Cigna Group

Evernorth Health Services Segment

Evernorth Health Services includes a broad range of coordinated and point solution health services and capabilities, as well as those from partners across the health care system, within our Pharmacy Benefit Services and Specialty and Care Services operating segments. See Note 1 to our Consolidated Financial Statements for further discussion of these two operating segments. As described in the introduction to Segment Reporting, Evernorth Health Services' performance is measured using adjusted revenues and pre-tax adjusted income (loss) from operations.

The key factors that impact Evernorth Health Services' Pharmacy Benefit Services and Specialty and Care Services revenues and income from operations are volume, mix of claims, price, contract affordability services, specialty distribution customer growth and client growth. These key factors are discussed further below. Certain of the key factors impact both operating segments as services are offered through an integrated client contract. See Note 2 to the Consolidated Financial Statements included in our 2023 Form 10-K for additional information on revenue and cost recognition policies for this segment.

Pharmacy Benefit Services and Specialty and Care Services key factors:

•Pharmacy claim volume relates to processing prescription claims filled by retail pharmacies in our network and from dispensing prescription claims from our home delivery and specialty pharmacies and other claims. As our clients' prescriptions claim volumes increase or decrease, our results correspondingly increase or decrease.

•The mix of claims generally considers the type of drug and distribution method used for dispensing and fulfilling. In addition to the types of drugs, the mix of generic claims also impacts our results. Generally, a higher mix of generic drugs reduces revenues, as generic drugs are typically priced lower than the branded drugs they replace. However, as ingredient cost paid to pharmacies on generic drugs is incrementally lower than the price charged to our clients, a higher mix of generic drugs generally has a favorable impact on our income from operations.

•Pharmaceutical manufacturer inflation also impacts our pricing because most of our contracts provide that we bill clients and pay pharmacies based on a generally recognized price index for pharmaceuticals. Therefore, the rate of inflation for prescription drugs and our efforts to manage this inflation for our clients continues to be a significant driver of our revenues and cost of revenues in the current environment.

•Our client contract pricing is impacted by our ongoing ability to negotiate favorable contracts for pharmacy network, pharmaceutical and wholesaler purchasing and manufacturer rebates on our clients' behalf. Through these affordability services, we seek to improve the effectiveness of our integrated solutions for the benefit of our clients by continuously innovating, improving affordability and implementing drug purchasing contract initiatives.

Specialty and Care Services key factors:

•Customer growth and higher volume in our specialty distribution services where we deliver pharmaceuticals and medical supplies directly to health care providers, clinics and hospitals, primarily to physicians who regularly order costly specialty pharmaceuticals. This business provides competitive pricing on pharmaceuticals and medical supplies and leverages our distribution platform to improve our results.

•Client growth in our Care Delivery and Management Solutions, through our virtual care, in-home care, physical primary care, benefits management, and behavioral health services, as we expand our businesses and build upon our cross-enterprise leverage.

In this MD&A, we present revenues and gross profit, as well as adjusted revenues, adjusted gross profit and pre-tax adjusted income from operations, consistent with our segment reporting metrics, which exclude special items.

(1)Total revenues and gross profit were equal to adjusted revenues and adjusted gross profit as there were no special items in the periods presented.

(2)Gross profit and adjusted gross profit are calculated as total revenues or adjusted revenues less pharmacy and other service costs.

(3)Adjusted expense ratio is calculated as selling, general and administrative expenses as a percentage of adjusted revenues.

In this selected financial information, we present adjusted revenues and pre-tax income from operations by our two operating segments, Pharmacy Benefit Services and Specialty and Care Services.

(1)Non-specialty network prescriptions filled through 90-day programs and home delivery prescriptions are counted as three claims. All other network and specialty prescriptions are counted as one claim.

Adjusted revenues increased 28%, reflecting higher claims volume, primarily due to our collaboration with Centene beginning January 1, 2024; inflation on branded drugs; and higher volume from Specialty and Care Services, primarily our Curascript Specialty Distribution business. This increase was partially offset by claims mix.

Gross profit increased 8%, reflecting continued affordability improvements and growth in Specialty and Care Services businesses.

Pre-tax adjusted income from operations increased 3%, reflecting growth in Specialty and Care Services businesses and continued affordability improvements. This increase was partially offset by planned investments related to the onboarding costs of new clients, including Centene, and continued advancement of our digital capabilities and care solutions.

The adjusted expense ratio decreased 20 bps, reflecting higher revenues, partially offset by planned investments related to the onboarding costs of new clients, including Centene, and continued advancement of our digital capabilities and care solutions.