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Text: I'm Susie Lisa, senior vice president of investor relations for CVS Health.
Today's call is being broadcast on our website, where it will be archived for one year.
2021 was an important year for CVS Health.
We exceeded our financial goals.
We advanced our strategy and we brought greater value to the people we serve, playing a critical role in the nation's pandemic response.
We ended a strong 2021 with another strong quarter.
We exceeded our adjusted earnings per share expectations for the fourth quarter in a row delivering $1.98 adjusted earnings per share in the final quarter of 2021 and $8.40 adjusted earnings per share for the full year.
We are entering 2022 with powerful momentum.
We are delivering healthcare solutions that are personalized, connected, and increasingly digital.
We are engaging millions of consumers across our businesses and in our community health destinations across America.
CVS Health is becoming a bigger part of their everyday health.
Turning now to our performance.
For the full year 2021, CVS Health grew adjusted revenue by 8.8% to $292 billion.
We delivered adjusted operating income of $17.3 billion, up 8.1% year over year.
And we increased adjusted earnings per share by 12%.
We generated strong cash flow from operations of nearly $18.3 billion for the full year, exceeding our most recent guidance of at least $13.5 billion.
This strong performance positions us well for 2022.
At this early stage of the year, we are maintaining our full year 2022 adjusted earnings per share guidance of $8.10 to $8.30.
Our forecast reflects increased volume from COVID testing and front store sales in our retail business relative to our forecast at investor day, offset by the accelerated timing of vaccine boosters pulled into the fourth quarter of 2021.
Shawn will provide more details on our results and guidance shortly.
Our 2021 performance demonstrates our ability to anticipate, deliver, and exceed consumers' expectations for healthcare.
Consumers are a major force driving change in healthcare, and we continue to engage successfully with individuals in more places and on their terms, virtually, in the home, and in their local community.
Customers and clients continue to realize the superior value we are providing with our integrated health solutions, particularly those that address the most prevalent, costly, and complex health conditions, such as diabetes, cancer, and chronic kidney disease.
Turning to the segment highlights.
In healthcare benefits, we delivered 9.4% adjusted revenue growth for the full year 2021, driven by our performance in government services.
We had another strong year of Medicare growth with increases across all product lines.
Total Medicare Advantage membership grew at 9.8% on a year-over-year basis, as we added over 265,000 new members in 2021 and exceeded our initial growth expectations.
As a result of our strategic focus on dual-eligible special needs plans, enrollment nearly doubled in 2021.
Our full year medical benefit ratio of 85% was in line with our guidance expectations.
For the full year 2021, the utilization of total healthcare services in aggregate was in line with normalized historical baseline levels.
Turning to 2022, we had an impressive annual enrollment period in our Medicare business.
For the second consecutive year, we grew all Medicare product lines, and our growth rates this year exceed the industry averages in all categories.
We grew total Medicare Advantage membership by 11.6% versus the prior year, reflecting increases in individual and group Medicare Advantage of over 15% and 6%, respectively, year over year.
We also led the industry in absolute Medicare PDP net membership growth.
This added nearly 295,000 net new members, while the overall PDP market continues to decline.
We had a solid 2022 selling season in our national accounts commercial business.
We expect to grow membership in the low single digits for the full year and maintained strong client retention of 96%.
Our success is driven by the combination of our competitive cost structure, our integrated benefit designs, including medical and pharmacy, and products and services that utilize CVS Health capabilities, such as Transform Care Diabetes and Virtual Primary Care programs.
Membership enrollment was lower than expected in the eight ACA individual exchanges we entered this year.
We continue to build this business gradually, with select geographic expansion, a focused price discipline, and the appeal of co-branded Aetna CVS Health offerings.
Consistent with our prior guidance, we do not expect this offering to contribute materially to our financial results in 2022.
Overall, our deep understanding of consumer needs, innovative product portfolio, and our service excellence will drive growth in our healthcare benefits segment.
Our comprehensive range of products and benefit design that address consumers' whole health needs remains a key differentiator and fueled a strong selling season.
For 2022, we forecast 7% to 9% revenue growth and 15% to 17% adjusted operating income growth.
Turning to pharmacy services, we delivered 7.8% revenue and 20.6% adjusted operating income growth in 2021.
We continue to be a consultative partner to our clients and members.
We're delivering industry-leading cost trends and savings, service excellence and a broad product portfolio, and a commitment to transparency.
We consistently create value for our customers and clients with our better-than-market drug trend.
We continue to enhance our utilization programs to ensure access to the therapeutics that are the most clinically appropriate.
For 2022, we achieved a client retention rate of over 98% and drove $8.8 billion of net new business revenue.
We are a leader in specialty pharmacy, delivering revenue growth of 12.3% for the fourth quarter and 9.3% for the full year versus prior period.
Our specialty pharmacy programs drive value in the marketplace and they differentiate us as we pair programs with digital capabilities to deliver a convenient and connected experience.
For pharmacy services in 2022, we expect 6% to 8% revenue growth and 7% to 9% adjusted operating income growth, as we create long-term value for our clients and our members.
Our retail segment plays a critical role as a community health destination for millions of Americans.
This segment outperformed the industry and our expectations in 2021.
We grew revenue 9.8% year over year to just over $100 billion, marking an important milestone in the history of this CVS Health business.
We delivered an exceptional 24% adjusted operating income growth in 2021.
Pharmacy sales and prescriptions filled both increased by nearly 9% year over year.
This was notably driven by consumers who came to CVS Health for COVID-19 vaccine administration.
For the full year 2021, CVS Health administered more than 32 million COVID-19 tests and more than 59 million vaccines.
Over 35% of COVID-19 vaccines in 2021 were administered during the fourth quarter.
Our work to test and vaccinate America for COVID is a powerful example of the relationships we are building with consumers, which leads to new customers seeking a range of other health services at CVS Health.
Front store sales growth was strong throughout 2021, up 8.4% versus the prior year.
They were led by consumer demand for the over-the-counter COVID-19 tests, as well as cough and cold, beauty, and personal care products.
We sold over 22 million OTC COVID-19 tests with approximately 70% of sales in the fourth quarter.
We are progressing on optimizing our retail portfolio and pivoting our stores into three formats: primary care clinics, enhanced health hubs, and traditional CVS pharmacy locations.
We are executing our plan to dedensify stores based on consumer health and buying needs, omnichannel preferences, and shifts in the U.S. population.
For 2022, as I mentioned, given the earnings outperformance and pull-forward of vaccine boosters in 2021, we are maintaining our 2022 guidance.
This now implies retail revenue to be plus or minus 1% versus prior year, and a low 20% decline in adjusted operating income growth.
Shawn will provide more details.
Our digital approach is focused on delivering a superior experience for consumers by creating a more connected and seamless health journey.
We are making progress toward setting a new standard for digital healthcare for consumers.
CVS.com is one of the top health websites with over 2 billion visits in 2021, up nearly 55% over the prior year.
Our digital capabilities for health interactions such as COVID testing and vaccines, prescription services, and sales of health and wellness products have dramatically increased consumer engagement across all CVS Health businesses.
We now serve 40 million customers digitally, up approximately 10% in the last six months alone.
In 2021, we launched several new digital health services powered by advanced analytics to personalize the experience.
We made it easier to join our CarePass program reaching 5.6 million subscribers in the quarter, up more than 40% year over year.
We integrated CarePass for our Aetna Commercial members and are excited about the adoption we are seeing.
We also simplified the CarePass enrollment for all consumers, which is driving more growth in subscribers.
For our HealthHUB and MinuteClinic patients, we simplified and digitized the check-in process for patients.
Our self-service digital tool enables individuals to complete traditional paperwork in advance of their appointment.
Almost 80% of patients are already utilizing this capability.
At our investor day, we promised a superior healthcare experience for consumers that will improve health outcomes, lower cost, and provide broader access to care.
We are making several moves to realize our vision for healthcare.
We're advancing our care delivery capabilities, optimizing our retail portfolio, and further diversifying the health products and services that we offer.
We're driving this evolution both through internal initiatives and by seeking to execute capability-focused M&A for complementary health services.
We will connect consumers in more places in more ways and on their terms, with our digital-first technology-forward approach, as well as an enhanced omnichannel health experience.
These strategic moves will accelerate the growth of our foundational businesses.
In all this work, we will place the consumer at the center of all that we do.
We remain focused on delivering on our commitment to sustainability for our shareholders, our customers, and our communities.
We recently launched CVS Health Zones, aim to advance health equity and to address social determinants of health in high-risk communities.
We are collaborating with trusted national and local organizations to confront the six key social determinants of health through local investments.
Our goal is to equip communities with the resources needed to close gaps in care for specific health conditions, such as diabetes and heart disease.
Health Zones is now active in five geographies with additional markets planned in 2022.
We remain committed to the environment and have pledged to reduce our overall impact, cutting greenhouse gas emissions across our operations and supply chain, and decreasing resource consumption, especially paper and plastic.
In December, CVS Health was named to the 2021 S&P Dow Jones Sustainability North American Index for the 9th consecutive year and the Dow Jones Sustainability World Index for the third consecutive year.
Our financial performance, execution, portfolio of assets, and differentiated strategy all create strong momentum into 2022 and a clear pathway to achieve low double-digit adjusted earnings per share growth over time.
I would also like to take a moment to recognize the continued contribution of our colleagues who have played a vital role in helping our nation prevail over the pandemic.
I am proud of what we have done and are doing every day to make a difference.
Our fourth quarter results reflect the continuation of the strong performance delivered in the first three quarters of the year, as we once again exceeded our expectations for revenue, cash flow, and adjusted earnings per share.
We maintained our focus on growth, operational execution, and supporting the communities we serve as the effects of the pandemic persists.
Starting with the enterprise as a whole.
Total fourth quarter adjusted revenues of 76.6 billion, increased by 10.6% year over year.
We reported adjusted operating income of 4.1 billion and adjusted earnings per share of $1.98, representing an increase of 40.8% and 52.3% versus prior year, respectively.
For full year 2021, we reported total adjusted revenues of 292.1 billion, an increase of 8.8% versus prior year, reflecting robust growth across all business segments.
We delivered adjusted operating income of 17.3 billion and adjusted earnings per share of $8.40, up approximately 8.1% and 12% year over year, respectively.
And we generated significant cash flow from operations of nearly 18.3 billion.
This marks a record year of cash flow from operations for CVS Health and reflects the strength of our financial results, accelerated collections, and focused improvements in our working capital position.
Turning to the healthcare benefits segment.
Fourth quarter adjusted revenue of 20.7 billion increased by 10.1% year over year, driven by membership growth in our government services business and lower COVID-19-related investments, slightly offset by the repeal of the health insurer fee.
Adjusted operating income of 510 million grew by over 230% year over year, driven by lower COVID-19 related investments and improved underlying performance, partially offset by higher COVID-related medical costs compared to prior year.
Our adjusted medical benefit ratio of 87% improved 130 basis points year over year, driven by lower COVID-19 related investments, partially offset by the repeal of the health insurer fee.
As a result of the omicron variant, we experienced higher COVID testing and treatment costs in the fourth quarter, but this was largely offset by lower non-COVID costs, particularly in Medicare and Medicaid.
Days claims payable at the end of the quarter was 49 and was, as expected, lower than the third quarter and consistent with normal seasonal trends and historic levels.
Overall, we remain confident in the adequacy of our reserves.
In the pharmacy services segment, fourth quarter revenues of 39.3 billion increased by 8.2% year over year, driven by increased pharmacy claims volume, growth in specialty pharmacy, and brand inflation, partially offset by the impact of continued client price improvements.
Total pharmacy membership increased by approximately 400,000 lives sequentially, reflecting sustained growth in government programs.
Total pharmacy claims processed increased by 8.2% above prior year.
Approximately half of this growth was attributable to net new business in 2021, with COVID-19 vaccine administration and new therapy prescriptions also contributing to the year-over-year growth.
Adjusted operating income of $1.8 billion grew 16.8% year over year, driven by improved purchasing economics, reflecting the products and services of our group purchasing organization, and growth in specialty pharmacy.
In our retail long-term care segment, we delivered exceptional revenue and adjusted operating income growth versus prior year and once again exceeded our expectations.
Fourth quarter revenue of 27.1 billion was up by 12.7% year over year, representing an increase of 3 billion.
There are two main components to this increase: one, approximately 60% was driven by the administration of COVID-19 vaccines and testing; front store sales, including demand for over-the-counter COVID test kits and related treatment categories; as well as strong COVID-related prescription volume.
The remaining 40% was attributable to a combination of underlying sustained pharmacy growth and broad strength in front store sales trends, partially offset by continued pharmacy reimbursement pressure.
This strong revenue growth helped produce adjusted operating income of 2.5 billion.
This quarterly result was 38% above prior year and significantly exceeded our forecasts.
The increase in adjusted operating income was driven by a few key components: the administration of COVID-19 vaccines, underlying strength in pharmacy and front store sales, and a $106 million gain from an antitrust legal settlement, which were partially offset by the combined impacts of ongoing but stable reimbursement pressure, and business investments, including the minimum wage increase and store improvements.
In terms of the improved performance in the quarter versus our expectations, there are two primary components.
Approximately 75% was driven by vaccines, largely third-dose boosters, which we previously expected to impact the first quarter of 2022.
And the remaining 25% was driven by the nationwide surge in demand for over-the-counter and diagnostic COVID-19 testing, combined with stronger underlying front store sales performance.
Looking at cash flow and the balance sheet.
Our liquidity and capital position remained strong at the end of the fourth quarter with full year cash flow from operations of nearly 18.3 billion and nonrestricted cash of over 3.8 billion.
Through our proactive liability management transaction in December, we paid down 2.3 billion in long-term debt in the quarter, bringing the total long-term debt we have repaid since the close of the Aetna transaction to a net total of 21 billion.
In addition, we returned over 2.6 billion to shareholders through our quarterly dividends in 2021.
Our consistent outperformance during 2021 provides solid momentum as we head into this year, setting the stage for our continued strong outlook in 2022 despite multiple COVID unknowns that remain challenging to predict, such as additional variants, vaccine and testing protocols, and government testing initiatives.
As Karen noted earlier, we are maintaining our full year adjusted earnings per share guidance range of $8.10 to $8.30.
We feel this is an appropriate stance at this early point in the year, especially given the earnings outperformance of retail in Q4 was due largely to the pull-forward of third-dose vaccine administration from 2022 into 2021.
This represents 2% to 5% growth versus our revised 2021, adjusted earnings per share baseline of $7.92.
As you think about the adjusted earnings per share baseline and year-over-year growth, I'd like to encourage you to keep a few things in mind.
First, recall that our 2021 baseline of $7.92 removes items we do not forecast, prior year's development, net of profits returned to customers and net realized capital gains.
It also includes the annualized impact of our investment in our colleagues through an increase in minimum wage.
Second, it is also important to note that the baseline now includes a net favorable component attributable to COVID-19, driven by vaccines and testing of approximately $0.30 per share.
CVS Health continues to help lead the nation's COVID-19 pandemic response, clearly demonstrating the power of our integrated business model, consumer engagement, and local community health destinations.
While there is no change to our Retail segment guidance, I would like to provide more detail on our COVID-19 retail volume assumptions for 2022.
We expect that COVID-19 testing both in-store diagnostic and over-the-counter will continue at higher volumes than anticipated at investor day, offset by a reduced outlook on vaccines.
In 2022, we expect vaccine volumes to decline approximately 70% to 80% and in-store diagnostic testing volumes to decline 40% to 50% compared to 2021.
For over-the-counter test kits, we expect modest full-year volume growth versus 2021.
Relative to vaccines, our outlook does not assume any impact from the administration of a fourth COVID-19 booster.
As such, we expect the contribution of COVID-19 vaccines to be more heavily weighted to the first half of the year.
As I mentioned, the impact of COVID-19 remains one of the most challenging aspects of developing our guidance due to many factors, including the risk of additional surges, potential new testing or vaccine protocols, legislative changes, and OTC test kit dynamics such as supply challenges, coverage mandates, and government initiatives.
Turning to items that are below adjusted operating income on our income statement, we expect our interest expense for 2022 to be approximately $2.3 billion.
We are purchasing shares to offset dilution.
And as a result, we expect that diluted share count to be approximately flat versus 2021.
Our expectation for the effective income tax rate is approximately 25.6%, consistent with 2021.
In terms of cash flow and capital deployment, we anticipate continued strong cash flow from operations in 2022.
And we are updating our guidance range to $12 billion to $13 billion, reflecting the improved cash flow results for 2021.
Capital expenditures are expected to be in the range of $2.8 billion to $3 billion as we invest in technology and digital enhancements to improve the consumer experience, as well as our community locations.
As we detailed in December, we remain committed to maintaining our investment-grade ratings, while also having the flexibility to deploy capital strategically for capability-focused M&A.
To conclude, the strong 2021 performance of CVS Health is expected to carry into 2022 as we continue to execute our strategy.
We have solidified our leadership role in healthcare delivery as a trusted partner to our consumers and their communities.
As we build upon this trust, we will continue to drive meaningful improvements that lower the cost of care, improve access and build engagement and convenience, ultimately enabling people to live healthier lives.

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cvs health qtrly revenue rose 10.1% to $76.6 billion.
qtrly total revenues increased to $76.6 billion, up 10.1% compared to prior year.
qtrly gaap diluted earnings per share from continuing operations of $0.98 and adjusted earnings per share of $1.98.
administered more than 8 million covid-19 tests and more than 20 million covid-19 vaccines nationwide in q4 of 2021.
for full year, company administered more than 32 million covid-19 tests.

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