about -- we believe we've taken a prudent outlook in our full year membership outlook by further dampening the additional enrollment throughout the course of the year, and we think that's an appropriate approach.

Steven Valiquette :

So just back on Evernorth again, within that context of the earnings growth being more back half weighted and faster growth in the back half. Just if you can remind us again how you're thinking about the cadence of recognition of the Centene PBM onboarding costs between the first half versus the second half? I'm wondering if that's still kind of fluid for you guys is how that might flow during the year? Or is that kind of set in stone as far as the weighting of that expense in the first half versus the second half?

Operator:

Our next question comes from Mr. Nathan Rich with Goldman Sachs.

David Cordani :

Good morning, Nate, it's David. You should think about, broadly speaking, the formulated decisions are made in the latter part of the calendar year, so deep into Q4 of a given year for the next year with the best insights; two, there's always some fluidity relative to drug launches that manifest themselves throughout the course of the year. In the case of biosimilars, we know there are drug launches expected in the Q3 timeframe of this year, of 2023, that we've fully contemplated and factored in. And we have the ability to flex formularies in the course of the year with individual clients, individual health plans, et cetera, obviously, on a consultative fashion. So view the decisions are largely made in advance of the year. However, you have the flexibility to go back and make adjustments my comments are not specific to your specific question around manufacturer-specific contracts through that lens. To the latter part of your question, by and large, employers, health plans, et cetera, are focused on clinical efficacy and comparative effectiveness. So the fixation relative to first and foremost as it should be clinical efficacy, making sure when there's any alternative that's available in turning the best external validation of the clinical equivalent of the impact of a pharmaceutical is evaluated properly and then comparative effectiveness, looking at the economics and then getting to a total low cost of care or best value equation. And then the employer or health line may make some trade-offs in terms of which levers they want to use to achieve that, but ultimately, it comes down to the best total cost equation once the clinical efficacy hurdle is crossed. And as I mentioned in the prior question, we have the tools, we have the services, we have the flexibility to avail employer by employer, health plan by health plan to be able to get them to the right balance that they want. But ultimately, it's the low total cost equation with the clinical outcomes that are preferred from that standpoint that drive the net conversations and the net decisions by employers and by health plans.

Lance Wilkes :

Just wanted to follow up, David, on the comments you made on the VillageMD relationship, which was really helpful to kind of frame that. And what I was trying to understand is from the Evernorth side, it would seem that Evernorth could be a distribution partner wherever Evernorth could be helping Village to enable itself to better manage costs, either through providing MD live or networks or Evernorth PBM services, et cetera. So maybe a little more color on sort of what is the primary role that Evernorth is playing there? And then just secondarily, for the MCO, how important and what is the opportunity for in addition to new product design for you to cross-sell in your ASO block, the VillageMD sort of value-based care source of services?

Operator:

Our last question comes from Dave Windley with Jefferies.

David Cordani :

Sure. Good morning, Dave. So relative to RADV and the new information that came out, first and foremost, we deem that risk adjusters are and remain an important tool for the program. And as I noted before, a program that has worked obviously for quite some time for the benefit of seniors and delivering excellent clinical quality, value and service. Additionally, from a Cigna perspective, we remain committed to executing, obviously, this program in a highly compliant fashion. Now specific to the RADV actions, we're pleased, the CMS concluded that they're not going to extrapolate their actions prior to 2018. We're concerned that we continue to question a couple of decisions. For example, the elimination of the fee-for-service adjuster that we deemed to be foundational to the program. And we await specifics relative to the methodology that is going to be used in some aspects of the extrapolation and work as we have in the past and as we always will, we will work closely with CMS to seek to get further clarity relative to the open items that are here. So a bit of a fluid environment but we see progress relative to the lack of extrapolation beyond 2018, and we see some open questions for the industry at large that still remain, and we will collaborate with CMS to get more visibility on that over the near term.

David Cordani :

Thank you. Just to briefly recap, 2022 was a strong year of performance, growth and positive impact that our company brought forward. With Evernorth and Cigna Healthcare, we demonstrated that we are serving the current needs of our customers, clients and partners, and we expect to deliver another year of customer and earnings growth in 2023. I want to recognize and more importantly, thank more than 70,000 co-workers around the world. It's ultimately their continued dedication and leadership that allows us to make a defining difference in healthcare and their demonstrated commitment to building on the momentum we've delivered to have a larger impact as we look to the future as we strive to improve the health and vitality that of those we're privileged to serve. With that, we thank you for joining our call today, and we look forward to our continued conversations as we go forward. Have a good day.

Operator:

Ladies and gentlemen, thank you for standing by for Cigna's Third Quarter 2022 Results Review. [Operator Instructions] As a reminder, ladies and gentlemen, this conference including the Q&A session is being recorded. We'll begin by turning the conference over to Mr. Ralph Giacobbe. Please go ahead, Mr. Giacobbe.

David Cordani:

Thanks, Ralph. Good morning, everyone, and thank you for joining today's call. Our team is performing well in a dynamic environment, and we delivered another strong quarter of revenue, earnings and cash flows. I'm going to spend a few minutes highlighting key drivers of our results in the third quarter and while we are once again raising our 2022 full year outlook for adjusted earnings per share as well as for growth in medical customers and enterprise revenues. Then I'll address how we continue to expand and enhance our capabilities for the evolving market needs, and I'll also provide some initial perspective relative to 2023. Brian will share more details about our third quarter results and our outlook for the rest of the year. Then we'll take your questions. With that, let's get started. During the third quarter, we delivered results that were better than our expectations, including total revenues of $45.3 billion, and adjusted earnings per share of $6.04. We continued building out our momentum this year, and we are confident we will deliver on our increased full year 2022 adjusted EPS guidance of at least $23.10. We also expect to continue advancing our capital deployment strategy, including investing in our business to drive innovation and growth and repurchasing at least $7 billion of our shares this year, all while paying a meaningful dividend. Our performance in the quarter reinforces the impact of our sustained commitment to service and innovation, our progress in retaining clients and expanding relationships with additional services as well as winning new business. Evernorth, our health service platform performed well again with solid top line and bottom line results driven by our market-leading innovation and affordability across our pharmacy benefit services, specialty pharmacy and Evernorth Care Solutions. Cigna Healthcare, our benefits portfolio also was key to continuing our momentum in the quarter. Our U.S. commercial business is having a very good year with solid client retention levels and new business wins, particularly in the middle market and select segments, leading us to once again raise our full year outlook for medical customers. Our medical care ratio for Cigna Healthcare was better than expectations at 80.8% in the third quarter demonstrating the effectiveness of our affordability initiatives and targeted pricing actions. Overall, we're very pleased with the third quarter results. Now I'll take a few minutes to walk through how we are well positioned going forward with Evernorth and Cigna Healthcare. Within both platforms, we have differentiated businesses and a clear, durable three-part growth framework. First, through our foundational businesses, including our pharmacy benefit services, U.S. commercial and international health businesses. With these mature scale businesses, we established core relationships with corporate clients, health plans and governmental entities. Our capital-efficient operating models will further support steady growth as well as strategic and financial flexibility for our company. As we look ahead for these businesses, in 2023, pharmacy benefit services, we're expecting another year of high client retention levels complemented with new business wins. We're also very pleased with our solid start to the selling season for 2024, including our new multiyear agreement for Express Scripts to be the pharmacy benefits and specialty services provider for Centene. Working with Centene, we will make prescription drugs more affordable and accessible for approximately 20 million Centene members. The strategic collaboration with Centene builds on Express Scripts' track record as a partner of choice and will present growth opportunities to provide additional Evernorth Health services over time. We continue showing how we have a unique ability to partner across the health care landscape, expanding our reach and impact to more customers and patients, and with this new health plan relationship, we are building on our previous collaborations such as Prime Therapeutics, Oscar and Kaiser Permanente. For U.S. commercial, we are driving strong customer growth with wins throughout 2022, and enabled by our consultative sales approach and our affordability gains, enhancing more competitiveness in more geographies, all while maintaining ongoing pricing discipline. The sales and net growth in our National Accounts segment are solid and outpaced prior year results, and we are confident this momentum carries into 2023. And in international health, we are sharpening our health care focus for targeted growth opportunities in serving individuals, employers seeking healthy and productive employees and governmental entities that value our care management programs. We have momentum this year in customer growth, revenue and earnings and expect to sustain these results and performance throughout 2023. The second way we drive growth is through our Accelerate businesses, which include Accredo Specialty Pharmacy, Evernorth Care Services and our U.S. government business. These businesses have outsized opportunities to grow with compelling secular tailwinds and as well as differentiated capabilities that benefit our clients and customers. Looking forward for our Accelerate businesses, we continue to be excited about the value creation opportunities in specialty pharmaceuticals, including biosimilars over the next several years. With our leading capabilities and expertise, we expanded our relationship to be the exclusive specialty pharmacy provider for the Department of Defense starting in 2023. This is further reinforcement to how we fuel sustained long-term growth in Evernorth by improving clinical quality for the benefit of patients and achieving significant savings for our clients. In Evernorth Care Services, we are advancing our care management and delivery strategies. One area of focus is enhancing virtual care that strengthens relationships between patients and their physicians to better anticipate health issues and intervene earlier. For example, with MDLIVE, we are providing better experiences and improved affordability with personalized care that is more convenient and effective in directing patients to the most appropriate care settings. When a person -- when in-person care is needed, MDLIVE successfully guide patients to urgent care facilities or other alternative sites to care, decreasing avoidable emergency room visits by at least 10%. We intend to further build on this progress by enhancing our virtual primary care offerings for patients with chronic conditions by providing continuous engagement with their physician, remote monitoring with connected devices and real-time interventions between appointments. In U.S. government, we are continuing to make investments, positioning us to grow in 2023 and beyond. We are strengthening this business by building on our high-quality affordable Medicare Advantage benefits we offer with geographic and network expansion as well as further product enhancements. Finally, the third way we drive growth is through a cross-enterprise leverage. Here, we harness capabilities across our company to accelerate innovation and have a greater impact than any individual could have on its own. Our opportunities here are driven in part by a rich longitudinal data and information we have to accelerate the development of new, more effective solutions for our clients and customers. Our Pathwell programs are a good example. With Pathwell Specialty, we're working across the medical and pharmacy benefits to reduce the cost of specialty infusions and injectables. In our Pathwell Bone and Joint program, we harness Evernorth digital navigation and advanced predictive analytical capabilities to reduce unnecessary musculoskeletal surgeries and provide better coordinated care. There is a significant addressable market for these programs as 50% of adults suffer from bone, joint and muscle conditions, and these are major drivers to U.S. healthcare costs. Additionally, we continue to take an enterprise view of our client relationships and successfully broaden and deepen them with our overall suite of capabilities. This has supported a number of attractive wins and a good example is a very large new fee-based relationship for 2023 in our U.S. commercial team that has secured this offering by bringing a solution to a longstanding Express Scripts client. With our Evernorth and Cigna Healthcare platforms and our growth framework, we anticipate driving another year of earnings, customer and revenue growth in 2023. We will provide detailed guidance as we always do on our fourth quarter earnings call. Having said that, I'll provide a view of some of the tailwinds and headwinds we see for 2023, which are largely consistent with the points we highlighted at our Investor Day in June. With a strong selling season, we anticipate a tailwind of continued growth across both our Evernorth and Cigna Healthcare platforms. We expect additional margin improvement in Cigna Healthcare and with our leading position in the rapidly growing specialty pharmaceuticals market will begin capturing value from biosimilars. Relative to anticipated headwinds, we will make meaningful strategic investments in our accelerated growth businesses. We will have additional costs as well as we prepare to support renewed and expanded relationships with the Department of Defense and Prime Therapeutics. And a new development since Investor Day is our exciting strategic win with Centene, which will create a one-year headwind as we onboard this new partner. Putting all that together, we anticipate that these tailwinds and headwinds will largely balance themselves off next year with the exception of our Centene headwind, which represents incremental cost for us in 2023. Now I'll briefly summarize. Overall, our strong performance in the quarter and throughout the year shows how we are addressing the most pressing needs of our customers and clients and growing our business. We're investing in innovation to enhance our capabilities for future growth and continue delivering for all of our stakeholders. We're confident we remain on track for our full year 2022 commitments, including our increased adjusted EPS guidance for this year of at least $23.10. And with that, I'll turn the call over to Brian.

Operator:

[Operator Instructions] Our first question comes from Mr. Stephen Baxter with Wells Fargo.

Brian Evanko :

Stephen, it's Brian. I appreciate the question very much. So maybe I'll give you a little bit of a flavor for the multiyear view here. So I'd be remiss if I didn't start by saying this is a huge win for the organization and a great validation of the value proposition in the Evernorth segment of our company, and in particular, the Express Scripts team did a great job partnering with our new client here. And we'll be laser-focused on successfully implementing the new client over the course of the next 14 months to ensure a smooth execution of their 20 million customers. And as I mentioned over the lifetime of the contract, the relationship will be accretive to our financials. But you should think of the profit margin percentage being below the book average as is typical for a contract of this size and scale. But in terms of the year-by-year pattern and how to think about that, you should think of 2023 being a headwind, as both David and I said, due to the implementation related costs that are incurred prior to any revenue being received. We're currently sizing that at about $200 million for the 2023 year. Given we're only a week or so into the contract award, we still have a lot of detailed planning to do to refine that. But that's our current best estimate for what 2023 implementation-related costs will look like. For 2024, we are currently expecting to be in a neutral to a small positive contribution standpoint in terms of the income. So you can think of that 2023 headwind essentially unwinding in the 2024 financials. And then for 2025 in the subsequent years, we would expect to be at approximately run rate contribution levels on the relationship.

A.J. Rice :

Maybe just to ask, I know last year or coming into '22, you made a comment that you wouldn't be doing any larger deals, and I think you define that as anything north of $10 billion in acquisitions. I wonder as you think about '23 now, a lot's changed over the course of the year. You've been very active on the share repurchase front. What is your current thinking about whether you'd be open to transactions? Any comment about priorities or the pipeline and what that looks like? And then the flip side, of course, is your ongoing share repurchase activity. When you're giving these '23 comments, do you have any sense of where you might size share repurchase activity and all of that?

Operator:

Our next question comes from Mr. Justin Lake with Wolfe Research.

Brian Evanko :

Good morning, Justin, it's Brian. On the stop loss, we're really pleased with the strong growth that we've shown this year as you can see, both in terms of the quarter-over-quarter and the year-over-year premium growth with 13% and 12% growth, respectively, on that. Important to keep in mind, there's a few components that drive that. One is we've shown a very strong growth in our fee-based Cigna Healthcare customers this year, and many of those bring with them a stop-loss contracts. So there's some additional units, if you will, of stop-loss that are embedded in the year-over-year growth rate. On top of that, we have had strong firm price increases on our existing client base. And as you noted, now in the double-digit level with the 13% quarter-over-quarter, representing some of the later 2022 renewal dates, seeing strong price increases. And then finally, we have seen a bit of increased penetration on our existing ASO clients as well of the stop-loss products. So a few different factors that drove that strong growth. As we talked about in prior calls, we still have some margin expansion opportunity in our stop-loss book of business as we head into '23. So we would expect another year of strong growth in premiums for the stop-loss product in the 2023 calendar year. On the reserve side, there's really nothing in particular I'd call to your attention there. We continue to employ a consistent methodology to establishing our reserves. There will be some natural variability just between product mix shift and inventory levels changing from quarter-to-quarter. And overall, we feel good about the appropriateness of our reserves, and if you look year-over-year at the reserve levels, they -- all the key metrics that we evaluate screen appropriate and prudent.

Kevin Fischbeck :

Great. Maybe just a quick fact question and then jump into the other question. But can you help us size the revenue that gets a little bit of difference on how Centene talks about the revenue contribution versus what it looks like CVS was booking from a revenue perspective. So can you help us size from a revenue perspective with the Centene contract and whether you get all of that in '24, whether that ramps up? And then I guess like my main question is just going to be about maybe going back to the M&A point, I just find it very interesting that you've got some competitors who are just out there constantly buying things and adding capabilities and other companies focusing more on share repurchase and selective smaller acquisitions. I guess, -- do you not see this as an arms race. It almost feels to me like a lot of companies are out there building capabilities. Do you feel when you think about M&A that potentially not pursuing M&A will be a disadvantage over the next three to five years if you're not doing deals today?

Operator:

Our next question comes from Ms. Lisa Gill with JPMorgan.

David Cordani :

Lisa, it's David. First, relative to the category, as you know from prior conversations, we deem the category to be a net positive from a client, patient and customer standpoint as we look forward, '23 and beyond. As it relates to further improvements in affordability. And given the positioning of our Accredo capabilities, a net positive for ourselves. So just grounding on that for starters in terms of the capabilities to bring this to bear Second, 2023 represents the start of another step function, but the start of another step function as it relates to the biosimilars. Third, we will communicate our national formulary conclusions later this quarter, as you very well know, that's one dimension. And then there's client-specific formularies, decisions that are made that are underway. So to the core of your question, it will vary in 2023 between international formulary as well as client-specific formularies on a go-forward basis. We deem it to be a net positive for the franchise in 2023. As I noted, it will present a tailwind for us in 2023. And that is HUMIRA-specific or the category specific, but others will begin to ramp as we move through 2023 into 2024. So a transitional -- I view '23 as a transitional year for the space with acceleration. Our decisions are about to be communicated and finalized relative to formulary decisions, and they're varied at an employer or health plan level. Our national formulary decisions will be consistent across that subset of our portfolio.

Josh Raskin :

So the $200 million you mentioned for Centene preparation costs, is that pretax or after-tax? And then my real question is the outlook for Medicare Advantage for 2023. I'm curious, I know you've made some investments through this year, and you've talked about opportunities for margin next year, but I'd be curious on the growth front. And if you could just give us some color on how some of the newer county expansions have gone in recent years, that would be helpful.

David Cordani :

Sure. Josh, good morning. So specific to Medicare Advantage, let me take it maybe a little bit in reverse order to your question. Because as you articulate, we've been systematically adding new geographies, net new geographies and adjacent counties over the last several years. and successfully opening those counties in those markets. Second, as you would expect, your early sales in a net new market would tend to have a lower contribution than your sales in mature existing markets. The sheer nature of the operating cost environment and getting those businesses up and running from that standpoint. . Having said that, while we are very early in the 2023 decision-making process cycle as everyday kicks on, early presence reporting are positive as it relates to our current net growth algorithm and both in mature counties and markets as well as some of our new market entries. Looking at 2023, given the continued geographic expansion we've made, network improvement we've made, investment in distribution and marketing support as well as more resources and capabilities to begin to harness some of the commercial agents to Medicare, we expect [2003] to be a year of growth for our Medicare Advantage portfolio, and we look forward to updating you on that as we get through the latter part of this year.

Lindsay Golub :

This is Lindsay Golub on for Nate. Congratulations again on the Centene contract win. Could you talk through some of the opportunities for future Evernorth service expansion and just strategic collaboration with Centene?

Operator:

Our next question comes from Mr. Scott Fidel with Stephens.

David Cordani :

Scott, it's David. So broadly speaking, we have viewed this space as a space where we have an opportunity to grow over time. And as you all know, there's been a little bit of volatility since its inception, and we were -- we entered at inception and remained in the marketplace and continue to systematically grow. We'll grow our geographies as we step into 2023. And -- as it relates to the volume, we would expect to have net customer growth. Our current outlook is to have net customer growth in 2023, and we would expect that there would be a positive margin contribution. As Brian and I both noted, we expect the Cigna Healthcare portfolio in aggregate to have some further margin expansion opportunity. We believe that this subset of our space will have net positive margin contribution going forward. I'm not going to comment in terms of the latter part of your question went back to target margins as we continue to invest in, we know what the underlying book is performing at and what we expected to perform at. We'll make investment decisions in 2023 for 2024. That may dampen a little bit of the margins. Those are discretionary decisions for ongoing growth. But headline is well positioned for '23, expect to have net growth and expect to have good margin performance for the portfolio.

Gary Taylor :

One quick one for Brian and one for David. Brian, just on investment income in the quarter, looked a little light, even accounting for divested assets, the return looked a little light. So just wondering if there was something there, perhaps a little nonrecurring in terms of potential run rate on investment income. And then for David, I had a couple of clients ask lately about the DOJ intervening in the AMA lawsuit as well as the AMA joining the class action on the multiplan lawsuit. I guess the question really is just the legal profile of the company changed in any material way. I just wanted to give you a chance to comment on those.

David Cordani :

Thanks, Brian. Gary, your broader framework, Gary, I'd step back and say, we have -- we do and we continue to operate in an active regulated space. Two, I'd point to, as we look at today in the past, we have a strong track record as an organization of being well governed and strong, healthy compliance-related programs. To that point and to the core of your question, I do not deem that the legal exposure, I think, is where you're going after with the profile of the company has changed meaningfully. And in some ways, given the strategic positioning of our franchise being more services-based, I would make the argument that the legal exposure footprint on a relative basis to the space is lighter from that standpoint, given the services-based nature of our portfolio is more intense and heavy. But no doubt, it's an active space has been, is and will continue to be an active space, but we're proud of our governance and compliance functions and capabilities. .

Ricky Goldwasser :

Yes. So a couple of follow-up questions here. Just to clarify, for 2023, is the EPS starting point that we should use is the $23.10. And then as we think about the Centene headwind of $200 million around 2% of earnings growth, are you assuming that excluding Centene, sort of the core business would have grown at that long-term target of 10% to 13%?

Ricky Goldwasser :

Okay. And then just one quick follow-up question. As we think about the Centene contract, is there any leverage that you gain with the additional scale that you'll see across the rest of the Evernorth book of business. .

Operator:

Our next question comes from Mr. Steven Valiquette with Barclays.

David Cordani :

Steven, it's David. Let me talk a little bit more about the selling season, the dynamic in the process. As I noted in my opening, 2022 results for commercial portfolio business. First and foremost, we're pleased with. We're pleased with the MLR performance. We're pleased with the retention. We're pleased with the net growth. Two, in '22, a primary driver of that growth is good performance in our middle market and sustained success in our Select segment. Within our Select segment, we regularly offer ASO or self-funded with stop-loss, shoulder-to-shoulder with derivatives of and specific risk alternatives. And we provide choice, we provide choice declines relative to funding. We've designed our sales process, our underwriting process. And our solutioning process, we're able to put that choice forward. And year in, year out, it ebbs and flows between a different mix between ASO and stop-loss and risk business. We're pleased with the net risk results that underline that. But I think the overall headline is to sustain strong success of the Select segment. Now more broadly, as you look at the portfolio, our fee-based business continues to grow. -- prior point it back to the meaningful growth in stop-loss. And finally, in my comments pointing toward 2023, we will have a very good national account, January 1. That's largely fee-based business. That's retention, it's expansion and this new business has as well as addition of large, what we would call middle market fee-based relationships going forward. So the underlying net growth is consistent. The quality is there in the MLR and our risk business, you see is really fundamental strength within our Select segment.

Lance Wilkes :

Yes. Congratulations on that Centene win, a great job. Two just cleanup questions. One is in Evernorth, just understanding the driver of fees in the Evernorth segment? And the other is just a comment on utilization. Obviously, MLR was really down this quarter. Just interested in getting any comments on relative to maybe a baseline or kind of pre-COVID levels for commercial, public exchange and Medicare Advantage contrasted with sort of the nonmedical products. Like what's kind of the environment you're operating in, they're seeing right now?

Operator:

Our last question comes from Dave Windley with Jefferies.

David Cordani :

It's David. So I think a really important question and that we didn't spend time on that. So thanks for the opportunity. First, from our point of view, there's little doubt the economy has been confronting some challenges. So recession, non-recession, there's been some challenges. And to date, important grounding, we've seen little direct impact for the demand of our services or the underlying performance for our portfolio, right? Movement in costs here or there. But broadly speaking, we've seen a little direct impact. As we look forward, by and large, we still see an environment where net-net employers are more oriented in terms of maintaining and/or hiring employees seeking to get to full employment. We do see instances where that has slowed. We do see instances where employers are putting freezes. But when you balance the portfolio as a whole right now, there's still a net hiring environment that sits in front of us, not to today. As we look forward, we absolutely play through scenarios that could have further softening of the economy or recessionary impact. At this point, we believe, given the visibility we have into the starting point of 2023 with the net growth we expect to step in the year with, coupled with the strength that we expect in 2022 with, those two points and the various levers we have within our diverse services portfolio and benefits portfolio, we believe we'll be in a position to deliver another strong 2023. Ending with, we acknowledge the fact that the economy is in a bit of a challenged environment in the current state. But all in, we believe our portfolio will be durable and is in a position to perform next year because of the strong start we'll have to the year and the various levers we have to manage in our portfolio.

Operator:

I will now turn the call back over to David Cordani for closing remarks.

Operator:

Ladies and gentlemen, this concludes Cigna's Third Quarter 2022 Results Review. Cigna Investor Relations will be available to respond to additional questions shortly. A recording of this conference will be available for 10 business days following this call. You may access the recorded conference by dialing (800) 819-5739 or (203) 369-3350. There is no pass code required for this replay. Thank you for participating. We will now disconnect.

Operator:

Ladies and gentlemen, thank you for standing by for Cigna's Second Quarter 2022 Results Review. [Operator Instructions] As a reminder, ladies and gentlemen, this conference, including the Q&A session, is being recorded. We'll begin by turning the conference over to Mr. Ralph Giacobbe. Please go ahead, Mr. Giacobbe.

David Cordani:

Thanks, Ralph. Good morning, everyone, and thank you for joining our call today. In the second quarter, our company continued delivering differentiated value for our clients, customers, patients and partners as we execute on our mission to improve the health, well-being and peace of mind of those we serve. And we posted strong results for the quarter and continue to build on our momentum from the first quarter. Now today, I'll briefly discuss our quarterly performance and the key strategic drivers of our growth, then Brian will review additional details about our financial results during the quarter, our increased outlook for the rest of 2002 as well as our strong capital position. and then we'll take your questions. Let's get started. In the second quarter, we delivered total revenues of $45.5 million and adjusted EPS of $6.22 per share. Our differentiated capabilities and innovative approaches are resonating in the market, and we achieved another quarter of strong performance across our growth platforms. In Evernorth, we're pleased with the way our solutions are continuing to gain traction with health plans, large commercial employers, governmental agencies, health care delivery systems and medical professionals. Today, more than 180 million individual customers have access to our Evernorth solutions. We're also encouraged by our progress during the selling season for 2023, and we are on track for another year of high client retention levels. In Cigna Healthcare, our disciplined execution is driving a balance of sustained customer growth and continued progress with expanding margins. Our medical care ratio during the quarter was 80.7%, which was better than expected and a substantial improvement over the same period last year. Similar to last quarter, we continue to see a positive impact from the targeted pricing and affordability actions we put in place last year and in early 2022. Overall results during the first half of the year, including the strength of our ongoing performance give us confidence in delivering our increased full year 2022 EPS guidance of at least $22.90. Additionally, we recently completed the divestiture of our life, accident and supplemental benefits businesses in 6 markets across Asia Pacific to Chubb, and we launched a $3.5 billion accelerated share repurchase program. At current levels, we view this as an attractive use of our capital. When combined with our previously completed activity, we remain on track to repurchase at least $7 billion of our shares in 2022. Overall, we delivered a strong first half of 2022, and we are positioned to deliver on our increased outlook for revenue, customer growth and EPS for this year. Our performance is a direct result of our ability to leverage our expertise, capabilities and ongoing commitment to innovation, all focused on the most pressing needs of those we serve. Affordability remains first and foremost, a top need for all of our stakeholders. In response to this, we continue to drive target innovations, including, for example, a new solution launched in June that leverages our capabilities at eviCore to support post-acute care for Cigna Medicare Advantage patients. As the patient prepares for a discharge from a hospital, our team draws upon the extensive evidence-based guidelines as well as analytics we have to work closely with providers and patients. The result is that we're able to determine the most appropriate site of care and services to support a patient's recovery, which improves health outcomes, drives meaningful cost savings and provides better patient experience and satisfaction. We've also launched a number of programs that address the rising costs of vital medications. Cigna Healthcare and Evernorth's patient assurance program is an industry-first innovation capping out-of-pocket costs for insulin. In 2021 alone, we provided more than $42 million of financial relief to approximately 220,000 patients with diabetes. We've continued to broaden the impact of this program by expanding it to other chronic conditions drawing on the strength of our expertise as well as our relationships with pharmaceutical manufacturers. Building on the success of this program, last month, our U.S. commercial business introduced Cigna Pathwell Specialty, a new approach to specialty care. Pathwell Specialty leverages our specialty capabilities in Cigna and Evernorth and provides enhanced support to patients for better outcomes while also controlling rising specialty costs. We plan to extend this offering to additional groups of clients later this year. At our Investor Day in June, we talked about how we're able to consistently deliver sustained attractive healthy growth even in challenging economic environments. Our company is built to perform in a variety of market conditions, including economic slowdowns. It starts with our growth framework that positions us to expand our addressable markets and capture value in 3 specific ways. First, foundational growth. to our businesses that are mature, scaled and contribute steady predictable results for our company. These businesses currently contribute about 60% of our annual revenue and include Express Scripts, U.S. commercial and our international health business. Second is accelerated growth for our businesses with differentiated capabilities aided by secular trends creating very attractive addressable markets. These businesses represent about 40% of our company's revenues, and we expect to grow these further with momentum from our specialty pharmacy and care services businesses within Evernorth and our U.S. government business in Cigna Healthcare. And third, cross-enterprise leverage, where businesses work together to create value and capture more value than any one of them could achieve on the road. Putting it all together, this growth framework translates into continued strong top and bottom line contributions from Evernorth. Our health service platform continues to providing industry-leading pharmacy solutions while also building out our Evernorth Care capabilities to address the growing demand for behavioral services, health coaching and care delivery. Evernorth strengthens our ability to support customers and clients with the forces facing and reshaping health care today, including the significant societal shift, bringing widespread and growing recognition of the connection between mental and physical health. This has resulted, for example, in a rising demand for services, and we've continued to expand our traditional network. For example, Evernorth behavioral network has more than doubled in size over the past 5 years. We're also supporting enhanced services by providing virtual care. Recently, we launched Confide Behavioral Health Navigator to improve the way we guide people to the right behavioral care at the right setting at the right time. We also have an extensive and growing portfolio of solutions, supporting both virtual and digital first solutions, including our MDLive platform. For Cigna Healthcare, our growth framework translates into strong performance driven by ongoing customer growth in U.S. commercial as we continue to improve affordability in key geographies, including through advancing our value-based care and site of care service programs. Also accelerating Cigna Healthcare's adoption of Evernorth Solutions, which creates even greater value for our customers and clients and as a driver of attractive sustainable revenue growth for Evernorth. In International Health, following the divestiture of our International Life accident and supplemental benefits portfolio, we are intensifying our focus on health and health service offerings. And in U.S. government, both for Medicare Advantage and individual family plans, we are delivering strong value for those we serve while we're investing in markets where we see sustained path for growth and a clear right to win over the long term. This balance and diversified approach to growth, together with our substantial capital generation affords us a significant level of strategic and financial flexibility that positions us for sustained, differentiated growth under a variety of scenarios. Now to wrap up. We delivered on our customer client commitments in the first half of the year. Looking ahead, we are well positioned to drive continued attractive healthy growth across our Evernorth and Cigna Healthcare platforms by leveraging our portfolio of foundational assets, accelerated growth businesses and fueled by the power of our cross-enterprise leverage. We are encouraged by our strong retention outlook for the start of 2023 as well as new business wins for the start of the year. We remain on track for continued delivery of our commitments. And as a result, we are increasing our full year outlook to at least $22.90 per EPS, which represents a growth rate of 12%, which is within our long-term average annual adjusted EPS growth target of 10% to 13%. We’re continuing to deliver significant value for our shareholders, and we expect to deliver at least $7 billion through share repurchase in 2022 as well as continue to pay a meaningful dividend. We also continue to make strategic investments to strengthen our capabilities and broaden our reach in both our foundational and accelerated growth businesses. With that, I’ll turn it over to Brian.

Operator:

[Operator Instructions] Our first question comes from Mr. Matthew Borsch with BMO Capital Markets.

David Cordani:

It's David. So yes, is the simple answer. So relative to my comments on the selling season, more specifically focused on the -- both in the Evernorth side of the house, the large employer, a large health plan side of the business. In the commercial side, the national account side of the business. So headline there is on the Evernorth piece of the equation. Another year of strong client retention overall for the portfolio as well as attractive new business wins. I think importantly to underscore as well, we continue to see traction of what we call enterprise leverage. So opportunities to deepen and expand relationships. First, within the traditional Evernorth portfolio, the successful renewal of the DoD also presented the opportunity to win and secure the exclusive specialty services. And then beyond that, we’re broadening and deepening relationships with key health plan clients by leveraging the best of Evernorth and Cigna Healthcare. On the commercial national account side, we see 2023, looking up to be a very strong retention year and some really attractive new business adds. So good, good performance on both sides of the equation. As Brian noted in his prepared remarks, also just continued strong performance in the commercial side of the Select segment.

Kevin Fischbeck:

I want to understand how you guys are thinking about the outperformance on the medical cost side as it relates to kind of getting back to target margins. Are you guys viewing the outperformance so far this year is kind of a new sustainable base? Or is this just kind of fluctuations of COVID hasn’t really changed how you thought about moving from 2021 to 2023 pricing and margin expectations?

Operator:

Our next question comes from Mr. Josh Raskin with Nephron Research.

David Cordani:

Josh, it's David. So our Medicare Advantage business remains a key point of focus for us. And as you recall from our Investor Day conversation, we view it as one of our accelerate platforms. So a platform where we have the opportunity for outsized growth over the long term. We continue to make investments in that business, both in the core aspects of the business as well as in the geographic expansion. Our 2022 results are not indicative of what we would expect to see over the long term. And importantly, in your question, which I think you touched upon insightfully one of the pieces, we did a bit of network reconfiguration to put us in some key markets in a position for longer-term growth, where we had attractive network positions, but not growth outlook from that standpoint. Shifting to '23, we would expect a year of growth to reaccelerate for ourselves in the Medicare Advantage business. As we discussed, that date by in geography growth today, existing geographies beginning to leverage the hard work that was done in 2021 and in '22 in terms of geographic expansion. Targeted and further investments in distribution and marketing as well as beginning to harness more yield out of what we think about in terms of our inside or more captive opportunities. Those are commercial agents that we talked about before, where we’ve had a low conversion rate, our PDP conversions or a med sup conversions. So headline, yes, some network reconfiguration, a lot of that was addressed in this current year, harnessing the benefit of the geographic expansion work that was done and then harnessing some benefits that we would expect to see out of the channels I made reference to. Therefore, we expect 2023 to be a year of growth for us.

Dave Windley:

A follow-up to Josh there. Wondered if, David, with those expectations for growth in MA you expect to do that while maintaining margin? Or would you – to stimulate growth, expect margin to back up in MA at all? And then if you could remind us how your Star scores in MA will progress over the next couple of years and if the disaster relief benefits to the calculation were impactful for Cigna or not?

Operator:

Our next question comes from Ms. Ricky Goldwasser with Morgan Stanley.

David Cordani:

Michael, it's David. Let me just briefly start and hand it over to Brian. First, to underscore, we're quite pleased with the results. Our teams are executing quite well. And Brian will come across the pricing, but he underscored in his prepared remarks as well, the affordability. It's 2 dimensions working together. So -- it's getting first and foremost, consultatively the right solutions in place, employer by employer within all of our segments, whether they're select segment employers. What the market knows is middle market employers were national account employers and then it's executing the right affordability initiatives to be able to give -- deliver the right value and then executing from a pricing standpoint. So I want to underscore, it’s both of those pieces coming together to create the sustainability and our attractive underlying both retention and new business growth, coupled with the margins we’re quite pleased with. Brian, I’ll ask you to speak a little bit more towards the pricing dimension.

Operator:

And this question comes from Mr. A.J. Rice with Credit Suisse.

David Cordani:

It's David. So I think the dimension to your question first on the second piece, we see a very active pipeline. We've seen an active pipeline. As I noted previously, our retention results have been strong and importantly, underscoring even in 2022, commented relative to 23 start. But in '22, our retention results are strong even with the rate execution that Brian made reference to. So good retention within our portfolio, quite an active pipeline across various aspects of our business. On the first part of your question, it's a really long conversation. Let me boil it down. There's no doubt that the environment remains dynamic, disrupted, challenging from an employer standpoint to be able to attract, retain, have the engagement levels for their coworkers. A couple of phenomenons I would underscore to your point. One, in the prolonged pandemic environment, employers are dealing with, call it, the nomadic lifestyle of more of their employees. So first and foremost, on the commercial side, truly having a seamless commercial network for their employees because the higher percentage of the coworkers are consuming care in various locations as opposed to more traditional or centralized locations geographically. Secondly, seeking to advance as aggressively as possible, behavioral health services and the connection of behavioral health services with physical health services. And I highlighted several of those in my prepared remarks. That remains front and center. Third, on the cost and the affordability side of the equation, open-mindedness even push to more aggressively adopt whether they’re site of care optimization programs. So how do you get better affordability with existing even improve quality by optimizing site of care for an individual patient or bringing more services closer to the individual, both dealing with the nomadic lifestyle as well as site of care, virtual digital-first, closer intimacy. And those are areas that have been high on strategy for us. So you’re correct. There’s a lot of dynamism in the marketplace today, being consultative in terms of putting the right solution suite together, mission-critical, having the services between our Evernorth and Cigna Healthcare portfolio mission-critical right now and then being able to optimize that national network, the site of care optimization kind of the multimodal virtual coordinated care is mission-critical right now. A.J., I hope that helps.

Justin Lake:

I wanted to talk about the $22.90 this year. You've answered some of the questions in terms of the commercial business specifically. But just in terms of the jump-off point for 2023 earnings, anything we should think about in terms of whether this may or may not be a reasonable starting point versus that 10% to 13% target growth? And then any headwind tailwinds you want us to consider when thinking about that 10% to 13% kind of target digging into next year?

David Cordani:

Sure, Brian. Thanks. And Brian, maybe under your point. Therefore, we seldom talk through about a rebasing framework, Justin. As it relates to headwind tailwinds, we would typically go through that in more detail on the third quarter call and then detailed guidance in the fourth quarter call, but maybe a step back to, as you may recall from Investor Day, we talked about a few of the more macro opportunities for 2023. So first and foremost, think about foundational and fundamental growth across our businesses. As we commented today, we would expect another year of growth for the organization, both on the Cigna Healthcare side of the equation as well as Evernorth side of the equation. Secondly, a topic we have not discussed here, but we discussed previously at Investor Day we would expect to see further contributions from the biosimilar trend, which will begin to accelerate 2023, accelerate further in 2024, but some contribution of the biosimilar trend, of which we are well positioned and configured to deliver value for our clients, customers and patients on as well as benefit for our shareholders. On the headwind side, just to give illustrations, we’ve highlighted set up – what we call setup costs for very large clients, whether they’re very large client renewals or expansions. There’s a set of costs in a gestation cycle relative to that. And then lastly, the rate and pace of our strategic investments that we choose to make given the rapid changes in the environment may create a little bit more headwind year-over-year, which we would highlight. But net-net, we would expect another positive year for 2023, off of what is shaping up to be a very strong year for 2022.

Gary Taylor:

Just want to ask a little more about medical loss ratio, which was so favorable. So congrats on that. But just a few different questions, if I could. One, the sequential decline in 2Q is pretty unusual for your books seasonality. I know we have international health care in there now, and I'm just wondering if that contributes to any different view of seasonality sequentially from 1Q, 2Q? Also a year ago, you had highlighted behavioral and substance abuse is putting a lot of pressure on 2Q. I just wondered if that's changed at all? And then also just on stop-loss, you had talked about still believing that would be a pressure all the way through ‘22 with pricing initiatives having more effect in ‘23. So just wondering, are you producing this strong MLR on the lower-than-expected utilization still with stop-loss being a bit of a headwind inside of it?

Operator:

Our next question comes from Ms. Lisa Gill with JPMorgan.

David Cordani:

Lisa, it's David. You packed a lot in there. So let me try to run through them. First, from a retention standpoint, think about 95-plus. We believe anything in the mid-90s plus is a quite strong result given the diversity of our business for that portfolio. And as I noted on the prior comment, in addition to that, think about us continuing to deepen the relationships we have with broadening of services. As I noted, whether it's adding specialty exclusive or otherwise as well as the enterprise leverages, we have some relationships that are becoming deeper with leveraging Cigna Healthcare capabilities for legacy Evernorth relationships or vice versa. But think retention, 95-plus is something that we view as quite attractive. As it relates to the biosimilars, your specific question on formulary that finalization typically takes place as we approach the fourth quarter. So the dynamism being managed through. And as you know, with your background relative to the space, there's a lot of dynamism relative to that as it relates to choice client by client as well. We think about our national preferred formulary finalization more approaching the fourth quarter versus in the current dynamic and time frame. And specific to the timing of the opportunity, as we discussed previously, I would think about the biosimilar acceleration. While there's some movement, obviously, in 2022, '23 is active year with fixation and focus on HUMIRA and the transition. That will begin to ramp in 2000 and contributions will begin to ramp in 2023, but accelerate much further in '24 and obviously going to '25. Lastly, relative to 340B. As folks know, 340B is a really important program that a lot of health care delivery systems benefit from as they serve disadvantaged and underserved populations to help them get the right level of affordability. There's been some dislocation in that program and some pharmaceutical manufacturers have you lately decided to stop or decrease or create tension for health care delivery systems participation in that. As it relates to Cigna specifically through our Evernorth portfolio, it’s not a material driver of 2022 results, hence, we didn’t call it out. Any change or disruption, and that is not a material driver to 2022 results from that standpoint, although there’s been some activity, and we’ve seen some deceleration in volume as some of the data transfer tension has grown. We’ve seen that a little bit trough in the second quarter, and we see emergence of some improvement or acceleration in those activities in the beginning of the third quarter here as we work with health care delivery systems to try to help them get the data across that pharmaceutical manufacturers are challenging them to deliver. But again, not a material driver for us thus far, Lisa.

Kevin Caliendo:

I guess I’d like to ask about sort of potential drug price legislation. That looks like it may actually pass this time in Congress. So I was wondering if you’ve taken a look at it and what the potential impact could be on Evernorth, either positively or negatively from what’s being proposed?

Operator:

Our next question comes from Nathan Rich with Goldman Sachs.

Brian Evanko:

It's Brian. So as it relates to the MLR outlook for the back half of the year, so stepping back again in the second quarter, we saw a very favorable result relative to our prior expectations. And if you recall from our first quarter earnings release, we felt that it was prudent to assume that 2022 medical cost performance would look a lot like 2021 when you look at the all-in combined effect of COVID and non-COVID cost. So the terminology, if you recall, we would use the time would be above baseline. For purposes of the back half of the year, we have assumed that the medical cost performance will be largely consistent with our previous planning assumptions, meaning we have not assumed the second quarter favorability will run rate or extend through the back half of the year. So obviously, if the remaining 2 quarters were to run more in line with what we saw in the second quarter, there will be favorability in the second half of the year results from the standpoint of the MCR and as such, the income outlook. We’re not yet seeing on the second part of your question, any meaningful signs of pent-up demand or acuity building in the book of business. So as I mentioned earlier, when we look at blood screenings, preventive exams, mammograms, colonoscopies, all of those on a per capita basis are very much in line with where they were in 2019, and we continue to see things like when cancers present the percentage that are metastatic is very consistent with where it was in 2019. And so the favorability we’re seeing in the results, we don’t attribute to a meaningful amount of care not being consumed that needs to be.

Stephen Baxter:

Just wanted to follow up quickly on the MLR commentary you provided there. When we think about the upside in the quarter, I guess, any sense you can provide on how much of that was driven by favorable intra-year development versus your current period accruals? And then, as we think about the MLR progression through the balance of the year, I appreciate the commentary that you’re expecting consistent with your prior planning cycle for above baseline utilization. Should we also be thinking about potentially a tailwind from midyear renewals that you wouldn’t necessarily see in a typical year? And just remind us how much of your employer book reprices midyear?

Operator:

Our next question comes from Mr. Steven Valiquette with Barclays.

David Cordani:

Steven, it's David. Just to the macro level, 2 points. One, we remain quite pleased with the overall performance of Evernorth and the sustained performance within Evernorth. Two, to your point, I give you caution in terms of triangulating any one quarterly pattern. You're correct, the rate and pace of the investments we're making. You made a reference relative to the Q-over-Q revenue growth, a little bit of the lumpiness in terms of the way the revenue manifests itself, for example, in Q1 and Q2 of last year. But the overall revenue trajectory and the overall earnings trajectory is quite helpful. Lastly, kind of pivoting down into your investment piece, we continue to make accelerated and growing investments within our accelerate platforms, 2 of those are within Evernorth, specifically the specialty pharmaceutical business through both Accredo and CuraScripts, but heavily targeted towards the Evernorth Care piece. We showcased some of the direction of that at our Investor Day and you should continue to expect to see us continue to ramp relative to that. So if there’s any pattern or outside spending or investments that manifest itself beyond the large client set up costs, it’s really the strategic investments we’re making within our Evernorth care part of the equation today.

Operator:

Our next question comes from Mr. Lance Wilkes with Bernstein.

David Cordani:

It's David. Relative to the capital allocation and specifically coming to value-based care. And I want to, for a moment, just parse value-based care and care delivery ownership. As it relates to value-based care, we have a very longstanding commitment to and proven track record relative to value-based care. And for us, for starters, that means aligning incentives, leveraging clinical capabilities and working hand in glove with medical professionals to be able to deliver higher, more sustainable outcomes and value than otherwise can be done through a fee-for-service relationship. So today, we have a variety of programs underway with a little less than 50% of the overall equation in commercial being in a value-based care or reward-based configuration, conversely approaching 75% in Medicare Advantage. As it relates to the contribution of that, we see that as contributing to the great medical cost performance that Brian made reference to several times during the call. Now to your capital allocation and ownership configuration our orientation continues to be our preferred approach is to partner with and enable health care delivery systems for the way I just made reference to. However, in addition to that, if in key geographies, we believe the way in which to deliver the sustained outcome and approaches to own physical delivery of care. We will own, but that will be a geographic configuration for physical ownership. Added to that, in consistent, we seek to own care delivery assets that we believe are highly differentiated over the long term in terms of clinical capabilities as well as leverageable multi-geographic or nationally. What do I mean by that? Specialty pharmaceutical, behavioral health care, virtual care delivery are great examples of that. And Lance, going to the last part of your question, those services were more likely than not be Evernorth care capabilities that are offered to Cigna Healthcare commercial or Medicare Advantage, but also offered to the open broad marketplace from that same point and customized to the needs of large stand-alone employers, integrated delivery systems and health line clients. So you should expect as those programs continue to grow, they will be Evernorth care programs offer to Cigna Healthcare, but also offered broadly speaking, to the broad addressable market we have outside of Cigna Healthcare through Evernorth.

David Cordani:

Yes. It's great and credit to sneak a follow-on there. So take the second part of your piece, Cigna Medical Group is now Evernorth Care. It's an Evernorth Medical Group, it's rebranded as Evernorth, so it's the actions and the words line up from that standpoint. CareAllies remains currently focused intensely on the Cigna Healthcare portion in the Medicare Advantage portion and the value-based care relationships within our Medicare Advantage are currently in support of the MA only. So 2 different postures given the gestation of those programs, but the Cigna Co. Group is fully functioning as part of the Evernorth care platform today.

George Hill:

Yes. David, most of my questions have kind of been answered. I guess I would come back to the Evernorth segment and focus on the pharmacy network relationships. I guess I would ask, is there anything worth noting or any pressure points there as your pharmacy partners always seem to be under pressure and are looking for us to generate value? As it relates to pharmacy services or clinical value? So I guess just – it seems like we’ve had stability in pharmacy network relationships for a while. Just wondering if there’s anything there to talk about.

Operator:

Our last question comes from Mr. Ben Hendrix with RBC Capital Markets.

Brian Evanko:

It's Brian. So as I think I mentioned in a prior question, the prior year development was not material to our results in the quarter. So you should kind of take that off of the list here in terms of considerations -- and the majority of the strength in the quarter in the medical care ratio was in the commercial employer book of business, which, by definition, would be the risk-oriented products. To your point, there is extensibility to our self-funded clients of course, because the same programs that are in place for our risk book are also utilized by many of our ASO and self-funded clients and the affordability initiatives span the entire Cigna Healthcare segment in many instances. David, do you want to pick up on the traction with the marketplace?

Operator:

I will now turn the call back over to David Cordani for closing remarks.

Operator:

Ladies and gentlemen, this concludes Cigna's Second Quarter 2022 Results Review. Cigna Investor Relations will be available to respond to additional questions shortly. A recording of this conference will be available for 10 business days following this call. You may access the recorded conference by dialing (800) 934-9697 or(203) 369-3395. There is no pass code required for the replay. Thank you for participating. You will now disconnect.

Operator:

Ladies and gentlemen, thank you for standing by for Cigna's First Quarter 2022 Results Review. At this time, all callers are in a listen-only mode. We will conduct a question-and-answer session later during the conference and review procedures on how to enter queue to ask questions at that time. [Operator Instructions] As a reminder, ladies and gentlemen, this conference, including the Q&A session, is being recorded. We'll begin by turning the conference over to Mr. Ralph Giacobbe. Please, go ahead Mr. Giacobbe.

David Cordani:

Thanks, Ralph. Good morning, everyone, and thank you for joining our call today. We're off to a very good start to the year, with the first quarter defined by strong results across both Evernorth and Cigna Healthcare, positive momentum and focused execution, all of which are advancing our strategy and driving growth. We're pleased with our performance overall, specifically, with delivering adjusted EPS above our initial expectations. Today, I'm going to keep my comments relatively brief and focus on some of the key drivers of our performance. Brian will then provide additional details about our financial results and our outlook for 2022 and we'll take your questions. Then on June 3, we'll host our Investor Day, we will provide a deeper level of insights relative to our strategic vision, the growth profile of our businesses and differentiated drivers that will deliver sustained attractive growth. So let's jump in. In the first quarter, we delivered adjusted revenue of $44 billion and $6.01 of adjusted earnings per share. As a result of our strong results this quarter we are now raising our full year adjusted EPS guidance, underscoring our view that we will achieve another strong year of performance for our company in 2022. We also remain on track to generate $12 billion in deployable capital for the year and directing at least $7 billion to repurchase our shares I want to take a minute to thank our team for all their hard work that led disease outstanding results. Our more than 70000 colleagues in the world are committed to delivering our promise in the market day in day out. And as a result expanding our client customer relationships, all of which enables us to grow and deliver strong results for our shareholders. Now let's take a deeper look at Evernorth and Cigna Healthcare platforms and the drivers of their performance. Following an outstanding year of growth in 2021, Evernorth maintained momentum with strong top and bottom line results in the quarter, driven in part by the sustained growth of our Accredo and Scripts specialty pharmacy business which continues to represent one of the fastest-growing parts of our health service portfolio The key driver of this performance is the way in which Evernorth is increasingly resonating with a wide range of buyers including employers, health plans, governmental organizations and health care delivery systems. In an environment, we're getting people the right care and treatment at an affordable price is of paramount importance. I spent meaningful time over the past few months meeting with a number of our clients and partners and they consistently point to the attractive breadth and depth of Evernorth's services and expertise. Our clients rely upon these services and expertise to solve the most pressing health care needs. For some clients, this means tapping into the strength of our pharmacy services. Others that meet me are behavioral health support. With others, the unique specialty pharmacy expertise of the table. More and more our clients are seeking our solutions that leverage our broad high-performing portfolio of capabilities. For example, Evernorth recently launched a new provider consult service for patients with cancer. This service leverages our powerful analytics to identify and connect patients to their oncologists to cancer subspecialty experts and designated National Cancer Institute Centers. And this process enables patients to get access to the latest innovations in research with better health outcomes, lower costs and importantly, keeps the patient's care close to home and their family. This service augments our existing suite of oncology solutions including personalized case management, mental health care, financial support services, pharmacy solutions and collaborative partnerships with oncology providers. Additionally, on the strength of our offerings a couple of weeks ago, we announced a new long-term strategic collaboration between Evernorth and Kaiser Permanente. We're drawing utilities across both Evernorth and our Cigna Healthcare platforms in a way that creates new opportunities for serving a broad range of Kaiser's clients and customers. This builds on our successful relationships for example with Prime Therapeutics and the Department of Defense, both of which were recently renewed for extended track periods. Finally, it's still early in the 2022 selling season but we are continuing to see strong demand for our Evernorth services amongst existing and new clients and additional opportunities to deliver even more value, particularly as we expect more biosimilars to come to market over the coming years and we are seeing strong retention in our Evernorth portfolio of businesses. Turning to Cigna Healthcare, we delivered a strong start to the year. Our medical care ratio during the quarter was 81.5%, which was better than we had projected. This reflects the disciplined and targeted actions we initiated last year to improve our results including implementing new affordability efforts and pricing actions. In US Commercial, we achieved strong membership growth during the quarter with growth across each of our segments. At a time when employers are trying to navigate a complex economic landscape for their businesses and an emotionally taxing environment for their employees, many are turning to us is the right strategic growth partner to improve presenteeism, productivity and health outcomes. Employers tell us that they value the ability of our US commercial teams to partner with them in developing programs that guide employees to the right care at the right place at the right time, programs supporting them and attracting and retaining talent, through strong employer sponsor benefits programs and services, and programs providing greater predictability in managing financial risk for the companies while optimizing their cash flow during these uncertain times. Our International business also contributed to our growth during the quarter as it achieved higher customer retention and membership growth levels. We also remain on track with the divestiture of our International life, accident and supplemental benefits business in certain countries to jump. With our sharpened focus on health services, we continue to see attractive opportunities for serving multinational employers, governmental organizations, non-governmental organizations and the globally mobile population. In our US government business, enrollment was down as expected as we prioritize margin expansion and completed the divestiture of our Texas Medicaid business. We continue to take actions to position our government business for growth in 2023 and over the long-term. Now to wrap up. Our first quarter results are strong. They underscore the momentum we're building as we serve the evolving needs of our customers and clients as well as continue to drive growth and margin improvement in our company. We delivered adjusted EPS of $6.01 and we continue to make strategic investments in our business while paying a meaningful dividend and remaining on path to repurchase at least $7 billion of our shares in 2022. With focused execution we are demonstrating our ability to navigate and lead through this continued dynamic environment for the benefit of all of our stakeholders. And now, with that, I'll turn the call over to Brian.

Operator:

[Operator Instructions] Our first question comes from Mr. Matthew Borsch with BMO Capital Markets. You may ask your question.

David Cordani :

Matthew, good morning, it's David. As I noted in my prepared remarks, we're quite pleased with the start of the year and our full year outlook relative to our commercial portfolio. And the commercial portfolio performed very well across each of the segments National Accounts, Middle Market and our Select segment. And as Brian noted our growth is essentially all ASO self-funded services with our appropriate specialty services are attached to it. I'd highlight a few things. One, strong retention across the block of business. So, we're sought to move forward with some pricing in some of the segments. Two, we've further deepened relationships and we had some wonderful new business adds across the portfolio and notably within the Middle Market. So, headline there is some very good strength across the board from both retention as well as new business adds. And as you noted essentially all self-funded which as you know we really appreciate the self-funded opportunities because we have good alignment, good transparency, and ongoing collaboration with our clients around the program development and the we're able to deliver.

Operator:

Thank you, Mr. Borsch. Our next question comes from Mr. Stephen Baxter with Wells Fargo. You may ask your question.

David Cordani:

Sure Stephen, good morning. It's David. So, a couple of dimensions to your question. First broadly speaking the retention rate -- and I would note that we were quite pleased with the retention rate across the portfolio but specifically in the Select segment where we pushed for a little bit further rate execution on the guaranteed cost or risk side of the portfolio even without our retention rate was a bit stronger than we anticipated showing that our product and our portfolio continues to resonate. Secondly, an ice mix of obviously, retention to achieve the growth we have. We have to have new business growth. That's both in existing relationships expanding to new geographies or subsets of portfolios and new business adds. I highlight as we talked in the prior quarter a very nice large win which shows up in our Middle Market portfolio because it's a locally dense relationship that was achieved through an excellent collaboration between Evernorth and Cigna Healthcare where we had a large long-standing high-performing Evernorth relationship that we're able to introduce the Cigna Healthcare portfolio to and grow from that standpoint. So, retention a bit stronger I would call out the select segment great work that that team is doing retention is strong across the board and new business adds in each of the segments both in existing relationships and new relationships that we added.

Nathan Rich:

Hi, good morning. Thanks for the question. I wanted to ask on Evernorth. Nice revenue performance in the quarter, it sounds like specialty continues to be a tailwind. I guess for the year, can you maybe talk about where the gains in specialty are coming from? Is that, kind of, continuation of maybe some new exclusive relationships on that side? And then given the revenue strength, we didn't quite see flow through to the bottom line. It looks like expenses might have been a little bit higher there. And David and Brian, I think you mentioned some investments. Are those more one-time, or should we think about that as sort of the run rate for SG&A in that segment? Thank you.

Brian Evanko :

Good morning, Nathan. So in terms of the expense growth in the quarter for Evernorth vis-à-vis the revenue growth, and how thinking about the full year there. As you noted, the SG&A was up 13% quarter-over-quarter Evernorth, while the revenue was up 10%. You can think of the expense growth is predominantly fueling future growth within Evernorth. So I mentioned earlier, we're making strategic investments to build out our Evernorth Care platform. When you think about Care management, Care coordination Care delivery, alternate sites of Care. We talked to you about virtual care in the past behavioral health in home care. We're making a series of investments there. That won't just be limited to the first quarter. There will be a multi-year investments to continue to diversify our health services portfolio within Evernorth. But for the full year, importantly, our income for Evernorth will be up 5% from where it was in 2021, and our revenue will be up in that same general zone. So you should not think of margin erosion transpiring for the full year even though expenses grew a bit faster than revenue within the first quarter.

Josh Raskin:

Thanks. Good morning. I was interested in the announcement you mentioned around the cancer console service launch. And can you speak to who the targets are for that product? Is that an internal sales process to your existing health plans? And I guess, more importantly, are there other physician enablement services that you think you can add in the future through Evernorth?

Josh Raskin:

Thanks.

Scott Fidel:

Hi. Thanks. Good morning. Sure this is another topic that you're going to be delving into more at Investor Day. But just interested from this point in time, as we look out to 2023, if you could just give us some updates on how you've been looking to refresh the strategy for MA to resume growth in the market for 2023, especially now that we've got the final rates out which clearly looks pretty solid for the industry?

Operator:

Thank you, Mr. Fidel. Our next question comes from Mr. Steven Valiquette with Barclay. Your line is open. You may ask your question. One moment please.

Brian Evanko:

Good morning, Steve. It's Brian. So, I'll try to tackle both of those questions here. In terms of the medical cost performance in the first quarter, as I noted earlier, we saw some favorability come through in the form of COVID costs in particular compared to our expectations in the first quarter. So both testing and treatment came in a bit favorable to what we had been forecasting for the first quarter of the year. And that was true across the commercial book of business in the most pronounced fashion, but in totality for Cigna Healthcare. As it relates to non-COVID, the non-COVID costs came in essentially right where we were expecting them to, meaning, if you look at it on a cost trend basis, the cost trends compared to the first quarter of 2021 we're very much in line with our expectations in terms of seeing a normal kind of low-to-mid-single-digit type cost trend on the non-COVID services. We're not really seeing any signs of acuity spikes or pent-up demand, emerge things like blood screenings, preventive exams, mammograms, colonoscopies are all in line with where they were in 2019, on a per capita basis. And for that matter really were in 2021 as well. So non-COVID shaping up very much in line with what we had been expecting coming into the year. As it relates to the full year outlook for the medical care ratio, you're right we reaffirmed the 82% to the 83.5% range, despite the first quarter coming in a bit favorable. We felt like just being one quarter into the year. This was a prudent thing for us to do and a prudent posture to take given there's three more quarters and respecting that COVID had a lot of twists and turns over the past couple of years. But it would be reasonable to assume the midpoint of our range maybe shading slightly towards the lower half of the range, as you were thinking about where the full year is likely to shake out based on what we've seen so far.

Operator:

Thank you, Mr. Valiquette. Our next question comes from Mr. A.J. Rice with Credit Suisse. You may ask your question.

David Cordani:

Good morning, A.J., it's David. In some ways it's early -- in other ways, the trend is upon us right? We're seeing the convergence which is a net positive. We think it's a net positive from a -- standpoint relative to the opportunity to further improve affordability. And given our Evernorth model, we have the services with Evernorth and some leverage relative to Cigna Healthcare to really harness this opportunity on a go-forward basis. We don't think there's a single influent point that exists. Maybe that's inferred in your comment. So it's not as though 2023 or 2025 is the single year, we see a ramping of activity. And our teams as you would expect are working class-by-class, drug-by-drug with manufacturers as well as with the programs that we will have in place. And the choices we will be able to offer our clients. I think, very importantly, the consultative nature of the way Evernorth supports our clients will be even more pronounced and more beneficial with the biosimilar trends, as it evolves. As you would expect, given the energy we have relative to our specialty portfolio and its respective traction, this will be an area we’ll seek to amplify a bit more specifically at our Investor Day. But suffice to say, there's not a singular inflection point, 2023 is an important year, with some convergence, but 2024, 2025 begin to ramp and beyond. So we're well positioned relative to that, to improve affordability for our clients and customers and have Evernorth benefit from the value it's creating for our clients, customers and patients.

Operator:

Thank you, Mr. Rice. Our next question comes from Mr. Gary Taylor with Cowen. Your line is open. You may ask your question.

David Cordani:

Good morning, Gary. It's David. Let me start and then ask Brian to talk a little bit more relative to the Evernorth growth framework and why Scripts are, I think, an important example, but given the breadth of Evernorth, no longer the sole example that you should be looking at. Specific to your framing, relative to the current year, broadly speaking, I think, your walk-in faming is right. There was -- we had a little lower retention rate than our historic average and clearly, lower than our phenomenal 2019 and 2020 retention level from that standpoint. Your question, I think, goes to 2023 and as I noted we're positioned to have another strong growth year for 2023 for Evernorth, both on a new business and on a renewal basis. Now specific to PBM, before I transition over to Brian, to talk a little bit more relative to the Evernorth growth, we're right at about a 90% visibility. So about 90% of the books already renewed, which is good at this point, in time of the year and we feel quite strong relative to that. And as we sit here right now, specific to the PBM portion of Evernorth, which is what you're asking about, we expect our retention to be higher than 2022’s retention level and revert back to more of the historic norm of 95% or a bit better from that standpoint. But importantly 90% of the book is renewed and we still have some active selling that sits in front of us right now, because the marketplace continues to be pretty fluid in the current environment. Brian?

Gary Taylor:

Yes. I mean the revenue performance supports it. So, got it. Thank you.

Lisa Gill:

Hi. Thanks very much and good morning. David, I just want to follow-up on Evernorth care capabilities? And how you think about MDLIVE sitting into that? And there's been some pressure in the market when we think about behavioral health. And I've heard you talked so many times about whole person health and really thinking about the integration of the two. But -- how do we think about how Ginger fits into that? And how we think about again Evernorth Care capabilities overall when we think about your offerings going into 2023?

Lisa Gill:

And I'm sure you're going to answer this at the Analyst Day, David but really, the second part of my question was how do we think about this opportunity in 2023? Do you feel that this is driving a bigger market opportunity for you? I know you talked earlier about the cross-sell of Evernorth with Cigna Health but -- any kind of number of a market opportunity you can put around this?

Lisa Gill:

Okay. Thank you so much.

Justin Lake:

Thanks. This is Justin Lake. Did I get in this time?

Justin Lake:

Well, since I can't figure out the mute function I probably should change my name. So look I want to squeeze in two quick questions here just numbers based. One, can you give us a little color on how the rise in interest rates that we're seeing out there could affect you over the next year or two from an earnings perspective? And secondly any help on earnings seasonality in terms of first half, second half would be appreciated? Thanks.

Justin Lake:

Thanks for that.

Kevin Caliendo:

Hi. I just wanted to get a little bit more information on the Kaiser partnership. How that came about? What does it mean? How meaningful can it be? Where can it go in the future?

Q – Kevin Caliendo:

Great. Thanks so much

Kevin Fischbeck:

Okay. Great. Thanks. Just wanted to go into the guidance a little bit. The Q1 beat was a bit stronger than what the guidance increases. I was wondering if you could help us think about how much of the outperformance was just timing versus you using the outperformance to invest in some of the growth initiatives versus any new kind of offsets in the back half of the that you might be thinking of? Thanks.

Kevin Fischbeck:

Is the $0.20 guidance range more in line with the beat in the quarter versus your own expectations, or is there still some conservatism or investment spend delta?

Kevin Fischbeck:

Okay. Thanks

George Hill:

Yeah. Good morning, guys, and thanks for taking this question. I'm going to ask a couple more about Evernorth. Brian, you talked about specialty being 35% of revs less than 1% of Rx. Is any chance you'd give us the adjusted OP contribution? And then David, I would ask you, as it relates to PBM, while we're not seeing a lot of movement at the national level we're tracking a bunch of state regulatory initiatives, which could seem to have a negative impact on the PBM business profitability there. I guess, would just love how you're thinking about that and if you're seeing anything that's kind of raising the caution flag internally that we should be thinking about?

David Cordani:

Sure, George. No doubt, the environment has remained active. As you noted from a state, as well as federal standpoint, we do not see any one item, I think underlying your question do we see any one item or one theme as a de-railer relative to our business strategy or capabilities? No. And more macro, we are aligned around initiatives that seek to further improve affordability. All aspects of what we do day in day out within our pharmacy services portfolio, are to drive the right level of differentiated affordability, of course, with clinical and service quality always matched up against that, and we're quite proud of what we've been able to do. And I would note, just as an example, it seems like just yesterday, but it's actually three years ago, we launched our patient assurance program for insulin customers. And today, we have 10 million customers in the patient assurance program just three years later. And the patient assurance program was uniquely designed at that time, and still differentiated in the marketplace. The caps a 30-day outlay for an individual customer at $25. So more broadly to your question, it is active. We do not see any one item as a rally relative to our strategy rather the breadth of our services, capabilities, funding, mechanisms and our approach relative to integrating services we see as creating more opportunities than not as we seek to innovate and redefine the way we're able to bring those services to market.

Operator:

Thank you, Mr. Hill. The next question comes from Ms. Ricky Goldwasser with Morgan Stanley. You may ask your question.

David Cordani:

Ricky, good morning, it's David. I'll take your first question. I'll ask Brian to take your second question. Specifically, the first question comes back toward care delivery and I think underscoring that is primary care delivery in the marketplace. Our orientation today relative to care delivery more broadly is we seek to own and differentiate in target areas within care delivery. Those areas include virtual care, specialty pharmacy care and services aspects of behavior health care and services, aspects of home health care services. We see these as sustainable differentiated services that can be leveraged and coordinated. And in many cases function on a nationalized basis or a more seamless basis across multiple geographies. As it relates to physical primary care outside of say, virtual care, which would have primary in it, but physical primary care our stated strategy remains, we seek to partner with and enable health care professionals with aligned incentive models in our care coordination services and that continued to perform -- that strategy has continued to perform very well for us both in a capital-light service orientation, but in the shared collaboration as underscored by our sustained differentiated medical cost trend in clinical quality and NPS we've been able to deliver. Lastly, I would say, Ricky that as we've noted in the past, we are willing to own as we do in a select MSA in the Southwest. We are willing to own primary care physical assets. If we conclude that the only way to get the right balance of affordability access and quality is through ownership, but our preferred approach is again to partner and enable and that has served us well for quite some time, while we seek to differentiate ourself in virtual specialty pharmacy behavioral and home care. Brian, I'll ask you to pick up on Humira.

Operator:

Thank you, Goldwasser. Our final question comes from Dave Windley with Jefferies. You may ask your question.

David Cordani:

Dave, good morning, it's David. I'll take both your questions. First, I would not call out the slice phenomenon, whether it's slicing or consolidate as a major driver specifically, as it relates to 2022. The phenomenon transpires as clients look for additional value, and as they seek additional value. I'd underscore though a little bit of a subset here that may be inferred in your question. As we've all learned throughout the prolonged pandemic where people live and work continues to be more fluid than ever. Hence having the seamless network access care coordination and service capabilities that are truly national, and again, seamless remains a differentiator. And like a few -- I'm not going to say, Cigna is no one like a few that proposition I think is even more important today than ever before in terms of supporting the marketplace. But I would not call it the slice phenomenon is unique. As it relates to the Medicaid redeterminations first in our 2022 outlook or our multiyear strategy stand today we do not have a big uptake that would be planned for relative to redeterminations. We do think we'll be a net beneficiary. There'll be some that plays through. And whether it shows up in our IFP or exchange business or in our commercial portfolio through the mechanisms in which people access care or services we do believe that we'll see some opportunity in it but we do not have that factored into our outlook. And we do not believe that you have to be a Medicaid player to benefit from that. We've seen seamlessness of individuals moving over a prolonged period of time even pre-pandemic between programs. So that phenomenon as it relates to the redetermination and the way in which people seamlessly move between either Medicaid and exchange or whether they move between Medicaid through a redetermination now to a broader commercial population we do not see Medicaid as a gate. So that presents some potential upside for us going forward.

Operator:

Thank you, Mr. Windley. I'll now turn the call back over to David Cordani for closing remarks.

Operator:

Ladies and gentlemen this concludes Cigna's first quarter 2020 results review. Cigna Investor Relations will be available to respond to additional questions shortly. A recording of this conference will be available for 10 business days following this call. You may access the recorded conference by dialing 866-357-1405 or 203-369-0111. There is no pass code required for this replay. Thank you for participating. We will now disconnect.

Operator:

Ladies and gentlemen, thank you for standing by for Cigna's Fourth Quarter 2021 Results Review. At this time, all callers are in a listen-only mode. We will conduct a question-and-answer session later during the conference and review procedures on how to enter the queue to ask questions at that time. [Operator Instructions] As a reminder, ladies and gentlemen, in this conference, including the question-and-answer session, is being recorded. We'll begin by turning the conference over to Mr. Ralph Giacobbe. Please go ahead, Mr. Giacobbe.

David Cordani:

Thanks, Ralph. Good morning, everyone, and thank you for joining our call today. As we step into 2022, our clients, customers and patients continue to face a rapidly changing landscape with new COVID variants, changing testing and treatment protocols and pressures on the global economy. Throughout these challenges, we have remained focused on addressing and balancing the evolving needs of all of our stakeholders. As a result, our 70,000-plus colleagues around the world continue to deliver differentiated value for those we serve and also continue to grow our businesses. Today, I'll share a perspective around our 2021 performance and the sustained growth opportunities we see for our organization in the year ahead. And Brian will provide additional details about our 2021 financial results and our 2022 outlook. Then we'll take your questions. With that, let's get started. In 2021, we grew full year adjusted revenues to $174 billion, a second consecutive year of growth above our long-term target. We delivered full year adjusted earnings per share growth of 11% and to $20.47, and we returned over $9 billion to shareholders in dividends and share repurchases. Additionally, we continue to invest in our capabilities to ensure we are positioned for sustained growth in 2022 and beyond. Our growth is and will continue to be fueled by our two high-performing platforms

Operator:

[Operator Instructions] Our first question comes from Mr. Scott Fidel with Stephens. You may ask your question.

Brian Evanko:

Scott, it's Brian. So I'll start with the seasonality component as it relates to the EPS cadence as well as the MCR. For purposes of what we expect relative to quarterly EPS, the 2021 pattern is actually a reasonable starting point as we think about the 2022 quarterly EPS that will emerge for us. And so more specifically, we would expect a little bit less than half to transpire in the first half of the year. And based on what we're seeing so far in January, the impact of Omicron, et cetera, working its way through our book, there's actually quite a bit of resemblance in terms of January 2022 to 2021, which again reinforces that '21 is a reasonable framework to use in terms of what to expect relative to EPS seasonality. As it relates to MCR, the full year guidance, as I indicated, is between 82% and 83.5% for the Cigna Healthcare book of business. So the midpoint of that, you can view as a reasonable starting point for the first quarter. We would expect to run a little bit below that in the quarter just based on, again, what the early read is here in January, coupled with the pattern we saw last year. So again, think of a little bit less than 50% of the overall EPS in the first half of the year, think of the first quarter MCR being a bit below the midpoint of our full year guide for Cigna Healthcare. As it relates to the stop-loss book of business, within the quarter. And importantly, you need to think of this as a full year accumulation product. So what ends up transpiring with this business is over the course of the year, claims are accumulated and then the fourth quarter of the policy period, there's essentially a true-up. And what we had occur in the fourth quarter of this year is particularly the smaller end of our stop-loss book, we had some of the lower attachment points pierced slightly more heavily than we had been anticipating. And so that created round numbers, you can think of it as about $70 million of medical cost pressure in the fourth quarter. Importantly, though, that's an annual number because it reflects the accumulation over the course of the year in 2021. So that $70 million in the fourth quarter is really a full year '21 number. We have assumed that that $70 million pressure will recur in 2022. So we have not assumed that we'll be able to recover that, and that's embedded in our $3.9 billion income guide for Cigna Healthcare. So to the extent we're able to reprice some of the cases with the later effective dates in '22, that could provide some level of upside relative to the $70 million assumption that's embedded in the guidance.

Steven Valiquette:

Thanks. Good morning, everybody. I apologize if I missed the details around this, but just regarding your commercial membership outlook for '22, can you remind us of your assumptions related specifically to potential additional members from the industry shift of Medicaid members to commercial around redeterminations commencing later this year? Thanks.

David Cordani:

Yes, I would say, as I noted in my prepared remarks, within the commercial segment, we're pleased that our full year outlook for 2022 has growth in each of our three employer subsegments. So we're pleased with the outlook as we start the year, and we're pleased with the outlook for the full year.

Operator:

Thank you, Mr. Valiquette. Our next question comes from Mr. A.J. Rice with Credit Suisse. You may ask your question.

David Cordani:

A.J., it's David. Specific to the government expansion, stepping back, first, we continue to see the government space as an interesting and attractive growth space for us. We define that as MA individual exchange, we view as part of the government programs as well as Medicaid when we look at the space more broadly. To date, we focused in terms of using our levers and our focus more heavily on MA and on the individual business. In the end, we're pleased to highlight the fact that within our Evernorth service portfolio, our Evernorth service portfolio continues to be able to expand its Medicaid proposition through servicing health plans and other intermediaries. Additionally, as I noted in my prepared remarks, as we expand our Evernorth service capabilities, we see that as a meaningful value creator to MA, to the individual marketplace as well as to the Medicaid marketplace. And we think all of which are going to continue to evolve and be attractive. Specific to the MA distribution channels, no doubt some headlines have been produced relative to a little different dynamic. And our posture coming into 2022 was that 2022 was going to be a bit more dynamic year from an MA standpoint. Hence, we managed our portfolio to reduce our internal expectations of life growth and focus heavily on margin expansion with an eye toward 2022 - 2023's growth being a more accelerated growth environment. And I think we'll see a little bit more shake out relative to some of the channels that are evolving. For us, our channel traction on our retention has been pretty darn reasonable for 2022. We saw less new business growth year-over-year for Medicare Advantage, and we expected to see less new business growth in Medicare Advantage given our product and our pricing position.

Operator:

Thank you, Mr. Rice. Our next question comes from Mr. Gary Taylor with Cowen. Your line is open. You may ask your question.

David Cordani:

Gary, it's David. Your starting part of your frame is helpful. So when we think about it, we think about National, Regional or Mid and Select. Each of the segments have attractive growth for 2022 with National and Regional having very attractive growth outlook and all being - think about that as all fee-based. Second, to your point, within the Select segment, the Select segment has been and continues to be a very attractive growth segment for us. In any given year, the amount of new business we've written in that segment has varied anywhere between 70% ASO stop-loss and 30% risk to greater than 50% risk and less than 50% ASO stop-loss, it varies. So, we'll continue to write ASO stop-loss within the Select segment, and we'll write some guaranteed cost business in there, no doubt. But the aggregation of all the segments together and the strength of all three segments going to 2022 has a significant portion of our net customer growth being in the fee-based environment.

David Cordani:

Sure, thanks.

Lisa Gill:

Thanks very much. Good morning. David, can you give us some update around the PBM on the Evernorth side as we think about 2022 and 2023? So first off, on 2022, did you see any material changes as we think about contracting or programs that you're offering? And then as we think about the selling season for 2023, I know we're pretty early on, but any insights that you can give us as far as renewals, book of business that's up for renewal or how we think about how your PBM is doing?

Lisa Gill:

Great. Thank you.

Justin Lake:

Thanks. Good morning. I wanted to ask, so you gave us a $70 million number, and it sounds like you're going to reprice fully for that in the stop-loss book. I know in the rest of the - your commercial risk book, you had some issues in 2021, you were repricing some of them in 2022, but not fully. Is there a number that you could share with us that you hope to get back for - in 2022 or 2023 in terms of repricing there so we can think about maybe some of the earnings momentum that we could see ahead as you get those books were priced?

Operator:

Thank you, Mr. Lake. Our next question comes from Mr. Matthew Borsch with BMO Capital Markets. You may ask your question.

David Cordani:

Matt, it's David. So specific to the Medicare Advantage environment for 2022, we were mindful of our willingness to trade, if you will, volume for margin as we're establishing our pricing for 2022, earlier in 2021. Did we have perfect insight? Of course, not, but we were mindful of that. To answer your question more specifically, clearly, when the competitive pricing by market became visible as you get ready to step into the annual enrollment period. We were able to look at market by market. And we're able to broadly see, in most markets, our level of benefit in price point positioning, clicking down one to three notches by market. So that gives you a context. And that's in an environment with the local scale with attractive medical cost configuration and with the Star's rating deep into the 80s. So as we looked at that environment, again, we were mindful of what was transpiring. And at that point, we were able to see that there would be more volatility. As I noted before, we saw reasonable retention, a little bit of pressure on retention, but less new business sales that came through. Now specific to your point, it's early, folks are coming through what was posted last night. But big picture, I put the headline number aside, it looks like a little over 4% net yields for the industry. And our assessment of ourselves, when you look at mix, kind of shaking you through, is about 4% yield with an eye for 2023. We view that as a positive, taking our current proposition, taking our current Star's rating, taking our current Net Promoter Score, taking the geographies we've expanded in and our disciplined orientation of stabilizing the environment for 2022. So we're looking forward to a very attractive growth opportunity for the Medicare Advantage portfolio of business in 2023.

Operator:

Thank you, Mr. Borsch. Our next question comes from Mr. Josh Raskin with Nephron Research. You may ask your question.

David Cordani:

When you think about our inorganic priorities. First, our inorganic priorities augment our organic growth and then our disciplined focus to extending and expanding partnerships and then identifying inorganic opportunities. We have four categories, and I'll come to your core point in a second, four categories of focus

Operator:

Thank you, Mr. Raskin. Our next question comes from Mr. George Hill with Deutsche Bank. You may ask your question.

David Cordani:

So first, just a calibration point, the digital formulary, you made reference to, transpired as we're combined entities. And I think it's a good reinforcement of innovation. So I agree with you using that as an example of innovation. Two, I do appreciate you broadening the leverage and the value creation of digital beyond, although virtual health is massive beyond that. As we look into the organization, we see significant opportunity to leverage digital capabilities beyond. So I'll cite two examples just to be succinct, one of which I made reference to in terms of supporting our customers and patients with specific, highly personalized, immediately actionable information as they make their personal health decisions around consuming care. And I cited an example in orthopedics and musculoskeletal where there is a significant amount of preference and choice that the consumer patient has exercised. And we've learned over time, delivering information that is personalized and actionable at the moment that matters when decisions are being made is mission-critical, and we're able to improve value for that patient through better quality, better affordability and then share some of that benefit back to the client. So that's an example on the care side of the equation. On the administrative side of the equation, we talked about our ability to harness further leveraging the franchise off of shared services as well as our continued growth of our revenue portfolio. A digital-first framework is mission-critical within that. We have the ability to bring more personalized services on the administrative side of the equation, both to our customers as well as to our physician partners, and most of that lies upon a digital-first philosophy and framework and we continue to invest there. On a final note, some of the CapEx that Brian made reference to goes toward both of these dimensions, whether it's in the care enablement side of the equation or whether it's in the administrative service side of the equation. We see it as a meaningful value creator, and I appreciate you calling that out.

Unidentified Analyst:

Hi, this is [indiscernible] on for Ricky. Just a couple of really quick questions. One question about the $119 million charge related to the strategic plan to drive operational efficiencies. Curious, what's the expected size of the cost savings, cadence, timing, is that baked into guidance? And then a second question on the MA rate notice. I know you addressed it a couple of times on the call. But just given how strong it was and '22 membership perhaps falling a bit short of expectations starting flat, any implications to competitive dynamics next year? Is your preference for maybe reinvestment into benefit richness or marketing and distribution channel?

David Cordani:

Sure. And Michael, just transition from Brian's point, I'd point you to the fact that our SG&A ratio for 2021 was a very attractive number and our outlook for 2022 is a further improvement so back to embedded in our outlook as a further improvement to the SG&A ratio. Relative to the Medicare rate notice in the 2023 environment, we view it as just macro positive environment for us to lean into. I think to the core of your question, do we view it negatively or do we have regret relative to our growth posture for 2022 as we look to the rate notice for 2023? My answer to you is yes and no. Clearly, we would like more lives that are sustainable to be able to serve, but we believe being disciplined in this more fluid environment of '21 to '22, what was a better answer and better decision. And I would remind you, we're talking about numbers off of a book of business of about 550,000 lives. So within our portfolio, that's about 10% - 5% of the enterprise revenue, we're able to make those trade-off decisions. Looking to 2023, we see more opportunity, and when we see that opportunity off of our base, we see the opportunity off of our geographic expansion off the last two years, and we see that opportunity being further enabled by the rate environment for 2023; so we're excited by that.

Kevin Fischbeck:

Great, thanks. Maybe just want to follow up with that and maybe broaden it a little bit to the exchanges as well. I guess I understand when you price for margin, you're going to grow below average, but MA is growing high single digits, you're flat. The exchanges is having one of the best growth rates we're probably going to see and you're down. And in both cases, you're expanding geographies. So the other companies who have talked about conservative pricing are still growing. So I just wanted to see a little bit more if you can talk about both MA and the exchanges as far as what gives you confidence that your products are going to be competitive and be able to grow? And I guess when you think about 2023 growth, are you talking about reacceleration off of flattish or are you talking about getting back to industry-level growth rates in those businesses for next year?

Kevin Fischbeck:

Okay, great. Thanks.

Nathan Rich:

Hi, good morning. Thanks for the question. Brian, I just wanted to go back to the MCR guidance for '22. It implies, I think, about 50 to 200 basis points of improvement. You noted utilization now is expected to be above baseline. And I think if I heard you right on the first quarter, MMLR will be up a little bit year-over-year. So could you maybe just talk through the tailwinds that you see over the balance of the year as it relates to MCR?

Nathan Rich:

Thanks. That's helpful.

Stephen Baxter:

Yes, hi. Thanks. Just to follow up on Kevin's question on the exchanges. I guess I wanted to take a little bit more of the short-term orientation about 2022. Obviously, you're working to reprice this business and what remains a pretty competitive and price-sensitive market. So I was hoping you could give us a sense of how much this membership is set the decline in 2022, basically what we're going to see when you report your Q1 results? And then, such - because it's such a big swing factor for 2021, are you expecting this business will be at least breakeven for 2022 within the guidance you're establishing?

David Cordani:

So therefore, margins expanding in the book to your point, not quite at but approaching more reasonably what our target margins are for the book of business, but not quite at that for 2022.

David Windley:

Hi, good morning. Thanks for taking my question. David, I wanted to come back to Medicare Advantage and ask what key levers do you think or what key changes do you need to make in the Medicare Advantage business to enrich benefits for competitive purposes, lower cost structure, in particular, to be profitable or closer to profitable at price points that you're talking about in the current environment? And what might Evernorth - how might you invoke Evernorth to help in that regard?

David Windley:

Got it. Thank you.

Lance Wilkes:

Yes. Hi, good morning. Just wanted to ask a question about outlook for the Evernorth PBM sort of business? And had three components here. One, I was interested in the amount of contribution in '21 and the outlook for '22 and beyond from specialty products going generic and how that's impacting margin? Then on a growth end was interested in what's the further upside with respect to potentially penetrating the Cigna book of ASO business? And then lastly, just on Prime Therapeutics, just interested in what the outlook is as far as renewing that contract? Obviously, you've been expanding and deepening your relationship. But just was interested in kind of how we should look at the security of that?

Brian Evanko:

Yes. Overall, just kind of big picture, specialty generics and biosimilars are both really important mechanisms to drive affordability for our clients and customers over time, as they drive competition. And that's a really important part of the landscape here. And specialty was a meaningful driver of our results in 2021. And it will be in 2022 in the Evernorth space. So, well, I won't specifically size the contributions from specialty generics. It was helpful contributor over a multiyear period now to our ultimate P&L for Evernorth. And as we step into '22, I mentioned in my prepared comments, specialty will drive revenue growth in Evernorth. All in, we would expect our Evernorth growth to be within our long-term targeted growth range, meaning at least 4% revenue growth, powered heavily by specialty. Specialty Generics will be a part of that as will biosimilars and other parts of the drug space. So all in, we would expect Evernorth revenue to grow at least 4% for the coming year, and we expect income growth of 5% with Specialty Generics being a component of that.

John Ransom:

Hey, good morning. Thanks for going a little long, team Cigna. The question I have is if - I know you guys aren't breaking out COVID costs anymore, but if we were to assume more of a normal cost, not trend, but just a cost reset in '23, could you please give a ZIP Code for what that would mean quantitatively?

John Ransom:

And then this is one for David. I mean just strategically, I get to help out our benefit committee and betting vendors and things like that. And so we've been going through this cycle and what strikes me - and we're a pretty large ASO plan, what strikes me is what we're hearing from the consultants that we use as everybody is hot on using these navigators and I know you know they are. And so we're talking about like yet another overlay to sit on top of the PPO, which now needs to become a TPA, so you can steer and then there's quality information. We changed the number on the back of the card. So we're calling the navigator. And the reaction from our management was, gosh, it looks like it could save some money, but why do we need yet another layer on top? Why are the health plans not able to do this with all the reserves and IT and everything that they have it? So I'm just curious, you're a large ASO player. I just wonder what your thought is long-term about supplanting that function? Or do you think that's just - we're just going to add yet another function on top so that we can take three points out of the cost trend?