Q3 2023 Cigna Corp Earnings Call
Ladies and gentlemen, thank you for standing by put to take the group's third quarter 20 twenty-three results review.
At this time all colors are in a listen only mode.
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<unk> ask questions at that time, if you should require assistance during the call. Please press star on your.
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As a reminder, ladies and gentlemen, this conference, including the Q&A session is being recorded will begin by turning the conference Overdraft Jacobi. Please go ahead.
Great. Thanks, Good morning, everyone. Thank you for joining today's call Ralph Jacoby Senior Vice President of Investor Relations with me on the line this morning, or David core Danny the signal groups, Chairman and Chief Executive Officer, Brian Evanko, Chief Financial Officer, and Eric Palmer, President and Chief Executive Officer of ever North health serve.
Mrs.
Today, David and Brian will cover a number of topics, including our third quarter financial results and are updated financial outlook for 2023.
Swallowing, they're prepared remarks, David Brian and Eric who will be available for Q&A.
As noted it our earnings release, when describing our financial results, we use certain financial measures, including 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 gap.
Reconciliation of these measures to the most directly comparable got measures shareholders' net income in total revenues respectively is contained in today's earnings release, which is posted in the Investor Relations section of the signal group Dotcom.
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.
And Ah remarks today will 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 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 over the call I will cover a few items pertaining to our financial results.
And the third quarter, we recorded in after tax special item charge of $171 million or 58 cents per share for charges, primarily associated with our Medicare litigation settlement.
We also recorded in after tax special item charge of $19 million or six cents per share associated with the sale of our international life accidental supplemental business job.
And and after taxes special item charge of $9 million or three cents per share for integration and transaction related cost.
As described in today's release special items are excluded from adjusted income from operations and adjusted revenues in our discussion of the results.
Additionally, please note that when we make perspective comments regarding financial performance, including our full year 20 twenty-three outlook. We will do so on the basis that includes the potential impact of future share repurchases, an anticipated 20 twenty-three dividends.
With that I'll turn the call over to David.
Thanks, Rob Good morning, everyone and thank you for joining today's call.
We had another quarter of strong performance and we made up pace for your state and will make them in 2023.
With a shred the capabilities across her health services and benefits platforms Weird continues to deliver on a mission for those reserve.
We continue to grow a company.
Do they have highlights key drivers reported your performance during the quarter.
Priorities and opportunities for expanding our impact and continued to advance our growth.
To review of 2024, including somebody expected Tailwinds and headwinds.
Parental sure digital perspective about a third quarter performance as well as our outlook for the rest of the year, so with that let's get started.
In the third quarter, we delivered $49 billion in total revenue.
Adjusted earnings per share of $6.77.
Strong cash flow generation across our franchise.
All while continuing to reinvest back another business to fund growth expansion and ongoing innovation.
These results are strong and they show how we're continuing our track record of strong sustained performance.
Was there ever Nortel services, and Sigma health care benefits platform, we're executing well in a dynamic period.
And feeling customer growth with their deep clinical expertise innovative solutions.
A breath of market, leaving capabilities.
Ah results during the quarter demonstrate how are continuing to deliver on their commitments for a customer to patients or clients as well as our shareholders.
We were raising your full year 2023 outlook for EPS customer and revenue growth as well as cash flow from operations.
With their continued affordability initiatives were also now guiding to an improved medical care ratio for 2023.
Our businesses are performing well are we now expect to deliver adjusted earnings per share of at least $24.75 for full year 2023.
Now I will charge of how we are working to sustain are broken impact.
With our durable strategic growth framework, we harvest complementary capabilities from across the signal group.
We have scaled mature businesses that drive foundational growth.
Businesses in faster growing market segments that contribute accelerated growth.
We feel additional growth through cross enterprise leverage as we bring together the power of our tablet quite relationships differ.
[noise] capabilities and innovation from across our company.
Next I'll sure how weird deliberately shaped a portfolio of businesses that are well positioned for today's market needs. Additionally, a highlight some of the ways. We continue to drive or sustained success as we looked at the future.
Everyone's health services continues to demonstrate a proven ability to create value with differentiated pharmacy care and benefits capabilities.
We had a strong pharmacy benefit selling season for 2024 interchange are already actively engage in to 2025 season.
Because you need to innovate and provide our clients with expanded choice as well as mark leading value.
Many of the clients, we serve leverage evernote, it's unique suite of solutions to support the needs of their customers.
17 is one do relationship we discussed before interchange that been collaborating effectively unable vacation work, which is going very well as we prepare to serve approximately 20 million 17 customers beginning of January.
We have a leadership position is dressing a substantial market opportunity with the expanded waiver pharmacological innovations that is reshaping the health care landscape.
Many of the treatments that are coming to market are pressuring affordability with high list prices from drug manufacturers.
We were driving better experience clinical outcome and affordability for patients and clients given her deep clinical expertise strong relationships with pharmaceutical manufacturers as well as with physicians.
The surging demand for the G. L. P. One drug class for weight management offers a good example of how we provide value.
Already circle Rx program is an innovative solution that addresses the complexity and costs associated with obesity diabetes and cardiovascular disease.
Probably a combination of conditions, it's also known as cardio diabesity.
Drug that Edwards clinical expertise breadth and depth of data and analytical insights <unk> guidance patients to the most effective care and helps improve affordability for clients.
Beyond the G O P. One drug class, we expect to see many different manufacturers, bringing forth a growing number of new drugs, including gene therapies additional treatments for cancer as well as others for Alzheimer's and other conditions.
We are uniquely well positioned to make medicine more accessible affordable and clinically coordinated for those we serve as well as to continue to drive growth for a company.
Now in her international health business, another foundational business within a portfolio, we're supporting continued growth and target markets and expanding our portfolio solutions during.
During the quarter for example, we introduced a new affordable health plan, customize specifically or the globally mobile seniors population.
Additionally, and the foundational portfolio R. U S. Commercial business continues to harvest cross enterprise leverage capabilities for the benefit of their clients.
As we looked forward in 2024, we know that additional in addition to affordability one of the top priorities for many employers is expanding access coordination and overall effectiveness of behavior all programs and solutions.
The benefit of a commercial clients and customers, we are leveraging innovations and capabilities that exist in our accelerate businesses for example, stress anxiety and other mental health conditions create challenges for employers who need a healthy engage workforce.
And we continue to expand the behavior whole solutions, we offer through <unk> care of businesses.
What are the neighbors solutions is confide behavioral health navigator, it's resonating well with clients, helping us both retain and win your business.
Confide is guided by approve a model of a more proactive I touch service level effective monitoring and targeted follow up engagement.
We will launch additional enhancement next year to provide digital tools that a personalized to the needs of individual patients that improve matching them with the right therapist and awful also offer greater convenience and accelerated schedule the opportunities.
Additionally, as we continue to advance our focus on vitality, including our latest research addressing the capacity of individuals across multiple dimensions. It reinforces that mental health. For example is one of the most significant drivers.
We know that adults with with without significant mental health challenges are 10 times more likely to have high vitality.
Now if you're an employer this means higher engagement.
Productivity.
Lower turnover as well as lower medical costs.
In addition to addressing growing behavioral needs. It never really care. We were also acting as a positive disruptor and care delivery and care management to improve experience outcomes and access from a patient perspective.
We're developing integrated care models and clinical programs with continuing investments for example to expand our digital and virtually like capabilities well, making sure. They are coordinated and connected with physical so I took care of it.
For example, we continue to innovate and build on Andy lives, leading virtual care platform and plans a further accelerate new capabilities in 2024.
Turning to another accelerated growth business I'll touch on specialty pharmacy.
Last quarter, we talk with you about accretive extensive clinical expertise of the assets that provide us with a competitive advantage in this fast growing specialty pharmacy market, which continues to be an important source of growth for a company.
We also have additional capabilities contributing to our leadership and growth opportunities in this space.
But crito focuses predominantly on supporting patients who receive specialty drugs in their home. Sometimes these complex medications also needs to be administered in physicians offices or hospital outpatient settings.
Today, we support providers and health systems with a cure a script specialty distribution capability and we continue to see meaningful growth in this aspect of our specialty pharmacy services.
Finally, an additional accessory business is R. U S government portfolio services. We are pleased with our recent Medicare stars quality rating showing that we again have over two thirds of our members enforced or or higher plans. This is recognition of the value we provide the seniors and supporting access as well as high quality care.
With open enrollment now underway for both Medicare advantage and the individual exchange business, we're balancing competitive benefit offerings targeted market expansion in pricing disciplined activity.
So to summarize.
Performing well across our diverse enterprise and these highlights reinforce our strategic framework guys us an accelerating innovation expand client relationships and continuing to broaden our reach.
Now as we look to 2024, we expect another strong year performance for the second group is rebuild on momentum with EPS revenue and cash flow growth will share more detailed guidance with you on her fourth quarter earnings call as we always do.
The tailwind headwinds, we expect into your head remains largely consistent with our private conversation and we continue to be confident in our ability to deliver adjusted EPS of at least $28 per share in 2024.
Notable tailings include grocery related contributions, including the all launch of 17, which starts on January 1st.
A growing positive impact of Biosimilar contributions.
And an improved margin profile and their individual exchange business.
In terms of headwinds, we will continue to make strategic investments across our portfolio of businesses to drive sustained innovation as well as position ourselves for long term growth.
Now I'll just briefly summarize our poor performance for the quarter we.
We had another strong quarter and it builds on good momentum throughout the course of the year.
We deliver it adjusted EPS of $6.77 as well as strong customer revenue and cash flow growth.
Our company cause he used to deliver for the benefit of those we serve and we haven't been able to increase our outlook for adjusted EPS to at least $24.75 for full year 2023, and we expect to deliver adjusted EPS of at least $28 in 2024, which is consistent with our past discussions.
We are well positioned with a clear durable strategic framework that leverages the power of differentiated services within our benefits portfolio and services portfolio.
No problem, we'll share additional perspective about a performance in the quarter and our outlook for the rest of the year right.
Thank you David good morning, everyone.
Today I'll review, the Cygnet groups third quarter of 2023 results and discuss her updated outlook for the full year.
We are proud to deliver another strong quarterly performance.
Putting all of our most critical metrics running or favorable to expectations.
With this performance we are increasing our four year adjusted 2000 twenty-three earnings outlook to at least $24.75 per share.
They're looking at the quarter, specifically some key consolidated financial highlights include revenue growth of 8% to $49 billion.
After tax adjusted earnings growth of 8% to $2 billion.
Adjusted earnings per share growth of 12% to $6.77.
And cash flow from operations up $2.8 billion.
Our two girls platforms continue to perform well.
Whichever north posting a bottom line growth rate that improved sequentially as expected.
Cigna healthcare delivering results ahead of expectations.
Regarding our growth platforms I'll first comment on ever North.
Ever notice continues to deliver strong results with third quarter of 2023 revenues growing 8% to $38.6 billion.
In pretax adjusted earnings growing 6% to $1.7 billion in line with expectations.
Ever notice results in the quarter were driven by strong performance that our specialty pharmacy business, which continues to see double digit year over year revenue growth.
We continue to provide a variety of differentiated services and solutions that drive affordability and value for our customers and our clients.
Well also enhancing cross enterprises leverage across our ever north and Cigna healthcare growth platforms.
In addition, we continue to make strategic investments to support Onboarding of new clients and expansion of existing client relationships.
All while advancing are digital and care solutions capabilities to enhance customer experiences and provide clients with greater options to achieve their critical goals of access quality outcomes and affordability.
Overall ever North delivered strong third quarter results consistent with expectations.
And we remain well positioned as he looked to the remainder of the year.
Turning to Cigna healthcare.
Third quarter of 2023, adjusted revenues grew 14% to $12.8 billion.
Pre tax adjusted earnings grew 16 per cent.
The $1.2 billion.
The medical care ratio was 80.5%.
Our medical care ratio was better than expectations, driven by or U S commercial business.
More specifically are favorable MCR performance was a reflection of ongoing disciplined pricing and continued affordability initiatives, ensuring patients get quality care inappropriate settings.
An example of this is path well specialty or.
Our site of care program that aligns patients who have high cost specialty conditions.
With high quality, yet cost effective care settings.
Moving to sit in health care medical customers, we ended the quarter with 19.6 million total medical customers.
That's growth of approximately 1.6 million customers year to date.
On a sequential basis, we delivered medical customer growth across all businesses within Cigna healthcare ahead of expectations.
Overall, Cigna healthcare continues to provide differentiated value and drive affordability for our customers and clients and.
And the results in the quarter demonstrate are strong underlying fundamentals.
No turning to our outlook for full year 2023.
We have increased our expectations for full year 2000, twenty-three consolidated adjusted revenues to at least $192 billion driven.
Driven by strong growth across our businesses.
And we are increasing our full year 2023, adjusted earnings outlook to at least $24.75 per share.
He never noticed we continue to expect full year 2023, adjusted earnings of at least $6.4 billion.
This implies mid to high single digit growth in the fourth quarter consistent with our prior commentary.
Cigna healthcare, we are raising our medical customer growth expectations to at least 1.6 million customers.
This updated outlook represents the third consecutive quarter, we have increased our customer growth despite the dynamic economic backdrop.
We now expect our medical care ratio to be within a range of 81.5% to 82%.
An improvement of 30 basis points from the high end of the prior range.
And we continue to expect full year 2023, adjusted earnings of at least 442 $5 billion.
This outlook reflects our continued focus on execution across our signet health care businesses.
Additionally, our full year 2000 twenty-three enterprise adjusted SG&A ratio is now expected to be approximately 7.4%.
And increased compared to our prior guidance as we further accelerate investments across both are ever north and Cigna healthcare platforms.
And finally, our full year 2023, adjusted tax rate now expect it to be in the range of 25 per cent to 21%.
Turning to our 2000 twenty-three capital management position at outlook.
Year to date through November 1st 2023.
We have repurchased approximately 7.7 million shares of our common stock.
For approximately $2.2 billion.
The continued strength of our cash generation gives us the confidence to increase our full year 2000 twenty-three expected cash flow from operations.
By $1 billion to at least $10.5 billion per full year 2023.
And are updated guidance assumes full year 2023 weighted average shares outstanding to now be in the range of $296 million to 298 million shares.
Are healthy balance sheet and cash flow outlook benefit from our efficient service base model that drive strategic flexibility strong margins and attractive returns on capital.
Now to recap.
Third quarter results were strong reflecting execution across our diverse portfolio of businesses.
Giving us confidence to deliver on our increased 2000 twenty-three adjusted EPS guidance of at least $24.75.
While we will provide formal 2024 guidance on our fourth quarter call. We continue to expect 2024 adjusted EPS.
$28.
That said I would like to expand upon the tailwind some headwinds David spoke to earlier.
Tailwinds include revenue growth inclusive of the full bunch of our 17 relationships starting January 1st.
And continued momentum of the Biosimilar opportunity to drive more savings to benefit our patients and clients.
We also anticipate improvement in our individual exchange margins next year.
Driven by our pricing actions taken in targeted geographies.
Given these actions we are likely to have fewer customers and the individual exchange business relative to where we are in 2023.
These tailwinds will be partially offset by continued strategic investments across our portfolio of businesses to drive sustained innovation and long term growth.
We look forward to providing detailed guidance on our fourth protocol.
With that I'll 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 asks you. A question ahead of you you can remove yourself from the queue by pressing star too.
Also if you're using a speaker phone please pick up your handset before pressing the buttons.
Please for the first question.
I think our first question comes from Lisa Gal with J P. Morgan.
Thanks, very much indeed mining, it's really wanted to focus on a couple of things one would be potential P. P. M legislation as we think about mm potentially in Europe now what are your thoughts on what could be included on the P. B M side, and then secondly, you know David he he talked about and circle, Iraq and and talk.
About G. L. P. One I think this is a real benefit, especially when I think about your P. B M business for this health insurance market can you maybe just talk about the opportunities that you see there and and how you see that going forward are we seeing more people sign up for this and twenty-four et cetera.
At least you good morning, David I'll take the Legislative question Little T upheld the G. L. P. One question in the broader market place and I'll ask Eric to expand on the in Circle R. X program specific the legislation is you know we we have and continue to expect operate in a very active regulatory and legislative.
<unk> as a result, we remain active and constructively engaged in the ongoing dialogue.
And by way of framing before I get the specific potential legislative activities, we position our company with a breadth of capabilities, both modular configured and otherwise.
And value creation valued capture capabilities that we believe will be unable to thrive and grow under a variety of environments I highlight an area, where we have a lot of passion.
And that is to ensure that man and amplify the fact that any legislative a regular tour activity should not remove choice, especially from the commercial market for employers as well as health plans given that they are large sophisticated organizations and fund the vast majority of the comprehensive benefit costs, having sir.
That there was intensified activity around transparency and we were highly supportive of transparency. So long. It is it is targeted and constructive meeting it could drive requisite level of actions on a go forward basis as it relates to the innovation that's taking place as I noted in my prepared remarks, we believe we are exceptionally well position, we took very deliberate actions.
Five years ago by acquiring express express scripts three years ago by launching ever north or continued ongoing investment in our specialty capabilities et cetera are all oriented around positioning toward both today's class of drugs that we're seeing like the G O P ones, but future innovations V V for Alzheimer's additional cancer therapies gene therapy.
Et cetera, and we believe we're well positioned to support both commercial clients as well as health plans and cheerful erections, a wonderful new innovation. It's the first of its kind in the marketplace and highly supportive of clients Eric could I ask you to expand on that sure they've been thank you.
So it's Eric.
As you can imagine there is significant interest in need from our clients on the circle Rx program and helping them with guilty ones more broadly they're looking for help with managing the affordability and ensuring that the good good outcomes from the spending on these on the street months as David Teed up I'm really excited about it I think.
They got a circle or X program is a great example of the power of the collective capabilities that we have with and I wasn't ever north. It's the first of its kind of comprehensive solution that brings together our supply chain of procurement expertise along with our clinical capabilities to target the right patient population relevant clinical mark.
Because it targets the pharmacy network management working to eliminate the any waste or abuse in the system and it works to engage patients with additional support that they needed to help make changes that makes the impact last year and we can wrap this all with with a guarantee of clinical outcomes and such for our clients as well so so.
In short, we're really optimistic and excited about the opportunity before this product brings up the cell funded markets and would expect additional additional growth as we look into what goes twenty-four and beyond.
Thank you.
Thank you and this question comes from Justin Lake with Wolf Research you May ask you a.
Question.
Thanks, Good morning wanted to focus on the individual market for a second you know membership was up pretty significantly there almost 100000 members curious if that's which driving your 200000 member guidance increase you're expecting another big slug of those numbers in the fourth quarter and then can you remind us.
Where you are on margins rolled with the target this year and where you kind of you talked about improving that you expect to get into the target margins Ah next year.
It'd be helpful. Thanks.
Good morning, judgements, Bryan just just to clarify your second question was specifically on the individual exchanges correct in terms of the margin profile.
Exactly yep.
Yep.
Yeah, So first off as it relates to the Cygnet healthcare customer guide increasing by 200000 customers I start by saying, we're really pleased with the strong momentum across the healthcare book with our year to date customers running ahead of expectations and that builds off a really strong year. We added 2022 re out of nearly 1 million customers and the second health care business primarily in are you.
S commercial business to your point, we have continued to show sequential growth and R. U S government businesses in the third quarter, particularly individual exchanges, but we've also seen favorability and R. U S. Commercial membership is we have not seen the disenrollment levels. We had incorporated into our prior outlook. You may have you may recall that we had been anticipating some economic we.
This late in 2023, but this is not yet materialized in any notable impact on our customer volume. So all and we're really pleased with 9% projected pull your customer growth in second healthcare a portion of which is related to the individual exchanges put a portion of which is related to the the strike that argues commercial business.
As it relates to the individual exchange margin profile of just for a little bit of contacts you can think of this as being approximately 5 billion dollar block of business for us in 2023, and as we shared in our second quarter call. We anticipate the individual exchange book to run below our target margins in 2023.
Long term target for this business, 4% to 6%.
A primary driver of this is the increased risk adjustment payable that we expect to Oh with the majority of that impact driven by our two largest states, notably, Texas and Georgia now for 2024, we've taken sizeable price increases in both of these two large states and we would expect some degree of margin expansion in the individual book overall.
Exact amount of the margin improvement will be a function of our geographic mix in our duration mix in 2024, and we're likely to have fewer customers and the individual exchange products in 2024 compared to where we are in 2023.
Hopefully that helps a bit if you think about how to model the 24 Cigna health care outlook.
Thank you and next question comes from Kevin.
With Bank of America, you May ask.
Question.
Oh, great. Thanks in the in the.
Tailwind side of things you you talked about revenue growth, including the <unk>.
Launch you've talked so far about the exchanges as well as kind of.
They were kind of one time items does that mean that we should generally think about the rest of the businesses growing you know more or less in line with those long term growth targets are there any other business, where you would highlight of specific headed winter tailwind to the revenue growth outlook for next year.
Kevin Good morning, it's David.
Step back and first look at the consistency of our performance over the years relative to their portfolio and if you look at the <unk>.
P S cake or even over the past several years with a slight downtick this year because of the investments we've made to unfortunate team and our outlook for 2024, we remain consistently within our growth algorithm of 10% to 13% on average EPS cake or as we've delivered that over the last three years five years.
10 year time horizon, we called out a few of the headwinds tailwinds to try to amplify some of the components I would suggest that the first component the outsize growth and specifically the <unk> contribution given the offset in 2023, you can view that one is more directionally additives that pushes us to the high end of the range from an E. P S growth camp.
Versus the low end of the range. The other items that we talk about are largely contemplated into core parts of our business in the core parts of our operations on a go forward basis and is Brian and I. Both know that will give you more detailed guidance in our fourth quarter call us we typically do.
Thank you. My next question comes from a T right U B S. Let me ask you a question.
Hi, everybody just to maybe continue to focus on some of those potential tailwinds for next year, I think reimbursement to get our largest <unk> contract up and running for this year was about a 50 cent.
Roughly 200 million pre tags when.
When you think about that for next year should we just assume that that drag goes away I know P. B M contracts typically ramp up overtime or is there some potential level of profit contribution. So the swing is greater than 50 cents and then on the Biosimilar comment I know this year in the second half you'd included.
Some benefit from that Humira conversion or having some biosimilar competition should we think of what you're thinking about is a tailwind of just annualizing that or are there other opportunities that go beyond just annualize in the second half benefit from that.
You're a conversion.
Hey, Jay saving good morning, you packed a lot in there I'm gonna ask Brian too.
By framing the economics year over year on the 17 relationship or investment the year over year performance et cetera, asking to transition that over to Eric could talk about how the relationship is going importantly, and then ask Eric to amplify a little bit relative to the Biosimilar papworth seeing the latter part of this year and into next year Brian.
Like David morning hatred.
<unk> economics. Your your math is broadly right. We continue to expect it to spend about $200 million. This year in the process of preparing for the Onboarding. We expect next year to be approximately breakeven or slightly positive. So that's the way to think about the modeling of that 25, we continue to expect will be run rate profitability as it relates to <unk>.
Similar component for.
For 24, we expect it to largely be a humira driven.
Biosimilar story, so that's the 25 and thereafter Biosimilars will be further accretive to ever north in time, but <unk> 24 is really gonna be primarily driven by the annualization of the humira related biosimilar benefit bechuana pick up.
Perfect, Brian and good morning to drive.
You said from the beginning that the adoption about similar is going to be more extended and slower process and that the experience today, that's been consistent with our expectation.
[noise] driven meaningful savings for the benefit of our customers and clients. So far this year and we continue to see this opportunity ramp throughout the course of next year and as part of the the market. It's ongoing we've talked to in other settings about the Ah meaningful opportunity for Biosimilars, not only for tomorrow, but for other conditions unexpected.
To be more competition overtime, where you know up to 25 or 30 per cent of the spend in the specialty market competition compared to you know something like less than 10% today. So so in short. This is an area that we're well positioned to drive meaningful value for the benefit of our customers and clients that we have seen unfolded consistent.
With our expectations and were positioned to lead through over the course of the coming years.
Okay, great. Thanks, a lot.
Next question comes from Stephen Baxter with Wells Fargo. You Me ask you a question.
Yeah, Hi, Thanks, I was hoping you can expand a little bit on the MLR outperformance in the corner I guess can you talk a bit more about what you saw on utilization added the seasonal patterns in the third quarter compared to a more normal pre COVID-19 environment and then it looks like you assume a decent step up in queue for you know pretty consistent but you've seen the past couple of years.
Can you talk a lot about the assumptions there on utilization. Thanks.
Good morning, Stevens, Brian I start again, just reiterating up please we already delivered another strong quarter of MCR performance, a second health care of which was favorable of expectations and drove really the income outperformance that we saw on the Cigna healthcare segment, just as a reminder, if you rewind the clock a bit here, we planned in price for more.
Otherwise utilization levels coming into 2023, and our claims experiences is largely consistent with that expectation now within the quarter, specifically our government product lines. You can think of the Medicare lines and individual exchange lines ran largely in line with expectations, while R. U S commercial business drove the favorability and the medical care ratio.
As it relates to the full year MCR outlook, we have improved the expectation by 15 basis points at the midpoint.
Reflecting the favorable third quarter experience, but no significant change in our fourth quarter MCR outlook compared to our prior expectations. So that's the way I encourage you to think about the three Q versus four two dynamics as it relates to specific utilization patterns in categories, such actually wouldn't call out any specific categories in terms of driving outside.
Fever ability, we did see some modest amount of inpatient favor ability in the third quarter, particularly on higher unit cost procedures, which did contribute to that MCR outperformance, but I I'd also note that our site of care strategies continue to produce really strong results.
Tangible example, we often talk about shifting in patient procedures to outpatient for example on orthopedics, but decided care strategies of advanced in many other areas as well for example, capital specialty which I talked about earlier program. We introduced it optimize the sight of care for high cost confusions of specialty drugs. Historically these have been administered in hospital outpatient setting.
However, certain patients can experience equal or better clinical quality at a lower cost by having the infusion in their home. So that's just an example of something that has continued to build over time and contributed to the favorable MCR performance. We saw on the quarter. So just to summarize are pleased with the performance you are.
Commercial drove the majority of the favorable in the third quarter and as noted the fourth quarter M. Seattle is very consistent with our prior expectations.
Thank you and next question comes from Josh.
Research.
Question.
Joshua.
Ask you a question sorry.
Sorry about that good morning, I didn't hear in the prepared remarks anything about commercial large group membership to start to hear so I'm curious on that but my real question is if you could compare and contrast attraction you're getting around village M D.
In.
The commercial markets versus the Medicare markets I'd be specifically interested in the appetite from large employers and if there's any sort of pull for demand or you're getting more traction when you're presenting what those arrangements can look like.
Good morning, Joshua David Let me speak to the commercial large market and then frame your specific question.
Question relative to early traction with village and then I'm Gonna ask Eric to just describe a little bit more broadly the evolving relationship in the strategic work, we continue to advance with village.
First specific to the commercial marketplace and the selling season.
We didn't we didn't profiles of 2024.
Outlook in any level of detail stuff.
Stepping back as Brian noted in these prior comment.
Really pleased with the 2023 results now increasingly outlook for overall.
Lives for Us, who can health care portfolio, yet again.
In excess of 1 million have lives and coming off of 2022 number approaching a million lives for 2024 give you some directional indicators at this point in time first big picture for the enterprise, we expect it to be another attractive year of growth for the signal group in aggregate specific to the commercial marketplace, we expect within the <unk>.
Herschel marketplace portfolio, our results continuing to be led by our sustained shrunk performance. The combination of our select segment and I'm in the market segment, where our value proposition in our products and services are resonating quite well strong retention make good new business ads within that portfolio and then specific national accounts.
Currently our outlook for 2024 is on the benefit side of the equation. After some out upsize growth in 2023, 2024 will will look a little bit more normalised relative to prior years and to remind you strategically for that segment, we've expected to see that segment.
A flat to slightly shrinking segment in the market in aggregate within the employer landscape or strategy has us maintaining share in deepening our relationship with our clients through our expansive further expanding portfolio of specialty services. So to put a circle around it will be another strong year of growth for the senior group in aggregate and the commercial.
Polio in 2024 will be led by the sustained strength of the select in the middle market business specific to villages equate quick T up to your your comment or commercial employers today alright.
Already are seeing a step function of benefit from our relationship with village and then the village summit acquisition in the nature in which we have structured that relationships, we're able to deliver.
Function of value to our commercial clients already be they sell.
Self funded b, they assured returns b they guarantee cost from that standpoint, and then the team is aggressively at work to further enhance the value proposition there and Eric I'll just ask you to provide a little color in terms of the way the way in which the teams are working together to advance the value based care traction sure fixed it isn't good morning, Josh Uhm stepping back a bathroom for bill.
I'd have to think about the both the financial and the strategic component of a relationship with village as you know we got a minority stake I'm in awe of ownership now and until that's performing consistent with or our expectations from a strategic perspective, you can think of our work with villagers one village and us being committed partners to work together and we're we're.
Going to build an alignment you'll also.
System of of high performing all providers, where we can wrap village and how much operations with some of our political assets wrapped in support with the data and insights from both organizations to help to ensure patients can get to the best care of the needs of a specialist I need the highest quality et al.
I really think of that is ultimately applicable across commercial or government plans.
Our focus in the near term has been outside more skewed towards the commercial market, but it's a it's an approach that works across any pay her ear right. Because it focuses on getting to the highest quality best care available for an individual and that's that transcends across all the the market overtime work.
To continue to expand this but the day off to Ah Ah off to a good start and I'm pleased with the progress and the momentum that we're building with our partnership with village.
Thanks.
Your next question comes from Scott.
With Stevens.
Ask you a question.
Oh, Hi, good morning was hoping maybe we could just toggle over T y M. A for a second and maybe just give us a sort of a framing upper somehow sort of MLR was performing and pretax margins sort of baseline.
First the long term government three to five per cent target for twenty-three and then you want to give us. Some initial observations on how the AEP seems to be developing for you and how you feel about and a growth next year, you know burst, let's call. It the the industry forecasts around seven per cent growth.
Scott Good morning, David just a couple of comments unless Brian <unk> a couple of your specific points first as I noted in my prepared remarks were pleased with the stars position stable strong start. This should we have and uhm continued traction of our ongoing focus to expand our geographic footprint.
The last Brian to to expand on a little bit more more significantly as well as her ongoing investments in terms of our a broad set of capabilities 2023. It was a very good year of growth for us in terms of this business portfolio and our market expansion plans around track for 2024, Frank and ask you to expand on that a little bit sure David morning, Scott, maybe I will.
Your question is that a little bit of reverse order and start with a T. A P and the growth expectations that I'll get to the margin profile.
David just reference we're really pleased with the growth in the book year to date customers are 13% year to date 2023, and since 2019 as you know we've gradually expanded our geographic footprint in this business from covering just 20 per cent of Medicare advantage eligible in 2019 to over 40% today and for 2024, we.
You have some further expansion transpiring and we'll know the offerings in about 45% of the addressable market.
As we approached the 2024 bit cycle, we employ a micro market posture as we always do.
This resulted in stable benefits and most geographies and a few areas, where we had targeted pullbacks in benefits in light of the funding environment now it's really early in the a P. As you can appreciate and they're still several weeks ago, but taken altogether based on what we know today, we would expect to see net customer growth again in 2024.
As it relates to the margin profile as we expect that our 2023 margins continue to be below or long term target margin range, which is 4% to 5% on this book a business. You can think of this is primarily driven by administrative expenses because we have outside its investment spent in geographic expansion product expansion of new capabilities. So you should think of the <unk>.
Margins as representing a source of future embedded earnings power that will contribute toward our long term growth and Cigna healthcare segment and come over a multi year basis for 2024, we expect to continue running below a long term target margin range in this business.
But the final projected margin here will also be a function of geographic mix product mix customer duration mix, depending on how that shakes out in the AP and across the the balance of the year. So what will certainly be prepared to give you more detailed guidance during the fourth quarter call, but hopefully that helps turn out.
Thank you and next question comes from Gary.
Taylor with Cowan.
Question.
Hi, Good morning, I just wanted to go back and ask one more question about the exchange business and expectations for next year. When we look at you know the pricing actions you.
You guys took about across markets. It looks very very outside's versus what the rest of the industry did so I think that's the thing is it's a huge positive in terms of the Martin expectation, but.
Historically companies that have done that obscene really significant deterioration of enrollment. So I guess the question is how much of the <unk>.
At least $28 and.
2024, it is dependent upon.
Exchange earnings if if we solve the enrollment declined by 30 40 per cent something like that yet March and what's better is that impactful too to getting to the 24 guidance like how much we care about where we seek the enrollment numbers come in.
Good morning, Gary It's Brian So certainly your points well taken in terms of large price increases can have impacts on the customer volumes and disproportion of ways what to see how this cycle plays out in terms of the U S to city of the of the customer growth relative to those pricing actions to David's comments earlier Tailwinds. This is one.
Of several tailwinds that we have so I would encourage you not to over index on the customer volumes in terms of our ability to deliver against the $28 of earnings per share. Just if you think about the context of this is a 5 billion dollar block of business.
Target margins, that's $250 million of profit to the mid point of the 4% to 6% range. So do you think about the delta there relative to the year over year, we're talking about hundreds of millions of dollars of income growth. The enterprise level. So I just I would encourage you not to over index on this one specific factor, but we're confident we're going to see the margin expansion. We're confident we'll see the income tailwind.
And we'll give you more updates I'll tell you got it from the fourth quarter call.
Okay. Thank you.
Thank you and next question comes from Nathan Rich with Goldman Sachs. You May ask your question.
Thanks very much for the question I wanted to follow up on the comments around G. L. P. One for obesity and the potential value ever north can deliver for clients. There I guess could you go into a little bit more detail on the nature of discussions you're having with the drug manufacturers right now on pricing and and getting that to a level that.
They could expand access and.
Know, what you know roll maybe the the outcomes trials will play in those discussions in terms of you know potentially you know from your kind of commercial customers their their desire to expand access to these therapies for their their populations.
Good morning, it's David just a little little framing and consistent with prior conversation we've had to date within our our benefits portfolio, you could think about 10% to 20% of our clients.
Currently having adopted an optional by up or coverage for weight management outside of the already formula repositioning or for diabetes for the drug class number one on the north side of the equation as we've discussed before the percentage is higher and you can think about why the difference the differences within the <unk> portfolio the camera.
Employer landscape is larger employer size on average versus the diversity that exists in the cygnet healthcare side and then within the health plan portfolio, enabling some aspect of it from an access so that gives you just a little stage setting of the fluidity of the current environment. Your question comes down to a fair amount of detail relative to pricing.
Working with the manufacturers often ask Eric to talk just more broadly. This is an area where as we discuss my prepared remarks, where the broad capabilities of our of north portfolio.
Significantly thrived in terms of data clinical aspects clinical coordination relationship with pharmaceutical manufacturers and importantly relationship with practicing physicians to get the best coordinated care. So Eric could I could ask you to expand on that a little bit Greg Thanksgiving's good morning with.
With respect to stepping back I would have you think about the impact here that.
<unk> will be around improving affordability as it's been said and reported across a variety of of different traveled to these these therapies are effective but they're also very expensive. We would expect that over time will be well positioned to harness the power of competition to improve the affordability to bring the car.
Lock down and that's an important element, but then in addition to that where position to rap and support these patients with additional services clinical services. The right approach the right targeted to ensure the maximum effectiveness here. So I don't know that it's constructive to talk about the kind of ongoing dialogue with manufacturers, but rest assured that we are.
Are very engaged with the with a variety of <unk> pharma manufacturers in this space I'm looking at ways to expand access and improve affordability I'm just like express scripts of the long history of doing those new innovations have come to the market and the pharmacy space and will continue to be a later there.
Thank you next question.
See me ask you a question.
I'm, mostly a clarification, but thank you for taking my question. Good morning on on the government utilization, maybe particularly Medicare advantage. It sounds like it was in line with your expectations.
But I wondered if you could comment if you are seen elevated the elevated outpatient center that gets called out by others in the space and that was just again in line with your expectations and then in terms of of managing utilization inside of service you mentioned.
Ah Ah good success in managing side of service and path well is past the primary vehicle by which you're doing that and what is the the kind of customer adoption or the penetration I guess a pass well in your side of surface utilization management. Thank you.
Good morning, David Bryan on your first question on the end of a utilization patterns as I mentioned earlier, when we stepped into 2023, we expected more normalised utilization levels across all of our different product lines and the claims experiences as broadly in line with that and within the Anais books, specifically throughout the entire year, we'd seen elevated utilized.
Nation in both outpatient and professional services in particular, but again within the context of what we had forecasted and planned for the third quarter. Our government lines ran broadly in line with where we expected them to and as I said earlier U S commercial business really drove.
Favre ability so again the under a pattern for broadly a continuation of what we saw in the first half of the year and our 2023 guidance in 2024 bits anticipate that these dynamics will continue as opposed to assuming any meaningful amount of cost abatement occurs on your second question on <unk>.
The service I did call out the path well specialty example, but you should think of that as one of the many arrows that we haven't whoever if you will so the.
Work, we've been doing over the past several years has largely been moving inpatient outpatient it's been moving things from emergency rooms to urgent care moving things from physician offices to virtual so pass laws specialty is another example of the evolution of our site to care programs side I wouldn't.
View that as the silver bullet here by any means but it's it's an incremental contributor until the strategy who had in place for several years now.
Alright, thank you.
Last question kept him Lance Wilks with Bernstein Me ask you a question.
Question.
Yeah, I just wanted to turn to the P. B M with them ever North and Ah kind of two elements of the question was if you could just talk a little about the strategic rule of party.
Oh for the P. B M and Purr health care for driving 10, a M a business going forward and and how you see that going forward given some of the changes in the part D program and then the specific question was on suggested home delivery and specially scripts. There were some drops and that was just interested if that was the driver that was driven by the prime relationship and.
[noise] any sort of been source thing that's going on there or what the other.
Drivers of of that move was thanks, a lot guys.
David Good morning, good to hear your voice of I'll take the first part of your question I'll ask Brian to the address the second part of your question first.
First a specific third party broadly with the size shape and scope of our enterprise today, It's a portion of our enterprise, but I would call. It is not a significant part of our overall portfolio to dismiss the importance of it from a societal standpoint by any stretch imagination, but when you look at the scope of our our enterprise approaching $200 billion of revenue.
This year I would not call. It is a significant component secondly in forwarding. Your question I would submit that we've we've under realize are under leverage the potential to effectively convert PDP lives or enroll PDP lives in demay, that's an untapped opportunity that exists within our portfolio.
Today relative to our level of activity and initiation lastly, and your comment we do recognize that the PDP landscape is disrupted.
Based on some of the legislative and policy activities that transpired and we will effectively physician of our portfolio, obviously to be responsive to that disruption, but we have the tools to be able to manage within a portfolio in totality I'll ask Brian to pick up the second piece of your question just relative to the script volume and puts and takes in the portfolio of this past quarter.
Good morning, let's as it relates to the adjusted home delivery and specialty script, you can think of a couple of different drivers and their specialty.
Specialty scripts continue to grow in attractive rates, So think mid to high single digit type unit growth, but given the relatively small numbers, they're they're outweighed by what happens in home delivery. So in that line item you can think of 95% plus of the volume is home delivery in less than 5% is the specialty scripts, but attractive growth and specialty which continues to drive the double.
Digit revenue growth that we've seen in that business all year. The specific driver at the home delivery decrease just to put a finer point on it as we had transitioning client that we've known about for several years.
One one twenty-three at some outside his home delivery volumes, but we'll see.
Some improvement in that on a go forward basis with additional clients coming in.
Right.
Thank you I'll now turn the call back.
For closing remarks.
First and foremost thank you again for joining our call today and for the ongoing conversation just to highlight and summarize our dialogue today.
We are very pleased with our performance for the quarter and the momentum we've been able to carry announced where three quarters of the year and we've made on track to deliver on overall commitment for 2000 twenty-three we increased our outlook for adjusted EPS to at least $24.75 for full year 2023, as well as increasing the overall outlook, we have for revenue customer lives in <unk>.
Ash flow based on our strong performance and remain committed to our 202004 EPS objective of at least $28 I do want to pause for a moment and like my colleagues around the world.
The health care landscape could use to change with accelerated forces impacting our clients or customers, our patients and our partners and our team leans in day in day out working to make a positive difference for those we have the benefit to serve those we have domestic partner with as well as our orientation, where I'm, making a positive difference in the communities. We work serving playing each and every day so I want.
Call out and thank our colleagues that continued to make such a positive difference in the marketplace. Each and every day with that we look forward to our ongoing conversation.
And our future dialogues, both impersonate industrial events as well as our fourth quarter conversation coming out have a great day.
Ladies and gentlemen, this concludes the signal groups third quarter of 2023 results review.
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