Shawn Guertin
Executive Vice-President and Chief Financial Officer at CVS Health
Thank you, Karen, and good morning, everyone. Our first-quarter results reflect the continuation of outstanding performance from each of our business segments as we delivered strong revenue growth, cash flow from operations and adjusted earnings per share. These results were driven by our steadfast focus on growth, operational execution and supporting the communities we serve.
A few highlights regarding total company performance. First quarter revenues of $85.3 billion increased by 11% year-over-year, reflecting strong growth across each of our businesses. We delivered adjusted operating income of $4.4 billion and adjusted EPS of 220, representing decreases of 5.1% and 4.3% versus prior year respectively, primarily due to lower COVID-19 contributions in the current year.
Our ability to generate cash remains outstanding, with cash flow from operations in the quarter of $7.4 billion. Cash flows in the quarter benefited from the timing of CMS payments that are expected to normalize by the end of the year.
As Karen mentioned in her prepared remarks, beginning this quarter we have re-segmented our businesses and our financial reporting to more closely align with how they are managed. I will discuss our first quarter 2023 results and provide comparisons against the prior year, based on our new structure. After reviewing the results, I will update our 2023 guidance under the new segmentation.
Starting with healthcare benefits, we delivered strong revenue growth versus the prior year. First-quarter revenue of $25.9 billion increased by 12.1% year-over-year. Membership grew over 4% on a sequential basis, reflecting significant growth in individual exchange members, as well as increases across all other product lines.
Adjusted operating income of $1.8 billion in the quarter declined slightly versus the prior year. This was driven by the expected return to more normalized utilization as the effective COVID waned [Phonetic] and by the lower impact from prior year reserve development. These decreases were largely offset by higher net investment income and membership growth across all product lines during the quarter.
Our medical benefit ratio of 84.6% increased 120 basis-points year-over-year, reflecting more normalized utilization, including the impact of higher flu as compared to last year and modestly lowered impact from favorable prior year development. Our assumption was always been our 2023 medical cost seasonality by business would look more like pre-pandemic patterns. We believe that the consensus estimates for quarterly MBR may have to rely too heavily on recent experience that was impacted by COVID-19. Overall utilization trends remain in line with expectations.
Consolidated days claims payable at the end of the quarter was 48.1, down 3.2 days sequentially. This is more in line with historical levels of days claims payable for the first-quarter in pre-pandemic periods. Overall, we remain confident in the adequacy of our reserves.
Our health services business, which includes most of the operations of our legacy Pharmacy Services segment as well as our healthcare delivery operations generated revenue of approximately $45 billion, an increase of 12.6% year-over-year. This increase was driven by pharmacy claims growth, specialty pharmacy and brand inflation, partially offset by continued client price improvements.
While results from both Signify, which closed in March, and Oak Street, which closed yesterday, will be included in this segment going forward, the timing of the close of Signify resulted in an immaterial impact to first-quarter 2023 results.
Adjusted operating income of nearly $1.7 billion grew over 14% year-over-year, driven by improved purchasing economics and increased pharmacy claims volume. This was partially tempered by ongoing client price improvements and lower COVID-19 testing.
Total pharmacy claims processed in the quarter increased by 3.7% above the prior year and 4.8% when excluding COVID-19 vaccinations. This increase was primarily attributable to net-new business in 2023, increased utilization and the impact of an elevated cough, cold and flu season. Total pharmacy membership remains steady exceeding 110 million members.
In our pharmacy and consumer wellness segment, we delivered strong revenue growth despite continued economic uncertainty and lower COVID-19 contributions. During the first quarter, revenue of $27.9 billion grew nearly 8%, reflecting increased prescription and front store volume, pharmacy drug mix and brand inflation. These increases were partially offset by continued reimbursement pressure, decreased COVID-19 vaccinations and diagnostic testing and the impact of recent generic introductions.
Adjusted operating income of $1.1 billion declined 27.9% versus the prior year, driven by reimbursement pressure and decreased COVID-19 vaccinations and testing, as well as increased investments in operations and capabilities. These decreases were partially offset by increased prescription volume and an improved generic drug purchasing.
Pharmacy prescription volume grew 2.5% year-over-year, reflecting increased utilization and elevated cough, cold and flu volume compared to the prior year. Excluding the impact of COVID-19 vaccinations, prescription volume increased by 4.5%.
Turning to the balance sheet, our liquidity and capital position remained excellent. Through the first quarter, we generated cash-flow from operations of $7.4 billion, bolstered by the CMS prepayment I discussed earlier, and ended the quarter with approximately $2.7 billion of cash at the parent in unrestricted subsidiaries. During the quarter, we issued approximately $6 billion of long-term debt for general corporate purposes, including funding the Signify transaction. The Oak Street transaction was funded with available resources, including proceeds of $5 billion from a term-loan that closed earlier this week.
We repurchased approximately 22.8 million shares in the quarter, and through our quarterly dividend, we returned 779 million to shareholders. We remain committed to maintaining our current investment-grade ratings, while preserving flexibility to deploy capital strategically.
A few other items worth highlighting for investors. First, as previously noted, beginning this year, the impact of net realized capital gains or losses will be excluded from adjusted operating income. Net realized capital losses in the three months ended March 31st, 2023 and 2022 were $105 million and $75 million respectively. Second, we recorded an additional loss on assets held for sale, associated with our Omnicare long-term care business of $349 million. We also recognized acquisition-related transaction and integration costs associated with the Signify and Oak Street transactions as well as additional office real-estate optimization charges in the quarter for a total of $68 million.
Finally, effective January first of this year, we adopted a new standard related to the accounting for long-duration insurance contracts. Our results will reflect this change going forward. The retrospective adoption of the new accounting standard also required us to revise our net income for 2022. This change positively impacted our first quarter 2022 results by $42 million and our full-year 2022 results by $162 million.
Before we provide our updated expectations for 2023, I want to discuss the impact of our business re-segmentation had on our financials. The primary impact of re-segmentation that I want to highlight is the revised treatment of our Maintenance Choice products. Previously, the economics of Maintenance Choice were reflected in both our Pharmacy Services and Retail segments, regardless of where the drugs were dispensed, and drove a large inter-segment elimination. After re-segmentation, the economics of Maintenance Choice will only be reflected in our pharmacy and Consumer Wellness segment, which now includes all pharmacy, mail and specialty fulfillment operations. This change correspondingly results in the discontinuation of adjusted operating income eliminations and provides greater simplicity for investors.
In addition to the changes related to our treatment of Maintenance Choice, we shifted our legacy care delivery operations including Minute Clinic from retail into our Health Services segment. This is also where our recently-acquired Signify and Oak Street businesses will be reported.
Turning now to updated guidance based on our new segments. Beginning with the Health Services segment, our new adjusted operating income guidance is a range of $6.61 billion to $6.73 billion. This estimate reflects the re-segmentation changes previously described, the impact of emerging risks to the 340B program and the inclusion of Signify Health and Oak Street Health acquisitions, partially offset by underlying strength in our pharmacy services business.
For the Health Care Benefits segment, we now expect adjusted operating income of $6.39 billion to $6.52 billion, benefiting from higher net investment income in the first quarter of 2023 and prior-period development. We continue to take a prudent and cautious stance with respect to our individual exchange business inside our full-year outlook.
In the Pharmacy and Consumer Wellness segment, our new adjusted operating income guidance is a range of $5.73 billion to $5.83 billion, reflecting lower than expected COVID volumes as well as the impact of re-segmentation.
We are also updating our guidance for additional net investment income generated in our corporate segment due to higher yields and higher average parent cash balances in the first quarter of 2023. We do not expect these higher corporate cash balances to persist into 2023 following the recent closure of both the Signify and Oak Street acquisitions.
Finally, our new projection for interest expense is $2.7 billion, reflecting the incremental financing costs for Signify and Oak Street. We are also updating our share count guidance to approximately 1.293 billion shares, as our previously-announced accelerated share repurchase transaction yielded more shares than initially projected.
In aggregate, the headwind of approximately $0.35, resulting from the impact of the Signify and Oak Street acquisitions and their associated financing partially offset by underlying strength across the enterprise, resulting in a net headwind of $0.20. This brings our 2023 adjusted EPS guidance range to $8.50 to $8.70.
Shifting to our cash-flow, we continue to anticipate strong cash-flow from operations in 2023 and are maintaining our guidance range of $12.5 billion to $13.5 billion. Capital expenditures are unchanged at a range of $2.8 billion to $3 billion, and we continue to project an adjusted effective tax-rate of 25.5%.
I also want to provide an update on the progression of earnings for the year. Due to the strength of our results in the first quarter, the incorporation of Signify and Oak Street, and the 340B headwind, we now expect second-half 2023 earnings to be slightly more than 50% of the full-year results, with the third quarter modestly higher than the fourth quarter. We also want to highlight our expectations for quarterly MBRs. We continue to expect a year-on-year increases in MBR to be higher in the first-half than the second-half. This dynamic is due to COVID driven lower utilization trends in the first half of 2022. We expect the MBR progression in the second quarter of this year to look similar to the trend in the first quarter.
Shifting now to our multiyear outlook. We remain committed to achieving the $9 and $10 targets for 2024 and 2025 that we shared during our earnings call in February. We take these commitments seriously and have aligned the organization and our operations to achieve these goals. As with any multiyear plan, new headwinds and tailwinds can emerge. Recently there have been significant developments in the 340B program that create challenges for our pharmacy benefits business, and based on our most recent experience, COVID contributions may dissipate more rapidly than previously anticipated.
The early close of the Signify and Oak Street transactions improve our ability to accelerate synergy realization. In addition, our business re-segmentation presents the opportunity to reduce duplicative efforts and enhance focus on rationalizing our core operations. We believe these opportunities combined with the underlying strength of our business and our commitment to evaluate all alternatives to accelerate growth and synergies from our new acquisitions, will enable us to mitigate the new headwinds I just discussed.
To conclude, our first-quarter results reflect continued strength from all of our core business segments. We are excited to begin the work of integrating Signify and Oak Street into our operations, and are pleased with the positive contribution of our foundational businesses on our 2023 adjusted EPS guidance.
We will maintain our focus on growth and operational execution, and look forward to keeping you updated as we continue to progress on our long-term strategy.
We will now open the call to your questions. Operator?