CVS Health Reports Second Quarter Results; Diversified Assets Deliver Strong Enterprise Results
WOONSOCKET, R.I., Aug. 5, 2020 /PRNewswire/ --
Continued Responsiveness to COVID-19:
-- Ongoing support for employees, clients and communities across the
country
-- Opened more than 1,800 test sites at drive-thru locations to date and
continue to partner with federal, state and local officials
-- Launched Return Ready(SM), a comprehensive COVID-19 business-to-business
testing program
-- Consumer-driven health care model increases access to products and
services
Second Quarter Year-over-Year Highlights:
-- Total revenues increased 3.0% to $65.3 billion
-- GAAP operating income increased 40.5% to $4.7 billion
-- Adjusted operating income ((1)) increased 32.2% to $5.3 billion
-- GAAP diluted earnings per share of $2.26
-- Adjusted EPS ((2)) of $2.64
Year-to-date Highlights:
-- Generated cash flow from operations of $10.4 billion
2020 Full Year Guidance:
-- Raised GAAP diluted EPS guidance range to $5.59 to $5.72 from $5.47 to
$5.60
-- Raised Adjusted EPS ((2)) guidance range to $7.14 to $7.27 from $7.04 to
$7.17
-- Raised cash flow from operations guidance range to $11.0 billion to
$11.5 billion from $10.5 billion to $11.0 billion
CVS Health Corporation (NYSE: CVS) today announced operating results for the three months ended June 30, 2020.
CVS Health President and CEO Larry J. Merlo stated, "We're a health innovation company that is built to meet the evolving needs of the millions we serve every day. That's been made clear as we continue to navigate the health, social and economic impacts of COVID-19. Our earnings in this environment demonstrate the strength of our strategy and the power of our diversified business model.
"We have a strong foundation of clinical expertise, data analytics and digital capabilities, and unmatched consumer and community reach which has allowed us to rapidly bring our strategy to life at an unprecedented time. The environment surrounding COVID-19 is accelerating our transformation, giving us new opportunities to demonstrate the power of our integrated offerings and the ability to deliver care to consumers in the community, in the home and in the palm of their hand which has never been more important. We have stayed true to our purpose of helping people on their path to better health, and we remain focused on creating value for all our stakeholders."
A summary of the Company's response to the COVID-19 pandemic is included on page six.
(_____________________________________________)
The Company presents both GAAP and
non-GAAP financial measures in
this press release to assist in
the comparison of the Company's
past financial performance with
its current financial performance.
See "Non-GAAP Financial
Information" on page 12 and
endnotes (1) and (2) on page 22
for explanations of non-GAAP
financial measures presented in
this press release. See pages 13
through 14 and page 21 for
reconciliations of each non-GAAP
financial measure to the most
directly comparable GAAP financial
measure.
Consolidated Second Quarter Results
Three Months Ended
Six Months Ended
June 30, June 30,
In millions, except per share amounts 2020 2019 Change 2020 2019 Change
---
Total revenues $
65,341 $
63,431 $
1,910 $
132,096 $
125,077 $
7,019
Operating income 4,680 3,332 1,348 8,138 6,022 2,116
Adjusted operating income (1) 5,328 4,031 1,297 9,441 7,626 1,815
Net income 2,986 1,931 1,055 4,998 3,358 1,640
Diluted earnings per share $
2.26 $
1.49 $
0.77 $
3.79 $
2.58 $
1.21
Adjusted EPS (2) $
2.64 $
1.89 $
0.75 $
4.55 $
3.51 $
1.04
Enterprise prescriptions (3) (4) 690.3 685.5 4.8 1,436.9 1,365.3 71.6
-- Total revenues increased 3.0% in the three months ended June 30, 2020
compared to the prior year driven by growth across all segments. Total
revenues in the three months ended June 30, 2020 were impacted by the
COVID-19 pandemic, which adversely affected revenues in the Retail/LTC
and Pharmacy Services segments primarily as a result of reduced new
therapy prescriptions due to lower provider visits in the three months
ended June 30, 2020, as well as reduced front store revenues in the
Retail/LTC segment due to shelter-in-place orders.
-- Operating income and adjusted operating income increased 40.5% and
32.2%, respectively, in the three months ended June 30, 2020 compared to
the prior year. The increase in both operating income and adjusted
operating income was primarily due to the impact of the COVID-19
pandemic, which resulted in reduced benefit costs due to the deferral of
elective procedures and other discretionary utilization in the Health
Care Benefits segment, partially offset by reduced volume and increased
operating expenses associated with the Company's COVID-19 pandemic
response efforts in the Retail/LTC segment.
-- Net income increased 54.6% in the three months ended June 30, 2020
compared to the prior year primarily due to the higher operating income
described above, partially offset by higher income tax expense
associated with the increase in pre-tax income.
-- The effective income tax rate was 24.6% for the three months ended June
30, 2020 compared to 25.5% for the three months ended June 30, 2019. The
decrease in the effective income tax rate was primarily due to the
favorable resolution of several state and local income tax matters in
the three months ended June 30, 2020, partially offset by the
reinstatement of the non-deductible Health Insurer Fee ("HIF") for 2020.
Pharmacy Services Segment
The Pharmacy Services segment provides a full range of pharmacy benefit management solutions to employers, health plans, government employee groups and government sponsored programs. The segment results for the three and six months ended June 30, 2020 and 2019 were as follows:
Three Months Ended
Six Months Ended
June 30, June 30,
In millions 2020 2019 Change 2020 2019 Change
---
Total revenues $
34,889 $
34,842 $
47 $
69,872 $
68,400 $
1,472
Operating income 1,271 1,197 74 2,385 2,047 338
Adjusted operating income (1) 1,327 1,296 31 2,508 2,243 265
Total pharmacy claims processed (4) (5) 505.4 489.0 16.4 1,046.8 970.8 76.0
Pharmacy network (6) 425.1 412.1 13.0 886.2 819.8 66.4
Mail choice (7) 80.3 76.9 3.4 160.6 151.0 9.6
-- Total revenues increased $47 million in the three months ended June 30,
2020 compared to the prior year, as growth in specialty pharmacy and
brand inflation were largely offset by previously disclosed client
losses and continued price compression.
-- Total pharmacy claims processed increased 3.4% on a 30-day equivalent
basis in the three months ended June 30, 2020 compared to the prior year
primarily driven by net new business, partially offset by reduced new
therapy prescriptions due to lower provider visits in the three months
ended June 30, 2020.
-- Operating income and adjusted operating income increased 6.2% and 2.4%,
respectively, in the three months ended June 30, 2020 compared to the
prior year primarily driven by growth in specialty pharmacy and improved
purchasing economics. The increase was partially offset by continued
price compression and previously disclosed client losses. The increase
in operating income also was driven by lower amortization expense in the
three months ended June 30, 2020.
See the supplemental information on page 16 for additional information regarding the performance of the Pharmacy Services segment.
Retail/LTC Segment
The Retail/LTC segment fulfills prescriptions for medications, provides patient care programs, sells a wide assortment of general merchandise, provides health care services through walk-in medical clinics, provides medical diagnostic testing and provides services to long-term care facilities. The segment results for the three and six months ended June 30, 2020 and 2019 were as follows:
Three Months Ended
Six Months Ended
June 30, June 30,
In millions 2020 2019 Change 2020 2019 Change
---
Total revenues $
21,662 $
21,447 $
215 $
44,411 $
42,562 $
1,849
Operating income 933 1,551 (618) 2,713 2,789 (76)
Adjusted operating income (1) 1,057 1,669 (612) 2,959 3,158 (199)
Prescriptions filled (4) (5) 345.4 349.1 (3.7) 720.5 695.9 24.6
-- Total revenues increased 1.0% in the three months ended June 30, 2020
compared to the prior year primarily driven by pharmacy drug mix, growth
in retail pharmacy prescription volume and brand inflation. These
increases were partially offset by continued reimbursement pressure, the
impact of recent generic introductions, decreased long-term care
prescription volume and lower front store revenues.
-- Front store revenues decreased 4.6% in the three months ended June 30,
2020 compared to the prior year. The decrease was primarily due to
reduced customer traffic in the segment's retail pharmacies due to
shelter-in-place orders in response to the COVID-19 pandemic.
-- Prescriptions filled decreased 1.1% on a 30-day equivalent basis in the
three months ended June 30, 2020 compared to the prior year. The
decrease was primarily driven by reduced new therapy prescriptions due
to lower provider visits in the three months ended June 30, 2020 and
decreased long-term care prescription volume, partially offset by the
continued adoption of patient care programs.
-- Operating income and adjusted operating income decreased 39.8% and
36.7%, respectively, in the three months ended June 30, 2020 compared to
the prior year. The decrease in both operating income and adjusted
operating income was primarily due to the impact of the COVID-19
pandemic, which resulted in incremental operating expenses associated
with the Company's COVID-19 pandemic response efforts, decreased front
store volume and reduced new therapy prescriptions, as well as continued
reimbursement pressure. These decreases were partially offset by
improved generic drug purchasing in the three months ended June 30,
2020.
See the supplemental information on page 17 for additional information regarding the performance of the Retail/LTC segment.
Health Care Benefits Segment
The Health Care Benefits segment offers a full range of insured and self-insured ("ASC") medical, pharmacy, dental and behavioral health products and services. The segment results for the three and six months ended June 30, 2020 and 2019 were as follows:
Three Months Ended
Six Months Ended
June 30, June 30,
In millions, except percentages 2020 2019 Change 2020 2019 Change
---
Total revenues $
18,468 $
17,403 $
1,065 $
37,666 $
35,273 $
2,393
Operating income 3,066 1,062 2,004 4,161 2,217 1,944
Adjusted operating income (1) 3,464 1,438 2,026 4,955 3,000 1,955
Medical benefit ratio ("MBR") (8) 70.3 84.0 (13.7) 76.4 84.0 (7.6)
% % % % % %
Medical membership (9) 23.6 22.8 0.8
-- Total revenues increased 6.1% in the three months ended June 30, 2020
compared to the prior year primarily driven by membership growth in the
Health Care Benefits segment's Government products and the favorable
impact of the reinstatement of the HIF for 2020. These increases were
partially offset by the absence of the financial results of Aetna's
standalone Medicare Part D prescription drug plans ("PDPs"), which the
Company retained through 2019, and membership declines in the segment's
Commercial insured products.
-- Operating income and adjusted operating income increased 188.7% and
140.9%, respectively, in the three months ended June 30, 2020, compared
to the prior year. The increase was primarily driven by reduced benefit
costs due to the deferral of elective procedures and other discretionary
utilization in response to the COVID-19 pandemic, growth in the
segment's Government products and the impact of cost reduction efforts,
including integration synergies. These increases were partially offset
by membership declines in the segment's Commercial insured products.
-- The Health Care Benefits segment's MBR decreased 1,370 basis points from
84.0% to 70.3% in the three months ended June 30, 2020 compared to the
prior year primarily due to the deferral of elective procedures and
other discretionary utilization related to COVID-19 described above and
the reinstatement of the HIF for 2020.
-- Medical membership as of June 30, 2020 of 23.6 million increased 124
thousand members compared with March 31, 2020, primarily reflecting
increases in Medicare and Medicaid products, partially offset by a
decline in Commercial products.
-- The Health Care Benefits segment experienced favorable development of
prior-periods' health care cost estimates in its Commercial and
Government businesses during the three months ended June 30, 2020,
primarily attributable to first quarter 2020 performance.
-- Prior years' health care costs payable estimates developed favorably by
$420 million during the six months ended June 30, 2020. This development
is reported on a basis consistent with the prior years' development
reported in the health care costs payable table in the Company's annual
audited financial statements and does not directly correspond to an
increase in 2020 operating results.
See the supplemental information on page 18 for additional information regarding the performance of the Health Care Benefits segment.
COVID-19 Response
CVS Health is uniquely positioned to help the country through the COVID-19 pandemic. The Company has focused its resources on the wellbeing and safety of employees, consumers and the communities it serves. The following are key actions taken to date:
Employees
-- Providing regular supply of personal protective equipment and adding
safety features to retail stores.
-- Provided enhanced benefits, including bonuses to frontline employees,
paid sick leave for part-time employees and paid time off to employees
who test positive or are quarantined due to exposure.
-- Announced intention to hire 50,000 additional full-time, part time and
temporary roles; over 40,000 hires to date.
Consumers and members
-- Waived cost sharing for COVID-19 diagnosis and treatment, including
inpatient hospital admissions, for insured members.
-- Opened crisis response line for members experiencing anxiety related to
COVID-19 and expanded 24/7 access to Aetna Nurse Medical line for Aetna
and Caremark members.
-- Extended waivers for out-of-pocket costs for Aetna insured members for
inpatient admissions for treatment or health complications associated
with COVID-19 through September 30, 2020.
-- Extended waivers for cost-sharing for in-network telemedicine visits by
Medicare Advantage members for outpatient behavioral and mental health
counseling services through September 30, 2020.
-- Waived Medicare Advantage member out-of-pocket costs for all in-network
primary care visits, whether done in-office or via telehealth, for any
reason through September 30, 2020.
-- For Commercial members, waived cost sharing for minor acute care
evaluation, care management services and certain behavioral health
services rendered via telephone through December 31, 2020.
-- Expanded telehealth options ("E-Clinic") offered by MinuteClinic to help
patients access safe, affordable and convenient non-emergency care.
-- Extended maintenance prescriptions and waived early refill limits to
support medication adherence.
-- Waived fees associated with prescription home delivery and associated
front store products. Testing autonomous vehicle prescription delivery
in collaboration with Nuro.
-- Sent care packages to members diagnosed with COVID-19 through Aetna's
Healing Better program.
Plan Sponsors
-- Launched Return Ready, a comprehensive customizable and integrated
end-to-end COVID-19 testing solution to assist employers and
universities with the safe return of their employees, students and
staff.
-- Provided assistance through premium credits.
Providers
-- Waived advance approvals, streamlined credentialing process, relaxed
telemedicine policies and removed prior authorization requirements.
Offering flexible plan designs to help reduce financial burdens.
Communities
-- Offering COVID-19 testing at over 1,800 CVS drive-thru locations, with
more than 50% located in communities with significant need for support
according to the CDC Social Vulnerability Index.
-- In coordination with the U.S. Department of Health and Human Services
("HHS"), opened 11 testing sites serving communities disproportionately
impacted by the pandemic.
-- Launched critical diagnostic testing for the vulnerable senior
population in long-term care facilities in partnership with 3 states.
-- Administered nearly 2 million COVID-19 tests nationwide through end of
July.
-- Expanded Coram infusion services to help transition eligible IV-therapy
patients to home-based care, freeing up hospital capacity.
-- Investing nearly $50 million directly and through the Company's
foundations to address food insecurity, lack of access to telehealth
services for the underserved, personal protective equipment, mental
health support for front-line workers and community resilience.
-- Returned all $43 million in funds received from the Coronavirus Aid,
Relief, and Economic Security Act provider relief fund to HHS.
2020 Full Year Guidance
While acknowledging the inherent and unprecedented uncertainty surrounding the ongoing COVID-19 pandemic and its impact, the Company raised its full year 2020 GAAP diluted EPS guidance range to $5.59 to $5.72 from $5.47 to $5.60 and its full year 2020 Adjusted EPS guidance range to $7.14 to $7.27 from $7.04 to $7.17, reflecting an update to its estimated full year effective income tax rate. The Company projects higher utilization in its Health Care Benefits segment in the second half of 2020 than in the first half of 2020 and continued significant COVID-19 related investments, including operating costs, in the remainder of the year. The Company also raised its full year 2020 cash flow from operations guidance range to $11.0 billion to $11.5 billion from $10.5 billion to $11.0 billion.
The adjustments between GAAP diluted EPS and Adjusted EPS include adding back amortization of intangible assets, integration costs related to the Company's acquisition (the "Aetna Acquisition") of Aetna Inc. ("Aetna") and expected gains/losses on divestitures.
Teleconference and Webcast
The Company will be holding a conference call today for investors at 8:00 a.m. (Eastern Time) to discuss its second quarter results. An audio webcast of the call will be broadcast simultaneously for all interested parties through the Investor Relations section of the CVS Health website at http://investors.cvshealth.com. This webcast will be archived and available on the website for a one-year period following the conference call.
About CVS Health
CVS Health employees are united around a common goal of becoming the most consumer-centric health company. We're evolving based on changing consumer needs and meeting people where they are, whether that's in the community at one of our nearly 10,000 local touchpoints, in the home, or in the palm of their hand. Our newest offerings -- from HealthHUB(®) locations that are redefining what a pharmacy can be, to innovative programs that help manage chronic conditions -- are designed to create a higher-quality, simpler and more affordable experience. Learn more about how we're transforming health at www.cvshealth.com.
Cautionary Statement Concerning Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of CVS Health Corporation. Statements in this press release that are forward-looking include Mr. Merlo's quotation, the information under the heading "2020 Full Year Guidance" and the information included in the endnotes and reconciliations. By their nature, all forward-looking statements are not guarantees of future performance or results and are subject to risks and uncertainties that are difficult to predict and/or quantify. Actual results may differ materially from those contemplated by the forward-looking statements due to the risks and uncertainties related to the COVID-19 pandemic, the geographies impacted and the severity and duration of the pandemic, the pandemic's impact on the U.S. and global economies and consumer behavior and health care utilization patterns, and the timing, scope and impact of stimulus legislation and other federal, state and local governmental responses to the pandemic, as well as the risks and uncertainties described in our Securities and Exchange Commission ("SEC") filings, including those set forth in the Risk Factors section and under the heading "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020 and our recently filed Current Reports on Form 8-K.
You are cautioned not to place undue reliance on CVS Health's forward looking statements. CVS Health's forward-looking statements are and will be based upon management's then-current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. CVS Health does not assume any duty to update or revise forward-looking statements, whether as a result of new information, future events, uncertainties or otherwise.
- Tables Follow -
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
In millions, except per share amounts 2020 2019 2020 2019
--- ---
Revenues:
Products $
46,355 $
45,531 $
93,358 $
88,874
Premiums 16,927 15,791 34,567 32,073
Services 1,875 1,816 3,825 3,588
Net investment income 184 293 346 542
Total revenues 65,341 63,431 132,096 125,077
Operating costs:
Cost of products sold 40,242 38,970 80,589 76,217
Benefit costs 11,751 13,087 26,138 26,546
Operating expenses 8,668 8,042 17,231 16,292
Total operating costs 60,661 60,099 123,958 119,055
Operating income 4,680 3,332 8,138 6,022
Interest expense 765 772 1,498 1,554
Other income (45) (31) (99) (62)
Income before income tax provision 3,960 2,591 6,739 4,530
Income tax provision 974 660 1,741 1,172
Net income 2,986 1,931 4,998 3,358
Net (income) loss attributable to noncontrolling interests (11) 5 (16) (1)
Net income attributable to CVS Health $
2,975 $
1,936 $
4,982 $
3,357
Net income per share attributable to CVS Health:
Basic $
2.27 $
1.49 $
3.81 $
2.58
Diluted $
2.26 $
1.49 $
3.79 $
2.58
Weighted average shares outstanding:
Basic 1,309 1,301 1,307 1,299
Diluted 1,314 1,302 1,313 1,302
Dividends declared per share $
0.50 $
0.50 $
1.00 $
1.00
CVS HEALTH CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
In millions June 30, December 31,
2020 2019
--- ---
Assets:
Cash and cash equivalents $
14,869 $
5,683
Investments 2,596 2,373
Accounts receivable, net 22,520 19,617
Inventories 16,519 17,516
Other current assets 6,002 5,113
Total current assets 62,506 50,302
Long-term investments 18,594 17,314
Property and equipment, net 12,221 12,044
Operating lease right-of-use assets 20,571 20,860
Goodwill 80,057 79,749
Intangible assets, net 32,225 33,121
Separate accounts assets 4,639 4,459
Other assets 4,682 4,600
Total assets $
235,495 $
222,449
Liabilities:
Accounts payable $
9,919 $
10,492
Pharmacy claims and discounts payable 15,541 13,601
Health care costs payable 7,362 6,879
Policyholders' funds 3,636 2,991
Accrued expenses 15,634 12,133
Other insurance liabilities 1,644 1,830
Current portion of operating lease liabilities 1,766 1,596
Current portion of long-term debt 8,192 3,781
Total current liabilities 63,694 53,303
Long-term operating lease liabilities 18,612 18,926
Long-term debt 63,481 64,699
Deferred income taxes 7,136 7,294
Separate accounts liabilities 4,639 4,459
Other long-term insurance liabilities 7,270 7,436
Other long-term liabilities 2,308 2,162
Total liabilities 167,140 158,279
Shareholders' equity:
Preferred stock -
Common stock and capital surplus 46,276 45,972
Treasury stock (28,235) (28,235)
Retained earnings 48,768 45,108
Accumulated other comprehensive income 1,213 1,019
Total CVS Health shareholders' equity 68,022 63,864
Noncontrolling interests 333 306
Total shareholders' equity 68,355 64,170
Total liabilities and shareholders' equity $
235,495 $
222,449
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
In millions 2020 2019
--- ---
Cash flows from operating activities:
Cash receipts from customers $
129,218 $
120,808
Cash paid for inventory and prescriptions dispensed by retail network pharmacies (76,381) (70,567)
Insurance benefits paid (26,483) (25,992)
Cash paid to other suppliers and employees (14,688) (14,497)
Interest and investment income received 395 512
Interest paid (1,407) (1,502)
Income taxes paid (230) (1,476)
Net cash provided by operating activities 10,424 7,286
Cash flows from investing activities:
Proceeds from sales and maturities of investments 2,710 3,786
Purchases of investments (3,688) (4,062)
Purchases of property and equipment (1,190) (1,289)
Acquisitions (net of cash acquired) (768) (250)
Other 6 14
Net cash used in investing activities (2,930) (1,801)
Cash flows from financing activities:
Net repayments of short-term debt - (275)
Proceeds from issuance of long-term debt 3,946
Repayments of long-term debt (1,016) (1,899)
Dividends paid (1,315) (1,306)
Proceeds from exercise of stock options 166 111
Payments for taxes related to net share settlement of equity awards (68) (80)
Other (16) 7
Net cash provided by (used in) financing activities 1,697 (3,442)
Net increase in cash, cash equivalents and restricted cash 9,191 2,043
Cash, cash equivalents and restricted cash at the beginning of the period 5,954 4,295
Cash, cash equivalents and restricted cash at the end of the period $
15,145 $
6,338
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
In millions 2020 2019
--- ---
Reconciliation of net income to net cash provided by operating activities:
Net income $
4,998 $
3,358
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,188 2,183
Stock-based compensation 179 226
Deferred income taxes and other noncash items (101) (42)
Change in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, net (2,233) (681)
Inventories 1,003 939
Other assets (560) (314)
Accounts payable and pharmacy claims and discounts payable 1,671 917
Health care costs payable and other insurance liabilities (415) 496
Other liabilities 3,694 204
Net cash provided by operating activities $
10,424 $
7,286
Non-GAAP Financial Information
The Company uses non-GAAP financial measures to analyze underlying business performance and trends. The Company believes that providing these non-GAAP financial measures enhances the Company's and investors' ability to compare the Company's past financial performance with its current performance. These non-GAAP financial measures are provided as supplemental information to the financial measures presented in this press release that are calculated and presented in accordance with GAAP. Non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP. The Company's definitions of its non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies.
Non-GAAP financial measures such as adjusted operating income, adjusted earnings per share (EPS) and adjusted income attributable to CVS Health exclude from the relevant GAAP metrics, as applicable: amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance.
For the periods covered in this press release, the following items are excluded from the non-GAAP financial measures described above, as applicable, because the Company believes they neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance:
-- The Company's acquisition activities have resulted in the recognition of
intangible assets as required under the acquisition method of accounting
which consist primarily of trademarks, customer contracts/relationships,
covenants not to compete, technology, provider networks and value of
business acquired. Definite-lived intangible assets are amortized over
their estimated useful lives and are tested for impairment when events
indicate that the carrying value may not be recoverable. The
amortization of intangible assets is reflected in the Company's
unaudited GAAP condensed consolidated statements of operations in
operating expenses within each segment. Although intangible assets
contribute to the Company's revenue generation, the amortization of
intangible assets does not directly relate to the underwriting of the
Company's insurance products, the services performed for the Company's
customers or the sale of the Company's products or services.
Additionally, intangible asset amortization expense typically fluctuates
based on the size and timing of the Company's acquisition activity.
Accordingly, the Company believes excluding the amortization of
intangible assets enhances the Company's and investors' ability to
compare the Company's past financial performance with its current
performance and to analyze underlying business performance and trends.
Intangible asset amortization excluded from the related non-GAAP
financial measure represents the entire amount recorded within the
Company's GAAP financial statements, and the revenue generated by the
associated intangible assets has not been excluded from the related
non-GAAP financial measure. Intangible asset amortization is excluded
from the related non-GAAP financial measure because the amortization,
unlike the related revenue, is not affected by operations of any
particular period unless an intangible asset becomes impaired or the
estimated useful life of an intangible asset is revised.
-- During the three and six months ended June 30, 2020 and 2019,
acquisition-related integration costs relate to the Aetna Acquisition.
The acquisition-related integration costs are reflected in the Company's
unaudited GAAP condensed consolidated statements of operations in
operating expenses within the Corporate/Other segment.
-- During the six months ended June 30, 2019, the store rationalization
charge primarily relates to operating lease right-of-use asset
impairment charges in connection with the planned closure of 46
underperforming retail pharmacy stores in the second quarter of 2019.
The store rationalization charge is reflected in the Company's unaudited
GAAP condensed consolidated statement of operations in operating
expenses within the Retail/LTC segment.
-- The corresponding tax benefit or expense related to the items excluded
from adjusted income attributable to CVS Health and Adjusted EPS above.
The nature of each non-GAAP adjustment is evaluated to determine whether
a discrete adjustment should be made to the adjusted income tax
provision.
The Company's full year 2020 guidance reconciliation also reflects an estimated gain on divestiture of the Company's Coventry Health Care Workers Compensation business, which the Company sold on July 31, 2020 for approximately $850 million. The Company expects to recognize a pretax gain on this divestiture of approximately $225 million within the Health Care Benefits segment in the third quarter of 2020. This amount has been excluded from the projected full year Adjusted EPS because the Company believes this amount neither relates to the ordinary course of the Company's business nor reflects the Company's underlying business performance.
See endnotes (1) and (2) on page 22 for definitions of non-GAAP financial measures. Reconciliations of each non-GAAP financial measure to the most directly comparable GAAP financial measure are presented on pages 13 through 14 and page 21.
Reconciliations of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
Adjusted Operating Income
(Unaudited)
The following are reconciliations of operating income to adjusted operating income:
Three Months Ended June 30, 2020
In millions Pharmacy Retail/ Health Care Corporate/ Intersegment Consolidated
Services LTC Benefits Other Eliminations Totals
--- ---
Operating income (loss) (GAAP measure) $
1,271 $
933 $
3,066 $
(413) $
(177) $
4,680
Non-GAAP adjustments:
Amortization of intangible assets 56 124 398 578
Acquisition-related integration costs - 70 70
Adjusted operating income (loss) (1) $
1,327 $
1,057 $
3,464 $
(343) $
(177) $
5,328
Three Months Ended June 30, 2019
In millions Pharmacy Retail/ Health Care Corporate/ Intersegment Consolidated
Services LTC Benefits Other Eliminations Totals
---
Operating income (loss) (GAAP measure) $
1,197 $
1,551 $
1,062 $
(308) $
(170) $
3,332
Non-GAAP adjustments:
Amortization of intangible assets 99 118 376 593
Acquisition-related integration costs 106 106
Adjusted operating income (loss) (1) $
1,296 $
1,669 $
1,438 $
(202) $
(170) $
4,031
Six Months Ended June 30, 2020
In millions Pharmacy Retail/ Health Care Corporate/ Intersegment Consolidated
Services LTC Benefits Other Eliminations Totals
---
Operating income (loss) (GAAP measure) $
2,385 $
2,713 $
4,161 $
(768) $
(353) $
8,138
Non-GAAP adjustments:
Amortization of intangible assets 123 246 794 1 1,164
Acquisition-related integration costs 139 139
Adjusted operating income (loss) (1) $
2,508 $
2,959 $
4,955 $
(628) $
(353) $
9,441
Six Months Ended June 30, 2019
In millions Pharmacy Retail/ Health Care Corporate/ Intersegment Consolidated
Services LTC Benefits Other Eliminations Totals
---
Operating income (loss) (GAAP measure) $
2,047 $
2,789 $
2,217 $
(689) $
(342) $
6,022
Non-GAAP adjustments:
Amortization of intangible assets 196 234 783 2 1,215
Acquisition-related integration costs 254 254
Store rationalization charge 135 135
Adjusted operating income (loss) (1) $
2,243 $
3,158 $
3,000 $
(433) $
(342) $
7,626
Adjusted Earnings Per Share
(Unaudited)
The following are reconciliations of net income attributable to CVS Health to adjusted income attributable to CVS Health and
calculations of GAAP diluted EPS and Adjusted EPS:
Three Months Ended Three Months Ended
June 30, 2020 June 30, 2019
In millions, except per share amounts Total Per Total Per
Company Company
Common Common
Share Share
--- ---
Net income (GAAP measure) $
2,986 $
1,931
Net (income) loss attributable to noncontrolling interests (GAAP measure) (11) 5
Income allocable to participating securities (GAAP measure) - (1)
Net income attributable to CVS Health (GAAP measure) 2,975 $
2.26 1,935 $
1.49
Non-GAAP adjustments:
Amortization of intangible assets 578 0.44 593 0.45
Acquisition-related integration costs 70 0.06 106 0.08
Income tax benefit (155) (0.12) (172) (0.13)
Adjusted income attributable to CVS Health (2) $
3,468 $
2.64 $
2,462 $
1.89
Weighted average diluted shares outstanding 1,314 1,302
Six Months Ended Six Months Ended
June 30, 2020 June 30, 2019
In millions, except per share amounts Total Per Total Per
Company Company
Common Common
Share Share
---
Net income (GAAP measure) $
4,998 $
3,358
Net income attributable to noncontrolling interests (GAAP measure) (16) (1)
Income allocable to participating securities (GAAP measure) (3)
Net income attributable to CVS Health (GAAP measure) 4,982 $
3.79 3,354 $
2.58
Non-GAAP adjustments:
Amortization of intangible assets 1,164 0.89 1,215 0.93
Acquisition-related integration costs 139 0.11 254 0.20
Store rationalization charge 135 0.10
Income tax benefit (315) (0.24) (391) (0.30)
Adjusted income attributable to CVS Health (2) $
5,970 $
4.55 $
4,567 $
3.51
Weighted average diluted shares outstanding 1,313 1,302
Supplemental Information
(Unaudited)
The Company's segments maintain separate financial information, and the Company's chief operating decision maker (the "CODM") evaluates the segments' operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance. The CODM evaluates the performance of the Company's segments based on
adjusted operating income, which is defined as operating income (GAAP measure) excluding the impact of amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance as further described in endnote (1). The Company uses adjusted
operating income as its principal measure of segment performance as it enhances the Company's ability to compare past financial performance with current performance and analyze underlying business performance and trends.
The following is a reconciliation of financial measures of the Company's segments to the consolidated totals:
In millions Pharmacy Retail/ Health Care Corporate/ Intersegment Consolidated
Services (a) LTC Benefits Other Eliminations (b) Totals
--- ---
Three Months Ended
June 30, 2020
Total revenues $
34,889 $
21,662 $
18,468 $
86 $
(9,764) $
65,341
Operating income (loss) 1,271 933 3,066 (413) (177) 4,680
Adjusted operating income (loss) (1) 1,327 1,057 3,464 (343) (177) 5,328
June 30, 2019
Total revenues 34,842 21,447 17,403 161 (10,422) 63,431
Operating income (loss) 1,197 1,551 1,062 (308) (170) 3,332
Adjusted operating income (loss) (1) 1,296 1,669 1,438 (202) (170) 4,031
Six Months Ended
June 30, 2020
Total revenues $
69,872 $
44,411 $
37,666 $
176 $
(20,029) $
132,096
Operating income (loss) 2,385 2,713 4,161 (768) (353) 8,138
Adjusted operating income (loss) (1) 2,508 2,959 4,955 (628) (353) 9,441
June 30, 2019
Total revenues 68,400 42,562 35,273 271 (21,429) 125,077
Operating income (loss) 2,047 2,789 2,217 (689) (342) 6,022
Adjusted operating income (loss) (1) 2,243 3,158 3,000 (433) (342) 7,626
(_____________________________________________)
(a) Total revenues of the Pharmacy
Services segment include
approximately $2.6 billion and $2.9
billion of retail co-payments for
the three months ended June 30, 2020
and 2019, respectively, and $6.0
billion and $6.2 billion of retail
co-payments for the six months
ended June 30, 2020 and 2019,
respectively.
(b) Intersegment eliminations relate to
intersegment revenue generating
activities that occur between the
Pharmacy Services segment, the
Retail/LTC segment and/or the
Health Care Benefits segment.
Supplemental Information
(Unaudited)
Pharmacy Services Segment
The following table summarizes the Pharmacy Services segment's performance for the respective periods:
Change
Three Months Ended Six Months Ended Three Months Six Months
June 30, June 30, Ended June 30, Ended June 30,
2020 vs 2019 2020 vs 2019
In millions, except percentages 2020 2019 2020 2019
$ %
$ %
--- ---
Revenues:
Products $
34,595 $
34,723 $
69,341 $
68,173 $
(128) (0.4)
%
% $
1,168 1.7
Services 294 119 531 227 175 147.1 304 133.9
% %
---
Total revenues 34,889 34,842 69,872 68,400 47 0.1 1,472 2.2
% %
Cost of products sold 33,271 33,279 66,774 65,618 (8) % 1,156 1.8
%
Gross margin (10) 1,618 1,563 3,098 2,782 55 3.5 316 11.4
% %
Gross margin as a % of 4.6
% 4.5
% 4.4
% 4.1
%
total revenues (10)
Operating expenses 347 366 713 735 (19) (5.2) (22) (3.0)
% %
Operating expenses as a % of 1.0
% 1.1
% 1.0
% 1.1
%
total revenues
Operating income $
1,271 $
1,197 $
2,385 $
2,047 $
74 6.2 $
338 16.5
% %
Operating income as a % of 3.6
% 3.4
% 3.4
% 3.0
%
total revenues
Adjusted operating income (1) $
1,327 $
1,296 $
2,508 $
2,243 $
31 2.4 $
265 11.8
% %
Adjusted operating income as a % of 3.8
% 3.7
% 3.6
% 3.3
%
total revenues
Revenues (by distribution channel):
Pharmacy network (6) (14) $
20,536 $
21,974 $
41,636 $
43,506 $
(1,438) (6.5) $
(1,870) (4.3)
% %
Mail choice (7) (14) 14,109 12,724 27,783 24,605 1,385 10.9 3,178 12.9
% %
Other 244 144 453 289 100 69.4 164 56.7
% %
Pharmacy claims processed: (4) (5)
Total 505.4 489.0 1,046.8 970.8 16.4 3.4 76.0 7.8
% %
Pharmacy network (6) 425.1 412.1 886.2 819.8 13.0 3.2 66.4 8.1
% %
Mail choice (7) 80.3 76.9 160.6 151.0 3.4 4.4 9.6 6.4
% %
Generic dispensing rate: (4) (11)
Total 88.7 88.5 88.8 88.4
% % % %
Pharmacy network (6) 89.3 89.1 89.4 89.0
% % % %
Mail choice (7) 85.7 85.2 85.7 85.0
% % % %
Supplemental Information
(Unaudited)
Retail/LTC Segment
The following table summarizes the Retail/LTC segment's performance for the respective periods:
Change
Three Months Ended Six Months Ended Three Months Six Months
June 30, June 30, Ended June 30, Ended June 30,
2020 vs 2019 2020 vs 2019
In millions, except percentages 2020 2019 2020 2019
$ %
$ %
--- ---
Revenues:
Products $
21,476 $
21,230 $
43,998 $
42,130 $
246 1.2 $
1,868 4.4
% %
Services 186 217 413 432 (31) (14.3) (19) (4.4)
%
%
---
Total revenues 21,662 21,447 44,411 42,562 215 1.0 1,849 4.3
% %
Cost of products sold 16,220 15,551 32,798 30,848 669 4.3 1,950 6.3
% %
Gross margin (10) 5,442 5,896 11,613 11,714 (454) (7.7) (101) (0.9)
% %
Gross margin as a % of total 25.1 27.5 26.1 27.5
% % % %
revenues (10)
Operating expenses 4,509 4,345 8,900 8,925 164 3.8 (25) (0.3)
%
%
Operating expenses as a % of 20.8 20.3 20.0 21.0
% % % %
total revenues
Operating income $
933 $
1,551 $
2,713 $
2,789 $
(618) (39.8) $
(76) (2.7)
%
%
Operating income as a % of 4.3
% 7.2
% 6.1
% 6.6
%
total revenues
Adjusted operating income (1) $
1,057 $
1,669 $
2,959 $
3,158 $
(612) (36.7) $
(199) (6.3)
%
%
Adjusted operating income as a 4.9
% 7.8
% 6.7
% 7.4
%
% of total revenues
Revenues (by major
goods/service lines):
Pharmacy $
16,870 $
16,392 $
34,225 $
32,510 $
478 2.9 $
1,715 5.3
% %
Front Store 4,653 4,875 9,861 9,674 (222) (4.6)
%
% 187 1.9
Other 139 180 325 378 (41) (22.8) (53) (14.0)
% %
Prescriptions filled (4) (5) 345.4 349.1 720.5 695.9 (3.7) (1.1)
%
% 24.6 3.5
Same store sales increase
(decrease): (12)
Total 2.4
% 4.2
% 5.7
% 4.0
%
Pharmacy 4.6
% 4.7
% 6.9
% 4.8
%
Front Store (4.5) 2.9
% 1.7
% 1.6
% %
Prescription volume (4) 0.6
% 7.2
% 5.2
% 7.0
%
Generic dispensing rate (4) (11) 89.1 89.0 89.2 88.9
% % % %
Supplemental Information
(Unaudited)
Health Care Benefits Segment
The following table summarizes the Health Care Benefits segment's performance for the respective periods:
Change
Three Months Ended Six Months Ended Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2020 vs 2019 2020 vs 2019
In millions, except percentages 2020 2019 2020 2019
$ %
$ %
and basis points ("bps")
--- ---
Revenues:
Premiums $
16,913 $
15,777 $
34,534 $
32,036 $
1,136 7.2 $
2,498 7.8
% %
Services 1,428 1,478 2,912 2,925 (50) (3.4) (13) (0.4)
% %
Net investment income 127 148 220 312 (21) (14.2) (92) (29.5)
% %
---
Total revenues 18,468 17,403 37,666 35,273 1,065 6.1 2,393 6.8
% %
Benefit costs 11,884 13,246 26,400 26,901 (1,362) (10.3) (501) (1.9)
%
%
MBR (Benefit costs as a % of 70.3 84.0 76.4 84.0
% % % % (1,370)
bps (760)
bps
premium revenues) (8)
Operating expenses $
3,518 $
3,095 $
7,105 $
6,155 $
423 13.7 $
950 15.4
% %
Operating expenses as a % of 19.0 17.8 18.9 17.4
% % % %
total revenues
Operating income $
3,066 $
1,062 $
4,161 $
2,217 $
2,004 188.7
%
% $
1,944 87.7
Operating income as a % of 16.6 6.1
% 11.0 6.3
% % %
total revenues
Adjusted operating income (1) $
3,464 $
1,438 $
4,955 $
3,000 $
2,026 140.9
%
% $
1,955 65.2
Adjusted operating income as a 18.8 8.3
% 13.2 8.5
% % %
% of total revenues
The following table summarizes the Health Care Benefits segment's medical membership for the respective periods:
June 30, 2020
March 31, 2020 December 31, 2019
June 30, 2019
In thousands Insured ASC Total Insured ASC Total Insured ASC Total Insured ASC Total
--- ---
Medical membership: (9)
Commercial 3,298 14,179 17,477 3,372 14,206 17,578 3,591 14,159 17,750 3,571 14,276 17,847
Medicare Advantage 2,651 2,651 2,584 2,584 2,321 2,321 2,264 2,264
Medicare Supplement 954 954 913 913 881 881 819 819
Medicaid 1,918 586 2,504 1,835 552 2,387 1,398 558 1,956 1,344 562 1,906
Total medical 8,821 14,765 23,586 8,704 14,758 23,462 8,191 14,717 22,908 7,998 14,838 22,836
membership
Supplemental membership information:
Medicare Prescription Drug Plan 5,575 5,624 5,994 6,004
(standalone) (a)
(_____________________________________________)
(a) Represents the Company's
SilverScript(R) PDP membership
only. Excludes 2.5 million
members as of both December 31,
2019 and June 30, 2019 related
to Aetna's standalone PDPs that
were sold effective December
31, 2018. The Company retained
the financial results of the
divested plans through 2019
through a reinsurance
agreement. Subsequent to 2019,
the Company no longer retains
the financial results of the
divested plans.
Supplemental Information
(Unaudited)
The following table shows the components of the change in health care costs payable during the six months
ended June 30, 2020 and 2019:
Six Months Ended
June 30,
In millions 2020 2019
--- ---
Health care costs
payable, beginning
of period $
6,879 $
6,147
Less: Reinsurance
recoverables 5 4
Health care costs
payable, beginning
of period, net 6,874 6,143
Acquisition 412
Add: Components of incurred health
care costs
Current year 26,390 26,864
Prior years (a) (420) (489)
Total incurred
health care costs
(b) 25,970 26,375
Less: Claims paid
Current year 20,223 20,552
Prior years 5,704 5,095
Total claims paid 25,927 25,647
Add: Premium
deficiency reserve 29 14
Health care costs
payable, end of
period, net 7,358 6,885
Add: Reinsurance
recoverables 4 4
Health care costs
payable, end of
period $
7,362 $
6,889
(_____________________________________________)
(a) Negative amounts reported for incurred
health care costs related to prior
years result from claims being settled
for amounts less than originally
estimated.
(b) Total incurred health care costs for
the six months ended June 30, 2020 and
2019 in the table above exclude (i)
$29 million and $14 million,
respectively, related to a premium
deficiency reserve related to the
Company's Medicaid products, (ii) $20
million and $21 million, respectively,
of benefit costs recorded in the
Health Care Benefits segment that are
included in other insurance
liabilities on the Company's unaudited
condensed consolidated balance sheets
and (iii) $119 million and $136
million, respectively, of benefit
costs recorded in the Corporate/Other
segment that are included in other
insurance liabilities on the Company's
unaudited condensed consolidated
balance sheets.
The following table summarizes the Health Care Benefits segment's days claims payable for the respective periods:
June March December June
30, 31, 31, 2019 30,
2020 2020 2019
---
Days
Claims
Payable
(13) 57 48 48 48
Supplemental Information
(Unaudited)
Corporate/Other Segment
The following table summarizes the Corporate/Other segment's performance for the respective periods:
Change
Three Months Ended Six Months Ended Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2020 vs 2019 2020 vs 2019
In millions, except percentages 2020 2019 2020 2019
$ %
$ %
--- ---
Revenues:
Premiums $
14 $
14 $
33 $
37
$ % $
(4) (10.8)
%
Services 15 2 17 4 13 650.0 13 325.0
% %
Net investment income 57 145 126 230 (88) (60.7) (104) (45.2)
% %
Total revenues 86 161 176 271 (75) (46.6) (95) (35.1)
% %
Benefit costs 51 57 119 136 (6) (10.5) (17) (12.5)
% %
Operating expenses 448 412 825 824 36 8.7 1 0.1
% %
Operating loss (413) (308) (768) (689) (105) (34.1) (79) (11.5)
% %
Adjusted operating loss (1) (343) (202) (628) (433) (141) (69.8) (195) (45.0)
% %
Adjusted Earnings Per Share Guidance
(Unaudited)
The following reconciliations of projected net income to projected adjusted income attributable to CVS Health and calculations of projected GAAP diluted EPS and projected Adjusted EPS contain forward-looking information. All forward-looking
information involves risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking information due to the risks and uncertainties related to the COVID-19 pandemic, the severity and duration of the
pandemic, the pandemic's impact on the U.S. and global economies and consumer behavior and health care utilization patterns, and the timing, scope and impact of stimulus legislation and other federal, state and local governmental responses to the
pandemic, as well as the risks and uncertainties described in our SEC filings, including those set forth in the Risk Factors section and under the heading "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Annual
Report on Form 10-K, our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020 and our recently filed Current Reports on Form 8-K. See "Non-GAAP Financial Information" earlier in this press release and endnote (2) later in this
press release for more information on how we calculate Adjusted EPS.
Year Ending December 31, 2020
Low
High
In millions, except per share amounts Total Per Total Per
Company Common Company Common
Share Share
--- ---
Net income attributable to CVS Health (GAAP measure) 7,375 $
5.59 7,545 $
5.72
Non-GAAP adjustments:
Amortization of intangible assets 2,320 1.76 2,320 1.76
Acquisition-related integration costs 450 0.34 450 0.34
Gain on divestiture of subsidiary (225) (0.17) (225) (0.17)
Income tax benefit (495) (0.38) (495) (0.38)
Adjusted income attributable to CVS Health (2) $
9,425 $
7.14 $
9,595 $
7.27
Weighted average diluted shares outstanding 1,320 1,320
Endnotes
((1) ) The Company defines adjusted operating income as operating income (GAAP measure) excluding the impact of amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance, such as acquisition-related integration costs, store rationalization charges, gains/losses on divestitures and any other items specifically identified herein. See "Non-GAAP Financial Information" earlier in this press release for additional information regarding the items excluded from operating income.
((2) )The Company defines adjusted income attributable to CVS Health as net income attributable to CVS Health (GAAP measure) excluding the impact of amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance, such as acquisition-related integration costs, store rationalization charges, gains/losses on divestitures, the corresponding income tax benefit or expense related to the items excluded from adjusted income attributable to CVS Health, and any other items specifically identified herein. GAAP diluted EPS and Adjusted EPS, respectively, are calculated by dividing net income attributable to CVS Health and adjusted income attributable to CVS Health by the Company's weighted average diluted shares outstanding. See "Non-GAAP Financial Information" earlier in this press release for additional information regarding the items excluded from net income attributable to CVS Health and GAAP diluted EPS.
((3)) Enterprise prescriptions include prescriptions dispensed through the Company's retail pharmacies, long-term care pharmacies, and mail order pharmacies as well as prescription claims managed through our pharmacy benefits manager, with an elimination for managed prescription claims filled through CVS Health dispensing channels. Management uses this metric to analyze the total prescription volume across the Company including variances between actual prescriptions and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of prescription volume on total revenues and operating results.
((4) )Includes an adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.
((5)) Total pharmacy claims processed represents the number of prescription claims processed through our pharmacy benefits manager and dispensed by either our retail network pharmacies or our own mail and specialty pharmacies. Prescriptions filled represents the number of prescriptions dispensed through the Retail/LTC segment's pharmacies. Management uses these metrics to understand variances between actual claims processed and prescriptions dispensed, respectively, and expected amounts as well as trends in period-over-period results. These metrics provide management and investors with information useful in understanding the impact of pharmacy claim volume and prescription volume, respectively, on segment total revenues and operating results.
((6)) Pharmacy network is defined as claims filled at retail and specialty retail pharmacies, including the Company's retail pharmacies and long-term care pharmacies, but excluding Maintenance Choice activity, which is included within the mail choice category. Maintenance Choice permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS Pharmacy retail store for the same price as mail order.
((7) )Mail choice is defined as claims filled at a Pharmacy Services mail order facility, which includes specialty mail claims inclusive of Specialty Connect(®) claims picked up at a retail pharmacy, as well as prescriptions filled at the Company's retail pharmacies under the Maintenance Choice program.
((8)) Medical benefit ratio is calculated as benefit costs divided by premium revenues and represents the percentage of premium revenues spent on medical benefits for the Company's insured members. Management uses MBR to assess the underlying business performance and underwriting of its insurance products, understand variances between actual results and expected results and identify trends in period-over-period results. MBR provides management and investors with information useful in assessing the operating results of the Company's insured Health Care Benefits products.
((9)) Medical membership represents the number of members covered by the Company's insured and ASC medical products and related services at a specified point in time. Management uses this metric to understand variances between actual medical membership and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of medical membership on segment total revenues and operating results.
((10)) Gross margin is calculated as the segment's total revenues less its cost of products sold. Gross margin as a percentage of total revenues is calculated by dividing the segment's gross margin by its total revenues and represents the percentage of total revenues that remains after incurring direct costs associated with the segment's products sold and services provided. Gross margin as a percentage of total revenues provides investors with information that may be useful in assessing the operating results of the Company's Pharmacy Services and Retail/LTC segments.
((11)) Generic dispensing rate is calculated by dividing the segment's generic drug prescriptions processed or filled by its total prescriptions processed or filled. Management uses this metric to evaluate the effectiveness of the business at encouraging the use of generic drugs when they are available and clinically appropriate, which aids in decreasing costs for client members and retail customers. This metric provides management and investors with information useful in understanding trends in segment total revenues and operating results.
((12)) Same store sales and prescription volume represent the change in revenues and prescriptions filled in the Company's retail pharmacy stores that have been operating for greater than one year, expressed as a percentage that indicates the increase or decrease relative to the comparable prior period. Same store metrics exclude revenues from MinuteClinic(®), revenues and prescriptions from LTC operations and, in 2019, revenues and prescriptions from stores in Brazil. Management uses these metrics to evaluate the performance of existing stores on a comparable basis and to inform future decisions regarding existing stores and new locations. Same-store metrics provide management and investors with information useful in understanding the portion of current revenues and prescriptions resulting from organic growth in existing locations versus the portion resulting from opening new stores.
((13)) Days claims payable is calculated by dividing the health care costs payable at the end of each quarter by the average health care costs per day during such quarter. Management and investors use this metric as an indicator of the adequacy of the Company's health care costs payable liability at the end of each quarter and as an indicator of changes in such adequacy over time.
((14)) Certain prior year amounts have been reclassified for consistency with the current period presentation.
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SOURCE CVS Health Corporation
