The Cigna Group's Second Quarter 2023 Results Review is being conducted as a question-and-answer session and is being recorded. Ralph Giacobbe, Senior Vice President of Investor Relations, is joined by David Cordani, The Cigna Group's Chairman and Chief Executive Officer, Brian Evanko, Chief Financial Officer, and Eric Palmer, President and Chief Executive Officer of Evernorth Health Services. They will discuss second quarter financial results and updated financial outlook for 2023. The earnings release provides a reconciliation of adjusted income from operations and adjusted revenues to the most directly comparable GAAP measures.

In the second quarter, the company recorded after-tax special item charges of $5 million and delivered total revenues of $48.6 billion, adjusted earnings per share of $6.13 and cash flow from operations of $2.5 billion. Additionally, the company made forward-looking statements about their outlook for 2023 and future performance, which are subject to risks and uncertainties. Eric Palmer, President and Chief Executive Officer of Evernorth Health Services, will be joining the call to answer questions.

Evernorth Health Services had a strong quarter, with Express Scripts introducing Copay Assurance and ClearCareRX to improve affordability for patients. They also launched Independent Rx to support rural pharmacists. They have strong client retention and are making good progress for implementation with Centene, and Accredo, their specialty pharmacy business, had strong growth in the quarter.

Cigna Healthcare had organic customer growth in the second quarter, with the U.S. commercial business growing faster than the overall market. They are providing competitive total cost of care for employer clients and have a Medicare Advantage business with above-market customer growth. In the individual exchange business, they are engaging customers to improve health outcomes. In the international health business, they are providing solutions for the globally mobile population and employees of multinational corporations. Cigna Group is performing well and is well-positioned to continue growing.

Express Scripts is increasing their outlook for revenue and customer growth, as well as cash flow from operations, and they are confident in delivering adjusted EPS of at least $24.70 for 2023. They are working to sustain their momentum with their differentiated and diversified capabilities and strategic growth framework. They are harnessing the power of their talent, client relationships and partnerships, as well as technology, to further accelerate innovation and growth. They highlighted their flagship specialty pharmacy, Accredo, which has grown from $30 billion to $60 billion in the past five years, and showcased their clinical expertise and capabilities at a Warrendale, Pennsylvania visit with investors.

Accredo is a key part of Evernorth's revenue and is growing faster than the overall marketplace due to its unique strengths. Specialty drugs make up 5% of the population but drive more than 40% of total healthcare costs, creating expected mid to high single-digit growth in the specialty pharmaceutical market. Biosimilars are a force of change and a substantial opportunity for further growth and impact, and Accredo is a leader in supporting their adoption. Accredo has built and strengthened their clinical capabilities and operating model over decades, and employs hundreds of field-based infusion nurses located within 75 miles of 90% of the U.S. population, providing services to approximately 900,000 patients with complex conditions and needs.

Accredo's specialty pharmacy is a powerful growth engine for Cigna due to its unique, coordinated clinical model and ability to provide personalized clinical support. Cigna's second quarter 2023 results were strong, with the company delivering strong customer, revenue, and cash flow growth. Cigna is confident in their guidance of adjusted EPS of at least $24.70 for full year 2023 and remain on track for adjusted EPS of at least $28.00 in 2024.

In the second quarter of 2023, Cigna Healthcare and Evernorth both performed well with revenue growth of 7% and 10% respectively. Cigna Healthcare's adjusted revenue grew 12% to $12.7 billion, while Evernorth's pre-tax adjusted earnings were $1.5 billion. Both platforms exceeded expectations in terms of revenue and cash flow, while adjusted earnings per share were slightly ahead of expectations. Cigna Healthcare was impacted by an unfavorable risk adjustment in its individual exchange business. Evernorth is continuing to build out its cross-enterprise leverage capabilities and make strategic investments in order to further enhance and expand its client relationships.

Cigna Healthcare had a successful second quarter, with pre-tax adjusted earnings of $1.2 billion and a medical care ratio of 81.2%. They experienced an unfavorable impact from the first half of 2023 due to industry-wide risk adjustment data, but this was largely offset by a favorable update to their 2022 risk adjustment receivable. Utilization levels were in line with expectations, and they ended the quarter with 19.5 million total medical customers, with growth of 1.5 million customers year-to-date across all businesses.

Cigna Healthcare reported solid results in the quarter, and increased their expectations for full year 2023 adjusted revenues to at least $190 billion. They also reaffirmed their adjusted earnings per share outlook of at least $24.70 per share, and expect mid-single digit year-over-year adjusted earnings growth in the third quarter, and mid to high single-digit adjusted earnings growth in the fourth quarter. Additionally, they expect their 2023 medical care ratio to be within the range of 81.5% to 82.3%. Year-to-date through August 2, 2023, they have repurchased approximately $3.8 million shares of common stock for approximately $1.1 billion.

Brian Evanko discussed the strength of their cash generation, which has allowed them to increase their cash flow from operations by $500 million for the full year 2023. He also discussed their balance sheet and cash flow outlook, which is strong due to their efficient service-based model. He then gave an update on their second quarter results, which were strong, and they are confident that they will deliver on their 2023 adjusted EPS guidance of at least $24.70. Lastly, he discussed the risk adjustment dynamics, underlying utilization and cost trends in the marketplace and the individual business for 2023, and how the price increases for 2024 will sync up with their long-term pre-tax margins for the individual business.

In the quarter, Cigna faced an $80 million impact from a risk adjustment payable matter, which was offset by a favorable true-up on the 2022 risk adjustment settlement and favorable claim cost experience in the first half of the year. The individual exchange business, which is approximately a $5 billion block for 2023, is expected to run below the company's 4-6% target margins this year, with an additional $80 million of risk adjustment payable impact across the second half. For 2024, Cigna has taken sizable price increases in their two largest states, which should lead to some degree of margin expansion in the individual exchange book.

David Cordani describes the buying behaviors of employers for health benefits in 2024, which focus on affordability and high-quality service levels, with an additional emphasis on need state. He then asks Eric to provide more details on the pharmacy benefit side, using GLP-1s as an example.

Employers are intensifying their focus on the complex behavioral health needs of their workforce, such as anxiety, stress, and depression. This has led to a need for more integrated solutions to reduce friction and get more value out of each individual solution. Eric Palmer then discusses GLP-1s, which are top of mind for many clients, and Cigna has early coverage for them in value-based arrangements with pharma manufacturers.

Brian Evanko and David discussed the ENCIRCLERX program, which helps manage GLP-1, cardiac, diabetic, and obesity conditions, as well as behavioral solutions. They also discussed the medical cost payables and reserves, noting that they use a consistent methodology in setting them. Justin Lake asked about the acceleration in the stop loss business, to which Evanko and David responded.

Brian Lake and David Cordani discuss the Days Claims Payable metric and their confidence in its adequacy. They also note the growth in their stop loss product line, with 13% year-on-year premium growth and their expectation to achieve their target profitability this year. Furthermore, they explain that their consultative approach to clients includes providing guidance on the benefit design, clinical programs, and service support programs, as well as the funding mechanism, which can range from risk or guarantee cost, shared returns, and/or self-funded with stop loss.

Brian Evanko discussed the margin impact from GLP-1s, the shift to biosimilars, and the Centene implementation costs on the pharmacy business in the quarter. He also mentioned that Evernorth performed in line with expectations and that GLP-1 utilization is a positive contributor to the business. Additionally, he mentioned that Amjevita had low adoption in the first half of the year, but that two additional biosimilars were added to the National Preferred Formulary in the second half of the year, which is expected to accelerate income growth in the third and fourth quarters.

Brian and Eric provided an update on the Centene impact and the selling season. They are on track for the January 2024 implementation and anticipate a strong retention rate of mid-90% or higher. They are feeling good about the 2024 selling season and will provide more detail when they give their 2024 guidance.

Brian Evanko from Cigna Healthcare reported strong customer growth for the year-to-date, with 1.5 million net growth in 2022. They have refreshed their membership outlook for the end of 2023, with an expectation for individual exchange customers. There are no signs of economic pressure in the commercial book of business, but they are assuming some elevated disenrollment in the second half of 2023. In addition, they are now forecasting some level of Medicaid redeterminations for the balance of the year.

In the individual exchange business, the company ended the quarter with 820,000 customers, which was a large increase from the end of 2022. In early July, the company received industry-wide risk adjustment data which indicated that they would be in a greater payable position for the 2023 plan year, driven by two large states that represent half of the individual exchange premium base. This resulted in an $80 million increase in the payable for the first half of the year.

David Cordani explains that the company is pleased with their growth in 2023 and expects larger-than-average local market variability in terms of offering and positioning by competitors for 2024. He also states that they remain comfortable with their bid assumptions and that their stars position is consistent and strong. Lastly, he notes that their relationship with Village and Summit is meant to have a long-term, positive impact and customers have already begun to see benefits from the relationship.

Eric Palmer began by answering Nathan Rich's question about the pricing of biosimilars for Humira and the economics of the different options that were added to the formulary. He then discussed the seasonality of the Cigna Healthcare segment, noting that it would return to a more normal pattern in the future.

Biosimilars have been added to the National Preferred Formulary to drive competition and affordability of specialty medicines. Cigna Healthcare seasonality is expected to be a little less than 55% in the third quarter, with the MCR component staying the same. Negotiations have been made in advance to leverage competition and improve affordability for clients.

Brian Evanko explains that the company expected and planned for more normalized utilization levels in 2023, and the claims experience has been consistent with that expectation. In the Medicare Advantage book specifically, there has been elevated utilization of both outpatient and professional services all year.

Evernorth's revenue and gross profit grew at different rates in the first half of the year, resulting in a drop in earnings. Brian Evanko explains that this was largely due to the expansion of their relationship with the Department of Defense, which required additional spending to grow into the new arrangement.

Evernorth's other revenue has seen strong growth, increasing 35% from the prior quarter. This growth is driven by increased demand for PBM service-based solutions and contributions from Evernorth Care businesses. The fees and other revenue is a strong driver of growth, though it is off a low base.

Evernorth is focused on leveraging the Cigna Healthcare business and has seen strong growth in their CuraScript Specialty Distribution business and fee-based ClearCareRx program. Additionally, MDLive and behavioral platforms have seen continued momentum and are generally in line with the Evernorth segment overall.

Cigna Healthcare has seen an increase in utilization of their specialty products, such as behavioral health and dental services, which has been in line with their forecasts and has helped to defray core medical costs. This has allowed their commercial employer business to continue to perform well financially and is on track to achieve target margins in 2023.

Evernorth has been innovating new products and programs to expand their virtual behavioral network, and is offering bundled solutions to their clients to generate a predictable, high quality, low trend and outcome. They are also leveraging the breadth of their capabilities to create new solutions, such as path wall programs, which take specific diagnoses and look at reengineering the episodes of care end-to-end. These solutions are held accountable for their clinical service and financial outcomes.

Cigna Group concluded their second quarter 2023 results review with David Cordani providing closing remarks. He highlighted that they had stepped into 2023 with strong growth and would deliver on their commitments, including their adjusted EPS outlook of $24.70 for 2023 and $28.00 for 2024. He also thanked their colleagues for their dedication to driving innovation and delivering programs and solutions that support the health and vitality of their customers, patients, and clients. Lastly, he discussed continuing to invest in the future to drive further innovation.

This summary was generated with AI and may contain some inaccuracies.