Q1 2023 Cigna Corp Earnings Call
Ladies and gentlemen, thank you for standing by for the segment groups 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.
If you should require assistance during the call. Please press star zero on your Touchtone phone.
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 Jacobi. Please go ahead.
Great. Good morning, everyone. Thanks for joining today's call I'm, Ralph Jacobi Senior Vice President of Investor Relations with me on the line. This morning are David core Danny the Cigna group's chairman and Chief Executive Officer, and Brian <unk> Chief Financial Officer.
In our remarks today, David and Brian will cover a number of topics, including our first quarter financial results and our updated financial outlook for 2023.
As noted in our earnings release, when describing our financial results, we use 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 the Cigna group 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 2023 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 results and uncertainties is contained in the cautionary note to today's earnings release and in our most recent reports filed with the SEC.
Regarding our results effective January 1st 2023, we adopted amended accounting guidance for long duration insurance contracts L. DTI and related amendments are 2023 full year outlook included the impact of L. DTI and prior results have been restated to reflect this change there has been.
No material impact to our prior results and this change will not materially impact our future operating results.
Additionally, please note that when we make prospective comments regarding financial performance, including our full year 2023 outlook. We will do so on a basis that includes potential impact of future share repurchases and anticipated 2023 dividends.
With that I'll call turn the call over to David.
Thanks Ralph.
Good morning, everyone and thanks for joining today's call.
We begin 2023 with momentum in the first quarter, we again delivered strong performance and continued our long track record of innovating for our customers clients and partners.
Today I'll discuss some of the key drivers fueling our growth during the quarter and I'll also talk about how we are leading the way to address evolving stakeholder needs with a flexible and agile model, providing multiple avenues to deliver and capture value.
Specifically I'll describe how the durable and flexible pharmacy benefit services, we offer continue to thrive in the marketplace.
Brian will provide additional detail about our financial results and discuss our outlook for 2023, and then we'll take your questions with that let's get started in the first quarter, we delivered $46 5 billion and total revenues.
$5 41, and adjusted earnings per share.
And we are raising our full year 2003 guidance for adjusted EPS revenue and customer growth.
We are pleased with the strong start across everyone's health services and Sigma healthcare and we look forward as we look forward. We expect another very good year for the second group.
Ever notice comprising pharmacy benefit services specialty pharmacy, you never know occur again contributed strong growth, while retaining expanding and winning new relationships with employers health plans and governmental organizations we serve.
Our foundational pharmacy benefit service business continued its strong performance demonstrating the value we provide to our clients and patients.
Specialty pharmacy, which accounts for approximately 40% of <unk> total revenue drove outsized growth with a continued rise in new to market specialty drugs and increasing demand.
<unk> represents one of our most significant long term growth opportunities given the growing needs and virtual care as well as for example payroll services.
It took the healthier 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're 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.
Portability initiatives continued 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.
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 expand into.
And the dynamic individual exchange market. We also had substantial growth in our individual and family plan business, allowing us to bring Cigna health care capabilities to a larger customer base.
And international Health our earnings growth has been strong for the past few years, and we expect positive topline 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.
We didn't want to spend a few minutes on express scripts, our pharmacy benefits business within Evercore <unk>.
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 an impactful role in the Taiwan in medical care physical or behavioral are increasingly relying on the use of pharmaceutical interventions. It is also important to recognize that successful care coordination programs for pharmacy services, often creates significant benefit and value.
For the medical services.
We recognize the ongoing attention and legislative debate regarding the rising cost of prescription drugs.
We are taking an active leadership role and I want to be clear about how we're 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.
We continue to build on our long track record of innovation to drive greater affordability access transparency and improve clinical outcomes.
Stepping back our pharmacy benefit service business is achieving attractive growth because we were 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 a proven model express scripts client retention rates are consistently in the mid nineties are higher and we've been able to continuously grow our pipeline and win new business for medium sized to the largest employers.
From a 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 customers and customers, particularly as it relates to financing models, which are key areas of focus for some of the current legislative proposals.
The script express scripts business model starts with a commitment to enabling and prioritizing choice in benefit design and financing options for clients, who are the primary finances of employee benefit programs.
This includes providing the option to finance the cost of their programs by allowing us to share in the discounts we secure on their behalf.
Rebates or spread pricing.
Our clients choose amongst these models based upon their needs for managing risk and greater predictability for their pharmacy costs as well as the cash flow.
For context across the breadth of our express scripts pharmacy benefit service portfolio today over 95% of rebate dollars are pass 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 rebates sharing worst spread pricing generates a stronger level of aligned 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 clients, we serve and increase the cost 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 were able to create value through the breadth of our capabilities from supply chain to benefit design.
Driving competition amongst drug manufacturers to bring cost down and.
And deliver better health outcomes through our clinical programs.
One area of focus for multiple stakeholders has been the amount of income we earn for rebate retention and retail spread.
To put this in context.
We expect about 20% of ever notes 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 agronomic 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 is these programs decreased further overtime fee based income would increase.
Therefore, we are confident that if some of these payment vehicles were reduced or removed a regulatory change or client preference express scripts has a broad set of capabilities that create value and we will continue to earn an attractive return.
Let me provide some specific examples that reinforce our flexibility and durable model and.
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 clear care Rx Bowlby demonstrates the flexibility we have for prescription drug benefits, where clients pay exactly what express scripts pays pharmacies for prescriptions.
I receive a 100% of drug rebates at express scripts obtained by reducing the pharmaceutical companies.
Hey, one service fee to cover the administration of a pharmacy benefits product services reporting analytics and the programs 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 interest rates and patient outcomes.
Additional steps to drive even greater transparency include providing clients with enhanced financial and fee 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 and our quarterly regulatory filings and on our new micro site.
We will also offer a new digital pharmacy benefit statement for customers starting in 2020 for this 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 are fully aligned with lowering cost of prescription drugs for customers. For example express scripts patient assurance program March in 2019 cap out of pocket costs for eligible members of select diabetes <unk> 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're taking further action to cap out of pocket cost 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 pharmacist in rural communities across the United States.
We are offering increased reimbursement to true independent pharmacists.
We are partnering and opportunities to expand our clinical practices to further support care needs of the local communities, where also convening an advisory committee of community pharmacies.
These initiatives will encourage better tier expanded access to lower prices for rural Americans as well as increasingly 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.
I recognize our commitment as a leader and trusted partner that continues to create value through our deep expertise in designing programs for a 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 health care 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 the ability to choose the appropriate use of.
Programs that work best for the business as we help to lower costs.
And we're continuing to innovate and driving greater affordability transparency and improve 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 deliver 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 for adjusted EPS revenue and customer growth as well as an improved medical care ratio.
We are confident in our ability to deliver and capture value in the NAMIC and changing environment.
We have shaped our business model to navigate various economic conditions and our differentiated capabilities within <unk> provide us with the flexibility to meet unique client needs and potential changes caused by regulatory requirements. Additionally.
Additionally, our business is driving growth that is generating strong cash flows and we are confident that we will further create value through successful and effective capital deployment with that I'll turn the call over to Brian .
Thank you David good morning, everyone.
Today, I'll review Cigna's first quarter 2023 results and discuss our updated outlook for the full year.
We're pleased with our strong start to the year as first quarter adjusted earnings per share were above our expectations demonstrating focused execution across our high performing ever north and Cigna health care businesses.
Looking at the quarter, specifically some key consolidated financial highlights include revenue growth of 6% to $46 5 billion.
After tax adjusted earnings of $1 6 billion.
Adjusted earnings per share of $5 41.
And cash flow from operations of $5 billion.
This performance gives us the confidence to increase our full year adjusted earnings outlook to at least $24 70 per share.
Before I discuss our <unk> results I'll build on David's comments regarding our recent announcement to advanced transparency around our PVM.
I will provide incremental details on our earnings drivers.
I'd first start with a level setting that all of our operating platform.
It makes up approximately 60% of earnings and Cigna healthcare is about 40%.
Within <unk>, our express scripts PVM as a foundational asset with a diverse set of earnings sources.
Including service and administrative fees.
Clinical programs.
And value based care arrangements.
Along with retained rebates and retail spread.
These earnings sources are a function of the choices made by our clients.
As David referenced approximately 20% of <unk> adjusted pre tax earnings are comprised of TBM retained rebates and retail spread.
This percentage has decreased over time.
As we continue to expand fee based client relationships.
And as our portfolio becomes more diverse and continues to grow.
Importantly, as <unk> business mix has changed over the years margins have remained stable.
This speaks to our flexibility to adapt to an ever changing market and gives us confidence in our ability to navigate disruption and the operating or regulatory environment.
As David mentioned and I would underscore our foundational PBF asset will continue to create and deliver significant value.
Which will allow us to sustain growth at attractive competitive returns.
Shifting to our current periods ever nurse results first quarter 2023 revenues grew 8% to $36 2 billion.
And pre tax adjusted earnings were $1 3 billion.
In line with our expectations.
<unk> results in the quarter were driven by continued strong growth in our high performing specialty pharmacy business.
And our focus on affordability and delivering lowest net cost solutions for our customers and clients.
Additionally, we continue to build our cross enterprise leverage capabilities, providing an additional avenue for growth as we further deepen our relationships across ever North and Cigna health care.
We also continue to make strategic investments, which served to strengthen and grow our client relationships expand our portfolio of products and services and advance our digital capabilities.
As it relates to our strategic partnerships, we remain on track and our implementation of the Centene contract that begins in 2024.
And our collaboration with village MD is progressing and provides us an attractive opportunity to further accelerate our value based care programs and capabilities.
We will continue to expand these value based solutions for the benefit of our Signet healthcare U S commercial and U S government clients as well as other provider partners and ever North health plan clients.
Additionally, we remain confident around the multi year accelerating biosimilar opportunity with high visibility into expected savings for customers and clients in the second half of this year.
Insistent with our prior expectations.
And regardless of utilization shifts.
Or product approvals in the market.
Overall <unk> continues to perform very well our.
Our diversified set of earning streams, along with flexible financing models enable us to innovate and adapt through dynamic environments.
Turning to Cigna healthcare first quarter 2023, adjusted revenues grew 12% to $12 7 billion.
And pre tax adjusted earnings were $1 1 billion.
Slightly above our expectations.
The medical care ratio of 81, 3% was better than expectations as overall utilization came in slightly favorable.
This was reinforced by our clinical engagement models and related affordability initiatives as well as our continued pricing discipline.
Turning to medical customers, we ended the quarter with $19 5 million total medical customers growth of approximately one 5 million customers since the end of 2022.
This strong growth demonstrates the continued differentiation of our market leading products and services.
Our commercial customers increased 8% year to date <unk>.
And by the addition of a large fee based health plan client that expands upon on existing <unk> relationship.
And even excluding this client win we drove organic customer growth across all of our U S commercial market segments.
In our U S government business, we saw considerable growth in our U S individual and Medicare advantage customers with EMEA growth of 10% on a year to date basis.
Overall Cigna health care is off to a strong start in 2023, as we continue to deliver differentiated value and affordability to our customers and clients.
Across our <unk> and Cigna health care platforms, we delivered strong first quarter financial results driven by our diversified portfolio of foundational and accelerated growth businesses further bolstered by cross enterprise leverage.
Now turning to our outlook for full year 2023.
We have increased our expectations for full year 2023, consolidated adjusted revenues to at least 188 billion.
Enabled by continued growth and deepening customer relationships and Cigna healthcare and <unk>.
We are also increasing our adjusted earnings per share outlook to at least $24 70 per share.
Consistent with our prior commentary, we expect earnings this year to be back half weighted and.
In large part driven by Evercore to earnings ramp over the course of the year.
With second half EPS contributing slightly below 55% of full year EPS.
In <unk>, we expect continued strong performance all while investing in growth and innovation.
We continue to expect <unk> full year 2023, adjusted earnings of at least $6 4 billion.
And Cigna healthcare, we are raising our medical customer growth expectation to at least $1 3 million customers an increase of 100000 lives.
We are improving our 2023 medical care ratio outlook to a range of 81, 5% to 82, 3%.
And we are raising our expected full year 2023 adjusted earnings to at least $4 45 billion.
Despite the dynamic macroeconomic environment, we have yet to see material impact to Cigna health care enrollment levels.
We remain prudent with respect to our enrollment outlook for the rest of the year as evidenced by our full year guidance relative to the first quarter customer growth results.
To be clear, we continue to expect underlying organic employer client growth as we move through the year.
And our outlook continues to assume some elevated dis enrollment in the second half of the year corresponding with some expected softening in the economy.
Additionally, as a reminder, our outlook does not contemplate incremental customer growth from Medicaid Redetermination.
Finally, when contemplating the cig group's performance under various future economic scenarios.
As important to keep in mind that we have strategically positioned the companys portfolio of businesses to be more diversified than it was in prior economic downturn.
This gives us confidence in our resilience to weather dynamic macroeconomic environments.
Switching gears, let's move to our 2023 capital management position and outlook.
Our debt to capitalization ratio was 42, 2% as of March 31.
We expect to lower this ratio over the balance of the year and we continue to target a long term debt to capitalization ratio of approximately 40%.
Year to date through May four 2023, we have repurchased approximately three 7 million shares of common stock for approximately $1 1 billion.
And for full year 2023, we continue to expect at least $9 million of cash flow from operations.
Our balance sheet and our cash flow outlook remains strong benefiting from our highly efficient service based model that drives strategic flexibility strong margins and attractive returns on capital.
So now to recap.
First quarter results were above our expectations, reflecting strong contributions across our diversified portfolio of complementary businesses.
<unk> continued to deliver strong results with the first quarter in line with our expectations, while Cigna health care had a strong start to the year, giving us confidence to deliver on our increased 2023 EPS guidance of at least $24 70.
We continue to expect 2024, adjusted EPS of at least $28 consistent with our prior commentary.
And over the long run we continue to expect average annual EPS growth of 10% to 13% and are confident in our ability to adapt and navigate the operating and regulatory backdrop.
With our diversified business mix and complementary capabilities across <unk> and Cigna health care.
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.
And also if youre using a speakerphone please pick up your handset before pressing the button.
One moment please for the first question.
Our first question comes from MS. Lisa Gill with Jpmorgan you May ask your question.
Thanks, very much good morning, David Thank you for all the comments around the Pbms and profitability et cetera. I guess my first question is really to understand where do you think the disconnect is from a legislative standpoint versus how the pbms actually operate and then secondly, when we think about an employer it feels to me that a lot of this alleged.
Leasing is going to take away that that decision, making by the employer wondering players, saying to you around legislation what are they saying to you around the selling season and then also if you can just give us an update as to how you're thinking about the 2020 for selling season.
Or at least you can put a lot in there good morning, and thanks. Thanks for the questions, Let me try to touch on each.
First as we step back as I noted we are quite proud of the results that we have delivered and continue to deliver and view that the pbms using that accurate am but the pharmacy service organizations are the organizations that relentlessly work to improve affordability for the benefit of it.
Broad constituency group I think to your first question, if we step back while we can point to tremendous results in terms of clinical trends outcome affordability on average less than a dollar increase in out of pocket costs for individuals. We do recognize and I think this is part of the legislation or the legislated energy the programs still don't work for everyone.
So for example, while the programs are designed to generate overall affordability, if theres a high deductible plan as an illustration and in the month of January someone hasnt. Its a deductible and is a significant out of pocket for a 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 thats an unintended consequence of the failure of assessed 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. So 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 <unk>.
<unk>, yes, when you look at the uniqueness of America. Some rural locations may not have the access our accessibility.
In a specific case and therefore the market is not working for those individuals hence you'll see some of the innovation we step forward on our Copay assurance program directly goes at the out of pocket predictability for individuals under a variety of circumstances are rural pharmacy, an 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.
Retention rates on our new business growth rates reinforced the fact that by and large employers see us as being successful.
Our clear care Rx program that we just rolled out that was two years and designed and we worked with about a dozen sophisticated large employers to design those programs will work for them and work for us and how we can roll those out in scale and as we sit here today, we have hundreds of clients together.
With our <unk> team and our express scripts Im talking about future innovation, so that remains high receptivity and high receptivity to the advancements we're making in terms of further transparency and clinical programs, but they like their choice. They like having the choice of financing mechanisms, which were alignment and then finally, maybe to just manage time.
On the 20 <unk> selling season, 24 will be another year of growth for us in the <unk> service portfolio, we will see strong retention as I noted our retention historically been in the mid nineties are 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.
Thank you Ms. Gill. Our next question comes from Mr. Steven Valiquette.
Barclays You May ask your question.
Great. Thanks, Good morning, so regarding the north results in the first quarter you mentioned that were in line with your expectations just with the script volume 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 tread.
Trends in the first quarter are good run rates for the full year.
Good morning, Steve It's Brian as I mentioned earlier <unk> results are very much in line with expectations for the quarter. One thing Thats important to keep in mind, David mentioned, 40% of the revenue and never North now is derived from our specialty pharmacy business and as you can appreciate the specialty pharmacy script counts ended up being dwarfed.
The generics and the higher volume script counts that come through the <unk>. So it's a little bit misleading to look at the aggregate script counts for those reasons and I would note.
The revenue in our specialty pharmacy grew mid teens year over year. So is there a very strong grower.
We saw strong script growth in specialty, but again it was dwarfed by the big picture of the Pbms generic volumes moving around a bit and then as you think about the the overall script counts a year on year.
Think of the client mix changes that occurred from 'twenty to 'twenty three is driving a good bit of that and that really drove the that's kind of flattish.
All in script counts now as we look forward to 'twenty four obviously, we prepare to onboard centene.
You will see a meaningful step up in that metric, but as I mentioned earlier with the specialty pharmacy growing at such an attractive rate. It is a bit masked when you look purely at the script comp metrics. So hopefully that helps a bit and when you put all those pieces together, we're again confident and comfortable with the full year outlook in terms of iron ore to income.
Perfect. Thanks.
Thank you Mr. Valiquette. Our next question comes from Mr. Nathan Rich with Goldman Sachs. You May ask your question.
Thanks, Good morning.
I wanted to go back to the P. P M and the regulatory focus David you mentioned that not all pharmacy benefit designs work for everyone. In the target I think of much of the legislation is focused on lowering out of pocket costs for patients.
Had plan options in the past that address some of these areas.
You said the clients like having that choice, but are there is.
Was there any middle ground in terms of different solutions that you couldn't maybe rollout more broadly that would address some of these pain points.
You know kind of proactively ahead of maybe being forced legislatively and I guess kind of my follow up to that is you know client preferences, I think kind of change 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.
Good morning Nate.
First on the on the affordability and the out of pocket choices have been in the marketplace.
For some time and important to note by and large as I noted before on average those programs are working well in terms of the balance of overall affordability and plan sponsors make tradeoffs in terms of how much is put in premiums how much they put into benefits et cetera from that standpoint, too just pointing at a specific because you said.
Actions, we could take in 2019, we rolled out the first of its kind the patient assurance program for insulin dependent diabetics cap multi cost at $25 full stop there is 11 million people benefiting from that program today as you see more more focus relative to insulin. So we can have and will from that standpoint.
As you click down because in many cases the Devil's in the details as you rollout new programs you learned that for example, some of the co pay assurance programs can work in an HRA program, but in some cases don't work in an HSA program because of the regulatory requirements of the HSA program. The only worked for preventative drugs.
But it won't work for a broader class of drugs. So that now enables us to be more consultative with employers to make sure theres, even a more pinpointed focus on benefit design and communication strategies as open enrollment happens because in some cases that individual will enroll in an HSA yet lower later that they have more dislocation in the out of pocket.
In a given month.
From the codebase. So my point is actions taken actions being taken more per station that is necessary from that standpoint.
As it relates to the how quickly we can pivot.
<unk> proven tremendous flexibility in our model some of the additional data we are providing we noted even last year at our Investor day, We will continue to push ourselves with expanded disclosures and youre seeing more and more we can pivot we will pivot we will continue to offer choice and the tools exist today as an example every with our.
Clear care Rx program to provide further choice.
Use of different financing mechanisms. So we are confident that we will be able to flex rapidly if necessary but.
But we want to also ensure that we are a voice for employers to still work to preserve choices for them.
As how they want to finance their programs, how they wanted to manage their overall cost and predictability from that standpoint, but to reassure you we have ample flexibility to flex rapidly.
Thank you Mr. Rich. Our next question comes from Mr. A J rice with credit Suisse. You May ask your question.
Hi, everybody I guess I'll try to pivot away from Pbms question.
In the prepared remarks, you mentioned in your ongoing discussions with diligently about putting in place value based contracting I wonder.
If you can give us any further update on that when you start to think about your 24 bids commercially or in EMEA.
Will any of those arrangements, we part of the package that you offer a factor in your bids and since I'm asking about 40 for anything on the final rate notice and whether that changes your view on gross margin trajectory that you're on and then Mike.
Hey, Jay good morning.
Yes.
You've talked a lot of questions in there, but let me let me start from the top.
Relative to value based care before I get to 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 and 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 where you are looking at commercial or individual exchange.
40, or 50% of lives benefiting from a value based program and I'd underscore that we are seeing benefits from that in our continued market, leading lower medical cost trend specific to village. We're pleased to advance even further partnering more deeply with village and collaborating with them.
There are many ways in which will collaborate with village to further accelerate value based care traction off of their already successful model I would note and highlight one of the portions that we are really excited about with villages 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 <unk>.
And benefit from not only commercial and Medicare advantage, but ASO and guaranteed cost as we bring more <unk> services and collaborate with them as we curate more specialty networks et cetera 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're starting to.
<unk> yield benefits already starting to contribute to pricing in specific markets, where the initiatives are underway.
As the headline as it relates to your last question relative to bid strategy rate notice et cetera, 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 frame. Then secondly, as you know we're in the latter part of the bid cycle right now so it will be <unk>.
The mature 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've yielded to date and the traction in some of our markets that are maturing.
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.
Thanks.
Thank you Mr. Rice. Our next question comes from Mr. Justin Lake with Wolfe Research you May ask your question.
Thanks, Good morning, all does that though how much we appreciate the comments on the PGM transparency there wanted to follow up with a couple of things on the PD.
First is yes, so 20% of your profits come from those.
I apologize to leave it.
If the government did play.
What they're talking about this year.
How would you talk about.
Such that you can pivot away.
We'd have to happen all the time.
The near term impact both of the longer term and then secondly, I've gotten a lot of questions about 340 <unk>.
Lynn.
One of your peers talked about is a pretty meaningful headwind versus our expectations.
This year. So curious if you can give us some color there.
Maybe what percent of 340 B, how your outlook seems there.
Within Europe .
Right.
Good morning, Justin I'm going to take your questions as David I will take your questions in reverse order specific to 340 B we've seen some recent.
Extrapolation of what potential exposure could be for us.
Based upon what some others said or the size of certain other programs I would start by saying we think those estimates are overstated. So now let me step back.
By way of context, we do believe the 340 <unk> represents an important series of capabilities in many cases for hospitals to benefit from more affordable pharmaceuticals for underserved populations.
Some pharmaceutical manufacturers have unilaterally.
Remove who made it much more difficult for those hospitals to engender those benefits by way of context, we saw deceleration some deceleration in our volumes in the first half of 2022, we saw that deceleration trough mid 'twenty two and we saw volumes begin to increase in the second half of 'twenty two is different day.
Sharing and other activities move forward as it relates to our impact we have factored into our plan for the year and our most recent updated outlook for the year, our best estimate which includes some dampening.
Of the overall program as it relates to our results, but I would stress.
Some of the extrapolation is based on the size of certain others programs. We think is overstated. This is manageable within our portfolio and not a material driver of the overall <unk> portfolio as it relates to your first question, which I really appreciate just and I can't give you a precise answer to your question.
If we take a theoretical and say that legislation has passed tomorrow.
That creates an immediacy, which we believe will transpire.
In fact, you can look at some of the.
Most recent dialogue coming out of committees and otherwise for.
The consideration of consideration of consideration being implemented in the latter half of 2025. For example, we don't think that theoretical exists having said that you should think that we have contractual buy in large contractual.
Frameworks that take into consideration unanticipated immediate legislative or regulatory movement. We don't believe that is the case, we will continue to advocate for our clients. We will continue to work to ensure that choice exists and as we made clear even with our clear care Rx program, we have the tools and flex.
Ability to deliver what a client wants from a toy standpoint with or without sharing.
And being able to earn a sustained attractive margin for the value we create thanks Justin.
Thank you Mr. Lake. Our next question comes from MS. Erin Wright Morgan Stanley You May ask your question.
Great. Thanks, you mentioned some elevated dis enrollment in the second half embedded in your guidance from SaaS mean economy and can you quantify that range or how are you thinking about that and what are you seeing now and how did that change relative to what you were anticipating previously.
Good morning, Eric It's Brian .
First of all <unk> reentered.
To reiterate we're really pleased with the strong growth momentum across the Sigma 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 'twenty, two 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 dis enrollment levels and the most recent months are very much in line with historical norms, but as I mentioned, we have assumed some level.
Of elevated dis enrollment in the back half of the year in order to be prudent and in addition to that we typically see some in your 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.
Nicole 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 Redetermination we.
May have some upside in our Cigna health care 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 half a percent two 1% as it relates to a 1% move in the unemployment rates. So it gives you a sense for the sensitivity relative to this.
Size of the book as you think about how to model the rest of the year.
Thank you MS right. Our next question comes from Mr. Kevin Fischbeck with Bank of America, you May ask your question.
Great. Thanks.
It seems like cost cutting really wasn't a problem for you in the quarter, but still.
After earning season basically over so trying to reconcile the strong numbers from the providers in the med tech companies with relatively.
Solid numbers from the managed care industry can you help reconcile what seems to be a pair.
<unk>.
Conflict and any color on cost trend through the quarter.
And then to this quarter would be helpful. Thanks.
Good morning, Kevin It's Brian .
A few thoughts for you in terms of the reconciliation to the provider side et cetera.
I'd start by saying, we're pleased to have delivered another strong quarter here.
CR performance in line or better than expected so.
Pleased to start the year in that position you can think of that as a function of the strong progress. We've made in recent years with our affordability initiatives. So that includes items such as our provider contracting improvements clinical program evolution site of care optimization, along with our continued pricing discipline. So all of that served us well, all while allowing us to drill a $1 million in half.
Customers year to date as you think about the first quarter specifically the favorability that we saw was driven by lighter than expected viral or respiratory claims. So in this case think of Covid flu RSV in aggregate running a little bit lower than what we had been expecting now on the non viral side, we had planned and price for.
Normalized utilization levels to transpire in 2023 that were more consistent with pre COVID-19 levels and during the first quarter. That's what we saw we saw nine viral utilization, reflecting this more normalized pattern, but again. This was in line with our expectations that we had planned and price for stepping into the year.
Thank you Mr. Fischbeck. Our next question comes from Mr. Gary Taylor with Cowen You May ask your question.
Hi, good morning.
Quick question do you appreciate the TBM disclosure, because obviously, if you're talking about.
10% to 15% of the company's total earnings that you expect to retain it seems like.
Down 26% stock price is quite overtime. This year. So I appreciate that are we going to see some of that financial disclosure in the 10-Q. When you talk about new disclosure will that be around some of the economics of retained.
Spread in rebate and then my second question is we did see the Florida.
I'll pass.
Our I believe is going to be signed or just was signed by the governor that would prohibit.
Spread pricing in Florida across all lines of business and just wondered.
What the.
If you knew what the implementation date on that was and just how quickly the hard to sort of move to address that in Florida.
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 disclosure. So really those were designed today to give all of our investors. Some further context on the earnings sources within ever North just given the amount of misinformation in the ecosystem and so alongside our 10-Q.
<unk> 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 ppm 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.
<unk>, the 20% of pre tax adjusted earnings associated with PVM 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 a context for how the earning sources are evolving over time as that business continues to grow David your comment on the sure Chris Good morning, Gary relative to the Florida activity. It's one of the two components, we talked about we talked about rebates. This is.
Specific to your question relative to spread we're still working through the details from a state standpoint.
Interesting timing as well, we literally have are large.
Client gathering that is taking place as we speak this is a topic of discussion for clients in terms of digesting. The ramifications will have the ability to flex flex our capabilities as I noted in prior questions relative to this one aspect as it's implemented I don't want to go any further in terms of quantifying or otherwise.
Picture, it's manageable.
Specifically, we will work through client by client.
The impacts relative to their respective Florida footprint, and then considerations on a go forward basis as to whether or not they want to flex financing mechanisms for other geographies going forward using our capabilities, but we have the ability to flex and we will be compliant obviously with the implementation timeline.
Great I appreciate it.
Thank you Mr. Taylor. Our next question comes from Mr. Stephen Baxter with Wells Fargo, You May ask your question.
Hi, Yeah, I wanted to ask about clear care Rx I guess first how quickly do you think this model will be adopted is there any kind of targets.
You can share and then obviously you know your clients are sophisticated and have access to tools to evaluate your economics doing 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.
Good morning.
Steven the clear care X program as I noted previously.
We've worked for about two years with a small number thinking of a dozen large sophisticated clients to design. This program to work through the program.
Fact aspects of the program and we're excited.
To roll it out on a more extensive basis to think about the addressable market is more the larger of the large clients working down given the.
Immediacy of pass through and then the potential cash flow management ramifications that it creates from that standpoint. So this will be another choice. That's offered in the marketplace I think to your broader question inferred in your broader question.
We let lists.
Ongoing commitment to innovation is mission critical in any industry in this subset of our industries. It's mission critical and we're proud of the fact that we had leadership relative to a variety of programs as I mentioned insulin.
<unk>.
Talked before about our embarked program on high cost gene therapies are safeguard Rx program.
That is benefiting all of our clients relative to care management programs. Trc is as you know more therapeutic resource groups and centers that come together and focus on specific diagnosis and have detailed expertise and then how they are coordinated with the medical professionals and how the coordinated with the behavioral professionals are mission critical so the passive innovation.
And whether it is to your point a fee based environment that transpires may transpire. However, having the choice. We think is mission critical finally for you and maybe the broader audience. We may see some similarities as we've seen in the medical space, where as you think about our approach in the medical benefit space our approach was poor.
Funding mechanisms and financing mechanisms at agnostic model, meaning we could flex in any of them, whether it's self funded self funded with stop loss. Some risk management, a shared return model for guaranteed cost model and we see those same trends manifesting in the pharmacy space and we're positioned to lead there. So.
Largest of large employers two years and its design, it's perfected and is ready to scale. We don't think the entire market shifts to this in 2024, we think there'll be more adoption of programs like.
Clear care Rx and we're happy to be the leader in this space.
Thank you Mr. Baxter. Your next question comes from Mr. Josh Raskin with Nephron Research you May ask your question.
Alright. Thanks, Good morning, I was hoping you could give us some more color on the individual book it looks like it came in maybe a 100000 or sell more than expected.
Where did those lives come from and was that the reason for the increased total membership guidance and then maybe any early signs on utilization and other metrics that give you comfort that you priced that that business correctly.
Good morning, Josh It's Brian .
Overall, the strong individual customer growth in 2023, you can think of it as a combination of a few things. So one obviously the industry had some strong growth rates from 'twenty two into 'twenty. Three we also had some new market entries and there were some competitors that exited certain geographies, where we participate in.
But as 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 cities for 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 EMEA businesses.
When 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 et cetera for the 23 calendar year. We continue to expect the margins on this book will run below our long term goal, which is 4% to 6%.
Our Sigma healthcare income and NCR 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 have.
We're in a receivable position for the 2022 plan year to again, we think that's a prudent assumption to make at this early juncture of the year until later 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 as a book of business that does represent a source of future and better.
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 is 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.
Thank you Mr. Raskin. Our next question comes from Mr. Scott Fidel with Stephens you May ask your question.
Hi, Thanks, good morning.
Would be interested if you could maybe just drill in a bit more into your latest thinking on both the <unk> one drugs that'd be emerging Alzheimer's drugs, maybe give us just some insights from both the Cigna health care.
And Albert North Fab business segment perspective. Thanks.
Good morning, Scott It's David.
Clearly the <unk> one drugs have been in the press pretty significantly and by way of headline we think the drugs in the treatment protocols represent a positive step forward.
Specifically for diabetics as such we.
We have coverage within our formulary I would remind you that early on when the first within the class came out we actually stepped in with some value based care arrangements with pharmaceutical manufacturers and have seen positive contributions from both the benefit of patients as well as our clients.
I'd also add that employers and had a more limited appetite to expand coverage beyond clinical diagnosis, such as diabetes for certain lifestyle treatments. There has been some.
But we've seen more limited adoption of that thus far and on a go forward basis, we would expect as have our P&C committee and our external clinical oversight continue to monitor the progress relative to ongoing testing development and this important class I would take that trend and carried across similar.
Relative to the Alzheimer space clearly a lot of interest excitement.
And demand.
For drugs in the Alzheimer's space to help meet growing population confronting this this challenging disease from that standpoint.
We've seen more limited adoption, thus far we see some early data like Youre seeing right now relative to the next in class seeming to demonstrate some promise going through FDA working through CMS relative to Medicare reimbursement and we will stay tightly aligned relative to that on a final note. If you put a circle around.
This I think inferred in the latter part of your question.
Think about these drugs is in some cases, creating cost on the benefit side of the equation with an offset of a benefit clearly, but you should also think about the signet group's portfolio because of Avenue, that's having some dimension of natural hedge given the size and sophistication and reach of our pharmacy and specialty pharmacy programs and the breadth.
The clients were able to serve within that portfolio. So we see this as a growth opportunity within the <unk> portfolio and the clinical depth. We have in there in terms of coordinating services for individuals will be helpful. In terms of ensuring that the values delivered so emerging space in both categories. Some promise.
Early adoption some track record in value based care and importantly would underscore we have a natural hedge relative to some cost pressure you would think about in the benefit space for high performing services space.
Thank you Mr. Fidel our next question comes from Kevin Mr. Kevin Kelly Endo with UBS you May ask your question.
Great. Thanks for getting me in.
Getting back to the 20% of ever North earnings does that include the ESI rebates and pass through.
And spread does that also account for the medical profit.
Like the pharmacy profit in the medical segment as well or is that separate.
Since you have been in such a giving mood can you provide us any.
Transparency around that number.
Okay.
Good morning, Kevin It's Brian .
20% that we made reference to is the PVM retained rebates and the retail spread that comprise.
The <unk> segment's contribution specifically, so as with all of our clients of ever north whether they be the Cigna health care 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.
<unk> earnings in the second health care segment, that's not reflected in the 20% metric, where specifically to mentioning the <unk> contribution.
And then like I said, the Cigna Health care Health plan decides how they choose to deploy any value that's created from our north the sister company of Dave.
David maybe you want to pile on here.
To add on that as you think about the health plans that are served.
<unk>.
If you consider the total cost of care, a health plan through their medical contracting ancillary contracting pharmacy contract behavioral contracting aggregate a total cost of care to generate their price points. So in the case of a guaranteed cost offering a risk based offering the cost of pharmaceuticals are baked into that from that standpoint, what that is commercial.
<unk> individual exchange business or our Medicare advantage business for health plans. So thats value delivered just like the values delivered further medical contracting their DNA contracting their behavioral contracting et cetera, and part of the overall cost equation that will factor into the net pricing that they're offering to the marketplace.
I appreciate it thanks guys.
Thank you Mr. Kelly and I will turn the call back over to David <unk> for closing remarks.
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 and 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 and it's fueled by the dedication and commitment of our 70000 coworkers around the world, who I want to thank for their.
Commitment and demonstration everyday to working to make a very positive difference in People's lives, we're able to serve both formally.
Through our commercial relationships as well as in the communities we serve each and every day finally, and thank you for joining our call and as always we look forward to our continued discussions in the future.
Ladies and gentlemen, this concludes the Cigna groups first 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 eight a day.
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Thank you for participating we will now disconnect.