Shawn Guertin
Executive Vice President and Chief Financial Officer at CVS Health
Thank you, Karen, and good morning everyone. Our third quarter results reflect a continuation of the strong performance observed in the first half of 2021, as we exceeded our expectations from both a revenue, cash flow and adjusted earnings per share basis. These results in-sue [Phonetic] from our differentiated portfolio of capabilities and keen focus on operational execution. This momentum in our performance enable us once again to raise our outlook for 2021.
Starting with the enterprise as a whole. Total revenues of $73.8 billion, increased 10% year-over-year with robust growth in all three segments. We reported adjusted operating income of $4.1 billion, a 12.5% increase versus the prior year. This growth in adjusted operating income was also reflected in the strong cash flow generation in the third quarter with year-to-date cash flow from operations now exceeding $14 billion. Adjusted earnings per share of $1.97, represent a nearly 19% year-over-year increase generated by our adjusted operating income growth and lower interest expense resulting from our ongoing deleveraging efforts.
Moving to the segments. Health Care Benefits revenue increased by 9.5% year-over-year, driven by sustained growth in our government services business, slightly offset by the repeal of the health insurance fee. In the third quarter, we saw Medicaid membership grow sequentially by 67,000 members across multiple geographies. Medicare Advantage membership also continue to grow in the quarter increasing by 420,000 members sequentially and representing year-over-year growth of 9.8%. Our Medicare Advantage franchise continues to be a powerful growth engine with Medicare Advantage membership more than doubling since the third quarter of 2015, representing a 15% compound annual growth rate.
Our attention is now turn to ensuring a successful 2022 annual enrollment period for Medicare, which began on October 1st, while still quite early in that process, we are pleased with what we have seen to-date. Health Care Benefits' adjusted operating income grew modestly year-over-year, but fell below our expectations for the quarter, due to higher-than-expected COVID-related medical costs in our commercial business. With the surge in nationwide COVID cases emanating from the delta variant, we experienced higher than expected COVID-related medical costs in August and September.
Three key factors drove this difference versus our expectations. First, commercial COVID inpatient admissions in August and September were in line with the peak levels experienced in January 2021, and we're nearly 3 times the average of the second quarter of 2021. Second, COVID testing costs, which we had expected to moderate during the third quarter also approached January 2021 levels and we're more than 1.5 times the average we experienced in the second quarter. It is critical to recognize the outsized impact of COVID testing on overall claim costs, as testing costs represented approximately 35% of gross COVID costs in the quarter.
And finally, while non-COVID deferred care was better than we had forecast. It was not enough to entirely offset these higher COVID costs in commercial. The resultant medical benefit ratio for the quarter of 85.8% was above our forecast and driven almost entirely by the higher-than-expected commercial COVID testing and treatment costs.
There are two important aspects of HCBs third quarter performance to note. One, absent these COVID dynamics underlying performance in our commercial book of business continues to be in line with our expectations. Two, in our Government Services business we also saw an increase in COVID treatment and testing costs, but far less pronounced than in commercial. This lower level of increase was fully offset by better-than-expected deferred care. As a result, the overall performance of our government services businesses was in line with expectations.
Wrapping up HCB, we experienced favorable prior period development in the quarter on both commercial and government products. Days claims payable of 51 at the end of the third quarter is three days higher sequentially and two days above prior year. While influenced by many factors with the anticipated abatement in COVID-related claims in the fourth quarter, we would expect DCP to return to a more typical results in Q4. Overall, we remain comfortable with the adequacy of our reserves.
Turning to Pharmacy Services. Our ability to deliver sustainable profitable growth remains clear. 2021 is expected to be the second year of adjusted operating income growth in excess of 10%. This sustained growth has been driven by our track record of delivering industry-leading drug trend on behalf of our clients; our proven industry-leading capabilities, particularly in the specialty pharmacy arena; and our outstanding customer service as reflected by our over 98% renewal rate for 2022.
During the third quarter Pharmacy revenues increased by 9.3% year-over-year, driven by increased pharmacy claims volume growth in Specialty Pharmacy and brand inflation. Total Pharmacy membership increased by 1.6 million lives sequentially, primarily reflecting growth in government programs. Total pharmacy claims processed grew nearly 7% above the prior year. Nearly half of this growth was attributable to net new 2021 business with COVID vaccine administration and new therapy prescriptions also contributing to the year-over-year growth. Note that new therapy prescriptions were adversely impacted in the third quarter 2020, due to the pandemic.
Pharmacy adjusted operating income exceeded expectations in the quarter, up more than $150 million or 9.5% year-over-year. The three major drivers of this increase remain consistent with the second quarter: improve purchasing economics, reflecting the products and services of our group purchasing organization launched in the second quarter of 2020; continued strength in our Specialty Pharmacy business, driven by 340B administration and increased pharmacy claims volumes, both of which were partially tempered by ongoing, but stable client pricing pressure.
Our retail business delivered strong results this quarter again exceeding expectations. Total revenue of just under $25 billion increased by $2.3 billion or 10% year-over-year. There are two main components to this increase, approximately half or 1.2 billion is attributable to the contributions from the more than 11 million COVID vaccines and over 8 million COVID tests we administered, combined with strong front store sales, driven by demand for over the counter COVID test kits and related treatment categories.
With this quarter's results, we are now on pace to deliver about 44 million to 49 million COVID vaccines and 28 to 33 million COVID tests for full-year 2021. The remaining half or 1.1 billion was driven by a combination of sustained pharmacy growth in broad strength in front store trends across a range of categories, partially offset by continued pharmacy reimbursement pressure. This strong revenue growth combined with a 70 basis point improvement in adjusted operating margin produced adjusted operating income that exceeded our forecast and drove a year-over-year increase of $300 million.
This adjusted operating income growth driven by COVID testing vaccines in front store sales was partially tempered by continued pharmacy reimbursement pressure, business investments, including the minimum wage increase and other performance incentives; and increased staffing to provide expanded levels of service.
Turning to cash flows and the balance sheet. Our liquidity and capital position remain excellent at the end of the third quarter, with cash from operations of $5.5 billion for the quarter and $14.3 billion year-to-date. Through our proactive liability management transaction in August, we paid down $1.1 billion in net long-term debt in the quarter. As of the end of the third quarter 2021, we have repaid a net total of $18.7 billion in long-term debt, since the close of the Aetna transaction. In addition, we returned over $650 million to shareholders through our quarterly dividend.
Let me now discuss our updated 2021 guidance. As Karen noted earlier, we are raising our full-year adjusted earnings per share guidance range this morning by $0.20 to $7.90 to $8.00 per share. This increase reflects the strong performance in Pharmacy Services and Retail, partially offset by expected COVID pressure in our Health Care Benefits business, specifically in the commercial block. We are raising our total revenue outlook to $286.5 billion to $290.3 billion and adjusted operating income outlook to $16.4 billion to $16.6 billion.
We are also increasing expected full-year cash flow from operations to a range of $13 billion to $13.5 billion. Note that this increased cash flow forecast is actually lower than our September year-to-date figure, reflecting expected payments in the fourth quarter that were accrued in 2020, including FICA taxes and increased minimum loss ratio rebates, as well as the timing of receipts and payments between the third and fourth quarters.
I'll now highlight some key items related to the segments and full-year guidance. For the Health Care Benefits segment, we are lowering our full-year adjusted operating income guidance from $5.25 billion to $5.35 billion to $4.9 billion to $5 billion. We expect the full-year medical benefit ratio to be in a range of 84.4% to 85.6% or an increase of 30 basis points from our prior range. This reflects the higher-than-expected commercial COVID medical costs observed in the third quarter and our expectation that these will continue, although at a lower level into the fourth quarter.
Emerging October operational data indicate that COVID inpatient admissions are tracking at approximately half the levels of September. Again, it is important to remember the degree to which testing costs are driving expenses. So while we expect Q4 testing expenses to be lower than Q3, we do not anticipate they will decline as much as inpatient expense.
Finally, recall the normal seasonality of the Health Care Benefits segment with fourth quarter operating income typically the lowest of the year, driven by deductible satisfaction producing the highest quarterly medical costs. For Pharmacy Services, given the continued strength in the quarter and our visibility to the remainder of the year, we are increasing full-year 2021 adjusted operating income guidance to $6.85 billion to $6.94 billion, representing year-over-year growth of 20.5% to 22%. We anticipate that the strength in third quarter Pharmacy Services results will largely continue into the fourth quarter.
In the Retail long-term care segment, we are also increasing our full-year 2021 adjusted operating income guidance to $6.98 billion to $7.07 billion. As you consider the fourth quarter, I would note that we currently expect vaccinations to continue, although at a lower rate than the third quarter. We have also contemplated the impact of the CDC's COVID booster recommendations, as well as a modest impact from pediatric vaccinations. We expect testing to decline modestly in comparison with the levels experienced during the third quarter.
Given retail's Q3 outperformance and Q4 outlook, we now expect the full-year 2021 COVID impact to be neutral. This compares to our prior guidance in August for an overall modest negative net impact. You will find further details regarding our updated guidance in the slide presentation we posted to our website this morning.
As we close the third quarter, we are very pleased with the performance of our businesses, which provides us with a strong foundation as we now look ahead to 2022. While, we plan to share more details with you at our upcoming Investor Day in early December in New York, I want to update you on our thoughts regarding the 2022 outlook, while there are still many factors to play out. We believe that current analyst estimates for 2022 adjusted EPS of approximately $8.20 or within our anticipated initial guidance range.
As we discussed last quarter, there are some significant moving pieces to keep in mind in determining an appropriate baseline for 2021. First, consistent with our standard practice, we exclude prior year's development net of profits return to customers, and net realized capital gains from our forward-looking guidance. Second, in 2022, we will incur a full-year of expense related to our minimum wage increase announced last quarter. We estimate these factors combined, represent approximately $0.40 per share. Using the midpoint of our updated 2021 adjusted EPS guidance range, which is $7.95, these adjustments create a 2021 baseline of $7.55.
The other significant factor in considering 2022 performance is the effect that COVID will have on our retail and Health Care Benefits businesses. For retail, we expect that COVID-19 vaccine and testing volume, which is expected to generate over $3 billion of revenue in 2021 will decline significantly in 2022 to 30% to 40% of the volume we administered in 2021. In addition, we expect COVID-driven front store sales to decline in 2022. For HCB, we expect to see a significant improvement in results in 2022, as treatment and testing cost decline with COVID cost estimates and improved risk adjusted revenue, reflected in our pricing. Overall, we estimate the COVID-driven impact in HCB will largely be offset by the expected decline in COVID-related retail performance.
It is important to note that forecasts of future COVID impacts to our business remain extremely difficult and are subject to change as circumstances dictate. Beyond these considerations other factors affecting our growth for 2020 remain consistent with the commentary we provided last quarter regarding headwinds and tailwinds. With all of this in mind, the current consensus of analyst estimates of approximately $8.20 for adjusted EPS would represent about an 8% increase over the 2021 baseline.
To conclude, the strong performance of CVS Health in the first half of 2021, continued in the third quarter, producing strong revenue, adjusted operating income and cash flow results, and we are pleased to again raise our full-year 2021 adjusted EPS guidance. During the pandemic, we have solidified our opportunity to become a national leader in healthcare delivery, which at its core starts and ends with lowering the cost of care, improving access and convenience, ultimately enabling people to live healthier and more fulfilling lives. During our Investor Day in a few weeks, we look forward to sharing with you more about our path over the coming years to deliver on this ambition and to position CVS Health to generate sustainable low double-digit adjusted EPS growth.
We will now open the call to your questions. Operator?
