Ladies and gentlemen, thank you for standing by for Cigna's First Quarter 2023 Results Review. At this time all callers are in a listen-only mode. We will conduct a question-and-answer session later during the conference and review procedures on how to enter queue to ask questions at that time. [Operator Instructions].

As a reminder, ladies and gentlemen, this conference, including the Q&A session, is being recorded. We'll begin by turning the conference over to Ralph Giacobbe. Please go ahead..

Great, good morning everyone, and thanks for joining today's call. I'm Ralph Giacobbe, Senior Vice President of Investor Relations. With me on the line this morning are David Cordani, The Cigna Group's Chairman and Chief Executive Officer; and Brian Evanko, 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 thecignagroup.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 risks and uncertainties is contained in the cautionary note in today's earnings release and in our most recent reports filed with the SEC.

Regarding our results effective January 01, 2023 we adopted, amended accounting guidance for long duration insurance contracts, LDTI, and related amendments, our 2023 full year outlook included the impact of LDTI and prior results have been restated to reflect this change.

There has been no material impact to 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 will call -- turn the call over to David. .

Thanks Ralph. Good morning everyone and thanks for joining today’s call. We begin 2023 with momentum and in the first quarter we again delivered strong performance and continued our long track record of innovating for customers, clients, and partners.

Today I will discuss some of the key drivers fueling our growth during the quarter and we also talk about how we are leading the way to address evolving state health care needs with a flexible financial model providing multiple avenues to deliver and capture revenue.

Specifically, I will describe how the durable and flexible pharmacy benefit services we harbor continue to drive in the marketplace. Finally, we will provide additional details about our financial results and discuss our outlook for 2023 and then we will take your questions. With that let’s get started.

In the first quarter we delivered $46.5 billion in total revenues, $5.41 in adjusted earnings per share, and we are ranging our full year 2023 guidance for adjusted EPS, revenue and customer growth.

We are pleased with the strong start across Evernorth Health Services and Cigna Healthcare and we look forward -- as we look forward, we expect another very good year for the Cigna Group.

Evernorth comprising pharmacy benefit services, specialty pharmacy, and Evernorth Care again contributed strong growth while retaining, expanding and winning new relationships for the employers, health plans, and governmental organizations we serve.

Our foundational pharmacy benefit service business continued the strong performance demonstrating the value we provide to our clients and patients. Specialty pharmacy which accounts for approximately 40% of Evernorth's total revenue drove outside its growth with a continued rise in new to market specialty drugs and increasing demand.

Evernorth Care represents one of our most significant long-term growth opportunities given the growing needs a virtual care as well as for example behavioral health services. Insignia Healthcare, our health benefits platform, we achieved another quarter of revenue and customer growth with strong performance across our U.S. commercial, U.S.

government, and international health businesses. With our focus on affordability and disciplined pricing, we are pleased with their medical cost performance and our medical care ratio which was 81.3%. Our U.S. commercial business is on pace for another good year.

Our affordability initiatives continue to strengthen our overall competitive position and this has helped fuel our strong customer growth. Our momentum also is a reflection of how employers of all sizes rely upon our consultative approach and the breadth of our solutions to support the health, engagement, and productivity of their workforces. In U.S.

government, our Medicare Advantage business is achieving above market growth in 2023 from a high quality and affordable plans, our geographic expansion, and the maturation of markets we previously expanded into.

In a dynamic individual exchange market we also have substantial growth in our individual and family plan business, allowing us to bring Cigna Healthcare capabilities to a larger customer base.

And in International Health, our earnings growth has been strong for the past few years and we expect positive top line and bottom line contributions again in 2023 given our high quality and localized health insurance solutions supported by our global provider network.

Overall, we're pleased with the quality, strength, and resilience demonstrated in our results and importantly, how they position us for another year of sustained growth and attractive value creation.

Looking ahead, we are confident in our increased outlook for the year as well as our ability to sustainably deliver 10% to 13% compounded EPS growth over our strategic horizon along with providing an attractive dividend.

Today, I want to spend a few minutes on Express Risk, our pharmacy benefits business within Evernorth, including our recent announcements about how we are continuing to provide greater affordability, choice, and transparency for our clients and customers.

Pharmacy services have an essential and impactful role in a time when in medical care, physical or behavioral are increasingly relying upon the use of pharmaceutical interventions. It's also important to recognize that successful care coordination programs for pharmacy services often create significant benefit and value for the medical services.

We recognize the ongoing attention and legislative debate regarding the rising costs of prescription drugs. We are taking an active leadership role and I want to be clear about how we are using our differentiated capabilities to create and capture value out of the drug supply chain on behalf of our clients and customers.

First is the strength of our model, which is to deliver solutions and care coordination that address specific client needs and expand relationships with our full suite of services and capabilities, fueling our sustained attractive growth over time. Second, we are committed to enabling and prioritizing choice for our clients as we drive down costs.

And third, we continue to build on our long track record of innovation to drive greater affordability, access, transparency and improved clinical outcomes.

Stepping back, our Pharmacy Benefit Service business is achieving attractive growth because we're able to secure a diverse group of any growing client base, leading with the strength of our supply chain, clinical and care management programs.

With our proven model Express Groups client retention rates are consistently in the mid-90s or higher and we've been able to continuously grow our pipeline and win new business, from medium size to the largest employers, from the local health plans to national players, and even the largest government sponsored programs.

We've expanded our efforts to advocate on behalf of our clients and customers particularly as it relates to financing models which are key areas of focus for some of the current legislative proposals.

The Express Scripts business model starts with the commitment to enabling and prioritizing choice in benefit design and financing options for clients who are the primary financers of their employee benefit programs.

This includes providing them the option to finance the cost of their programs by allowing us to share in the discounts we secure on their behalf, be it rebates or spread pricing. Our clients choose amongst these models based upon their needs for managing risk and greater predictability for the pharmacy costs as well as their cash flow.

For context, across the breadth of our Express Scripts Pharmacy Benefit Service portfolio today over 95% of rebate dollars are passed through to clients. The key point is that each client chooses the financing mechanism that works best for them.

They have choices in how they pay for the value we deliver and many find that using rebate sharing or spread pricing generates a stronger level of alignment incentives in addition to being able to plan for predictable cash flow that it generates.

Proposes to limit the availability and scope of these options will result in less choice for thousands of employers, health plans and government, the clients we serve and increase their costs over time.

As it relates to Express Scripts, we are confident in our ability to earn sustainable and attractive margins for our services under a variety of legislative scenarios.

We are able to create value through the breadth of our capabilities from supply chain to benefit design, driving competition amongst drug manufacturers to bring costs down, and deliver better health outcomes through our clinical programs.

One area of focus for multiple stakeholders has been the amount of income we earn from rebate retention and retail spread. To put this in context, we expect about 20% of Evernorth's 2023 pretax adjusted earnings to come from Express Scripts retention of rebates and retail spread.

This percentage has trended down over time and we expect it to continue trending downward. This is fueled by our ongoing innovation and greater diversification of our Evernorth businesses. I would also remind you that these financing options that we provide the clients are developed in exchange for lower service fees.

So said otherwise if these programs decrease further overtime fee based income would increase. Therefore, we are confident that if some of these payment vehicles were reduced or removed by regulatory change or client preference, Express Scripts has a broad set of capabilities that create value and will continue to earn an attractive return.

Let me provide some specific examples that reinforce our flexibility and durable model and how we tap into our long track record of innovation for better outcomes on behalf of our customers and clients who are seeking greater affordability and transparency for prescription drugs. First, we're taking several steps to expand transparency.

Express Scripts new ClearCareRX fully demonstrates the flexibility we have for prescription drug benefits where clients pay exactly what Express Scripts pays pharmacies for prescriptions. They receive 100% of drug rebates that Express Scripts obtained by negotiating with pharmaceutical companies.

They pay one service fee to cover the administration of pharmacy benefits, product services, reporting analytics and the program is supported by a fully audible mechanism.

In addition, clients also benefit from guarantees to keep Express Scripts accountable for clinical and financial performance measures, including improvements in overall inheritance rates and patient outcomes.

Additional steps to drive even greater transparency include providing clients with enhanced financial and feed disclosures regarding their spread pricing programs when they exist.

Along with today's release about our first quarter financial results, you will also find additional disclosures we are providing about Express Scripts model in our quarterly regulatory filings and on our new microsite. We will also offer a new digital pharmacy benefits statement for customers starting in 2024.

The statement will share drug pricing information, out of pocket costs and the net value delivered by Express Scripts on behalf of customers. With respect to the broader issue of drug pricing, to be clear, we were fully aligned with lowering costs of prescription drugs for customers.

For example, Express Scripts Patient Assurance program launched in 2019 capped out of market costs for eligible members of select diabetes and cardiovascular medications. In 2022 alone, customers taking insulin saved more than $18 million because of this program.

Now with the introduction of our new copay assurance plan, we are taking further action to cap out our pocket costs for customers in client prescription drug benefits at $5 for generic drugs, $25 for preferred brand medications, and $45 for preferred specialty medications.

Finally, we also have a series of groundbreaking initiatives to further support pharmacists in rural communities across the United States. We are offering increased reimbursement to true independent pharmacists and partnering in opportunities to expand their clinical practices to further support care needs of the local communities.

We are also convening an advisory committee of community pharmacists. These initiatives will encourage better care, expanded access to lower prices for rural Americans, as well as increasing a more sustainable revenue stream for independent pharmacists.

We are encouraged by how our recent actions have been received by a wide range of stakeholders, including clients, our pharmacy network partners and policymakers.

They recognize our commitment as a leader and trusted partner that could use to create value through our deep expertise in designing programs for specific client needs, driving innovation, and broadening our reach.

In summary, we are demonstrating our leadership in the competitive pharmacy benefits market that is such a critical building block for the American healthcare system. We are serving specific client needs through the strength of our model and the effectiveness of our care coordination programs, allowing us to drive sustained attractive growth.

We are continuing to advocate for clients and their ability to choose the appropriateness of programs that work best for the business as we help to lower costs. And we are continuing to innovate in driving greater affordability, transparency, and improved outcomes for those we serve.

Now let me briefly recap our performance for the quarter and our outlook. In the first quarter, we continue to execute and perform well. We delivered for our customers, clients and partners and our business kept our commitment to our shareholders.

We delivered adjusted EPS of $5.41 per share and we're pleased to have increased our full year outlook or adjusted EPS, revenue and customer growth as well as an improved medical care ratio. We are confident in our ability to continue to deliver and capture value in the dynamic and changing environment.

We've shaped our business model to navigate varying economic conditions and our differentiated capabilities within Evernorth to provide us with the flexibility to meet unique client needs and potential changes caused by regulatory requirements.

Additionally, our business is driving growth that is generating strong cash flows and we are confident that we will further create value for successful and effective capital deployment. With that, I'll turn the call over to Brian..

Thank you, David and 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.

The first quarter adjusted earnings per share were above our expectations, demonstrating focused execution across our high performing Evernorth and Cigna Healthcare 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 Evernorth results, I'll build on David's comments regarding our recent announcement to advance transparency around our PBM and I'll provide incremental details on our earnings drivers.

I'd first start with a level setting that of our operating platforms ever takes up approximately 60% of earnings and Cigna Healthcare is about 40%.

Within Evernorth, our Express Scripts PBM is 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 Evernorth's adjusted pretax earnings are comprised of PBM retained rebates and retail spread. This percentage has decreased over time as we continue to expand fee based client relationships and as our Evernorth portfolio becomes more diverse and continues to grow.

Importantly, as Evernorth's 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 in the operating or regulatory environment.

As David mentioned and I would underscore, our foundational PBM asset will continue to create and deliver significant value, which will allow us to sustain growth at attractive competitive returns.

Shifting to our current period Evernorth results, first quarter 2023 revenues grew 8% to $36.2 billion, and pretax adjusted earnings were $1.3 billion, in line with our expectations.

Evernorth 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 Evernorth and Cigna Healthcare.

We also continue to make strategic investments, which serve 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 in our implementation of the Centene contract that begins in 2024.

And our collaboration with VillageMD 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 Cigna Healthcare, U.S. commercial and U.S.

government clients as well as other provider partners and Evernorth health plan clients.

Additionally, we remain confident around the multiyear accelerating biosimilar opportunity with high visibility into expected savings for customers and clients in the second half of this year, consistent with our prior expectations and regardless of utilization shifts for product approvals in the market.

Overall, Evernorth continues to perform very well. Our diversified set of earnings 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 pretax 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 1.5 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 aided by the addition of a large fee-based health plan client that expands upon an existing Evernorth 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 MA growth of 10% on a year-to-date basis.

Overall, Cigna Healthcare is off to a strong start in 2023 as we continue to deliver differentiated value and affordability to our customers and clients.

Across our Evernorth and Cigna Healthcare 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 in Cigna Healthcare and Evernorth. 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 in large part driven by Evernorth's earnings ramp over the course of the year with second half EPS contributing slightly below 55% of full year EPS. In Evernorth, we expect continued strong performance, all while investing in growth and innovation.

We continue to expect Evernorth full year 2023 adjusted earnings of at least $6.4 billion. In Cigna Healthcare, we are raising our medical customer growth expectation to at least 1.3 million customers, an increase of 100,000 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 $4.425 billion. Despite the dynamic macroeconomic environment, we have yet to see material impact to Cigna Healthcare 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 disenrollment 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 redeterminations.

Finally, when contemplating the Cigna Group's performance under various future economic scenarios, it's important to keep in mind that we have strategically positioned the company's portfolio of businesses to be more diversified than it was in prior economic downturns.

This gives us confidence and 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 31st.

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 4, 2023 we have repurchased approximately 3.7 million shares of common stock for approximately $1.1 billion.

And for full year 2023, we continue to expect at least $9 billion 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. Evernorth continued to deliver strong results with the first quarter in line with our expectations.

While Cigna Healthcare 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 Evernorth and Cigna Healthcare.

And with that, we'll turn it over to the operator for the Q&A portion of the call..

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

Thanks very much, good morning. David, thank you for all the comments around the PBM and profitability, etcetera.

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 legislation is going to take away that decision-making by the employer, what are employers 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 2024 selling season?.

Lisa, you put a lot in there. Good morning and thanks for the questions. Let me try to touch on each.

First, as we step back, as I noted, we're quite proud of the results that we have delivered and continue to deliver in view of the PBMs using that acronym, but the pharmacy service organizations are the organizations that relentlessly work to improve affordability for the benefit of a broad constituency group.

I think to your first question, if we step back, well, we could point to tremendous results in terms of clinical trends, outcome, affordability on average, less than $1 increase in out-of-pocket costs for individuals. We do recognize, and I think this is part of the legislation or the legislative energy, the program still don't work for everyone.

So for example, while the programs are designed to generate overall affordability, if there's a high deductible plan is an illustration and in the month of January, someone has -- it is a deductible and has a significant out-of-pocket for our pharmaceutical experience that creates a financial dislocation for an individual, that's a failure of the system, right.

We need to step up to that. We need to innovate because that's an unintended consequence of the failure of a system.

So we could talk about the averages that we're proud of from an affordability, but we need to make sure we continue to innovate till it works for everyone or we could talk about the fact that we have leading breadth of network access through our pharmacy networks, coupled with our home delivery, yet when you look at the uniqueness of America in some rural locations may not have the access or accessibility in a specific case.

And therefore, the market is not working for those individuals. Hence, you see some of the innovations we step forward on. Our copay assurance program directly goes at the out-of-pocket predictability for individuals under a variety of circumstances.

Our rural pharmacy and independent pharmacy initiatives go directly at specific actions to support individuals. So the averages when we sit and look at the data is accepted, we need to do better, and we're stepping forward as a leader to do better from that standpoint.

As it relates to employers, our retention rates and our new business growth rates reinforce the fact that by and large, employers see us as being successful.

I would note that our ClearCareRx program that we just rolled out, that was two years in design and we worked with about a dozen sophisticated large employers to design those programs to work for them and work for us and how we can roll those out and scale.

And as we sit here today, we have hundreds of clients together with our Evernorth team and our Express Scripts team talking about future innovation. So there remains high receptivity and high receptivity to the advancements we're making in terms of further transparency in clinical programs, but they like their choice.

They like having the choice of financing mechanisms, which we are aligned with. And then finally, maybe just to manage time, on the 2024 selling season, 2024 will be another year of growth for us in the Evernorth service portfolio. We will see strong retention. As I noted, our retention has historically been in the mid-90s or better.

We will see strong retention and we will see good growth as our products and programs resonate in the marketplace. Lisa, thanks for the questions..

Thank you Ms. Gill. Our next question comes from Mr. Steven Valiquette with Barclays. You may ask your question..

Great, thanks. Good morning. So regarding the Evernorth results in the first quarter, you mentioned they were in line with the expectations.

Just with the script volume though being down, just curious to get more color on that? And also, I know you're not giving script volume guidance for the full year, but just curious if the trends in the first quarter are good run rates for the full year? Thanks. .

Good morning Steve, it's Brian. Yes, as I mentioned earlier, our Evernorth results are very much in line with expectations for the quarter. One thing that's important to keep in mind, David mentioned 40% of the revenue in Evernorth now is derived from our specialty pharmacy business.

And as you can appreciate, the Specialty Pharmacy script counts end up being dwarfed by the generics and the higher-volume script counts that come through the PBM. So it's a little bit misleading to look at the aggregate script counts for those reasons. And I'd note our -- the revenue in the Specialty Pharmacy grew mid-teens year-over-year.

So it was a very strong grower. You saw strong script growth in specialty, but again, it was dwarfed by the big picture of the PBM generic volumes moving around a bit.

And as you think about the overall script counts year-on-year, I think of the client mix changes that occurred from 2022 to 2023 is driving a good bit of that and that really drove the kind of flattish all-in script counts. Now as we look forward to 2024, obviously, we prepare to onboard Centene, you'll see a meaningful step-up in that metric.

But as I mentioned earlier, with the specialty pharmacy growing at such an attractive rate, it's a bit masked when you look purely the script count metrics. So hopefully, that helps a bit. And when you put all those pieces together, we're getting confident and comfortable with the full year outlook in terms of Evernorth 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 PBM and the regulatory focus, David. You mentioned that not all pharmacy benefit designs work for everyone. And the target, I think, of much of the legislation is focused on lowering out-of-pocket cost for patients. You've had plan options in the past that address some of these areas.

I know you said that clients like having that choice.

But are there -- is there any middle ground in terms of different solutions that you couldn't maybe roll out more broadly that would address some of these pain points kind of proactively ahead of maybe being forced legislatively? And I guess kind of my follow-up to that is client preferences I think kind of changed relatively slowly over time.

I guess if we did see legislation go in place, how quickly could you kind of shift the client -- shift clients to new payment models to kind of adjust to a new regulatory backdrop?.

Good morning Nate. So first, on the affordability in 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 planned sponsors made trade-offs in terms of how much is put in premiums, how much is put in the benefits, etcetera from that standpoint.

Two, just pointing you to 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 monthly costs at $25 will stop. There's 11 million people benefiting from that program today as you see more focus relative to insulin.

So we can have and will from that standpoint. Second, as you click down because, in many cases, the devils in the details, as you roll out new programs, you learn that, for example, some of the copay assurance programs can work in an HRA program, but in some cases don't work in a HSA program because of the regulatory requirement to the HSA program.

They'll only work for preventative drugs, but they won't work for a broader class of drugs.

So that now enables us to be more consultative with employers to make sure there's even a more pinpointed focus on benefit design and communication strategies as open enrollment happens because in some cases, an individual will enroll in an HSA, yet learn later that they have more dislocation in their out-of-pocket costs in a given month from the copay.

So my point is actions taken, actions being taken, more precision that is necessary from that standpoint. As it relates to the -- how quickly we could pivot, we've proven tremendous flexibility in our model.

Some of the additional data we're providing, we noted even last year at our Investor Day, we would continue to push ourselves with expanded disclosures and you're seeing more and more.

We can pivot, we will pivot, we will continue to offer choice and the tools exist today as exemplary with our ClearCareRx program to provide further choice that use different financing mechanisms. So we are confident that we will be able to flex rapidly, if necessary.

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 want 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 the PBM question. In the prepared remarks, you mentioned your ongoing discussions with VillageMD 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 2024 bids commercially and MA, will any of those arrangements be part of the package that you offer or a factor in your bids and -- so it's about 2024 anything on the MA final rate notice and whether that changes your view on growth or margin trajectory that you're on in MA?.

A.J. good morning. You tucked a lot of questions in there, but let me start from the top. Relative to value-based care, before I hit the Village first, we've had a long commitment and positive track record relative to value-based care programs.

Our orientation, as you may recall, is oriented around partnering, using data in collaborating with additional care extended resources to drive better, more consistent clinical outcomes and therefore overall value. Today, think about order of magnitude approaching 75% of our MA lives are in a value-based program.

And depending on what you're looking at commercial or individual exchange, 40% or 50% of lives benefiting from the value-based program. And I'd underscore that we're seeing benefits from that in our continued market-leading lower medical cost trend.

Specific to Village, we're pleased to advance and even further partnering more deeply with Village and collaborating with them. There are many ways in which we'll collaborate with Village to further accelerate value-based tier care traction off of their already successful model.

I would note and highlight one of the portions that we are really excited about with Village is they've proven their current value-based care approach for commercial as well as Medicare Advantage.

And our model with them has the ability to design and benefit from not only commercial and Medicare Advantage, but ASO and guaranteed cost as we bring more Evernorth services and collaborate with them as we curate more specialty networks, etcetera, going forward.

As it relates to the part of your question, are there benefits in our current pricing as a result of our village initiative, they are starting to yield benefits already, starting to contribute to pricing in specific markets where the initiatives are underway is the headline.

As it relates to your last question relative to big strategy, rate notice, etcetera, you should think about our view is our net rate for 2024 approximates the industry average. We take all the puts and takes that are framed in.

Secondly, as you know, we're in the latter part of the bid cycle right now, so it would be premature and inappropriate for me to speak in any depth relative to our specific pricing strategy for 2024. We're pleased with our growth in 2023.

We're pleased to see the 10% that we wheeled today and the traction in some of our markets that are maturing, and we will work on a market-by-market basis relative to the bid strategies and look forward to updates as we get into the second half of the year. Thanks, A.J..

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

Thanks, good morning. And I'll just echo how much we appreciate the comments on the PBM transparency there. I wanted to follow up with a couple of things on the PBM. The first is -- and so 20% of your profits come from those spread contracts and rebates.

If the government did pass what they're talking about this year, how would -- how are your contracts structured such that you could pivot away, is that something that would have to happen over time, what would the near-term impact be versus the longer term? And then secondly, I've gotten a lot of questions on 340B given what one of your peers talked about is a pretty meaningful headwind versus their expectations this year.

So curious if you can give us some color there in terms of maybe what percentage of earnings come from 340B or how your outlook has changed there within your [indiscernible]? Thanks. .

Good morning Justin. I'm going to take your questions. It's David. I'll take your questions in reverse order. Specific to 340B, 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 340B 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 removed or 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-2022 and we saw volumes begin to increase in the second half of 2022 is different data 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 these extrapolation based on the size of certain other programs, we think is overstated.

This is manageable within our portfolio and not a material driver of the overall Evernorth portfolio. As it relates to your first question, which I really appreciate, Justin, I can't give you a precise answer to your question.

If we take a theoretical and say that legislation is passed tomorrow, that creates an immediacy, which we do believe will transpire.

In fact, if you could 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 by and 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 exist.

And as we made clear, even with our ClearCareRx program, we have the tools and flexibility to deliver what a client wants from a choice 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..

Hey, thanks. You mentioned some elevated disenrollment in the second half embedded in your guidance from a softening 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? Thanks. .

Good morning Erin, it's Brian. So first of all, I just would reiterate, we're really pleased with the strong growth momentum across the Cigna Healthcare portfolio. When you think of our U.S. commercial Medicare Advantage and our U.S.

individual business is all showing strong year-to-date results running ahead of expectations in aggregate for enrollment levels. And that builds upon our really strong performance in 2022, where we added nearly 1 million customers across the Cigna Healthcare platform.

As I mentioned, we are not yet seeing signs of economic pressure in our book, for example, the disenrollment levels in the most recent months are very much in line with historical norms. But as I mentioned, we have assumed some level of elevated disenrollment in the back half of the year in order to be prudent.

And in addition to that, we typically see some in-year attrition within the U.S. individual book over the course of a given calendar year. And as I mentioned, we still see organic growth in net client counts in the U.S. commercial business, particularly as the select segment continues its sales cycle through the balance of the year.

And finally, we have not yet incorporated any assumption of potential volume for Medicaid redetermination. So that represents pure upside for us.

And so should we not see economic weakness transpire later in the year or should we pick up some unexpected customers from the Medicaid redeterminations we may have some upside in our Cigna Healthcare customer accounts. Final comment I'll give you just in terms of sensitivities.

In prior economic downturns, we've seen for every 1% change in the unemployment rate, our commercial employer levels enrollment levels will move by either 0.5% to 1% as it relates to 1% move in the unemployment rate. So it gives you a sense for the sensitivity relative to the size of the book as you think about how to model the rest of the year..

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

Great, thanks. It seems like cost cut really wasn't a problem for you in the quarter, but still after earnings season is basically over, still trying to reconcile the strong numbers from the providers and the med tech companies with a relatively solid numbers from the managed care industry.

Can you help reconcile what seems to be an apparent conflict and any color on cost trend, particularly, I guess, through the quarter and into this quarter would be helpful? Thanks..

Good morning Kevin, it's Brian. So just a few thoughts for you in terms of the reconciliation to the provider side, etcetera. I'd start by saying we're pleased to having delivered another strong quarter here of MCR performance in line or better than expected. So I'm 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, siding [ph] care optimization, along with our continued pricing discipline.

So all that served us well, all while allowing us to grow 1.5 million 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 in price or normalized utilization levels to transpire in 2023 that were more consistent with pre-COVID levels. And during the first quarter, that's what we saw. We saw non-viral utilization, reflecting this more normalized pattern.

But again, this was in line with our expectations that we had planned and priced for stepping into the year..

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

Hey, good morning. Quick question. I do appreciate the PBM 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 the down 26% stock price is quite overdone 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 pass or 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 you had to sort of move to address that employer?.

Good morning Gary, it's Brian. I'll take your first question. I think David will comment on the situation that you referenced in Florida.

As it relates to the incremental disclosures, so really, those were designed today to give all of our investors some further context on the earnings sources within Evernorth, just given the amount of misinformation in the ecosystem.

And so alongside our 10-Q that we filed today, you'll find a supplemental disclosure that provides some additional qualitative information as well as some metrics that we think are important to help various stakeholders understand what the PBM does and doesn't do. And hopefully, we find that investors look at that as useful information.

As it relates to some of the additional data points David and I shared, for example, the 20% of pretax adjusted earnings associated with PBM retained rebates and spread. As we referenced, that percentage has declined over time.

At this point, we're not necessarily intending to update that every quarter in the Q but we will obviously give you context for how the earnings sources are evolving over time as that business continues to grow. David, do you want to comment on the....

Sure. Good morning Gary, relative to the Florida activity, 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 our large client gathering that is taking place as we speak.

This is a topic of discussion for clients in terms of digesting the ramifications. We'll have the ability to 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. Big picture, it's manageable.

Specifically, we'll work through client by client, the impacts relative to their respective forward 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 time line..

Thanks, appreciate it. .

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

Hi, Yes, I wanted to ask about ClearCareRx. I guess, first, how quickly do you think this model will be adopted, is there any kind of target for this that you can share? And then obviously, your clients are sophisticating of access to pools to evaluate your economics during RFPs.

But how do you think about competitive dynamics of the industry as a whole over time could be progressing to explicit fee-based pricing models? Thanks. .

Good morning. Stephen, the ClearCareRx program, as I noted previously, we've worked for about two years with a small number, think of a dozen large sophisticated clients to design this program to work through the program to perfect aspects in a program, and we're excited to roll it out on a more extensive basis.

Two, I would think about the addressable market as 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 to your broader question, the relentless of 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 programs, as we talked before about our Embark program on high-cost gene therapies, our SafeGuardRx program, that is benefiting all of our clients relative to care management programs.

TRCs, 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're coordinated with the medical professionals and how they coordinated with the behavioral professionals are mission critical.

So the path of 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, I mean, the medical benefit space, our approach was broad funding mechanisms and financing mechanisms, an agnostic model, meaning we could flex in any of them, whether it's self-funded, self-funded with stop loss on risk management, a share return model, or a guaranteed cost model.

And we see those same trends manifesting in the pharmacy space and we're in a position to lead there. So largest of large employers, two years in its design, it's perfected and it's 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 ClearCareRx, and we're happy to be the leader in the space..

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

Hi, thanks. Good morning. I was wondering if you could give us some more color on the individual book. It looks like it came in maybe 100,000 or so more than expected.

Maybe 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 business correctly?.

Good morning Josh, it's Brian. So overall, the strong individual customer growth in 2023, you can think of as a combination of a few things. So one, obviously, the industry had some strong growth rates from 2022 into 2023. We also had some new market entries and there were some competitors that exited certain geographies where we participate in.

And if you think about the sources of that, our growth came from a combination of existing geographies and those three new states that we stepped into, which were Texas, Indiana, and South Carolina here in 2023. We did see the majority of our growth come from three states in particular.

So Texas, Georgia and Florida drove the majority of the growth not any one specific city, we're in multiple locations in those states. Fortunately, we have a long history in these geographies that goes well beyond the U.S. individual business, meaning our commercial and MA businesses has been operating in those locations for some time.

So our provider engagement and clinical programs should benefit these individual customers as well.

Now for purposes of the claims experience and the margins, etcetera, for the 2023 calendar year, we continue to expect the margins on this book will run below our long-term goal, which is 4% to 6% in our Cigna Healthcare income and MCR guidance reflects this. So we expect to run below that 4% to 6% long-term goal.

Given the substantial amount of new customers we've added in 2023, we think this is a prudent assumption to make from the standpoint of the margins running below that long-term target. While it's early in the year so far, the claims are largely in line with our expectations through the first quarter.

And importantly, as you think about the first quarter actuals as well as our full year outlook, we've assumed that we will be in a risk adjustment payable position for the 2023 plan year despite the fact that we were in a receivable position for the 2022 plan year.

So again, we think that's a prudent assumption to make at this early juncture in the year until later. And in 2023 when we see some industry-wide risk adjustment data that will help us to recalibrate that assumption.

As you think about the longer run, this is a book of business that does represent a source of future embedded earnings power that will help contribute to the segment's long-term margin expansion and income growth. So overall, a good start to the year.

Still a long way to go for the full year, and we think we've taken a prudent posture as it relates to the accruals..

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

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

Good morning Scott, it's David. Clearly, the GLP-1 drugs have been in the price pretty significantly. And by way of headline, we think the drugs and the treatment protocols represent a positive step forward specifically for diabetics as such. 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 for both the benefit of patients as well as our clients.

But to date, I'd also add that employers have had a more limited appetite to expand coverage beyond clinical diagnoses 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 to have our P&T committee and our internal clinical oversight continue to monitor the progress relative to ongoing testing development in this important class.

I would take that trend and carry it across similarly relative to the Alzheimer's space, clearly, a lot of interest excitement and demand for drugs within the Alzheimer's space to help a growing population confronting this challenging disease from that standpoint. We've seen more limited adoption thus far.

We see some early data like you're seeing right now relative to next-in-class [Technical Difficulty] 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 you've heard in the latter part of your question, you can 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 Cigna Group's portfolio because of Evernorth is having some dimension of a natural hedge given the size and sophistication and reach of our pharmacy and specialty pharmacy programs and the breadth of the clients we're able to serve within that portfolio.

So we see this as a growth opportunity within the Evernorth 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 value is delivered. So emerging space in both categories some promise, early adoption, some track record in value-based care.

And importantly, I would underscore, we have a natural hedge relative to some cost pressure you would think about in the benefit space through our high-performing services space..

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

Great. Thanks for getting me in.

Getting back to the 20% of Evernorth 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? And since you've been in such a giving mood, can you provide us -- is there any transparency on that number?.

Good morning Kevin, it's Brian. So the 20% that we made reference to is the PBM retained rebates and the retail spread that comprise the Evernorth segment's contribution specifically.

So as with all of our clients of Evernorth, whether they be the Cigna Healthcare affiliated health plan or our unaffiliated health plan clients, they choose how they would like to use the pharmacy value that we create for them.

So to your question, if there are pharmacy earnings in the Cigna Healthcare segment, that's not reflected in the 20% metric we're specifically dimensioning the Evernorth contribution. And then like I said, the Cigna Healthcare health plan decides how they choose to deploy any value that's created from Evernorth to sister company.

David, maybe you want to pile on here?.

And Kevin to add on that, as you think about the health plans that are served by Evernorth, 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 point.

So in the case of a guaranteed cost offering or a risk-based offering, the cost of the pharmaceuticals are baked into that from that standpoint, whether that's commercial, individual exchange business, or Medicare Advantage business for health plan.

So that's value delivered just like the value that's delivered for their medical contracting, their DME contracting, their behavioral contracting, etcetera, and part of their overall cost equation that they'll factor into the net pricing that they're offering to the marketplace..

Appreciate it, thanks guys. .

Thank you Mr. Caliendo. I will turn the call back over to David Cordani 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 in working to improve health care, including our increased transparency, choice and clinical programs to drive down further drug costs for our customers, our patients and our clients.

I would want to underscore that the progress we continue to make all starts with in is fueled by the dedication and commitment of our 70,000 coworkers around the world who I want to thank for their commitment and demonstration every day to working to make a very positive difference in the people's lives we are able to serve both formally through our commercial relationships as well as in the communities we serve each and every day.

Finally, thank you for joining our call. And as always, we look forward to our continued discussions in the future..

Ladies and gentlemen, this concludes the Cigna Group's 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 888-282-0036 and or 203-369-3022.

There is no passcode required for this replay. Thank you for participating. We will now disconnect..