Shawn Guertin
Executive Vice President and Chief Financial Officer at CVS Health
Thank you, Karen, and good morning, everyone. 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 persist. 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 EPS 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 Health Care 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 '21 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. The quarter also reflected additional investments to support a successful welcome season.
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, from 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 in 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 forecast.
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 remain strong at the end of the fourth quarter. With full year cash flow from operations and nearly $18.3 billion and non-restricted 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 in 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, return 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. You will find additional details regarding our updated guidance in the slide presentation we posted to our website this morning.
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 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 health care 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.
We will now open the call to your questions. Operator?
