CVS Health Corporation — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with FY 2022. This is an annual filing, not a standalone fourth-quarter report. CVS operates Health Care Benefits, Health Services, Pharmacy & Consumer Wellness, and Corporate/Other segments. Its 2023 acquisitions of Signify Health and Oak Street Health expanded primary, home-based and value-based care capabilities. Segment presentation was realigned in 2023, and prior-period segment data was recast.
Financial results and key metrics
| Metric | FY 2023 | FY 2022 | Change |
|---|---|---|---|
| Total revenue | $357.8 billion | $322.5 billion | +10.9% |
| Operating income (GAAP) | $13.7 billion | $8.0 billion | +72.8% |
| Net income attributable to CVS | $8.3 billion | $4.3 billion | +93.6% |
| Diluted EPS | $6.47 | $3.26 | Higher |
| Adjusted operating income (non-GAAP) | $17.5 billion | $18.0 billion | −2.8% |
| Operating cash flow | $13.4 billion | $16.2 billion | −17.0% |
| Capital expenditures | $3.0 billion | $2.7 billion | Higher |
GAAP operating income and net income rose substantially mainly because FY 2022 included $5.8 billion of opioid litigation charges and a $2.5 billion loss on assets held for sale. Adjusted operating income, which excludes specified items, declined. The filing reports a 25.1% effective tax rate, versus 25.9% in 2022. GAAP operating margin was approximately 3.8% of revenue, compared with 2.5% in 2022.
Segments
- Health Care Benefits: Revenue $105.6 billion, up 15.6%; adjusted operating income $5.6 billion, down 12.0%. Medical benefit ratio (MBR) rose to 86.2% from 83.8%, reflecting higher Medicare Advantage utilization, including outpatient and supplemental benefits. Medical membership reached 25.7 million, up 1.3 million, while Medicaid membership declined after eligibility redeterminations resumed.
- Health Services: Revenue $186.8 billion, up 10.2%; adjusted operating income $7.3 billion, up 7.8%. Growth included specialty pharmacy, purchasing economics and the acquired care businesses; pharmacy claims processed were 2.344 billion on a 30-day-equivalent basis.
- Pharmacy & Consumer Wellness: Revenue $116.8 billion, up 7.5%; adjusted operating income $6.0 billion, down 8.7%. Higher prescription volume and drug mix were offset by reimbursement pressure and lower COVID-19 testing and vaccination activity.
Segment revenue includes intersegment transactions and should not be added without eliminations; segment adjusted operating income is a non-GAAP measure.
Liquidity, debt and capital returns
- Cash and cash equivalents were $8.2 billion at year-end, down from $12.9 billion. Current assets were $67.9 billion and current liabilities $79.2 billion.
- Debt carrying value was approximately $61.6 billion, including $0.2 billion of commercial paper; long-term debt principal was $60.6 billion. Long-term debt ratings were Baa2 from Moody’s and BBB from S&P, both with stable outlooks. CVS reported compliance with debt covenants.
- Operating cash flow fell $2.8 billion, primarily due to timing of receipts and payments, partly offset by lower inventory purchases. Investing cash outflow was $20.9 billion, including $16.6 billion for acquisitions. Financing cash flow was positive $2.7 billion, supported by $10.9 billion in long-term debt issuance.
- CVS repurchased $2.0 billion of shares in 2023 and paid $3.1 billion in dividends. The quarterly dividend increased approximately 10%, to $0.665 per share, effective in 2024.
Material changes versus FY 2022
- Revenue increased across all segments, but Health Care Benefits adjusted operating income fell as medical utilization increased; Health Services adjusted operating income grew, while Pharmacy & Consumer Wellness adjusted operating income declined.
- Interest expense increased 16.2% to $2.7 billion, principally reflecting acquisition-related borrowing. Year-end long-term debt increased from $50.5 billion to $58.6 billion.
- CVS acquired Oak Street Health for approximately $9.7 billion of consideration and Signify Health for approximately $7.4 billion. Oak Street contributed $2.1 billion of revenue and a $520 million operating loss from acquisition through year-end; Signify contributed $797 million of revenue and $123 million of operating income over its post-acquisition period.
- The company recorded $507 million of restructuring charges in 2023. A $349 million additional write-down related to the Omnicare long-term-care business was recorded; CVS then concluded a near-term sale was no longer probable and reclassified the business as held and used.
- FY 2023 net income benefited from the absence of the prior-year opioid charge and most of the prior-year LTC write-down; these comparisons do not represent equivalent underlying operating trends.
Outlook, commentary and risks
The filing excerpt does not provide a clear numerical consolidated 2024 earnings or revenue guidance value. Management highlights continued elevated medical utilization, particularly in Medicare Advantage, and says the persistence of that trend is difficult to predict. It expects growth in Cordavis, Oak Street Health and Signify Health and anticipates benefits from enterprise cost-saving and efficiency initiatives.
- Medicare Advantage: 2023 star ratings created an estimated $800 million–$1.0 billion 2024 revenue headwind. Based on 2024 star ratings, CVS expects 87% of Aetna Medicare Advantage members to be in plans rated at least four stars for 2025, versus 21% for 2024 payment-year eligibility; management expects to recover most of the prior headwind and reinvest part of the improvement. CMS’s finalized 2024 industry payment-rate change was an average decrease of 1.12%, excluding its estimate of risk-score trend. Proposed 2025 rates implied a 0.16% average decrease on the same basis and were not final at the filing date.
- PBM and pharmacy economics: Competition is increasing client sharing of manufacturer rebates, fees and discounts and limiting spread-pricing opportunities. Retail pharmacy reimbursement pressure, restricted networks and generic pricing also weigh on margins.
- Regulatory, litigation and contingency exposure: CVS faces extensive Medicare/Medicaid audits and investigations, including inquiries into Medicare risk-adjustment submissions and PBM practices. The RADV rule permits extrapolation of audit findings without a fee-for-service adjuster; potential effects remain uncertain. Opioid settlements have scheduled payments over 10 years; the contractual-obligation table lists $5.1 billion of settlement payments remaining at year-end. Some opioid cases, including private claims, remain unresolved; CVS is appealing a $651 million judgment against three pharmacy defendants and has not accrued a liability for that matter.
- Other risks: Medical-cost forecasting and IBNR reserves require significant estimates; changing utilization, drug costs, government reimbursement or premium approvals could affect results. Acquisition integration, goodwill valuation, cybersecurity, privacy, competitive pressures and evolving PBM and health-care regulation are also material risks. CVS reported no material cybersecurity incident in 2023.
Ernst & Young issued unqualified opinions on the consolidated financial statements and internal control over financial reporting; management also concluded disclosure controls and internal controls were effective at year-end.
Important facts for investors to verify
- Whether Medicare Advantage utilization and the 86.2% MBR stabilize, and how that affects 2024 margins.
- Actual 2025 Medicare Advantage star-bonus revenue and whether the anticipated recovery offsets the 2024 headwind.
- Acquisition performance, cash generation and integration progress at Oak Street Health and Signify Health, including the Health Care Delivery reporting unit’s relatively narrow 9% goodwill valuation cushion.
- Debt reduction capacity and cash flow after acquisitions, dividends, repurchases and settlement payments.
- Developments in Medicare risk-adjustment audits, DOJ/CMS inquiries, PBM litigation and opioid matters, including any liabilities beyond amounts accrued.
- Whether pharmacy reimbursement pressure, regulatory changes and lower COVID-related activity continue to offset prescription growth and cost-saving initiatives.