Q1 2022 Cigna Corp Earnings Call
Ladies and gentlemen, thank you for standing by for Cigna's first quarter 'twenty 'twenty. Two 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 the procedures on how to enter queue to ask questions at that time, if you should require assistance during the call. Please press star zero.
On your Touchtone phone.
As a reminder, Legion, 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. Jacobi.
Yeah.
Thank you good morning, everyone. Thanks for joining today's call are Ralph Jacobi Senior Vice President of Investor Relations are with me on the line. This morning are David Cora, Danny Cigna's, Chairman and Chief Executive Officer, and Brian of Banco Cigna's, Chief Financial Officer.
In our remarks today, David and Brian will cover a number of topics, including Cigna's first quarter 2022 financial results as well as an update on our financial outlook for the year.
As noted in our earnings release, when describing our financial results Cigna uses certain financial measures adjusted income from operations and adjusted revenues, which are not determined in accordance with accounting principles generally accepted in the United States otherwise known as GAAP.
A reconciliation of these measures to the most directly comparable GAAP measures shareholders' net income and total revenues respectively is contained in today's earnings release, which is posted in the Investor Relations section of Cigna Dot com.
We use the term labeled adjusted income from operations and adjusted earnings per share on the same basis as our principal measures of financial performance.
In our remarks today, we will be making some forward looking statements, including statements regarding our outlook for 2022 and future performance.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations.
A description of these risks and uncertainties is contained in the cautionary note to today's earnings release and in our most recent reports filed with the SEC.
Before turning the call over to David I will cover a few items pertaining to our financial results and disclosures.
Regarding our results in the first quarter, we recorded an after tax special item charge of $37 million or <unk> 12 per share for integration and transaction related costs.
Described in today's earnings release special items are excluded from adjusted income from operations and adjusted revenues in our discussion of financial results.
Additionally, please note that when we make prospective comments regarding financial performance, including our full year 2022 outlook. We will do so on a basis that includes the potential impact of future share repurchases and anticipated dividends.
Also our full year 2022 outlook assumes that the pending divestiture of sickness international life accident and supplemental benefits businesses will close in the second quarter of 2022, but does not assume any impact from other business combinations or divestitures that may occur after today.
Finally, I would like to remind you of our upcoming Investor Day on June 3rd in New York City, where we look forward to sharing our strategy and opportunities for sustained success and growth.
With that I'll turn the call over to David.
Thanks, Ralph Good morning, everyone and thank you for joining our call today.
Off to a very good start to the year with the first quarter defined by strong results across both <unk> and <unk> 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 detail about our financial results and our outlook for 2022, and we will take your questions.
And then third we'll host our Investor day.
Prior to a deeper level of insights relative to our strategic vision the.
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 <unk> 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 wanted to take a minute to thank our team for all their hard work that likely these outstanding results.
Our more than 70000 colleagues around the world are committed to delivering on our promise in the market day in day out.
And as a result of 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 Avalon and Sigma healthcare platforms and the drivers of their performance.
Following an outstanding year of growth in 2021 ever North maintained momentum with strong top and bottom line results in the quarter driven in part by the sustained growth of our Accredo and curious 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 everyone is increasingly resonating with a wide range of buyers, including employers health plans governmental organizations and health care delivery systems.
In any 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 evernote services and expertise.
Our clients rely upon the 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. It may be our behavioral health support with others unique specialty pharmacy expertise, we bring to the table.
More and more our clients are seeking our solutions that leverage our broad high performing portfolio of capabilities.
For example, <unk> recently launched a new provider console service for patients with cancer.
This service Leverages, our powerful analytics to identify and connect patients to their oncologist to.
Cancer sub specialty experts and designated National Cancer Institute centers.
And this process enables patients to gain access to the latest innovations in research with better health outcomes lower costs, and importantly keeps the patients care close to home and their family.
This service augments, our existing suite of oncology solutions, including personalized case management medical healthcare 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 ever Northern Kaiser Permanente, we're drawing on capabilities across both <unk> and our Sigma healthcare platforms in a way to create new opportunities for serving a broad range of kaisers 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 contract periods.
Finally, it is still early into 2023 selling season, but we have continued to see strong demand for <unk> services amongst existing and new clients and additional opportunities to deliver even more value, particularly as we expect more biosimilars come to market over the coming years.
And we are seeing strong retention in our <unk> portfolio of businesses.
Turning to the Sigma healthcare, we delivered a strong start to the year, our medical care ratio during the quarter was 81, 5%, which was better than we projected.
This respect reflects the disciplined and targeted actions, we initiated last year to improve our results, including implementing new affordability efforts and pricing actions.
And U S. 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 U S. Commercial teams to partner with them in developing programs that guide employees to the right care at the right place at the right time.
Program supporting them in attracting and retaining talent through strong employer sponsored 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 Chubb.
With our sharpened focus on health services, we continue to see attractive opportunities for serving multinational employers intergovernmental organizations nongovernmental organizations and the globally mobile population.
In our U S 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 are building as we serve and evolving 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 one.
And we continue to make strategic investments in our business.
While paying a meaningful dividend and remaining a path to repurchase at least $7 billion of our shares in 2022.
With focused execution, we are demonstrating our ability to navigate 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 .
Thanks, David and good morning, everyone.
Today I'll review key aspects of Cigna's first quarter 2022 results and I will discuss our updated outlook for the full year.
As David noted we are very pleased with our strong start to the year as first quarter adjusted earnings per share were above our expectations.
This performance combined with our continued momentum gives us the confidence to increase our full year adjusted earnings outlook to at least $22 60 per share.
Representing growth of at least 10% off of our reported 2021 EPS.
Looking at the first quarter, specifically some key consolidated financial highlights include adjusted revenue growth of 8% to $44 1 billion.
After tax adjusted earnings of $1 9 billion.
And adjusted earnings per share of $6 one set.
Regarding our segments I'll first comment on <unk>.
First quarter 2022, adjusted revenues grew 10% to $33 6 billion.
And pre tax adjusted earnings were $1 3 billion.
Both in line with our expectations.
<unk> results in the quarter were driven by strong growth in our high performing specialty pharmacy business.
And a continued focus on delivering lowest net cost solutions for our clients and customers.
We also continue to make meaningful strategic investments for the expansion of client relationships as.
As well as a new solution development and digital capabilities.
These investments ensure the continued differentiation of our scaled ever north businesses.
And support the expansion of our ever North care capabilities.
Overall <unk> continues to perform very well with attractive top and bottom line growth in line with our expectations.
Turning to Cigna health care, which as a reminder, now includes our U S. Commercial U S government and retained international health businesses.
We entered the year prioritizing margin expansion, having taken targeted pricing and affordability actions during 2021 for impact in 2022.
We also expect it to drive customer growth in each of our U S commercial market segments, and we're pleased with how we started the year.
For Sigma healthcare overall first quarter 2022, adjusted revenues were $11 4 billion.
Pre tax adjusted earnings were $1 3 billion.
And the medical care ratio was 81, 5%.
The medical care ratio was better than our expectations in the quarter, primarily due to lower COVID-19 testing and treatment costs.
In January Covid incidents was at its highest level throughout the pandemic the.
The case counts dropped significantly in February and March.
Importantly, even during the January <unk> peak, we observed substantially lower severity than earlier in the pandemic.
And subsequently lower treatment costs.
In total Cigna health Care's earnings exceeded our expectations driven by the favorable medical care ratio.
Strong specialty contributions and net investment income on our alternative asset portfolio.
Net medical customer growth and Cigna health care was also strong as clients and customers continue to recognize the differentiated value we bring as a partner through our consultative approach and our innovative solutions.
We ended the quarter was $17 8 million total medical customers growth of 4% or approximately 700000 customers sequentially.
This growth was driven almost entirely by an increase in fee based customers.
Notably we grew across all of our U S commercial market segments and in International Health.
U S government enrollment decreased as expected inclusive of the divestiture of our Texas Medicaid business.
Overall Cigna health care is off to a strong start in 2022.
For corporate and other operations the first quarter 2022 pre tax adjusted loss was $117 million.
Across the enterprise, we delivered strong first quarter financial results with contributions across our diversified portfolio.
Now with respect to our outlook for full year 2022, our strong start gives us the confidence to increase our full year earnings per share outlook as I will detail in a moment.
At <unk>, we expect continued strong performance with both top and bottom line growth in line with long term targets.
All while continuing to invest in growth and innovation.
And Cigna healthcare, we expect to continue to grow customers, while expanding margins over 2021.
We are raising our medical customer outlook to growth of at least 725000 customers.
And reaffirming our 2022 medical care ratio outlook of 82% to 83, 5%.
For Cigna healthcare in total we now expect full year 2022, adjusted earnings of approximately $3 95 billion.
Yeah.
Taken as a whole we are raising our EPS guidance and now expect consolidated adjusted income from operations to be at least $22 60 per share representing growth of at least 10% over our reported 2021 earnings per share.
Now moving to our 2022 capital management position and outlook.
We expect our businesses to continue to generate strong cash flows and attractive returns on capital.
In the first quarter of 2022, we increased our quarterly dividend by 12% to $1 12 per share.
And year to date as of May five 2022, we have repurchased seven 6 million shares for approximately $1 8 billion.
For full year 2022, we continue.
To expect at least $8 $25 billion of cash flow from operations.
And to deploy at least 7 billion.
To share repurchases.
We now expect full year weighted average shares of 310 to 314 million shares an increase of 2 million shares at the midpoint from our prior guidance Pri.
Primarily due to our updated expectation for the timing of closing the international divestiture.
We now expect this to occur later in the second quarter impacting the timing of our anticipated share repurchase.
As a reminder, the financial performance of this business is included within corporate and other operations until the divestitures complete.
Our balance sheet and our cash flow outlook remains strong benefiting from our highly efficient service based orientation that drives strategic flexibility strong margins and attractive returns on capital.
So now to recap.
Results in the first quarter were above our expectations, reflecting strong contributions across our diversified portfolio.
<unk> continues to deliver strong top and bottom line growth in line with our expectations.
While signet healthcare has had a strong start to the year, giving us the confidence to deliver on our increased 2022 EPS guidance of at least $22 60.
I look forward to continuing to discuss our performance our strategy and our long term financial outlook with all of you at our upcoming Investor Day on June <unk> and with that I will turn it over to the operator for the Q&A portion of the call.
Ladies and gentlemen at this time if you do have a question. Please press star one on your Touchtone phone. If someone asked a question ahead of you you can remove yourself from the queue by pressing star two also if youre using a speakerphone. Please pick up the handset before pressing buttons.
We ask that you. Please limit yourself to one question to allow sufficient time for questions from those remaining in the queue and one moment. Please for the first question.
Our first question comes from Mr. Matthew Borsch with BMO capital markets you May ask your question.
I guess I was hoping you could just talk to the gain on ASO enrollment and how you saw the national account selling season, so I gathered probably as much for middle market. It is as it is from large employers can you just talk to that.
Matthew Good morning, it's David.
Noted in my prepared remarks, we're quite pleased with the start of the year.
<unk> 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 <unk>.
So self funded services with are.
Appropriate specialty services attached to it I'd highlight a few things one strong retention across the block of business. So we're really pleased with our retention rate even as we sought to.
To move forward with some pricing.
Some of those segments too.
<unk> deepened relationships and we had some wonderful new business ads 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 <unk>.
<unk> and ongoing collaboration with our clients around the program development in the program.
Service, we're able to deliver.
Fantastic. Thank you.
Thank you Mr. Borsch. Our next question comes from Mr. Stephen Baxter with Wells Fargo, You May ask your question.
Yeah, Hi, Thanks, I just wanted to follow up on that a little bit, but just love to get a better sense of how that retention rate for the commercial business compared to previous years and then as you look at the.
Growth that you saw I guess I'd love to hear a little bit about any color you have on the split between <unk>.
In group in new clients, and then I guess, how you think about the sustainability of that growth given where you are in the process of rebuilding margin stockholders. Thank you.
Sure Stephen Good morning, it's David So a couple of dimensions to your question.
First broadly speaking the retention rate quite strong.
And now we'd note that we are quite pleased with the retention rate across the portfolio, but specifically in the select segment.
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 candidly a bit stronger than we anticipated showing that our products and our portfolio continues to resonate secondly, and I expect a mix of obviously retention to achieve the growth. We have we have to have new business growth that is both in.
The existing relationships expanding to new geographies or subsets of portfolios and new business adds I'd highlight as we talked in the prior quarter.
A very nice large win which shows up in our middle market portfolio, because its a locally dense relationship that was achieved through an excellent collaboration between <unk> and Cigna health care, where we had a large long standing a high performing <unk> relationship that we're able to introduce a <unk>.
Health care portfolio to and grow from that standpoint so.
Tension a bit stronger I would call out the select segment and great work that that team is doing retention strong across the board and new business adds in each of the segments, both in existing relationships and new relationships that we added.
Thank you Mr. Baxter. Our next question comes from Mr. Justin Lake with Wolfe Research. Your line is open you may ask your question.
Mr. Like your question. Your line is open you may ask your question.
Yes.
Please check your mute feature.
We'll go on to the next question. The next question comes from Mr. Nathan Rich with Goldman Sachs. You May ask your question.
Hi, good morning, Thanks for the question.
I wanted to ask on an ever north.
Nice revenue performance in the quarter it sounds like especially continues to be a tailwind.
For the for the year can you maybe talk about where the gains in specialty are coming from is that you know kind of continuation of you know maybe some new exclusive relationships.
On that side and then <unk>.
Given the revenue strength.
We didn't quite see the 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 or 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.
Good morning, It's David Let me take the first part of your question and I'll ask Bryan to take the second part of your question.
As you called out the specialty performance within <unk> continues to be quite strong.
We're really pleased with the performance of our overall portfolio and specifically specialty as you note.
We remind you that our specialty portfolio serves multiple segments, specifically accredo think about that is serving individual direct patient needs on a highly focused basis, including in home care coordination.
Appropriate and then cure scripts supporting medical professionals by delivering.
Right right drug at the right time for purposes of their services and their needs.
Also note that as you would expect our team is quite excited about and well positioned for.
The accelerating biosimilar trend that we see in front of us for.
For the coming years and were success in the Biosimilar space will require not only strong performing specialty capabilities.
In terms of the breadth of the specialty capabilities, but high coordination on the medical side of the equation because those decisions as you know are typically made.
One patient at a time in terms of coordinating the transition of care where appropriate.
The lessors are perfect match from that standpoint, so strength in both the consumer part of our specialty portfolio as well as the health care professional part of our specialty portfolio and well positioned for evolving biosimilar acceleration as we go forward leveraging our specialty capabilities as well as our medical capabilities I would not call out any unique.
Drug class changes.
As a driver of growth, but let me transition to Brian and to expand on that in the second part of your question.
So in terms of the expense growth in the quarter for <unk>, the revenue growth and how we're thinking about the full year. There as you noted the SG&A was up 13% quarter over quarter never north while the revenue was up 10%.
You can think of the expense growth is predominantly fueling.
Future growth within ever North So I mentioned earlier, we're making strategic investments to build out our north care platforms. When you think about care management care coordination care delivery alternate sites of care, we've talked to you about virtual care in the past behavioral health and home care, we're making a series of investments there that will just be limited to the first quarter there'll be a multi.
Year investments to continue to diversify our health services portfolio with an ever north but for the full year importantly, our income forever north 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.
Thank you Mr. Rich. Our next question comes from Mr. Josh Raskin with Nephron Research you May ask your question.
Thanks, Hey, good morning, I was interested in that recent announcement you mentioned around the cancer cancer console service margin 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 <unk>.
Josh Good morning, it's David.
First relative to the space and really appreciate you re amplifying the.
The oncology opportunity.
As we know.
The volume of oncology needs in the United States other markets as well, but in the United States continues to grow and we're really pleased with the.
The innovation that is taking place so we're taking an analytical approach to.
To identify individual patients. So the target market are individual patients that we serve today, so think about that through either cigna healthcare and our diverse Sigma healthcare relationships.
And increasingly going forward, a service that will be able to be offered to our.
Health plan clients as an example, as a consult to bring that level of precision identify individual patients who in coordination with their specific oncologists. So analytical matching of the patient their oncologist, we determined that by matching them to a center of excellence and bringing the console precisely.
Back to the patient with her oncologist, we could advance quality affordability and the overall care equation without in many cases needing to have the patient.
<unk> themselves to the center of excellence. So it's an example of bringing the precision to by using the data and the care coordination.
Partnerships. So the target audience is individual patients largely through our Sigma healthcare portfolio through the rollout that's taking place right now, but increasingly as an <unk> service be able to be offered to our health plan clients and others and then secondly, if I heard your the latter part of your question correctly think about these types of approaches as indicative in weeks.
About what Brian made reference to in terms of ever north care opportunities to again curate and coordinate more of the care equation using data and then the breadth of care to bring more services forward.
We will seek to provide some additional insights relative to at our Investor day. Some additional programs that will be rolling out in this year not oncological based but taking a similar harnessing of data and real time service delivery really appreciate your question.
Thanks.
Thank you Mr. Raskin. Our next question comes from Mr. Scott Fidel with Stephens. Your line is open you may ask your question.
Hi, Thanks, good morning.
So this is another topic that youre 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 have been looking to refresh the.
The strategy for MA to resume growth.
In the market for 2023, especially now that we've got the final rates out which looks pretty solid for the industry.
Scott Good morning, you're right, we will cover that in June , but let me just profile the broader direction.
First and foremost we continue to see our government segment, specifically within that Medicare advantage as a very attractive sustained growth opportunity in 2022 were in year three of our expansion and growth initiatives and while clearly 2022 was well short of our specific growth algorithm for a variety of reasons, including market conditions.
<unk>, our three year average growth, which is a bit below our low end of our strategic range now specific to 'twenty. Three we are building our plants on initiatives specifically to drive attractive growth in 2023, well profile a little further we will leverage our strong stars positioning our NPS positioning in our overall medical costs.
In our targeted Msas and I would remind you that we are largely an individual HMO and individual PPO oriented organization too.
We will demonstrate at Investor day, but we will our plans we're building on harnessing now some of the investment we've made in terms of our market expansions over the last couple of years, whereby the early yield contraction in market expansion as low in year, one but by the time, we get out to year, three we have higher expectations targeted investments in marketing and distribution and then importantly.
We expect in 2023 to begin to realize more yield.
Our commercial agent population in PDP and med sub conversion opportunities that sit in front of us. So specifically our expectations will be and we're building our plans around an attractive growth year for 2023.
Thank you Mr. Fidel our next question comes from Mr. Steven Valiquette with Barclays. Your line is open you may ask your question.
Great. Thanks, good morning, everybody so rich.
Regarding the medical cost trend is there any further color on the pace of traditional non COVID-19 utilization trends versus baseline.
Exiting the first quarter and into the second quarter.
Also I'm curious whether it was there any thought to narrowing the top end of the MLR guidance range of 22, just given the better than expected <unk> MLR result, thanks.
Good morning, Steve It's Brian .
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.
That was true across the commercial book of business. Most it most pronounced fashion, but in totality for signet healthcare as it relates to non COVID-19. The non Kobe cost came in essentially right, where we were expecting them to meeting if you look at it on a cost trend basis to cost trends compared to the first quarter of 'twenty, one where we're very much in line with our expectations.
Patients in terms of seeing a normal kind of low to mid single digit type cost trend on the non Covid services.
Not really seeing any signs of acuity spikes or pent up demand emerge things like blood screening preventive exams Mamograms colonoscopy are all in line with where they were in 2019 on a per capita basis and for that matter, where they were in 2021 as well so non COVID-19 shaping up very much in line with what.
We had been expecting coming into the year.
It relates to the full year outlook for the medical care ratio, you're right. We we reaffirm the 82% to 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.
Prudent posture to take given there is three more quarters and respecting that Covid has 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. If you were thinking about where the full year is likely to shake out based on what we've seen so far.
Got it okay. Thanks.
Thank you Mr. Valiquette. Our next question comes from Mr. A J rice with credit Suisse. You May ask your question.
Hi, everybody.
Maybe I'll just ask you about the Biosimilar opportunity I know that is out there, but it's a little bit difficult to quantify what it might look like I guess can you give us any update on the ongoing discussions youre, having with the various <unk>.
Players and whether Thats provided any clarity and your mud. When do you think you will get a sense of what the opportunity might be both forever north it I guess to some degree even with the benefits business.
Good morning, a J it's David.
In some ways, it's early in other ways.
And is upon US right, we're seeing the convergence, which is a net positive we think its a net positive from a societal standpoint relative to the opportunity to further improve affordability and given our <unk> model, we have the services within <unk> and some leverage relative to Sigma healthcare to really harness this opportunity on a go forward basis.
We don't think Theres, a single inflection point that exist maybe that's inferred in your comment so is that a <unk> 23 or 25 is the single year, we see a ramping of activity and our teams as you would expect our 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.
Consultative nature of the way <unk> supports our clients will be even more pronounced and.
And more beneficial with the Biosimilar trend as it evolves as you would expect given the energy we have rolled into our specialty portfolio and its respective traction. This will be an area, we will seek to amplify a bit more more specifically at our investor day, but suffice to say there is not a singular inflection point 23 is an important year with <unk>.
Some convergence, but 'twenty four 'twenty five begin to ramp and beyond so we're well positioned relative to that to improve affordability for our clients and customers.
<unk> <unk> benefit from the value, it's creating for our clients customers and patients.
Okay. Thanks, a lot.
Thank you Mr. Rice. Our next question comes from Mr. Gary Taylor with Cowen. Your line is open you may ask your question.
Hey, good morning.
Wanted to ask a little bit more about TVN when we look at the adjusted claims down 2% year over year.
A couple of questions I don't think vaccines, where yet material to the prior year. So I just wanted to see if that was mostly just the health plan losses impacting that it wasn't related to vaccines and then a few months ago. When you were asked about pbms selling season, obviously was very early it's still early but you had said you expected at least similar.
If not better retention than 'twenty, two which I think was mid Ninety's and just wanted to see if there was.
Any update to that thinking.
Good morning, Gary It's David Let me start and then ask Brian to talk a little bit more relative to the the everyone with growth framework.
Why scripts are I think an important example, but given the breadth of <unk> no longer the sole example.
You should be looking at specific to your framing relative to the current year broadly speaking I think youre youre walking framing 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 <unk>, both on a new business on a renewal basis now.
Now specific to <unk> before I transition over to Bryan to talk a little bit more relative to the economic growth.
We're at about a 90% visibility to about 90% of the books already renewed which is good at this point in time of the year and we feel quite quite strong relative to that.
As we sit here right now specific to the Pbms portion of everywhere, which is what you are asking about.
We expect our retention to be higher than 2020 twos retention level.
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 .
Good morning, Gary back on the first part of your question in terms of the first quarter 'twenty to script volumes and such I think your macro conclusion is right in terms of the scripts being down 2% is largely a function of the client wins and losses and the net effect of that the vaccines were pretty flat year over year. If you look at the first quarter 'twenty two versus first quarter <unk>.
One within a $1 million or so scripts. So that's really not a material driver quarter over quarter importantly, though as David pointed out here as each day passes the total script count metric becomes less and less important to measuring <unk> overall performance, what do I mean by that as we have more and more volume coming through our specialty pharmacy.
As we have more and more volume coming through our care platform Youre going to see more earnings and more revenue associated with things that are not directly linked to script. So as an example within specialty.
Especially just crossed over the 35% Mark in terms of contribution to overall <unk> revenue, but it represents less than 1% of our overall prescription volume so over 35% of the revenue less than 1% of the prescriptions.
Then just that metric I would encourage you to gradually move away from when Youre looking at the health of the business in totality.
Yes, I mean, the revenue performance supports it got it thank you.
Thank you Mr. Taylor. Our next question comes from MS. Lisa Gill with Jpmorgan you May ask your question.
Thanks, very much and good morning.
David I just wanted to follow up on every yard care capabilities and how you think about NBA live fitting into that theres been some pressure in the market. When we think about behavioral health and I've heard you talk 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 ever north care capabilities overall.
When we think about your operating its going into 2023.
Good morning, Lisa good to chat with you. This morning, So theres a couple of different I think flavors to your question, let me try to try to be succinct as I can with them first.
The whole person health for the course coordination of care and services remains mission critical and as we've learned as a society has been amplified in this COVID-19 environment. So first by way of background. We continue to expand access to behavioral services, whether it's expanding our network in a traditional sense, whether it's expanding.
Expanding behavioral services through virtual care, whether it's being the first have virtual care capabilities be covered as in network services through the likes of Ginger.
But then the next step is how do you coordinate point solutions like that and bring them together and so let's walk that across MD life MD life is a great example, and we couldnt be more pleased by having that asset as part of the company to be able to innovate off of because MD life underscores is assemble our view and commitment that hard.
<unk> technology and data to bring more services on a real time highly personalized basis to a patient or individual presents one of the Vegas opportunities in front of our society for the coming years, and specifically as you take virtual care and you coordinate medical behavioral pharmacy services et <unk>.
Cetera, and coordinate those services.
<unk> benefit at a significant level as we click down another notch, we've seen some disruption in the marketplace, but I would remind you that our model is not a BDC model dependent upon BDC activation only building off of triage.
Ours is more b debate and then cultivating the relationship with the customer whether it's through an employer or health plan or health care professional organization and then at the end with the facts to underscore RMB live volumes year over year Q1, 2021 versus Q1 2022 were up about 29% so.
An area, where we have significant conviction being able to begin coordinate point solutions as opposed to just push point solutions and having it be highly patient centric and real time represents a tremendous opportunity and we're pleased with our progress thus far.
And I'm sure you can answer this at the analyst day, David but it's 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 every art with the Cigna health.
Any any kind of number of the market opportunity you can put around that.
Yes, so Lisa Im sorry, I didnt touch upon that.
We will touch upon that at Investor day So.
I'm just trying to what your appetite by saying absolutely we see tremendous opportunity. So when you think about it the leverage between <unk> and Cigna healthcare portfolio, we already have significant proof points contraction relative to that and there is more opportunity that Eric.
Our colleagues will walk through when we're at Investor day, but.
But importantly, those services are not limited to Sigma healthcare everything we're building within <unk> is built with an eye toward yes, Sigma healthcare as a client and to improve quality and affordability and we'll walk through proof points relative to that but simultaneously to be able to bring it to market to standalone employer relationships that <unk> serves.
Our health plan clients.
Delivery systems et cetera on a go forward basis. So we see that addressable market underscoring your point to be quite broad quite large in terms of what we're building and the ability to improve affordability personalization and clinical quality, whether its for Sigma healthcare or other relationships presents a tremendous opportunity and we will amplify that in Investor day.
Great. Thank you so much.
Thank you Ms. Gill. Our next question comes from Austin <unk> with Wolfe Research you May ask your question.
This is Justin Lake.
Did I get it at this time.
You asked me in your life, but you have different names. So you have an alias this morning, it's good to hear your voice.
Since I cant figure out the mute function I, probably should change my name.
So look I want to squeeze in two quick questions here just numbers basis. One can you give us a little color on how the rise in interest rates that we're seeing out there or could affect you over the next year or two from a from an earnings perspective and secondly.
Any help on earnings seasonality in terms of first half second half would be would be appreciated. Thanks.
Good morning, Justin it's Brian in terms of interest rates. The macro conclusion, you should draw as you think about Cigna is directionally positive when interest rates move up but also not terribly material in the Grand scheme of things in terms of the direct quantifiable impact the majority of our balance sheet, whether you look at.
The asset side of the liability side is in fixed rate longer term instruments and those that are shorter term in nature or carry a variable rate we tend to have them on a net basis slightly more exposure on the asset side and the liability side, which create some favorability in terms of the <unk>.
<unk> income spread and such but in terms of dimension that you shouldn't think of this as terribly material in the call it $20 million to $30 million range annually. If you were to look at a 100 basis point move in rates.
Order of magnitude.
As it relates to the earnings seasonality.
In EPS terms.
Given the strength of the first quarter, you should think of the overall first half of the year is generating about half or roughly half of the full year earnings per share emergence and then in the back half of the year, we tend to see the fourth quarter as a lower point relative to the third quarter, just given the seasonality in there.
Cigna Health care book of business, where deductibles and out of pocket Maximums tend to be met more frequently. So you should think of third quarter being a little bit stronger than the fourth quarter.
Thanks for that.
Thank you Mr. Lake. Our next question comes from Kevin Kelly Endo with UBS you May ask your question.
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.
Good morning, Kevin It's David.
Before we get into.
Hydro opportunity, which I will remind you that we talk about our strategic imperative in the company that we referred to our objective as we seek to be the undisputed partner of choice why do we say that because we are guided by a tenant.
Suggest that if we could identify alignment with potential partners, which I'll come back to Kaiser we could have the opportunity together to create more value more reach more service more affordability more clinical quality so specific to Kaiser.
Fits into the category and we could not be more excited and pleased with the opportunity to partner up with Kaiser Permanente. It represents a multi year strategic relationship.
Are we together can improve access.
Through value and affordability and as I noted in my prepared remarks, it builds on our successful track record with organizations like Prime Therapeutics, we're looking at a totally different organization with the department of Defense, where we successfully renewed both prime therapeutics into the department of defense and expanded both relationships are recently, you PMC et cetera. So it's an Oreo.
Patients relative to collaborating in a different way and leveraging not only avenue its capabilities, but in many cases, the sigma healthcare capabilities. So as it relates to the core of your question in 2022.
I would not view it as a major topline or bottom line driver given the size and breadth of our corporation, but as we've proven with other relationships, we see as an opportunity that will have significant and attractive growth.
Over the coming years, as we collaborate together and co innovate together for both topline and Bottomline, which we'll be reinforcing of growing and deepening our relationship. So I'd ask you to put it in the category of a an orientation and a long track record of successful partnerships and we could not be more pleased.
The partner applicator permanent and build some shared capabilities and innovation to serve.
Irons and customers with better affordability and reach many clinical quality.
Great. Thanks, so much.
Thank you Mr. Kelly Ando. Our next question comes from Kevin Fischbeck with Bank of America, You May ask your question.
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. So I wonder if you could help us think about how.
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 year that you might be thinking about thanks.
Good morning, Kevin It's Brian .
Obviously, we're really pleased with having such a strong start to the year one thing I would note is.
I saw some of the early headlines here in the morning, our own expectations were a bit higher than consensus for the first quarter. So we had a slightly different quarterly pattern. As you think about the magnitude of the first quarter beat we were ahead of our own expectations as I mentioned earlier as well, but just not to the same tune as where I think the street had.
And then for the first quarter expectations, but as you think about the balance of the year Theres really nothing specific I would call out in terms of things that will reverse later or looming issues that might emerge in the second half of the year as you alluded to we just feel this is a prudent posture to take being just one quarter into the year to raise by 'twenty.
And keep in mind, that's in at least.
$22 60, EPS expectation for the year as always we will also evaluate additional strategic investments as the year unfolds and digital capabilities and other technology that we're looking to bring to market, but again, there's nothing in particular I'd flag as you think about the balance of the year.
Is that plenty of times guidance rates more in line with the beat in the quarter versus your own expectations or was there still some conservatism or investment spend.
Okay.
As I said earlier, we think this is just a prudent move at this at this point in the year. We were pleased in particular with Cigna healthcare being above our expectations.
Okay. Thanks.
Thank you Mr. Fischbeck. Our next question comes from Mr. George Hill with Deutsche Bank, You May ask your question.
Yes, good morning, guys and thanks for taking the question I'm going to ask a couple more about <unk>.
Ryan you talked about specialty being 35% of revs are less than 1% of Rx is any chance you would give us the adjusted op contribution and then David I would ask you as it relates to ppm, 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 <unk> business profitability.
There I guess would just love, how you're thinking about that and if youre seeing anything.
Raising caution flag internally that we should be thinking about.
Good morning, George It's Brian I'll start on the first point and then David I'll pick up on the on the second.
Do you think about our specialty pharmacy business again, we continue to be really pleased with the performance over a multiyear period here, we've had really attractive top and bottom line growth and with Biosimilars coming at all it will provide some further fuel as we look forward Directionally that you should think of the margin profile on the specialty pharmacy as being not tremendously.
Different than the overall segment and just if you were to sum up the tapes.
But importantly, there is some.
Scrambled eggs. If you will when you think about many of our client relationships are not specific to just specialty or just TBM are just mail order. So we tend to look at overall client profitability and not just necessarily one silo within ever north, but you Shouldnt think of it as being terribly different than the overall segment margin profile, David you want.
Pick up on the second piece of George's question sure George.
No doubt the environment has remained active.
You noted of the 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.
A derail their 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.
Is 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 it.
And I would note just as an example.
It didn't seem to do it 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 of 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 is really 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 opportunity than not.
Seek to innovate and redefine the way, we're able to bring those services to market.
That's helpful. Thank you.
Thank you Mr Hill. Your next question comes from Mr. Ricky Goldwasser with Morgan Stanley You May ask your question.
Yeah, Hi, good morning.
They are two quick ones here.
First of all David as we think about sort of your.
Karen deliver any strategy on primary care.
Any given where sort of market valuations right now.
Any appetite to complement your current assets with M&A or do you think that you have.
The what do you need in terms of.
From now on you're going to build organically and then just on the Biosimilar and specific to Humira.
In spite of specialty pharmacy.
Think about the Biosimilar introduction in the bio equivalent in 2023 is this embedded into your long term targeted.
Targeted adjusted earnings growth of 4% to 6% for a fair north or does it represent some upside optionality, depending how the market plays out.
Ricky Good morning, It's David I'll take your first question and I'll ask Bryan to take your second question. Specifically your first question comes back toward care delivery and I think underscoring that his primary care delivery.
In the marketplace, our orientation today relative to care delivery more broadly as we.
We seek to own and differentiate in targeted areas within care delivery.
Those areas include virtual care.
Specialty pharmacy care and services.
Aspects of behavioral 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 more seamless basis across multiple geographies.
As it relates to physical primary care outside of say virtual care, which would have primary and if a physical primary care. Our stated strategy remains we seek to partner with and enable health care professionals with aligns incentive models and our care coordination services and Thats continued to perform very that's strategies continue to perform very well.
US both on a capitalized 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 out 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.
Your 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 yourself and virtual specialty pharmacy, behavioral and homecare Bryan I'll ask you to pick up on Humira.
Good morning, Ricky so in terms of Biosimilars and how we think about humira relative to the long term, 4% to 6% expectation we're at a bit of an inflection point right now because we're getting ready for some acceleration in the Biosimilar market as you know over the next two to three years as David talked about this in response to an earlier question, but even humira alone still or are those two <unk>.
<unk> by themselves represent about 20% of total specialty spend so the next two to three years will be very telling in terms of.
How much interchange ability comes to market, how much we're able to move customers over et cetera, and we're very excited about the prospect to generate affordability for benefit of our clients and customers and ultimately capture a piece of that value in terms of our economic model it'll be just four weeks from today actually we have our investor day and in that time period, Eric Palmer is going to spend a little.
More time talking about Biosimilars, and how that links into our financial picture. So I don't want to necessarily front run that conversation, but we'll give you more detail at that time in terms of how to think about that contextually in the in the sense of our longer term of our north growth expectations.
Thank you Ms. Goldwasser. Our final question comes from Dave Windley with Jefferies. You May ask your question.
Hi, Good morning, Thanks for taking my question I have a two parter on commercial membership I'm wondering if consolidation of slice business is a theme in your target customer base. If you are seeing that and if.
Cigna is or can be a beneficiary of that and then I'm also wondering as Medicaid redetermination.
Turn on presuming, they do Ken Cigna be a beneficiary or catch.
Medicaid members moving into commercial or are they or is that difficult because you don't have them in the Medicaid book.
Hey, good morning, it's David.
I'll take both your questions first.
I would not call out the slide phenomenon, whether its slicing or consolidating as a major driver specifically as it relates to 2022.
Phenomenon transpires as clients look for additional value.
And as they seek additional value.
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 Nash.
National again seamless remains a differentiator.
And like a few let's say signals one of unlike 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 redetermination.
First in our 2022 outlook or our multiyear strategy and stand today, we do not have a big uptake that wed be planning for relative to the Redetermination. We do think it will be a net beneficiary. So there'll be some of that play through and whether it shows up in our ISP, our exchange business or in our commercial portfolio.
Through the mechanisms in which people access care services, we do believe that we will 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.
<unk> 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.
Alright, thank you.
Thank you Mr. Windley I'll now turn the call back over to Steve <unk> for closing remarks.
We again, thank you for joining us on our call today, just to reinforce a few points. We achieved strong results in the first quarter and we're stepping into the rest of 2022 with momentum. We're confident that we will deliver our increased EPS outlook of at least $22 60 for 2022, our performance is a direct reach.
<unk> of the hard work dedication and passion of our more than 70000 coworkers across our company who work every day to change People's lives for the better. Our actions are also guided by our drive to make health care more affordable predictable and simple for our clients and our customers as well as our patients. We look forward to talk to you more next month.
At our Investor day about our vision for the future and the progress we are making in driving a meaningful impact for those we serve as well as our long term sustained growth outlook I hope you have a great rest of your day.
Ladies and gentlemen, this concludes cigna's first 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 8663571 <unk>.
0542033690111, there is no pass code required for this replay. Thank you for participating we will now disconnect.