CVS Health Corporation (NYSE:CVS) Second Quarter 2022 Earnings Conference Call August 3, 2022 8:00 a. m. m. , Eastern Time
Participating companies
Larry McGrath – Senior Vice President, Business Development and Investor Relations |
Karen Lynch – President and CEO
Shawn Guertin, Executive Vice President and Chief Financial Officer
Alan Lotvin – President, Pharmacy Services
Dan Finke – President, Health Benefits
Michelle Peluso – Executive Vice President. Chief Customer Officer and Co-President, Retail
Prem Shah, Executive Vice President, Pharmacy Manager and Co-President, Retail
Tom Cowhey – Senior Vice President, Capital Markets
Conference Call Participants
Ricky Goldwasser – Morgan Stanley
Lisa Gill – JPMorgan
A J. Rice – Credit Suisse
Michael Cherny – Bank of America
Justin Lake – Wolfe’s Research
Eric Percher – Nephron Research
Brian Tanquilut – Jefferies
Nathan Rich – Goldman Sachs
Operator
Ladies and gentlemen, good morning and welcome to CVS Health’s 2022 quarter earnings convention call. Right now, all participants are in listen-only mode. A question and answer query will adhere to feedback prepared through CVS Health. At this point, we’ll go over the commands on how to ask a question. As a reminder, today’s convention is recorded.
I would now like to speak with Larry McGrath, senior vice president of business development and investor relations at CVS Health. Continue.
Larry McGrath
Hello and welcome to CVS Health’s call and webcast on CVS Health’s 2022 quarter results. I’m Larry McGrath, senior vice president of business development and investor relations. With me this morning are Karen Lynch, President and CEO; and Shawn Guertin, Executive Vice President and Chief Financial Officer. Following our ready comments, we will conduct a Q&A consultation with Dr. Alan Lotvin, President of Pharmacy Services; Dan Finke, President of Health Care Benefits; Michelle Peluso, Chief Client Officer; and co-chair, retail, and Prem Shah, director of pharmacy and co-chair, retail; and Tom Cowhey, Senior Vice President of Capital Markets.
Our press release and slideshow were posted on our website, along with our Form 10-Q which was filed this morning with the SEC. Today’s call is also posted on our website, where it will be archived for 1 year.
During this call, we will ensure that forward-looking statements reflect existing revisions related to our long-term monetary performance, long-term events, adding potential effects similar to COVID-19 and industry and market conditions, as well as the expected benefits of our products. to consumers. and our monetary projections. Our forward-looking statements relate to significant hazards and uncertainties that may cause actual effects to differ materially from those currently projected. Report on Form 10-K, our recent existing reports on Form 8-K, this morning’s earnings press release, and our Form 10-Q.
During this call, we will use non-GAAP measures to discuss the company’s functionality and monetary situations and you will find a reconciliation of those non-GAAP measures in this morning’s press release and in the settlement documents published in the Investor Relations section. our website.
With that, I’d like to pass it on to Karen. Karine?
Karen Lynch
Thank you Larry and welcome to the team. Good morning everyone and thank you for joining our call today. CVS Health had another exceptional quarter. We increased revenue by 11% year-over-year to more than $80 billion, with strong effects across all business segments. We generated adjusted revenue consistent with a revenue stream of $4. 8 billion and adjusted earnings consistent with a consistent percentage of $2. 40.
This morning, we increased our full-year 2022 adjusted earnings consistent with consistent percentage address diversity to $8. 40 to $8. 60, an increase of $0. 20. increases in management reflect continued positive momentum across our business. We remain well placed and confident in our ability to achieve our short- and long-term expansion goals.
Our core business incorporated generated exceptional effects for the quarter. The healthcare benefits segment had a solid quarter with earnings expansion of nearly 11% year-over-year. We obtained an adjusted operating profit source of $1. 8 billion.
Our rate of medical advantages of 82. 9% increased through 120 basic problems compared to last year, as the evolution of medical expenses remained favorable. We generated an expansion in the number of affiliates across all product lines compared to last year. The effects reflect the end-to-end price of our assets, working in combination with one consumer at a time across the country.
Our Medicare business remains one of our most powerful expansion segments and we have a higher club year after year for all Medicare products. Our individual Medicare Advantage club continues to grow at a double-digit rate and faster than the overall market. This quarter, we reached a milestone with more than 2 million individual Medicare Advantage members, adding Dual Eligible.
Our PDP portfolio is also gaining momentum with a healthy expansion that is well ahead of industry trends, offering us long-term conversion and upsell opportunities. By 2023, we have a retention rate of almost 98% on national accounts. successful sales season for Medicare Advantage Group and we look forward to a positive expansion of the club next year.
As we continue to grow our individual exchange business, we are on track to expand the policy where we lately have individual exchanges and are getting final approvals to upload 4 new states to our portfolio, bringing our total to 12 states.
In pharmacy services, revenue increased nearly 12% year-over-year and generated an adjusted operating revenue stream of $1900 million. Specialty pharmacy revenues increased nearly 21% year-over-year. We are leaders in specialty pharmacy with systems that generate price in the market, provide really extensive savings to customers and differentiate ourselves by combining systems with virtual assets.
Looking ahead, we maintain a 98% visitor retention rate for the 2023 sales season with over 75% of renewals completed. We generated $3100 million in new business growth, which is a testament to our trend management, transparency and market leadership. built-in offers.
Let’s move on to our retail/long-term care segment. We continue the momentum of the first quarter. Our close relationships with our consumers, high-quality patient interactions, resilient supply chain and agile operating style contributed to the strong quarterly performance. Nearly 4. 8 million consumers interact with us every day on CVS sites, making us a difficult fitness destination on the network.
During the quarter, we recorded earnings expansion of more than 6% year-over-year and an adjusted operating profit source of $1900 million. adding strong over-the-counter COVID testing and sales of bloodless and flu products at a discounted price.
Our pharmacy increased its prescriptions by 1. 6% or 4. 6%, not including the effect of COVID-19 vaccination, which decreased from last year. -about the year since the first quarter of 2020.
As COVID-19 continues to evolve into an endemic phase, we will continue to play an important role in communities across the country. Millions of Americans are counting on us for COVID-19 testing, administering vaccines, and distributing antiviral drugs for treatment.
We administered more than four million COVID-19 tests and approximately 6 million COVID-19 vaccines nationwide in the current quarter. Demand for antiviral drugs to treat COVID-19 continues to rise as the national positivity rate remains in double digits.
Overall, we continue to effectively navigate a challenging retail environment, while expanding and expanding the percentage of the portfolio by attracting new consumers to CVS Health.
Of the approximately 43 million new customers who selected CVS Health for COVID-19 fitness services, only about 15% committed to us for more services. to attract and retain customers. Our leadership in this omnichannel experience is a competitive merit and we are committed to making an investment to improve it over time.
Let’s move on to our strategic imperatives. Let me give you some updates. We are one of the leading retail fitness providers nationwide and continue to advance our multi-level delivery functions. Our CVS Healthcare groups at our Minute Clinics have treated more than 2. 8 million patient visits since the beginning of the year, representing a 12% increase over the past year. We are further improving our own and making them more applicable to our customers.
We are working intensively with the administration that provides the Test to Treat program at our MinuteClinics and pharmacies and will establish prescribing pharmacists in certain situations to serve consumers with COVID-19 even more easily. This reinforces our strategy to expand access to physical activity and is helping consumers navigate to the most productive care site.
As we compare complementary fitness facilities and care delivery functions to our overall portfolio, we continue to take a disciplined approach. Inorganic expansion is a component of our strategy and we look to the future to inform you of our progress.
As far as store optimization is concerned, we have closed 198 retail stores to date and are on track to close three hundred retail stores this year. We are successful in minimizing disruptions for our consumers and obtaining the highest degrees of satisfaction as our store and pharmacy hours in all of our locations to meet consumers’ fitness desires.
We retain more than 70% of the volume of prescriptions within our network and have redistributed more than 90% of affected colleagues to our other CVS sites. Our forward-thinking, virtually focused technique reduces complexity for our consumers and creates virtual fitness solutions.
CVS Health now serves more than forty-five million exclusive virtual consumers, up 1. 5 million from last quarter. This buildup is due to our omnichannel pharmacy strategy aimed at simplifying the way consumers fill and get their prescriptions. More than 60% of our new virtual users purchased are consumers of our specialty pharmacies, mail order and retailers.
We are expanding our virtual fitness and deepening engagement through personalization for customer convenience. We introduced our individualized Health Dashboard last year and we already have 6 million active users, up 20% from last quarter.
As we execute our strategy effectively, our unified fitness style grows every day in relevance and importance to consumers, consumers, and the communities we serve. And you can see it in our results.
Finally, as part of our ongoing commitment to sustainability, we have signed a renewable energy procurement agreement with one of the country’s largest producers of carbon-free energy. This is the latest step on our path to 50% renewable energy by 2040.
We are positioned to build on our momentum during the current part of this year. None of this would be imaginable without our talented colleagues who fulfill America’s fitness wishes every day. We recently added two outstanding leaders to the control team. Tilak Mandadi joined CVS Health as Chief Data, Digital and Technology Officer; and Violetta Ostafin joined CVS Health as Chief Strategy Officer. Both bring a deep exclusive experience to our varied control team.
I will now turn to Shawn to take a deeper look at our operational and monetary effects and our carelessness.
Shawn Guertin
Thank you, Karen, and good morning, everyone. Our quarterly effects reflect the continued exceptional functionality of each of our key business segments, as we exceeded our [Technical Difficulty] 6 days sequentially, with bookings developing at a faster rate than premium growth, showing a trend similar to what we experienced in the current quarter of 2021. In general, we remain confident of the adequacy of our reserves.
In the pharmaceutical industry, our ability to deliver industry-leading pharmaceutical trends to our visitors, our specialized control capabilities, and our exceptional degrees of visitor service continue to drive growth.
During the current quarter, revenue of $42. 8 billion increased 11. 7% year-over-year, driven by the expansion of pharmacy claims, the expansion of specialty pharmacies and logo inflation, partially offset by the effect of continued customer value innovations. Specialty Pharmacy revenue increased by only 21% year-over-year, reflecting new contracts and the expansion of pharmacy claims.
The total number of pharmacy claims processed increased by 3. 9% over last year and by 5. 7% excluding COVID-19 vaccines, mainly due to new cases in 2022, increased use and the effect of a prolonged coughing, bloodless and flu season. .
The total number of pharmacy clubs increased sequentially, surpassing 110 million members, as expansion in advertising and government lives more than offset the club’s significant losses due to California’s Medicaid exclusion that began this year.
Adjusted operating revenue source of $1900 million higher 5. 7% year-over-year, driven by an accelerated purchasing economy, reflecting the increased contribution of products and our purchasing organization and membership expansion. These favorable pieces were partially mitigated through continued innovations in visitor rates, as well as restructuring and integration prices of $55 million.
Year-over-year contributions to our 340B product lines decreased in the quarter as covered entities took longer to agree on production situations than we had estimated in the past.
In our retail/long-term care segment, higher-than-expected COVID-related volume, combined with strong pharmacy and store sales, helped generate strong results. Throughout the year, reflecting a higher volume of recipes and stores ahead, adding increased sales of over-the-counter COVID control kits in cough, bloodless and flu products.
The $1. 9 billion adjusted operating income source decreased 9. 1% year-over-year, in part due to a $125 million profit from an antitrust settlement identified in the current quarter of 2021, as well as declining COVID-19 vaccine volumes.
Other drivers included strong sales in pharmacies and stores, accelerated generic purchases and the positive effect on advertising projects during the quarter. in the minimum wage and innovations in stores.
The volume of pharmaceutical prescriptions increased by 1. 6% year-over-year, reflecting increased use of cough, cold and flu medications that continued later in the spring. Excluding the influence of COVID, the volume of pharmaceutical prescriptions increased by 4. 6% year-on-year.
Let’s move on to the balance sheet. Our liquidity and capital position remained excellent. To date, we generated $9 billion in operating money and ended the quarter with $5. 8 billion in money for the parent company and subsidiaries without restrictions.
During the quarter, we paid off $1. 5 billion in long-term debt. In addition, in July, we announced that we would execute an au pair acquisition on $1 billion of November 2022 notes. Yesterday, we also announced the call-to-par on all of our bonds maturing in December 2022 for a combined total of $1. 65 billion in debt representing the last of our notable maturities for this calendar year.
Through our quarterly dividend, we returned $740 million to shareholders. We remain committed to maintaining our investment grade ratings, while also having the flexibility to deploy capital strategically for capacity-driven mergers and acquisitions.
Some other elements are valuable to investors. Adjusted earnings per share in the current quarter were impacted by strengthening reserves of $108 million in our former long-term care insurance business. This adjustment, which represented the first time we particularly adjusted this reserve since the acquisition of Aetna, is included in our Corporate Other adjusted operating income stream and reduces the company’s overall adjusted EPS by $0. 06 per quarter.
From a GAAP reporting perspective, in June, we also finalized the announced sale of Payflex in the afterlife, which resulted in a pre-tax profit of $225 million on our current quarterly financial statements. In accordance with the practices beyond, this gain has been excluded from our adjusted operating measures.
Moving on to our outlook for 2022. We are raising our adjusted earnings consistently with the targeting percentage from $0. 20 to a diversity of $8. 40 to $8. 60. This buildup reflects the functionality of the current quarter and an improved outlook for long-term retail. Healthcare segment, as well as strong quarter underwriting effects in the HCB segment, consistently reduced through a minimum of $140 million to $180 million in net contributions to the source of investment income during the remainder of 2022, given the uncertainty and volatility of the current economy. markets.
As such, we maintain our full-year adjusted operating profit guidance on fitness benefits from $5. 94 billion to $6. 4 billion. This reflects the strong underlying core performance mentioned above, offset by a decrease in the net investment source of revenue contributions from $110 million to $145 million during the remainder of 2022, as the vast majority of our net investment revenue stream is generated in our segment. Health Care Benefits. Our updated outlook also considers the extension of the public fitness emergency through the end of 2022.
We are increasing LTC’s full-year guidance as follows: Revenue is accumulating in diversity from $101 million to $12. 7 billion, revenue management’s adjusted operating source increases through $575 million at the midpoint to a diversity of $6. 54 billion to $6. 64 billion. It now expects to administer only around 20 million COVID-19 vaccines in 2022, of which about 75% will already be administered in the first part of 2022.
We expect full-year diagnostic verification volumes to be approximately $19 million and over-the-counter verification kit sales to be more than double that of last year, exceeding 50 million units. In total, we expect those 3 COVID categories – related pieces to now generate only about $3 billion in profits in 2022, about 33% less than in 2021, but indicative of the endemic COVID tail in our retail business.
Our updated outlook also includes provisions for higher levels of capital expenditures for the current part of the year, as we prepare for a potential backlog of COVID cases at the end of the year and includes continued investments in our workforce and for our visitor experience.
In pharmacy services, we now expect to be at the end of reducing our adjusted operating source of revenue management diversity from $7. 31 billion to $7. 45 billion, based on the following factors.
The continued strength of our core capabilities, adding acquisition economics and forged network volumes where we surpassed the midpoint of our 50 million script range. Being under pressure from the restructuring and integration costs I mentioned earlier and the reduced outlook for our 340B business, resulting in a contribution that will be reduced to last year.
Looking at the company as a whole, due to our sustained operating momentum, we expect solid and continued operating money in 2022 and have increased our direction to a range of $12. 5 billion to $13. 5 billion with unchanged capital expenditures in a range of $2. 8 billion to $3 billion. billion.
We are raising our full-year adjusted effective tax rate from 25. 6% to 25. 7%, primarily due to the adjustments discussed in our income outlook investment source. And finally, as we evaluate earnings expansion for the rest of the year, we continue to remind investors that we expect earnings consistent with the constant percentage to be slightly spread out between the third and fourth quarters.
All other forecasts shared in our first quarter earnings call remain unchanged. Additional main points about our updated rules can be discovered in the slideshow we posted on our online page this morning.
To conclude, our quarterly effects reflect the continued strength of all of our key business segments, and we are pleased to increase our adjusted UPA guidance for the full year 2022. Our expansion and operational execution continues, and we continue to make progress on our long-term strategy. We remain committed to the GAP targets implicit in our long-term model, totaling 2023.
Now we will open the for your questions. Operator?
Q&A session
Operator
Thank you. [Operator Instructions] We’ll take Ricky Goldwasser’s first with Morgan Stanley. Your line is now open.
Ricky Goldwasser
Hello, hello and congratulations on a wonderful quarter. So my question, Karen, Shawn, is how do you view your number one attention strategy in the wake of the latest M&A news, rather than striking a balance between the biological and non-biological comments in which karen was referred to in her preparation. Remarks.
Karen Lynch
Hi Ricky. First of all, let me congratulate you, it has been a pleasure to work with you and we want, on behalf of the entire CVS control team, to wish you all the best in your long-term efforts.
Regarding your question, first of all, let me remind you that we are the largest provider of retail fitness facilities in the country. That said, we have a strategy that: we expect our fitness facilities in 3 categories. As you mentioned, number one care, provider empowerment, and home fitness.
And as we’ve talked about in the past, there are ways for us to make a mark on our health care network and our ability to achieve our strategic goals. And as we’ve talked about before, Ricky, we have very clear criteria that we take a look at when comparing our many, many options.
Let’s see if there’s a strong control team, and let’s see if there’s a very strong generation stack. Obviously, the ability to evolve, given the length of the company we are and the path to profitability.
And as you know, Ricky, mergers and acquisitions can be very fluid. You don’t necessarily design precisely how it’s given and what it’s advertised. We are committed to expanding our fitness into categories. And we are very encouraged and confident in ourselves. will take the next step in this adventure until the end of this year.
Unsurprisingly, we are very disciplined both strategically and financially as we continue our M&A strategy. We are in the number one care without mergers or acquisitions. We have been very transparent about this. And let me ask Shawn to tell you a little more about the rapid dynamics of the market.
Shawn Guertin
Thank you, Ricky, for the question. We have been very active in comparing a wide diversity of assets in and around the care delivery space. And what I’d like to reiterate is that our spaces of precedence remain the empowerment of number one care providers and home health.
It is of the utmost importance in a talent-based game that we fully compare those defining characteristics, which would come with their talents to generate a genuine and lasting price. The monetary dynamics of these other business models and the levers of optionality and expansion that they offer us. , adding our own ability to implement our existing assets and create price on those entities.
And as Karen mentioned, we’ve said that there are several tactics to achieve our vision. Our vision is something new and differentiated, as you know. So, there is no one or assets there. Perfect. There are differences. As Karen pointed out, when you take a look at the criteria among available assets, especially in terms of monetary performance, long-term expansion opportunities, and our ability to generate value.
I keep saying that we can enforce our strategic vision through mergers and acquisitions and begin to enforce that vision in 2022. And the strength of our capital generation is part of what makes this possible, but it also provides a strong lever to supplement our core income. By buyback percentage. And I think we still can, our purpose is still to dedicate ourselves to the purposes we talked about on Investor Day for the 23rd and 24th.
Ricky Goldwasser
Thinking about your existing asset base, footprint, and access point is used to compare [ph] more assets to load into your portfolio that will actually enable this type of long-term strategy. Maybe you can share with us what you think.
Karen Lynch
Ricky, thank you. We have a time to listen to you.
Ricky Goldwasser
Sorry, can you hear me now?
Karen Lynch
Yes, a little better. Thank you.
Ricky Goldwasser
So if you think about your existing efforts or adding the footprint on access points, how do you think about one kind of thing, what’s really going to move your long-term strategy?Is it owning or getting a number one care provider rather than that kind of thing, an enabling generation that can attach everything?
Karen Lynch
Yes, Ricky, I think there are several tactics for us to think about our overall strategy, and I’ll come back to that: we’re in capabilities. Obviously, in the number one care space, in the space of the house and in the space of empowerment of the provider. So it’s a mix of all of that. And as Shawn said, it’s not a one-time type of activity. We will continue to compare several of those options.
Shawn Guertin
Ouais. Et I think, Ricky, it’s both, right? We want both. And I think that’s partly because it’s about knowing a new and differentiated kind of vision. You want a platform to do that, don’t you?
So, it’s a set of extended businesses and assets that you can start trading with, but it’s also the platform and the generation and what you can then use as a springboard to do new and better things. And I think that’s why we want to move forward on either front with equivalent importance.
Karen Lynch
Ouais. And I think, Ricky, the point to highlight here is that we have a very solid foundation with the assets that we have. And this is demonstrated through the strength we see in our healthcare retail operations. We had two problems: We had a 12% increase in MinuteClinic visits this quarter. So a lot of opportunities from the forged foundation that we already have.
Ricky Goldwasser
Thank you. And even greater too.
Operator
Our next one will be Lisa Gill from JPMorgan. Su line is now open.
smooth gill
Super. Bonjour. Et, thank you. Karen, I need to start with the existing economic environment and how you view the overall 2023 sales season. So he communicated about a sales season forged on the PBM side. But maybe if you or Alan can tell us a little bit about what advertising employers are for?How do you see trends in average workers? You communicated about the other assets you have. I know you have a new number one virtual care provider on the market. It’s been almost four years since Aetna and CVS got together.
So, maybe you can tell us how you plan to design other plans in 2023 and what you’re hearing from employers in the market today, as we actually put all the assets together into a single total entity.
Karen Lynch
So, hello, Lisa, I would say what we see and said in the ready comments, we have very smart retention effects on all our corporations thanks to our national accounts and also Alan’s corporations. What we’re seeing is that the focus is still on access, the reduced number of care sites, the continuous review of costs. Obviously, employers are interested in making sure that there’s a low cost, flexibility, and you know, a really fake service, that low cost, flexibility, and really fake service.
And it’s consistent across the portfolio. What we’re seeing is that we continue to see very clever effects with our built-in offerings. We have had very clever effects. We have, I think we have benefited from having a sales team built into the market that sells our products and capabilities.
So we are satisfied with what we see in the market. Obviously, the pipeline has slowed down in any of the companies. So, as I mentioned, we’ve had a lot of retention. Alan to give you a little more information about what they see in particular when they’re in the market and promoting businesses, and I’ll start with Dan.
dan fink
Yes. Thank you, Karine. I think you said it right. I mean, listen, we’re having smart conversations in the most sensible part of the space about controlling access to pricing and customer experience. When you think about what this price looks like in those conversations, it seems that in some opportunities to incorporate you get design and cross-selling advantages.
You can see that we fixed some issues with MinuteClinic’s broad and affordable advantage. We’re also seeing it in new products and services, such as our diabetes transformation program and oncology. it’s not just about the number one virtual care, it’s about the general virtual care and therefore providing enterprise-wide answers for virtual care. And finally, smart conversations about how we use our local resources like MinuteClinic as pharmacists for access issues as well.
Alan Lovin
Yes. So, Lisa, I’m Alan. I’ll only upload two things. First, we have noticed it in the broader segments of the market. The benefits manager aims to get other people back to the workplace after COVID. And so we have noticed contracts that we think can come out in the 23rd and go up to 24 and 25%. So I think it’s the first.
I think the component at the moment would be, we see a continued preference for transparency for charge control, especially in the specialty and for the type of connectivity and virtual capacity, at a really critical moment when they renew a prescription, they think about their health. So, those things resonate, especially in market sectors that are still very active.
smooth gill
Alan, you talked about the specialty, and I mean, the most important player. Obviously, Humira will lose or how biosimilars will hit the market next year. Is it a verbal exchange you have with the plan’s sponsors?Will this be a big driver, say, 2024, as you think of pbM?
Alan Lovin
So two things, Lisa. One, as you can see, is more than just: everyone is focusing on 2023 on Humira, however, if you look at the next 7 or 8 years, there are about $100 billion in products that are going to lose marketing. exclusivity
We talked to our consumers about basaglar biosimilars [ph] 3 or 4 years ago. So we prepare the market. We have articulated methods around the lowest net rate and continue to work with our customers.
So I think as we create, as the festival intensifies in the market, it’s traditionally been very, very smart for our consumers and sometimes when, what I’ve said several times before, when we create prices for our consumers, they’re regularly satisfied. to pay us for it. So I think this will have a very big impact on the PBM industry in the next 7 or 8 years.
smooth gill
Thank you so
Shawn Guertin
Yes, Lisa. La one thing I would add, express questions about some of the parts of 2023, and I think it makes sense to offer some high-level feedback on some kind of broader context, I think, that we see. for the 23. And, of course, I don’t offer third class express for 2023 here.
But I’d be expecting 2023 construction to be the top adjusted source of operating income at PSS and HCB given some of the things Dan and Alan just talked about. And then, given the COVID outlook for retail for 2020, which is almost double our initial revenue, I’d be expecting us to see a year-over-year decline in retail earnings. Below operating profit, given the activity, one would expect a reduction in interest expense and constant number of shares.
But I would say that overall, at this point, again, I reiterate that we committed to achieving the adjusted EPS targets for 23 and 24 that are implicit in our December Investor Day forecast and as reflected in existing consensus estimates.
Operator
Thank you. The next one will be from A. J. Rice with Credit Suisse. Su line is now open.
A J. Rice
Maybe first, just to ask you about your delight with the front-end store and the retail side, it’s still pretty strong, I think it was expected to moderate this year. I guess house control is one of them. Can you analyze that? And then just say what you need about the type of underlying expansion and where you see the strength.
Shawn Guertin
Yes, A. J. , I’m going to. . . let me offer you some kind of framework for quarterback performance, which you’re probably right about. We continue to see an underlying force at the front and back of the store beyond COVID. During the quarter itself, I’d say about 60% of our outperformance in retail was due to those kinds of COVID categories that we’re talking about.
But the rest, which is still a really large amount, is truly the main strength of the store façade and retail pharmacy operations. And obviously, OTC kits are a big component of the story, as I mentioned in my comments, but I’m going to ask Michelle to upload more important points about what’s going on in retail.
Michelle Peluso
Sí. De fact, we are proud of the solidity we saw in the store. This comes from an average single-digit accumulation and also from an average single-digit accumulation in the average basket size. And as Shawn said, even though some kind of cough, cold, COVID was a significant component and component, we saw strength across all categories.
I would only say two things. The momentum is the result of our continued pivot to meet the strategy we established on Investor Day to serve local network fitness and wellness destinations. And second, that our investments bear fruit. We are uniquely located in the omnichannel world. So, our strong virtual assets, in addition to our network presence and our investments in things like online shopping, in-store pickup, omnipharmacy, are accelerating, they’re helping to drive our growth.
We also redesigned cvs. com, resulting in much more powerful engagement. We are modernizing our fleet and investing in an intelligent supply chain infrastructure. Therefore, intelligent automation helps us feed our inventory position, which makes us feel good. And finally, doubling the service to make sure that the network accepts as true with us, that accepting as true with is a core component of our business strategy, as you know.
And as a small note, we were pleased to see morning Consult’s CVS Pharmacy popularity as the maximum trusted logo and store and makes it one of the most trusted logos in every industry. Therefore, a functionality forged and we believe that we are well located. as a technician next year.
A J. Rice
Super. Thank you very much. And in the — maybe only temporarily in Medicaid reviews, updated on when it might go into effect for what might your exposure be?And have you researched your ability to recover, through the market or the advertising market?, some of the members who could lose their policy through Medicaid?
Shawn Guertin
Yes, A. J. , then we now assume, obviously, that redeterminations may not take place until next year, no matter how big or small they are, obviously, with the extent of PGA[ph] speculation in our councils. We estimate that we have added about 400,000 to 500,000 members as a result. And that’s, you know, I’m warning, it’s kind of hard to estimate on the retention side, but we may only retain 25% or so of the members.
Obviously, our individual exchange footprint is expanding, but it’s still limited in the scope of our overall Medicaid block, so some of that will help. But there is still a lot to play. And then Array, so this activity, Array, will be more of an activity of 23 now than 22, which we talked about a quarter ago.
A J. Rice
It’s okay! Super. Many thanks.
Operator
Next up will be Michael Cherny of Bank of America. Your line is now open.
michel cherny
Hello and congratulations on a beautiful quarter. Shawn, I appreciate the first color you provided in 2023 looking to take a step back very quickly. Are there any adjustments to think about from the baseline in terms of what you’ve reported and how to think about the dynamics of your current situation?
And I guess in that sense, as you think about the implicit direction through the end of the year, how are the parties moving about the potential expansion of COVID healthcare?How do you determine those points where we deserve the starting point next year?
Shawn Guertin
Ouais. There are many portions moving there, there. The typical kind of basic changes we’d make for last year’s progression is probably around, I think, around $0. 12 right now on an annual basis. The engine here, on the right, is what: last year capital gains were learned, this year capital losses were learned. And we have about $175 million in losses identified since the beginning of the year and obviously year over year. year of investment income.
So, this is a story that will extend into the current part of the year and that we will want to refine expectations about the net investment revenue stream for 2023, with all moving parts alone.
Obviously, there, we talked about some kind of one-time adjustment that we had similar to the long-term care insurance business. It’s worth around $0. 06. So, those are some of the big building blocks, and now you’re spinning, I think, on some sort of covid mobile portions between retail and HCB.
I think for HCB, as I mentioned, we’re at a point where we’ve set the price. We are 3 years away from the last time we had a COVID-free baseline. And that, I think, has to boil down to the way we’ve talked about this company traditionally, right?
It’s like aligning our conservative value increases for all of our products with our expected load trends and managing earnings expansion and operating margin dynamics. by 2023.
I think in retail, though again, it stands to reason that, given where we are this year, it will go backwards. I think our thinking is that we still have some kind of endemic tail and contribution in 2023. And I think we anticipate that, that the company can operate at a benchmark. That’s in line with what we talked about on Investor Day from a starting point of around $6 billion. It’s anything we can handle in this industry.
So obviously there’s still a lot to play here in terms of the direction we’re going to take with the long-term recommendations, obviously, around Booster. I think right now at HCV we’re thinking about some kind of pricing for COVID. And obviously, I think we’re in a smart position to serve communities on the COVID front.
michel cherny
Merci. Je’ll leave it there. I’m grateful to you for that.
Operator
The next one will be from Justin Lake of Wolfe Research. Your line is now open.
Justin Lake
Thank you, smart tomorrow. First of all, let me congratulate you on hiring Larry McGrath, he is the best, congratulations. And then, secondly, just on one of the questions about PBM. may have an effect on PBM. I hoped to give it some color there.
And then Shawn, you discussed the headwind of the 340B. Anyway, to compare this for us and think about how it will play out next year. Do you need to annualize that entirely, or can it be only a quarter of the headwind through 2023?Thank you.
Alan Lovin
So Justin, that’s Alan. Thank you. The first one is about the drug pricing provisions, so they’re a little limited, if you look at the details, it’s 10 drugs in 26 and 20 to 29. And if you look at the way language is structured, I would articulate that those are all products that are unlikely to have curtain competition. Therefore, I believe that the overall effect will be positive in the sense that the value of medicines will fall for the products we are ahead of. of the competition, but I don’t think the effect on the overall style is substantial, given the nature of how the definition of drugs falls at work, that’s the first part.
The component at the moment about the 340B, as you know, there were a lot of tweaks to the way the program worked. And essentially, if you sum it up, it is: there are two critical decisions/actions on behalf of the covered entities.
For monetary value, which, as you know, is vitally important for many of those critical access hospitals to maintain their monetary responsibility. We want to start offering some point of knowledge about the pharmacies contracted to the pharmaceutical industry.
Their decision-making procedure is a little slower than other people expect, and the ability to enable this knowledge is a bit slower, yet we are seeing consistent decision-making and stable buildup in the number of hospitals that do it. we hope it will continue this year and next.
Shawn Guertin
Oui. Et Justin, just to give you a clear idea, I mean, as I mentioned in my comments, we still think we’re moving into diversity, but probably at the bottom of that diversity for PSS. And the width from the middle down is a little over $100 million. And so it’s in this kind of difficult stage, it’s the kind of decline year after year, some of which, by the way, we’ve already experienced a little bit in the current quarter. But for the last time, about a quarter later, we think it can remain solid from year to year and now we think it will go a little bit from year to year.
Operator
The next one will be Eric Percher of Nephron Research. Su line is already open.
eric percher
Merci. Je move back to the details. And a query about COVID and the cost-effectiveness of VAX [ph] scripts you see?I know it retained some overhead and administrative expenses at the beginning of the year due to some increases in demand.
Have you seen a replacement at the G-spot?
Shawn Guertin
So Eric, I would say, I mean you like everything you do for a while, okay, you’re becoming more and more effective at how to do it. . But we seized the opportunity, obviously, with the effects of thinking about how to keep investing in this business and investing in the delight of visitors and making sure we can provide some kind of staff and all the facilities and functions that we want on the retail side. We have planned this in our mirror image for the current part of the year. And it’s built into our perspectives.
eric percher
When it comes to endemic diseases, if we think about 10 million flu vaccines per year with a small replacement in P
Shawn Guertin
Yes. No, I’ll trust Prem, I think. . .
prem shah
Yes, we can actually plan it and it’s a component of our model. We have a flu season every year. I would say that as we got smarter with COVID, we’re still very nimble with our models and we can leverage our staff, whether they’re doing prescription-like pictures or vaccination or other frames. So we continue to do very well. And we’re also preparing to tackle some of the tests that came out of HHS for now part of this year and a pilot and then scale up the year. So it feels really good.
Shawn Guertin
Let me back down because I need to make sure I didn’t: Eric, since then, asks about PVM. I’ll use it to go back to Justin’s query on pbM. I need to make sure I was transparent and didn’t confuse something. my comment on 340B’s directional contribution was express for 2022 in terms of what was on our board. Obviously, as this volume comes back online, we expect other effects for 2023 in the future, therefore.
eric percher
Thank you so
Operator
Our next one will come from Brian Tanquilut with Jefferies. Su line is now open.
Brian Tanquilut
Hi guys and congratulations on the quarter. I guess my question, when we think of the store: the main store, the main store, I mean, obviously, the highest inflation rates for product categories at all levels. So how do you think about what? First, what you see in terms of output inflation right now, what’s the trend?What is the assumption you have incorporated for long-term earnings forecasts?Thank you.
Karen Lynch
Let me start with what we see and then entrust it to Shawn. So, for the most part, we need to pass on inflation to our customers. That said, we are well aware of an environment where we need to make sure there is price on the shelf at all times for our customers.
And we think about it, of course, we think about it in terms of prices. But this is a wonderful time for our personal labels. Our personal labels are on average 20% to 40% under our national brand. This is the best It’s time for consumers to place the price on our personal labels. We have a lot of substitutability between categories.
And last but not least, we have a very large lever with extra care and a care pass that still increases by up to 26% from one year to the next. We have great leverage with additional maintenance tracking to make sure we provide personalized coupons and gives for our consumers to see the price on the shelf. So while he’s a smart guy in terms of the ability to evaluate, we’re aware of the price by thinking about it very thoroughly across all categories.
Shawn Guertin
Keep in mind that the vast majority of our profits in the retail segment are generated through pharmacies, and we don’t see the inflationary effects you hear in the headlines that are posted in that segment. Those are even more typical grades. of pharmaceutical inflation that would be incorporated into our outlook.
And even within our store’s product line, the inflation rates inherent in this type of product line are different and lower than the flashy headlines you hear, more or less when communicating about inflation headlines. inflation assumptions that will determine our earnings outlook.
Brian Tanquilut
Thank you so
Operator
The next one will come from Nathan Rich of Goldman Sachs. Your line is now open.
rich nathan
Hello tomorrow. Thanks for the questions. Shawn, you discussed the favorable cargo trend relative to expectations in the current quarter. Could you explain a little more about what motivated that?And you haven’t replaced the third class with MBR[ph] all year round. thinking about how the load control is developed in the current part of the year?
And then, if I can ask for a follow-up in advance. I just wanted to explain the new COVID assumptions. I’m looking to keep up with the numbers, and it turns out to be maybe $500 million in additional earnings and $200 million in additional earnings. That would be great.
Shawn Guertin
Let me do that first. It’s much more than that. We’re talking about $3 billion, a higher retail profit through around $2 billion, more than a portion is similar to those COVID categories. This is a much larger year-round contribution from this total of about $3 billion in earnings for the year.
And as I mentioned, that’s almost double when we write the expectations for the year. On the MBR front, no, it’s definitely positive. I still think our diversity is indicative of our functionality there. But obviously, only in the second quarter, we were on the right side.
And that attitude is still, I think, very positive from an underlying point of view. As I mentioned, the way the product is implemented through the product has been very similar. Commercial in line with our baselines and probably a bit favorable in Medicare and Medicaid. . But I’m going to ask Dan to comment a little bit about what we see next.
dan fink
Let me give you a little review of some of the categories of services. First of all, in all sectors of activity, we see a favorable volume of hospitalizations, we monitor preventive care, visits to the PCP and specialists. And, in general, those have returned to the general levels. In fact, we’ve been working to make sure our members have access to preventive care during the pandemic. The ER is slightly lower than expected.
And then when you also think about general COVID prices, you noticed a steady volume of COVID-related prices, which had lower severity, shorter sand duration, and lower overall prices. So, do a little review of the categories of services.
rich nathan
Super. Thank you.
Operator
This concludes the Q&A component of today’s conference. I would now like to return to Ms. Karen Lynch for her closing remarks.
Karen Lynch
Before concluding today, I just need to leave him with a few ideas. Our team is making significant progress in our strategy as we strive to become the nation’s leading healthcare response company. We are confident that we will continue to build on this difficult Momentum until 2022 and 2023. We look forward to moving forward to keep you informed about our progress. Thank you for joining today’s call.
Operator
This concludes today’s CVS Health call and webcast for the current quarter of 2022. You can disconnect your lines. Have a nice day.