OrthoPediatrics Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 3, 2023

There are 13 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by for Cigna's 4th Quarter 2022 Results Review. As a reminder, ladies and gentlemen, this conference, including the Q and A session, is being recorded. We'll begin by turning the conference over to Ralph Giacobbe. Please go ahead.

Speaker 1

Great, thanks. Good morning, everyone, and thank you for joining today's call. I'm Ralph Giacobbe, listen, Senior Vice President of Investor Relations. With me on the line this morning are David Cordani, Cigna's Chairman and Chief Executive Officer And Brian Evanko, Cigna's Chief Financial Officer. In our remarks today, David and Brian will cover a number of topics, including Cigna's 4th quarter And full year 2022 financial results as well as our financial outlook for 2023.

Speaker 1

As noted in our earnings release, when describing our financial results, Cigna uses certain financial measures, adjusted income from operations and adjusted revenues, which are not determined in accordance with accounting principles generally listen only mode as GAAP. A reconciliation of these measures to the most directly comparable GAAP measures, Shareholders' net income and total revenues, respectively, is contained in today's earnings release, which is posted in the Investor Relations section of cigna.com. We use the term labeled adjusted income from operations and adjusted earnings per share on the same basis as our principal measures of financial performance. In our remarks today, we will be making some forward looking statements, including statements regarding our outlook for 2023 and future performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations.

Speaker 1

A description of these risks and uncertainties is contained in our cautionary note in today's earnings release and in our most recent reports filed with the SEC. Before turning the call over to David, I will cover a few items pertaining to our financial results and disclosures. Regarding our results, in the 4th quarter, We recorded after tax special item charges of $17,000,000 or $0.06 per share for integration and transaction related costs. We also recorded an after tax special item charge of $56,000,000 or $0.18 per share for costs associated with the sale of businesses. As described in today's earnings release, special items are excluded from adjusted income from operations and adjusted revenues in our discussion of financial results.

Speaker 1

Additionally, please note that when we make prospective comments regarding financial performance, including our full year 2023 outlook, We will do so on a basis that includes the potential impact of future share repurchases and anticipated 2023 dividends. With that, I'll turn the call over to David.

Speaker 2

Listen. Thank you, Ralph. Good morning, everyone, and thanks for joining today's call. 2022 was a pivotal year of performance Evernorth further expanded its health service reach and impact and Cigna Healthcare demonstrated tremendous resilience in the dynamic market. Together, the breadth and complementary nature

Speaker 3

of our

Speaker 2

portfolio enabled us to exceed our revenue and earnings outlook and return meaningful capital to our shareholders. This provides us with momentum as we begin 2023 and we expect another year of customer and earnings growth as we innovate and expand our broad portfolio of services and capabilities. Today, I'll provide perspective about our key drivers for to our 2022 performance and how we're positioned for sustained growth going forward. Then Brian will walk through additional details about our 2022 to financial results and discuss our 2023 outlook. Then we'll take your questions.

Speaker 2

So let's jump in. As we reflect on our performance for 2022, I'm proud of what our company and Cigna team delivered overall. We grew full year revenues to approximately $181,000,000,000 We delivered full year adjusted earnings per share of $23.27 reflecting a 14% rate of growth. We returned $9,000,000,000 to shareholders through a combination of share repurchase and dividends and we sharpened the health service focus of our international business through the divestiture of our life accident and supplemental benefits businesses across 7 markets. This performance demonstrates how well our EverNorth and Cigna Healthcare to our platform are strategically positioned for sustained attractive growth.

Speaker 2

In 2022, Evernorth delivered strong top and bottom line growth And also one renewed and expanded several large multiyear client relationships for 2023 and beyond. The depth of Evernorth's capabilities and expertise is highly valued by our clients and partners and enables us to deepen existing relationships across our entire portfolio of businesses. Cigna Healthcare, our health benefits platform also had a strong year delivering customer growth along with differentiated medical cost performance for the benefit of our customers and clients. Listen. Our U.

Speaker 2

S. Commercial business had a standout performance, achieving outsized customer growth, while maintaining pricing discipline and driving margin improvement. This reflects our ability of our Cigna commercial team to work listen to the callers of all sizes, manage affordability, all while we support healthy, highly engaged employees for the benefit of their businesses. Listen. Overall, we're pleased with the strength of our 2022 performance across our enterprise.

Speaker 2

As we look to 2023, We continue to deliver and capture meaningful value in multiple ways. First, we expect sustained growth through our foundational businesses, Pharmacy Benefit Services, U. S. Commercial and International Health. These are mature list of skilled businesses that have established core relationships with corporate clients, health plans and governmental agencies.

Speaker 2

The value proposition for these businesses continues to resonate very well in the marketplace. In pharmacy benefit services, we expect continued contributions in 2023 through the strength of our unique solutions and partnership orientation. With the strong selling season across our employer, health plan and governmental agency portfolio, We will continue delivering greater affordability to more customers and patients. Additionally, we are investing meaningfully to put in place the teams and resources To make prescriptions more accessible and affordable for approximately 20,000,000 Centene customers starting in 2024.

Speaker 4

In In the U.

Speaker 2

S. Commercial business, we also had a strong 2023 selling season across all our market segments and across all funding types, As a result, we anticipate driving another year of earnings, customer and revenue growth. And in International Health, we expect continued revenue and earnings contributions through our leadership in meeting the health and well-being needs in attractive growth markets and for the Globally Mobile. 2nd, we expect outsized growth from our accelerated businesses, Accredo Specialty Pharmacy, EverNorth Care Services And U. S.

Speaker 2

Government. These businesses have differentiated capabilities and platforms addressing accelerated secular growth trends. Listen. With Accredo, we are able to lower costs for patients and plans while preserving choice and flexibility for those who could benefit from new drugs. This includes our work to increase the availability of biosimilars.

Speaker 2

We've seen a handful of these lower cost alternatives for biologic drugs listen to the launch in the past few years and understand the exceptional value they deliver for the benefit of clients and customers. Listen. 2020 3 will mark the start of a growing market opportunity for biosimilars, a trend that we expect to to continue ramping up in 2024 and beyond. This includes Humira, a treatment for a range of inflammatory conditions And one of the top selling drugs globally over the past decade. Now there's a biosimilar alternative that we've co preferred on a national preferred formulary, creating significant savings opportunities for clients and customers.

Speaker 2

We will continue our leadership in advocating for greater availability of biosimilars, which over time we expect to drive even more savings and benefit for patients and clients. In Evernorth Care Services, We are continuing to enhance and expand our portfolio of capabilities in care management and care delivery. Last year, MD Live virtual patient visits grew meaningfully, including a substantial increase in primary care visits. Demand and satisfaction with virtual care is rising and we will continue expanding our MD Life platform to provide even more of these options for the benefit of our customers. Listen.

Speaker 2

By wrapping EverNorth's health service capabilities with VillageMD's network of physicians, we will help guide more patients to high quality care experiences At lower overall total costs. We expect this partnership to begin rolling out over the course of this year. At the U. S. Government, another accelerated business, we expect strong growth in 2023 as we expand services and our geographic presence listen across a large and growing addressable market.

Speaker 2

This includes Medicare Advantage, where we will introduce enhanced services and benefits, And we nearly doubled the size of our provider network over the last 2 years as we expanded to new geographies. Additionally, As we have demonstrated continued consistent commitment to participating in the ACA exchange marketplace in a dynamic environment, our individual and family plans business We'll see outsized customer growth in 2023. The 3rd growth driver for us in 2023 beyond is enterprise leverage. Listen. This is where our businesses work together to create or capture more value than anyone could achieve on their own.

Speaker 2

Listen. Here to think about our ability to look across our enterprise and client relationships to broaden and deepen them by leveraging our entire suite of capabilities. A great example is a new large service based relationship for Cigna Healthcare where we were able to expand our support for a long served Evernorth client. Additionally, the depth of clinical expertise, success in advancing innovation And breadth of solutions within Evernorth all combined to help further improve Cigna Healthcare's value proposition. For example, in 2022, by harnessing EverNorth's capabilities and programs, Cigna Healthcare delivered exceptional affordability, a key reason it continues to be competitively attractive option for employers of all sizes.

Speaker 2

This ability to deliver meaningful value is what makes EverNorth a partner of choice to a wide range of health plans, large employers and other clients. Another way we generate enterprise leverage is with our longitudinal portfolio of data, which enables us to listen. This is specifically how we developed our Pathwall programs. We're able to integrate Cigna Healthcare's high performing provider networks and benefits management with EverNorth's analytical and clinical expertise as well as personalized digital support. This equips Pathwell to lower costs while connecting patients with the right care, anticipating their listen to future needs and helping them recover more quickly.

Speaker 2

PATHWAY's focus in 2023 includes musculoskeletal conditions and we expect to support millions of patients throughout these programs with better experience, clinical quality, listen to the cost resulting in improved overall value. These examples illustrate just some of the impact we've already achieved with our cross enterprise leverage and will continue acting on additional opportunities in the years ahead to expand relationships, accelerate innovation for the benefit of our customers, Now I'll briefly summarize. 2022 was a strong year of performance and growth for our company. With our Evernorth and Cigna Healthcare platforms and our durable growth framework, we are well positioned to meet the needs of our customers, clients and partners as we look to the future. We are delivering on our commitments to our shareholders with our 2022 adjusted EPS of $23.27 and returning $9,000,000,000 in share repurchase and dividends.

Speaker 2

And we are also responding to evolving needs of those we serve in the coming years in in

Speaker 4

a listen. In the healthcare

Speaker 2

environment of accelerated change, we have differentiated innovation pipeline that will allow us to build and create value continuing to advance our growth strategy. We are confident 2023 will be another year of strong performance for our company as we expect to deliver customer and earnings growth. Our EPS outlook of at least $24.60 and the 10% increase of our quarterly dividend reinforce our commitment to sustained impact and growth for the benefit of all of our stakeholders. And with that, I'll turn the call over to Brian.

Speaker 3

Thanks, David. Good morning, everyone. Today, I'll review key aspects of Cigna's to the Q4 and full year 2022 results, and I'll provide our outlook for 2023. We're very pleased with our strong performance in 2022, Reflecting focused execution and growth across both Evernorth and Cigna Healthcare, with each segment achieving pre tax adjusted earnings growth in line or above This positions us well for continued growth in 2023. Looking at full year 2022 specifically, Key consolidated financial highlights include total revenues of approximately $181,000,000,000 and adjusted earnings of $7,300,000,000 after tax listen for $23.27 per share, reflecting 14% growth from 2021.

Speaker 3

This is above the high end of our 10% to 13% listen. Regarding our segments, I'll first comment on Evernorth. Listen. 2022 marked another year of sustained growth and profitability in Evernorth as our innovation, market leading clinical capabilities And proven track record of delivering for clients and customers continue to resonate in the market. Turning specifically to 4th quarter results for Revenorff.

Speaker 3

Listen. Revenues grew to $36,200,000,000 while pretax adjusted earnings grew 6% over Q4 2021 to $1,700,000,000 Similar to the 1st 3 quarters of 2022, Evernorth's strong results in the 4th quarter for our clients and customers. We also continue to make meaningful strategic investments, which serve to strengthen our client relationships, listen to expand our services portfolio and advance our digital capabilities. Overall, Evernorth delivered another strong year, focusing on driving value for clients and customers and expanding our partnerships and relationships, all while achieving strong revenue and pre tax adjusted earnings growth in line with our long term growth targets. Our recently announced collaboration with Centene that begins in 2024 listen as well as other large multiyear contracts we renewed for 2023 further demonstrate the strength of our value proposition listen and proven partnership orientation in the market, providing long term opportunities to grow while driving lower costs for our clients.

Speaker 3

Listen. Turning to Cigna Healthcare. As we entered 2022, we shared with all of you our goals of both growing to our customer base and expanding margins. I'm pleased to report we ended the year accomplishing both of these goals as we grew our medical customer base by 5% or for 923,000 lives to 18,000,000 total customers, while improving full year pretax adjusted margins to 9%, A year over year improvement of 90 basis points. 4th quarter 2022 performance contributed to full year results with adjusted revenues of 11 point $1,000,000,000 pre tax adjusted earnings of $500,000,000 and a medical care ratio of 84%.

Speaker 3

Despite an elevated flu and RSV season, our medical care ratio was slightly better than our expectations, particularly within our stop loss products. Our medical care ratio for full year 2022 of 81.7% improved 2 30 basis points compared to the prior year. Both full year and 4th quarter results benefited from pricing discipline And affordability initiatives, including our clinical programs. Overall, Cigna Healthcare delivered for our customers, clients and partners, All while driving a strong year of customer growth and margin expansion with full year pretax adjusted earnings growth of 13%, listen, which is above the high end of our long term target range of 8% to 10%. Turning to corporate and other operations.

Speaker 3

The Q4 2022 pretax adjusted loss was $382,000,000 As a reminder, this segment previously included earnings to the international life, accident and supplemental benefits businesses that we divested to Chubb on July 1, 2022. Listen. Overall, Cigna's 2022 results were strong, reflecting focused execution for the benefit of our clients and customers. As we turn to 2023, we continue to expect underlying growth in both Evernorth and Cigna Healthcare, while continuing to make strategic investments to drive future growth. For the full year 2023 outlook, we expect consolidated adjusted revenues listen of at least $187,000,000,000 We expect full year consolidated adjusted income from operations to be at least $7,330,000,000 listen or at least $24.60 per share, consistent with our prior EPS commentary on our Q3 earnings call.

Speaker 3

I I'd like to remind you this outlook includes a headwind from costs we will incur in 2023 to prepare for serving Centene's customers. This contract starts on January 1, 2024 and we look forward to many years of partnership and collaboration as we drive affordability for their customers. Listen. Additionally, with regards to earnings seasonality, we would expect a different cadence this year when compared to historical patterns listen with earnings more back half weighted and 1st quarter representing slightly above 20% of the full year EPS. For full year 2023, we project an adjusted SG and A expense ratio of approximately 7.3 percent And we expect a consolidated adjusted tax rate in the range of 21% to 21.5%.

Speaker 3

I'll now discuss our 2023 outlook for our segments. For Revenorff, we expect full year 2023 adjusted earnings listen of at least $6,400,000,000 Tailwinds and headwinds are largely consistent with the points we highlighted on our Q3 earnings call. Listen. These include tailwinds from a strong selling season and value creation from the increased availability of biosimilars, building in the second half of to 2023 and ramping in 2024 and beyond. These are partly offset by headwinds from additional costs to support future growth, listen, including implementation costs associated with onboarding Centene prior to receiving revenue, strategic investments in our accelerated growth businesses listen and the expansion of our relationships with the Department of Defense and Prime Therapeutics.

Speaker 3

In consideration of these tailwinds and headwinds, We expect adjusted earnings within Evernorth to be weighted more towards the back half of the year with low single digit year over year earnings growth in the first half For Cigna Healthcare, we expect full year 2023 adjusted earnings of at least $4,400,000,000 representing growth of at least 8% year over year. We expect 2023 Cigna Healthcare earnings to be split closer to fifty-fifty between the first half and second half of the year. This outlook reflects the strength of our value proposition and focused execution in our business, listen with growth across each of our U. S. Commercial, Medicare Advantage and individual businesses.

Speaker 3

Listen. Within U. S. Commercial, we expect organic customer growth across each of our national, middle market and select market segments. And similar to 2022, the growth will primarily reflect fee based customers.

Speaker 3

We expect Medicare Advantage customer growth of at least high single digits and we expect growth in our U. S. Individual business of at least 300,000 customers, driven by geographic expansion, strong industry growth and the exit of competitors from certain geographies. Listen. We expect the 2023 medical care ratio to be in the range of 81.5% to 82.5%, In part reflecting an increased mix of government business, which tends to have a higher medical care ratio compared to U.

Speaker 3

S. Commercial and international health. Listen. Additionally, we would expect the Q1 2023 medical care ratio to be within the full year guidance range. Listen.

Speaker 3

As it relates to corporate and other operations, this segment has evolved given the divestiture of a portion of our international business last year listen to more closely reflect annualized Q4 2022 results. Now moving to our capital management position and outlook. In 2022, we finished the year strong and delivered $8,700,000,000 of cash flow from operations. We returned $9,000,000,000 to shareholders listen only to share repurchases and dividends in 2022. Specific to share buyback, we repurchased 27,400,000 shares for $7,600,000,000 Additionally, our debt to cap ratio finished the year at 40.9%, an an improvement of 80 basis points from year end 2021.

Speaker 3

Now framing our capital outlook for 2023. We expect at least $9,000,000,000 of cash flow from operations, reflecting the strong capital efficiency of our enterprise. This positions us well to continue creating value through accretive capital deployment in line with our strategy and priorities. Listen. We expect to deploy approximately $1,400,000,000 to capital expenditures.

Speaker 3

These investments will include substantial commitments to our listen. Accelerated growth platforms of Specialty Pharmacy, Evernorth Care and U. S. Government. We expect to deploy approximately $1,450,000,000 to shareholder dividends, reflecting our increased quarterly dividend of $1.23 per share, listen, up 10% from 2022 on a per share basis.

Speaker 3

Year to date as of February 2, 2023, We have repurchased 1,600,000 shares for $510,000,000 and our guidance assumes full year 2023 weighted average shares to be in the range of 296,000,000 to 300,000,000 shares. Listen. Our balance sheet and cash flow outlook remains strong benefiting from our asset life framework that drives strategic flexibility, Strong margins and attractive returns on capital. And now to recap, our full year 2022 Consolidated results reflect strong contributions and execution from both Evernorth and Cigna Healthcare. Our 2023 outlook reflects continued momentum across our segments as we invest to support long term attractive growth.

Speaker 3

We are confident in our ability to deliver our 2023 full year adjusted earnings of at least $24.60 per share, and We continue to expect to deliver 20.24 adjusted EPS of at least $28 listen consistent with our prior EPS commentary. With that, we'll turn it over to the operator for the Q and A portion of the call.

Operator

Our first question comes from Mr. A. J. Rice with Credit Suisse. You may ask your question.

Speaker 5

Listen. Hi, everyone. Thanks a lot. I might ask a little bit more about where you're at in the rollout of the Village MD value based contracting arrangements. I know when the deal was signed, contracts had to listen.

Speaker 5

Signed in the various markets with the VillageMD folks. Have you largely been able to do that? Maybe give us anything you can about How you see that business ramping up in terms of contribution to Evernore's revenue and operating income over time? I assume it will be not particularly material this year, but as you look out over the next few years.

Speaker 2

Good morning, A. J, it's David. So 1st and foremost, stepping back, we're pleased with the relationship and the ability to partner with a proven organization that has a nice growth track listen. To think about the work taking place collaboratively in phases, with the first phase listen well underway, working through and successfully securing approvals and contracts with Building Momentum, whereby we will put in place with listen to the village, capabilities such that we could enable more targeted access to preferred or higher performing specialists listen within the Cigna Healthcare Life portfolio and the direct serve portfolio of our relationships as Phase 1 listen. And expand some of the capabilities to coordinate care, whether it's expansion of virtual capabilities, expansion of behavioral capabilities or otherwise.

Speaker 2

There's a second phase of work, so the innovation will continue, whereby we'll work with Village to, codify and build some new products that have exclusivity relative to their proven physician leadership and physician directed programs that to have even a more targeted value proposition, not just for the benefit of Cigna Healthcare on the benefit side, but offered for the benefit of health as we serve in a broader sense and for Village. One of the wonderful parts of the way the relationship is built through leveraging the EverNorth capabilities, listen. We'll be building a lot of the shared savings together with Village and as such, be able to benefit from those shared savings, through our EverNorth program. So To recap, good momentum already, good collaboration already, good progress already. You're right, we don't market as a significant revenue or earnings driver in 2023 for us, but we will see progress in 2023, especially through the second half of the year and and a building contributor in 2024 and we look forward to providing you more of an update as we look to 2024.

Speaker 5

Listen. Okay. Thanks a lot.

Operator

Thank you, Mr. Rice. Our next question comes from Mr. Gary Taylor with Cowen. Your line is open.

Operator

You may ask your question.

Speaker 6

I also wanted to ask about VillageMD. So David, we'll keep you on that listen. Track just a little bit longer. My questions I guess I have a couple of questions about it. One is, I know Historically, your inclination was Cigna didn't need to own delivery assets even though your peers are increasingly moving in that direction and this investment does obviously give you some ownership of a delivery, asset.

Speaker 6

So just wanting to understand How much your thinking has evolved along those lines? And then secondly, I just kind of want to understand a little better long term, Village obviously has this listen. Large Growth National Expansion Plan. How do you but payer agnostic, so Does it really just become an important partner and a part of a preferred primary care network? Or how do we think about the next several years like what that relationship means to both the Cigna Healthcare and to Evernorth.

Speaker 2

Sure, Gary. I'll add in there. Let me try to address the points, all important points and I appreciate your question. 1st and foremost, To be clear, our strategy remains consistent. Our preferred approach on the core medical fulfillment of care is to partner and enable.

Speaker 2

I'll come back to that. As we've discussed before, there are parts of the healthcare delivery or service fulfillment equation that we seek to own and we're very clear relative to that. Examples include virtual, behavioral, listen to specialty pharmaceutical fulfillment and select aspects of home care. We deem them to be unique, highly differentiated about 75% of our NA customers have a value based care relationship, about 50% of our exchange customers have a value based care relationship And about 40% of our commercial employer business has a value based care relationship. Now, to the Village relationship.

Speaker 2

1st and foremost, it's also a clear depiction as we discussed at our Investor Day that we see the healthcare delivery system community listen as an addressable market for us. We see it as an addressable market to bring additional services to help to extend their reach, their care coordination, listen. Curation of high performing specialty networks and overall continuity of care including digital aspects of the care equation. So Because EverNorth serves a broad portfolio of clients, including most of the large health plans in America today in some way, shape or form. And And we see the ability to grow collectively and collaboratively with Village as a positive, but through a partnering set of relationships.

Speaker 2

So to reiterate, there are aspects that we'll listen to own. We will continue to use our current process of incentive alignment and care coordination to extend our to core value based care offerings. And now with Evernorth, we will seek to deepen those services with select provider partners brands that are designed from a Cigna Healthcare standpoint. So we see this as a great win win and an additional growth opportunity for Evernorth. Gary, hope that helps.

Speaker 3

Listen. Thank you.

Operator

Thank you, Mr. Taylor. Our next question comes from Ms. Erin Wright with Morgan Stanley.

Speaker 7

You mentioned some of the headwinds and tailwinds for EverNorth into 2023. And Obviously, there's a Centene implementation cost, but you also mentioned some other strategic investments. And can you quantify those or what is that exactly? Listen. And in the back end weighting across the segment, is that largely attributable to those associated costs?

Speaker 7

Or is that a little bit of the HUMIRA benefit as changeable comes available mid year. Thanks.

Speaker 3

Good morning, Aaron. It's Brian. So as it relates to the headwinds and tailwinds, You're right to call out the strategic investments. So we continue to invest an outsized amount of money in areas such as to our EverNorth Care Services platform to enable things like VillageMD that David just discussed alongside Our specialty pharmacy business, which continues to grow at very attractive rates. And so that's all been factored in a listen.

Speaker 3

Alongside the Centene related implementation costs, but importantly, we have tailwinds that allow us to to introduce our guide today with at least 4.5% income growth for the Evernorth segment, inclusive of those pressure points on the spending side. As it relates to the cadence of Evernorth earnings, you should think of the back half weighting that I referenced is primarily driven to the year that also impacts the timing. But the biosimilar contributions, we do expect to be more back half weighted, which is a key driver of the difference in the cadence.

Operator

Listen. Thank you, Ms. Wright. Our next question comes from Mr.

Speaker 8

Consumer growth, that's a pretty strong number there. And so when you think about the enrollment growth, I guess, first on the ACA side, listen. How comfortable are you about the risk profile and the pricing on that type of growth? And then as far as the commercial growth, listen. Is there I know it's ASO, so I'm less worried about risk there, but just want to understand your thought process around How redeterminations impacted your growth expectations there?

Speaker 8

Maybe how much of that growth you expect there is in group versus kind of new customer wins? Thanks.

Speaker 2

Good morning, Kevin. It's David. Let me start just frame it a bit more broadly and then ask Brian to peel back your question a little bit. First, We're pleased with the strong performance we delivered in 2022 and now being able to step into 2023 with a very attractive outlook. And it continues to reinforce that our Cigna Healthcare platform, including our commercial employer portfolio continues to listen.

Speaker 2

I just highlight 3 areas quickly, in terms of the underlying drivers or enablers of the continued growth for us. 1, especially in the commercial employer portfolio is a consistent intense focus. We have, we are and we will continue to have a consistent intense focus on this segment as we see it as a growth segment. Hence, we focus and innovate for its benefit. 2nd is a track record of excellent listen.

Speaker 2

Total cost or total medical cost, that is resulting from very good work from our network management team, our clinical programs And the returns they deliver and our growing suite of site of care optimization programs that all contribute to good clinical quality, good service and overall affordability. And then finally, what we've talked about before, but maybe it's sometimes forgotten, our orientation around consultation and

Speaker 4

putting solutions in place. So whether it's an employer of 100 or

Speaker 2

an employer of 10 to the questions in place. So whether it's an employer of 100 or an employer of 10,000, we take an orientation of consultatively working to put the right solution suite in place for them. I I'm going to have Brian peel back the drivers of our outlook. I'll put one asterisk on it. We have not factored in listen.

Speaker 2

An uptick relative to redeterminations as a contributor, in our outlook for the year. We recognize that redeterminations present an opportunity for us, not at risk for us because we don't have that business to protect currently. But given it's still uncertain in terms of the rate and pace of state listen to adjudicate the redeterminations. We don't have that factored into this very attractive outlook. Of course, we'll present updates listen to you as the year unfolds as states go through the redetermination process.

Speaker 2

I'll ask Brian to unpack the drivers of our membership growth a little further.

Speaker 3

Sure, David. Good morning, Kevin. So maybe just a little bit more detail here in terms of how to think about the $1,200,000 plus net customer growth and then I'll hit your question on the So first off, I'd be remiss if I didn't say we're really pleased with another year of strong growth that we expect here in 20 listen. 20 3 and following growing almost 1,000,000 net customers or 5% in 2022. And as we've mentioned earlier, we expect net growth in 2023 across all of our major U.

Speaker 3

S. Business segments with the individual exchange business expecting at least 300,000 net customer growth. Our MA net growth has started strong. We expect at least a high single digit percentage growth rate for 2023 in line or better than industry growth rates. And we expect at least 250,000 net new customers generated by core growth across our U.

Speaker 3

S. Commercial portfolio. So if you take those three components together, They represent about half of our expected full year net growth of 1,200,000 plus customers. And then the balance of the 2023 customer growth, You can think of it as the net effect of some moving pieces, including the larger client relationship expansion that David mentioned in his prepared remarks. We have good line of sight into this $1,200,000 plus to David's point.

Speaker 3

We are not banking on any meaningful amount of volume for Medicaid redeterminations. As it relates to the morbidity and or risk pool of the IFP business or individual business that we're adding, our 20 'twenty three customer growth outlook reflects a combination of a few things being industry growth, our own new market entry as well as competitors exiting certain geography Geographies that we participate in. As you think about where our margin profile stands, in 2022, the margins on this book are below our long term goal. Our long term goal, just to remind you, is 4% to listen. We took a step forward in 2022 from where we were in 2021, given that 2021 was a depressed margin year, but we're still below our long term goal.

Speaker 3

And for purposes of 2023, we continue to expect the margins on this book will run below our 4% to 6% long term goal And our Cigna Healthcare income and MCR guidance reflects this. Just given the substantial amount of new customers we've added, we thought it was prudent to assume margins will be below our long term target to contribute toward the long term growth in the Cigna Healthcare segment income.

Operator

Thank you, Mr. Fischbeck. Our next question comes from Mr. Scott Fidel with Stephens. You may ask your question.

Speaker 4

Hi, thanks. Good morning. I guess you guys get the first crack to comment on the preliminary 2024 MA rates and listen. Just interested in your initial observations on those. Obviously, we felt the final rates ahead and whether that influences your listen.

Speaker 4

Your thoughts on your 10% to 15% long term Medicare Advantage enrollment growth target at all. Thanks. Listen.

Speaker 2

Good morning, Chad. Clearly, the initial or preliminary rate letter came out. But before I comment on that, just stepping back for a moment, listen. It's clear that Medicare Advantage has represented and continues to represent a significant both market opportunity as well as a growth opportunity for the U. S.

Speaker 2

Today serving about 30,000,000 seniors continued growth listen. And seniors reinforce the value, the clinical quality and the service quality they receive by continuing to renew and or expand relationships in MA. Listen. The initial rate letter that came out does have lower or somewhat anemic revenue. We'll await the final rate letter listen that comes forward relative to that.

Speaker 2

Having said that, I think it's a little bit early to presuppose what 20 to 2024 growth outlook may look like, because you compete on a relative basis. Having said that, this will create if it stays in the range What the rate letter looks like, it will create some revenue dislocation. So the sophistication of benefit management, that can be necessary market by market, the leverage of a listen Value based care relationships, of which as I noted earlier, about 75% of our MA lives are in a value based care relationship will all come into play. I'd reinforce the fact that The 10% to 15% is our objective to have 10% to 15% customer growth over time on average. We're stepping into this year with a very good customer growth outlook already listen that we feel good about.

Speaker 2

And as a final note, I would remind you that, while an attractive long term growth opportunity for us today, This represents or MA represents less than 5% of the enterprise portfolio. So any dislocation in 2024, we deem to be manageable with the strong performing portfolio that we have in front of us.

Operator

Thank you, Mr. Fidell. Our next question comes from Mr. Justin Lake with Wolfe Research. You may ask your question.

Speaker 8

Thanks. Good morning. Just want to follow-up first on the membership guide. Just any color on the Certainly, did a lot better there in 2022. Just wondering what ballpark you're expecting to be in 2023 there relative to your long term guidance?

Speaker 8

Listen.

Speaker 2

Thanks. Good morning, Justin. A little color relative to pacing and then I'll ask Brian to talk about more to your second question. Listen. As Brian noted, we have good visibility into the membership volume.

Speaker 2

And when you think about the outside of the individual exchange business, listen. What we've seen growth across all of our funding types, still the lion's share of it is ASO, including the service based relationship with a large So in essence, a meaningful portion of that volume will be realized in the Q1 of 2023 and then there'll be puts and takes throughout the course of the year listen. We'll look forward to providing you updates on. Now individual lines of business will move throughout the course of the year. But by and large, if you think about listen.

Speaker 2

Our expectation is that we'll have good performance relative to that on the Q1 of the year and then some puts and takes throughout the course with some additional growth and maybe some additional disenrollment as we factored in some impact in our outlook for a bit of uptick in disenrollment as we look at the current fragility of the U. S. Economy. So good visibility for Q1. I'll ask Brian to talk a bit more around the margin.

Speaker 3

Listen. Good morning, Justin. So as it relates to the Cigna Healthcare margin profile, we're first off really pleased to finish 2022 with a 9% Cigna Healthcare margin, which is listen to 90 basis points of year over year expansion, which allowed us to return to the low end of our target margin range of 9% to 10%. So this stronger than expected 2022 performance certainly increases our confidence in executing against our 2023 margin goals. Listen to a slightly larger percent of premium within Cigna Healthcare and these products tend to carry a lower profit margin profile than the U.

Speaker 3

S. Commercial and International Health Products. So when you consider all of this and our continued investments in our accelerated growth platforms such as MA, We'd expect our 2023 Cigna Healthcare Margins to land within our target 9% to 10% range, but at the low end.

Operator

Listen. Thank you, Mr. Lake. Our next question comes from Ms. Lisa Gill with JPMorgan.

Operator

You may ask your question.

Speaker 7

Thanks very much and good morning. I just wanted to come back to the PBM. David, you made a comment that Humira would be on the formulary imperative with Just curious, as we think about AbbVie potentially increasing the rebates around that product, is it listen only matter. And then secondly, when we think about plan design, anything of note when we think about pharmacy benefit for 2023?

Speaker 2

Listen. Lisa, good morning. So to your first question, the co preferred position that we have taken On our national preferred formulary, is a mechanism to aid the transition, preserve and expand choice listen with aligned economics back to our clients and for the benefit of our customers and patients. I'd also note that if that's our National Preferred Formulary, which is our largest single formulary. We support and administer multiple formularies that are customized listen for individual clients from that standpoint and Avail choice.

Speaker 2

I'd also suggest that this will be fluid. It will flex over listen. 3rd, as we've demonstrated within our PBM and our broad pharmacy portfolio of services, we have the tools to align the incentives Whereby when we enable choice and create value, meaningful portions of that value are passed back to clients, customers and patients and a sustainable portion of the value is retained by us and the current position that we've taken aligns in that way. So it's not we have to have listen. Based on a Avall brand drug versus the biosimilar, we have the mechanisms to afford additional choice, a listen.

Speaker 2

Additional flexibility and to align the incentives. As it relates to the second part of your question, I would just give you by way of listen to a trend as opposed to an individual benefit design configuration or change. Buyers in the space, be they corporate buyers, health plan buyers, etcetera, are seeking to push for more what we talk about internally all the time, coordination of services, and continuing to challenge point solutions. That plays very well for us. So when you think about an illustration of that, the PathWell program around biosimilars, The PathWell programs run biologics, the PathWell programs run injectables is a way to further coordinate services with precision for a subset of listen to the questions and deliver more value from that standpoint.

Speaker 2

You have to harness data, you have to harness clinical capabilities, you have to harness digital capabilities, listen. Yes, to harness network and benefit management capabilities. And again, the combined organization is well positioned for that. So I would say more precision in benefit programs on a go forward basis that bring more targeted coordination, harnessing data and harnessing specific subsegments. And again, we are well positioned for that and PathWell is an illustration of that direction.

Speaker 7

Great. Thank you.

Operator

Listen. Thank you, Ms. Gill. Our next question comes from Mr. Josh Raskin with Nephron Research.

Operator

You may ask your question.

Speaker 4

Thanks. Good morning. I want to go back to Village and the partnership there. And I'm just trying to think about how Village and Cigna Health Care work listen together and sort of how you have impact on their strategy and are there targeted growth strategies in markets that may be stronger and say your MA book? Listen.

Speaker 4

And then David, I think you said 75% of the Medicare Advantage Business is in some sort of value based care. How much of that is actually a full risk or full capitation relationships.

Speaker 2

Josh, good morning. Good to chat with you this morning. So let me take your second question first. In aggregate, a small proportion is in full cap. As we've discussed before, our preferred approach typically has a listen.

Speaker 2

A shared risk relationship. Some of it is in global cap for sure, but a minority of it is in global cap. A majority of it is in a shared risk a long standing shared risk program and then another minority would be an upside only P for P in terms of new relationship pay for performance. So if you think about it In terms of a suite of capabilities, our sweet spot and our preferred approach is a shared alignment program, not a global cap program, but we have some global cap. Listen.

Speaker 2

To the first part of your question, you came back to the Village and CHC side of the equation. So I'd ask you to think about 1st and foremost, The relationship with Village that was built out and expanded is an Evernorth relationship. That's not to take away from CHC. I'll come to the core of your question in a moment. And that relationship as I discussed with a previous question is around helping to broaden and target the reach And then target with precision around subspecialty and then coordinate services in an even more precise way off of their already highly performing value proposition.

Speaker 2

Listen. Now that will be benefited to Cigna Healthcare, but also other health plans and broadly speaking, Village's patient panel over time. Listen. Now specific to Cigna Healthcare, this relationship presents the opportunity to design certain benefit alternatives or unique product alternatives in collaboration with Village because of our closer relationship that will evolve over time and those conversations are manifesting themselves already. Listen.

Speaker 2

And the positive there is that that's building off of an already positive relationship. So back to the main course here is an Evernorth relationship listen and further evolving their already strong performance in terms of reach, precision for the breadth of their panel. Cigna Healthcare will benefit from that. It presents the opportunity in targeted geographies to bring specific benefit alternatives forward for the benefit of Cigna Healthcare And all that is on the docket relative to co collaboration right now. That's why we're so excited about the partnership with Village.

Speaker 4

Perfect. Thanks.

Operator

Thank you, Mr. Raskin. Our next question comes from Mr. Steven Baxter with Wells Fargo. You may ask your question.

Speaker 9

Hi, thanks. This is Nick on for Steve. Wanted to ask about the in group trends you're seeing in commercial, given the number of different data points we're getting on the labor market. I know the last time you guys spoke about it, you said that while you were starting to feel some of the headlines manifest, employers were generally still in net hiring mode. Listen.

Speaker 9

I want to see if that was still the case and if there was anything to call out between select, middle market and national. Thanks.

Speaker 2

Good morning, Nick. It's Dave. I'll just give you a little directional indicator here. So throughout 2022 broadly speaking, we saw the kind of net effect a listen Of hiring, still be the lead dimension in terms of playing through. Although as we've talked quarter to quarter throughout the course of 2022, We recognize there was a softening in the economy.

Speaker 2

As we get through the latter part of the year and the end of the year that pretty much muted down and approximates canceling itself off. So the net hiring versus the net disenrollment moved to a slight negative. As I mentioned in the prior comment, Our projection for 2023 assumes a further uptick for further softening of disenrollment as we look at the economy. We don't within our book as we go case by case and relationship by relationship, we don't see large dislocations, But we think it's prudent to plan for some further softening throughout the course of the year and that's fully factored into our projection. I wouldn't call out one individual sub segment.

Speaker 2

The national press would say that small employers are continuing to hire a listen. In terms of fight to get to full levels of employment, so we can see some indicators relative to that. But broadly speaking, I would suggest you think about we believe we've taken a prudent outlook in a listen to our full year membership outlook by further dampening the DIS enrollment throughout the course of the year and we think that's an appropriate approach.

Operator

Listen. Thank you. Our next question comes from Mr. Steven Valiquette with Barclays. You may ask your question.

Speaker 10

Great. Thanks. Good morning. So just back on Evernorth again within that context of the earnings growth being more back half weighted and faster Just if you can remind us again how you're thinking about the cadence of recognition of the Centene PBM onboarding costs between the first half versus I'm wondering if that's still kind of fluid for you guys, just how that might flow during the year? Or is that kind of set in stone as far as the weighting of that expense in the first half versus the

Speaker 3

Good morning, Steve. It's Brian. So as it relates to the Centene related implementation costs in 2023, Quarter through the Q4, modestly. So as you think about the total spend, so we've incurred a small fraction of the total we expect Biosimilars ramping in the back half as well as the other SG and A patterns that will emerge over the course of the year. But you should think of the Centene related cost listen.

Speaker 3

This is growing over the course of the year and a small fraction of that already spent.

Speaker 10

Got it. Okay. Thanks.

Operator

Thank you, Mr. Malkuth. Our next question comes from Mr. Nathan Rich with Goldman Sachs. You may ask your question.

Speaker 11

Great. Good morning. Thanks for taking the questions. I wanted to follow-up on the biosimilar ramp and how you're approaching formulary changes this year and going forward. I guess specifically to the negotiations with manufacturers, is that something that we should think about happening once per year on an annual basis?

Speaker 11

Or Does the entry of additional biosimilars give you the opportunity to go back to all manufacturers and negotiate additional savings? And then could you also talk about how you and your clients are thinking about the extent you want to drive patients to the lowest cost product versus kind of maintaining choice and kind of access to different therapies. Thank you.

Speaker 2

Good morning, Nate. It's David. You should think about broadly listen. Speaking, the formula decisions are made in the latter part of the calendar year or so deep into Q4 of a given year for the next year listen with the best insights. 2, there's always some fluidity relative to drug launches that manifest themselves throughout the course of the year.

Speaker 2

In the case of biosimilars, we know there are drug launches expected in the Q3 timeframe of this year, 2023, that we've fully contemplated and factored in. And we have the ability to flex formularies in the course of the year with individual clients, individual health listen to the plans, etcetera, obviously, on a consultative fashion. So, few of the decisions are largely made in advance of the year. However, you have the flexibility to go back and make adjustments. My comments are not specific to your specific question around manufacturer specific contracts through that lens.

Speaker 2

To the latter part of your question, by and large, employers, health plans, etcetera are focused on Clinical efficacy and comparative effectiveness. So, the fixation relative to 1st and foremost as it should be clinical efficacy, making Sure. When there's any alternative that's available, ensuring that the best external validation of the clinical equivalent The impact of a pharmaceutical is evaluated properly and then compared to effectiveness looking at the economics and then getting to a listen. And then the employer or health plan may make some trade offs in terms of which levers they want to use to achieve that, but ultimately comes down to the best total cost equation once the clinical efficacy hurdle is crossed. And as I mentioned in the prior question, we have the tools, we have the services, we have the flexibility to avail employer by employer, health plan by health plan to to be able to get them to the right balance that they want.

Speaker 2

But ultimately, it's the low total cost equation with the clinical outcomes that are preferred from that standpoint that to drive the net conversations and the net decisions by employers and by health plans.

Operator

Listen. Thank you, Mr. Rich. Our next question comes from Mr. Lance Wilkes with Bernstein.

Operator

You may ask your question.

Speaker 12

Just wanted to follow-up, David, on the comments you made on the VillageMD relationship, which were really helpful to to frame that. And where I was trying to understand is from the Evernorth side, it would seem that Evernorth could be a distribution partner or Evernorth listen to the call. Could be helping Village to enable itself to better manage costs, either through providing MD Live or Networks or Heavy North PBM Services, etcetera. So maybe a little more color on Sort of what is the primary role that Evernorth is playing there? And then just secondarily for the MCO, how important and what is the opportunity for In addition to new product design for you to cross sell into your ASO block, the a listen.

Speaker 12

VillageMD sort of value based care sorts of services. Thanks.

Speaker 2

Good morning, Lance. Listen. So I think your framework is quite helpful. If you think about the building blocks you articulated, you laid them out quite nicely. I Just would play with the order a little bit.

Speaker 2

Job 1 for us with Village is to work in partnership, Right. It's not to push a product. It's to work in partnership to avail additional capabilities off their already strong performing to curate in an individual market or submarket for larger markets, the highest performing oncology listen to providers for certain tumor types or certain diagnoses. Our longitudinal data sets enabled that in a very differentiated way, to be able to bring a bit more precision. The net result of that is therefore for listen.

Speaker 2

A Village patient, a higher probability of getting the best possible evidence based care and coordinated care and therefore best overall value listen Of which then Village benefits from that. The patient obviously benefits from that. And what we've designed is the Evernorth Enablement benefits from that. Point 2 is you went to distribution. We can bring more access in volume flow listen through the high performing opportunities that exist here.

Speaker 2

There's no doubt around that and we will seek to do so. And then 3rd, listen where you came back to. We will absolutely help to enable these capabilities back, which is a subset of your distribution in a way listen back to our large well performing portfolio of ASO clients by bringing yet even more precision of care coordination for their benefit. But in this case, we have through the Evinor services and through the collaboration with the ability to be rewarded in addition 1 patient at a time with a platform that is performing well that is Village and then creating extenders and some care coordination And through EverNorth, we have both the service mechanism and then the sharing mechanism built

Operator

Our last question comes from Dave Windley with Jefferies. You may ask your question.

Speaker 3

Hi, thanks for sneaking me in. Scott asked the rates question. It's been a couple more days since the RADV rule. I thought I'd ask you, David, to provide your thoughts listen on Radvi and navigating through that in addition to a tighter rate environment for next year. Sure.

Speaker 2

Good morning, Dave. So relative to Radvi and the new information that came out, 1st and foremost, we deemed that risk adjusters are and remain an important tool for the program. And as I noted before, a program that has worked obviously for quite some time for the benefit of seniors and delivering listen. Excellent clinical quality, value and service. Additionally, from a Cigna perspective, we remain committed to executing Obviously, this program in a highly compliant fashion.

Speaker 2

Now specific to the RadVie actions, we're pleased listen. The CMS concluded that they're not going to extrapolate their actions prior to 2018. We're concerned that we continue to question a couple of decisions. For example, the elimination of the fee for service adjuster that we've deemed to be foundational to the program. And we await a listen to some specifics relative to the methodology that is going to be used in some aspects of the extrapolation and work As we have in the past and as we always will, we will work closely with CMS to seek to get further clarity relative to the to open items that are here.

Speaker 2

So a bit of a fluid environment, but we see progress relative to the lack of extrapolation beyond 2018. We see some open questions for the industry at large, that still remain and we will collaborate with CMS to get more visibility on that over the near term.

Speaker 9

Listen. Great. Thank you.

Operator

Thank you, Mr. Windley. I will now turn the call back to David Cordani for closing remarks.

Speaker 2

Thank you. Just to briefly recap, 2022 was a strong year performance, growth and positive impact that our company brought forward. With with EverNorth and Cigna Healthcare, we demonstrated that we are serving the current needs of our customers, clients and partners and we expect to deliver another year of customer and earnings growth in 2023. I want to recognize and more importantly thank my more than 70,000 coworkers around the world. It's ultimately their continued dedication and leadership that allows us to make a defining difference in healthcare and their demonstrated commitment With that, we thank you for joining our call today and we look forward to our continued conversations as we go forward.

Speaker 2

Have a good day.

Operator

Ladies and gentlemen, this concludes Cigna's 4th quarter 2022 results review. Cigna Investor Relations will be available to respond to additional questions shortly. A recording of this conference will be available for 10 You may access the recorded conference by dialing 800-839

Remove Ads
Powered by Quartr
Earnings Conference Call
OrthoPediatrics Q4 2022
00:00 / 00:00
Remove Ads