Thomas F. Cowhey
Executive Vice President and Chief Financial Officer at CVS Health
Thank you, Karen and thanks to everyone for joining us this morning. I'll start with a few highlights on total company performance. Second quarter revenues were approximately $91.2 billion, an increase of approximately 2.6% over the prior year quarter, reflecting growth in our Health Care Benefits and Pharmacy & Consumer Wellness segments. We delivered adjusted operating income of over $3.7 billion and adjusted EPS of $1.83. We also generated year-to-date cash flow from operations of approximately $8 billion, a lower result as compared to the same period last year, primarily due to timing of Medicare payments and the impact of Medicare utilization.
Let's look at some of the performance of our segments. In our Health Care Benefits segment, we delivered strong revenue growth versus the prior year. Second quarter revenues of approximately $32.5 billion increased by over 21% year-over-year, reflecting growth across all product lines. Medical membership grew to nearly 27 million members, an increase of 200,000 members sequentially, reflecting growth in Medicare and Medicaid products, including the Oklahoma Medicaid contract, which went live on April 1.
Adjusted operating income for the quarter was approximately $938 million, down year-over-year due to a higher medical benefit ratio, partially offset by an increase in net investment income. Our medical benefit ratio of 89.6% increased 340 basis points from the prior year quarter, primarily reflecting higher Medicare advantage utilization, the premium impact of lower stars ratings to the payment year 2024, the impact of higher acuity in Medicaid and a change in estimate to our individual exchange risk adjustment accrual for the 2023 plan year. These increases were partially offset by the favorable year-over-year impact of prior period development.
In Medicare Advantage, strong prior period reserve development improved our first quarter medical cost trend estimates, but we continued to see elevated trends in the second quarter, largely in the same categories we previously discussed, including inpatient, supplemental benefit such as dental and also in pharmacy. Following the close of the quarter, we have seen some evidence of an acceleration of trends in these same categories, which informed our view of risks for the remainder of 2024.
We also experienced medical cost pressures in our Medicaid business. This pressure is largely driven by higher acuity resulting from member redeterminations. We believe this dislocation will self correct over time as we continue to work closely with our state partners to ensure the underlying trends are reflected in our rates, but we have not assumed material improvement in our 2024 outlook.
During the quarter, we received final 2023 risk adjustment data for our individual exchange business. As a result, we increased our risk adjustment accrual for the 2023 plan year by approximately $225 million. We were disappointed to see such a large change in the final update. We believe this change was in part driven by the significant growth and disruption in the market, particularly late in 2023.
For 2024, our population contains a significantly higher proportion of renewing members and we continue to enhance our revenue integrity efforts to ensure we are appropriately capturing their acuity. As a result of this update, we now expect margins for our individual exchange business to be below breakeven this year. However, we are confident that our 2025 submitted rate filings, which we further enhanced following the 2023 risk adjustment update, will place us back on our multi-year margin trajectory.
Medical cost trends in our commercial business remain elevated, but are broadly in line with our expectations and pricing. Days claims payable at the end of the quarter were 43.1 days, down 1.4 days sequentially and 3.8 days from the prior year quarter. The decrease versus the prior quarter was primarily driven by elevated reserves held in the first quarter of 2024, including the impact of the Change Healthcare cyberattack. The year-over-year change in DCP was primarily driven by growth in our Medicare business and the impact of increased pharmacy trends. We remain confident in the adequacy of our reserves.
Our Health Services segment generated revenue of approximately $42.2 billion, a decrease of approximately 9% year-over-year, primarily driven by the previously announced loss of a large client and continued pharmacy client price improvements. These decreases were partially offset by pharmacy drug mix, increased contributions from our healthcare delivery assets and growth in specialty pharmacy. Adjusted operating income of approximately $1.9 billion increased over 1% from the prior year quarter, reflecting improved purchasing economics, partially offset by continued pharmacy client price improvements and the previously announced loss of a large client.
Total pharmacy claims processed in the quarter were approximately 471 million and the total membership as of the end of the quarter was approximately 90 million members. We continue to be encouraged by the performance and growth of our healthcare delivery assets. Signify completed its second consecutive quarter of record volume and generated revenue growth of 27% over the prior year.
Oak Street also significantly increased revenue in the quarter, growing approximately 32% compared to the same quarter last year, reflecting strong membership and clinic growth. Oak Street ended the quarter with 207 centers, an increase of 30 centers year-over-year. Despite a challenging and dynamic operating environment in Medicare, we continue to see strong profitability of mature clinics and a consistent ramp in profitability of our newer clinics. We are encouraged by Oak Street's performance, which remains in line with our prior outlook and remain committed to growing our center footprint and expanding access to this leading care model.
Our Pharmacy & Consumer Wellness segment generated revenue of approximately $29.8 billion, reflecting an increase of 3.7% versus the prior year and 6.4% on a same store basis. The primary drivers of this revenue growth were increased prescription volume and pharmacy drug mix, partially offset by continued pharmacy reimbursement pressure, the impact of recent generic introductions and lower front store volumes. Adjusted operating income was approximately $1.2 billion.
This result is lower than the prior year quarter due to continued pharmacy reimbursement pressure, decreased front store volume and the timing of certain Medicare payments related to a CMS request. These impacts were partially offset by increased prescription volume, improved drug purchasing and pharmacy drug mix.
This quarter, same store pharmacy sales were up over 9% versus the prior year and same store prescription volumes increased by 6.5%. We continued to increase our scripture during the quarter, achieving a 27.2% retail pharmacy share. Our results continue to demonstrate we are the best run national pharmacy chain in the country. Same store front store sales were down by about 4% versus the same quarter last year. Excluding OTC test kits, same store front store sales were down about 2%, reflective of general softening of consumer demand. As a reminder, the public health emergency was active through mid May last year.
Shifting now to liquidity in our capital position. Through the second quarter, we generated year-to-date cash flow from operations of approximately $8 billion. During the quarter, we returned $858 million to shareholders through our quarterly dividend and ended the quarter with approximately $2.9 billion of cash at the parent and unrestricted subsidiaries. We remain committed to maintaining our current investment grade ratings.
Turning now to our full year outlook for 2024, as Karen mentioned, we are lowering our 2024 adjusted EPS guidance to a range of $6.40 to $6.65 per share. This revision reflects our performance through the second quarter and our latest expectations for the remainder of the year. Let me walk you through the major drivers of change. In our Health Care Benefits segment, we now expect adjusted operating income in a range of $2.25 billion to $2.55 billion. We expect HCB's full year medical benefit ratio to be in a range of 90.6% to 90.8%, an increase of 80 to 100 basis points versus our prior guidance.
At the midpoint, our MBR shows a 150 basis point increase from the first half to the second half of 2024, consistent with historical patterns. In our Medicare Advantage block, first half results remain largely in line with our prior expectation, although they have developed differently than we previously projected. Medical cost trends remained elevated in the second quarter at levels consistent with our restated first quarter experience, which benefited from strong prior period development.
However, early indicators for July suggest we may see incremental pressure, particularly in inpatient. As a result, our updated guidance range now reflects that trends in the second half of 2024 could be higher than level seen in the first half. It is worth noting that if trends persist at elevated levels, we may be required to take an in year 2024 premium deficiency reserve in our Medicare business.
While this premium deficiency reserve should not have an impact on our revised full year expectations for the Health Care Benefits segment, it could change the cadence of earnings between the third and fourth quarters. At this time, we have no expectation that we will need a premium deficiency reserve related to our Medicare Advantage block for 2025. Our updated guidance also reflects continuation of the Medicaid acuity pressure we saw in the second quarter. Our teams are working closely with state partners to align Medicaid rates with higher acuity.
However, we are assuming no material improvement in the dislocation between rates and acuity through the second half of 2024. In our individual exchange business, given the magnitude of the negative surprise we experienced in our 2023 update, our outlook now reflects the provision for potential variability in our 2024 risk adjuster position, as our data matures over the remainder of the calendar year. As noted, we believe this variability has been appropriately reflected in our recently updated pricing for 2025.
In our Health Services segment, we're increasing our estimate for 2024 adjusted operating income by a range of $200 million to $250 million or $7.2 billion to $7.25 billion. This increase reflects the return to strong performance in our pharmacy services business in the second quarter, as well as the continuation of this exceptional execution through the remainder of the year. There is no change to the outlook for our healthcare delivery of assets as these businesses continue to perform in line with our expectations.
In our Pharmacy & Consumer Wellness segment, we now project adjusted operating income to increase by $100 million to $150 million or to $5.7 billion to $5.75 billion. While we recognize that there have been macro shifts in economic and consumer dynamics, our Pharmacy & Consumer Wellness segment continues to highlight the importance of our community health locations to the consumers we serve, reflected in our growing pharmacy market share. As a result, we are pulling some of this strong first half performance into our expectations for the full year.
Finally, we updated our expectation for cash flows from operations to approximately $9 billion in 2024. This decrease is primarily driven by the timing of reinsurance payments from CMS, primarily related to our standalone prescription drug products and the impact of lower HCB earnings. The Part D receivable increase will be repaid by CMS during the fourth quarter of 2025.
You can find additional details on the components of our updated 2024 guidance on our Investor relations webpage. We plan to share more detailed 2025 guidance later this year, but I want to provide some updates to our previous expectations for 2025. In Medicare advantage, we remain committed to driving meaningful improvements in our margins in 2025. As we look at the sources of pressure we discussed in our updated 2024 guidance, not all of these sources will translate into pressure on our 2025 bids.
Notably, within our 2025 bids, we made meaningful adjustments to our offerings, including supplemental benefits and Part D, both sources of incremental pressure in 2024. We currently project that we will improve Medicare Advantage margins between 100 and 200 basis points in 2025. This will be a significant first step to achieving our target margins of 4% to 5% over the next several years.
For our individual exchange business, we had the opportunity to refile our bids to reflect the latest risk adjustment data and prudently reflected those updates in our 2025 bids. As a result, we continue to expect profit improvement in that business in 2025. In Medicaid, we believe the dislocation between acuity and rates is temporary and will be largely resolved through the next pricing cycle.
In Karen's remarks, she highlighted the work our team has underway to deliver on a multi-year enterprise productivity initiative. In 2025, we expect savings from this initiative to drive at least $500 million of adjusted operating earnings. We are encouraged by our deliberate efforts to strengthen our outlook and generate meaningful positive momentum for 2025 and beyond. As is our customary practice, we will give more formal guidance later this year.
With that, we will now open the call to your questions. Operator?
