Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Overview of Business

CVS Health Corporation, together with its subsidiaries (collectively, “CVS Health,” the “Company,” “we,” “our” or “us”), is a leading health solutions company building a world of health around every consumer it serves and connecting care so that it works for people wherever they are. As of March 31, 2025, the Company had more than 9,000 retail locations, more than 1,000 walk-in and primary care medical clinics, a leading pharmacy benefits manager with approximately 88 million plan members and expanding specialty pharmacy solutions, and a dedicated senior pharmacy care business serving more than 800,000 patients per year. The Company also serves an estimated more than 37 million people through traditional, voluntary and consumer-directed health insurance products and related services, including expanding Medicare Advantage offerings and a leading standalone Medicare Part D prescription drug plan (“PDP”). The Company is creating new sources of value through its integrated model allowing it to expand into personalized, technology driven care delivery and health services, increasing access to quality care, delivering better health outcomes and lowering overall health care costs.

The Company has four reportable segments: Health Care Benefits, Health Services, Pharmacy & Consumer Wellness and Corporate/Other, which are described below.

Overview of the Health Care Benefits Segment

The Health Care Benefits segment operates as one of the nation’s leading diversified health care benefits providers through its Aetna® operations. The Health Care Benefits segment has the information and resources to help members, in consultation with their health care professionals, make more informed decisions about their health care. The Health Care Benefits segment offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental and behavioral health plans, medical management capabilities, Medicare Advantage and Medicare Supplement plans, PDPs and Medicaid health care management services. The Health Care Benefits segment’s primary customers, its members, primarily access the segment’s products and services through employer groups, government-sponsored plans or individually. The Health Care Benefits segment also serves customers who purchase products and services that are ancillary to its health insurance products. The Company refers to insurance products (where it assumes all or a majority of the risk for medical and dental care costs) as “Insured” and administrative services contract products (where the plan sponsor assumes all or a majority of the risk for medical and dental care costs) as “ASC.” The Company also sells Insured plans directly to individual consumers through the individual public health insurance exchanges.

Overview of the Health Services Segment

The Health Services segment provides a full range of pharmacy benefit management (“PBM”) solutions through its CVS Caremark® operations and delivers health care services in its medical clinics, virtually, and in the home. PBM solutions include plan design offerings and administration, formulary management, retail pharmacy network management services, and specialty and mail order pharmacy services. In addition, the Company provides clinical services, disease management services, medical spend management and pharmacy and/or other administrative services for providers and federal 340B drug pricing program covered entities (“Covered Entities”). The Company operates a group purchasing organization that negotiates pricing for the purchase of pharmaceuticals and rebates with pharmaceutical manufacturers on behalf of its participants and provides various administrative, management and reporting services to pharmaceutical manufacturers. The segment also works directly with pharmaceutical manufacturers to commercialize and/or co-produce high quality biosimilar products through its CordavisTM subsidiary. The Health Services segment’s health care delivery assets include Signify Health, Inc. (“Signify Health”), a leader in health risk assessments and value-based care, and Oak Street Health, Inc. (“Oak Street Health”), a leading multi-payor operator of value-based primary care centers serving Medicare eligible patients. The Health Services segment’s clients and customers are primarily employers, insurance companies, unions, government employee groups, health plans, PDPs, Medicaid managed care plans, the U.S. Centers for Medicare & Medicaid Services (“CMS”), plans offered on public and private health insurance exchanges and other sponsors of health benefit plans throughout the U.S., patients who receive care in the Health Services segment’s medical clinics, virtually or in the home, as well as Covered Entities.

Overview of the Pharmacy & Consumer Wellness Segment

The Pharmacy & Consumer Wellness segment dispenses prescriptions in its CVS Pharmacy® retail locations and through its infusion operations, provides ancillary pharmacy services including pharmacy patient care programs, diagnostic testing and vaccination administration, and sells a wide assortment of health and wellness products and general merchandise. The segment also conducts long-term care pharmacy (“LTC”) operations, which distribute prescription drugs and provide related pharmacy consulting and ancillary services to long-term care facilities and other care settings, and provides pharmacy fulfillment services to support the Health Services segment’s specialty and mail order pharmacy offerings. As of March 31, 2025, the Pharmacy &

Consumer Wellness segment operated more than 9,000 retail locations, as well as online retail pharmacy websites, LTC pharmacies and on-site pharmacies, retail specialty pharmacy stores, compounding pharmacies and branches for infusion and enteral nutrition services.

Overview of the Corporate/Other Segment

The Company presents the remainder of its financial results in the Corporate/Other segment, which primarily consists of:

Management and administrative expenses to support the Company’s overall operations, which include certain aspects of executive management and the corporate relations, legal, compliance, human resources and finance departments, information technology, digital, data and analytics, as well as acquisition-related integration costs; and
Products for which the Company no longer solicits or accepts new customers, such as its large case pensions and long-term care insurance products.

Operating Results

The following discussion explains the material changes in the Company’s operating results for the three months ended March 31, 2025 and 2024, and the significant developments affecting the Company’s financial condition since December 31, 2024. We strongly recommend that you read our audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10-K”).

Summary of Consolidated Financial Results



	Three Months Ended March 31,				Change
In millions	2025		2024			$		%
Revenues:
Products	$	57,669	$	53,724		$	3,945	7.3	%
Premiums	32,820		30,391			2,429		8.0	%
Services	3,579		3,868			(289)		(7.5)	%
Net investment income	520		454			66		14.5	%
Total revenues	94,588		88,437			6,151		7.0	%
Operating costs:
Cost of products sold	51,057		48,073			2,984		6.2	%
Health care costs	29,135		27,803			1,332		4.8	%
Operating expenses	11,022		10,290			732		7.1	%




Total operating costs	91,214		86,166			5,048		5.9	%
Operating income	3,374		2,271			1,103		48.6	%
Interest expense	785		716			69		9.6	%

Other income	(28)		(25)			(3)		(12.0)	%
Income before income tax provision	2,617		1,580			1,037		65.6	%
Income tax provision	835		456			379		83.1	%


Net income	1,782		1,124			658		58.5	%
Net income attributable to noncontrolling interests	(3)		(11)			8		72.7	%
Net income attributable to CVS Health	$	1,779	$	1,113		$	666	59.8	%

Commentary - Three Months Ended March 31, 2025 vs. 2024

Revenues

Total revenues increased $6.2 billion, or 7.0%, in the three months ended March 31, 2025 compared to the prior year driven by revenue growth across all segments.
Please see “Segment Analysis” later in this report for additional information about the revenues of the Company’s segments.

Operating expenses

Operating expenses increased $732 million, or 7.1%, in the three months ended March 31, 2025 compared to the prior year. The increase in operating expenses was primarily due to a $387 million litigation charge related to a jury verdict against Omnicare and a $247 million pre-tax loss on Accountable Care assets, both recorded during the three months ended March 31, 2025. These increases were partially offset by the absence of a $100 million opioid litigation charge recorded in the prior year.
Please see “Segment Analysis” later in this report for additional information about the operating expenses of the Company’s segments.

Operating income

Operating income increased $1.1 billion, or 48.6%, in the three months ended March 31, 2025 compared to the prior year primarily due to an increase in operating income in the Health Care Benefits segment, as well as the absence of the $100 million opioid litigation charge recorded in the prior year. These increases were partially offset by the $387 million

litigation charge related to a jury verdict against Omnicare and the $247 million pre-tax loss on Accountable Care assets, both recorded during the three months ended March 31, 2025.

Please see “Segment Analysis” later in this report for additional information about the operating results of the Company’s segments.

Interest expense

Interest expense increased $69 million, or 9.6%, due to higher debt in the three months ended March 31, 2025, primarily as a result of long-term debt issued in May and December of 2024.

Income tax provision

The effective income tax rate was 31.9% for the three months ended March 31, 2025 compared to 28.9% for the three months ended March 31, 2024. The increase in the effective income tax rate was primarily due to the impact of a litigation charge recorded in the three months ended March 31, 2025.

Outlook

The Company believes you should consider the following key business and regulatory trends and uncertainties:

Key Business Trends and Uncertainties

The Company’s medical membership declined in its Medicare and individual exchange products. Medical membership disruptions may result in volatility in the Company’s financial results.
Utilization persisted at elevated levels through the first quarter of 2025. Although the level of utilization is difficult to accurately predict, at this time, the Company expects that utilization will pressure its Health Care Benefits segment and its health care delivery assets in its Health Services segment for the remainder of the year.
Increases in utilization beyond the Company’s projections may result in the Company having to record additional premium deficiency reserves within the Health Care Benefits segment during the remainder of 2025.
The Company’s Medicaid business is experiencing medical cost pressures, largely driven by higher than expected acuity following the resumption of member redeterminations. While the Company continues to work closely with its state partners to ensure the underlying trends are reflected in its premium rates going forward, it is uncertain when these pressures will be fully offset by state rate updates.
The Company’s individual exchange business is subject to a risk adjustment program whereby the Company estimates its ultimate risk adjustment receivable or payable based on the risk of its qualified plan members relative to the average risk of members of other qualified plans in comparable markets. Changes in the Company’s risk relative to the markets’ risk, including changes resulting from volatility in membership, could adversely impact the Company’s estimate of its risk adjustment receivable or payable.
The Company continues to share with clients a larger portion of rebates, fees and/or discounts received from pharmaceutical manufacturers. In addition, marketplace dynamics and regulatory changes have limited the Company’s ability to offer plan sponsors pricing that includes retail network “differential” or “spread.” The Company expects these trends to continue.
Regulatory changes or consumer sentiment shift for immunizations may negatively impact national demand impacting financial results.
Implementation of new tariffs or changes in tariffs, including the impact of tariffs on trade relations between the U.S. and foreign countries, create exposure for increased costs and supply chain disruptions that can adversely impact consumer demand, the ability to deliver client savings or the Company’s financial results.
Consumer spend management and a decline in consumer discretionary spending, as well as a shift to value, grocery and digital retailers, could drive lower front store sales.
Future financial performance will be influenced by a number of factors including competitive demand for products and services, legislative and regulatory considerations, and labor and other market dynamics, including inflation. The Company evaluates and adjusts its approach in each of the markets it serves, considering all relevant factors.
The Company expects benefits from ongoing enterprise-wide cost savings initiatives and investments in efficiencies, which aim to reduce the Company’s operating cost structure in a way that improves the consumer experience and is sustainable. During the third quarter of 2024, the Company finalized an enterprise-wide restructuring plan intended to streamline and simplify the organization, improve efficiency and generate expected cost savings of over $500 million in 2025.
Changes in conditions in the U.S. and global capital markets can significantly and adversely affect interest rates and capital market conditions which could result in increased financing costs.
Actions taken by ratings agencies, including changes in the Company’s debt ratings, could impact the Company’s future borrowing costs, access to capital markets and new store operating lease costs.

Key Regulatory Trends and Uncertainties

The Company is exposed to funding and regulation of, and changes in government policy with respect to and/or funding or regulation of, the various Medicare programs in which the Company participates, including changes in the amounts payable to us under those programs and/or new reforms or surcharges on existing programs, including changes to applicable risk adjustment mechanisms.
Legislation and/or regulations seeking to regulate PBM activities in a comprehensive manner have been proposed or enacted in a majority of states and on the federal level. This legislative and regulatory activity could adversely affect

the Company’s ability to conduct business on commercially reasonable terms and the Company’s ability to standardize its PBM products and services across state lines.

For additional information regarding these and other trends and uncertainties, see Item 1A, “Risk Factors” and Part I, Item 1 “Business - Government Regulation” included in the 2024 Form 10-K.

Segment Analysis

The following discussion of segment operating results is presented based on the Company’s reportable segments in accordance with the accounting guidance for segment reporting and is consistent with the segment disclosure in Note 10 ‘‘Segment Reporting’’ to the unaudited condensed consolidated financial statements.

The Company has four reportable segments: Health Care Benefits, Health Services, Pharmacy & Consumer Wellness and Corporate/Other. The Company’s segments maintain separate financial information, and the Chief Operating Decision Maker (the “CODM”) evaluates the segments’ operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance. The Company’s CODM is the Chief Executive Officer. The CODM evaluates the performance of the Company’s segments based on adjusted operating income (loss). Adjusted operating income is defined as operating income as measured by accounting principles generally accepted in the United States of America (“GAAP”) excluding the impact of amortization of intangible assets, net realized capital gains or losses and other items, if any, that neither relate to the ordinary course of the Company’s business nor reflect the Company’s underlying business performance. See the reconciliations of operating income (loss) (GAAP measure) to adjusted operating income (loss) below for further context regarding the items excluded from operating income in determining adjusted operating income. The CODM uses adjusted operating income as its principal measure of segment performance as it enhances the CODM’s ability to compare past financial performance with current performance and analyze underlying business performance and trends. Non-GAAP financial measures the Company discloses, such as consolidated adjusted operating income, should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP.

The following are reconciliations of financial measures of the Company’s segments to the consolidated totals:


In millions	Health Care Benefits		Health Services (1)		Pharmacy & Consumer Wellness		Corporate/ Other		Intersegment Eliminations (2)		Consolidated Totals
Three Months Ended
March 31, 2025
Total revenues	$	34,810	$	43,462	$	31,912	$	133	$	(15,729)	$	94,588
Adjusted operating income (loss)	1,993		1,603		1,313		(330)		—		4,579
March 31, 2024
Total revenues	$	32,236	$	40,285	$	28,725	$	115	$	(12,924)	$	88,437
Adjusted operating income (loss)	732		1,363		1,177		(315)		—		2,957

(1)Total revenues of the Health Services segment include approximately $3.7 billion and $3.4 billion of retail co-payments for the three months ended March 31, 2025 and 2024, respectively.

(2)Intersegment revenue eliminations relate to intersegment revenue generating activities that occur between the Health Care Benefits segment, the Health Services segment, and/or the Pharmacy & Consumer Wellness segment.

The following are reconciliations of consolidated operating income (GAAP measure) to consolidated adjusted operating income, as well as reconciliations of segment GAAP operating income (loss) to segment adjusted operating income (loss):


	Three Months Ended March 31, 2025
In millions	Health Care Benefits		Health Services		Pharmacy & Consumer Wellness		Corporate/ Other		Consolidated Totals
Operating income (loss) (GAAP measure)	$	1,674	$	1,227	$	864	$	(391)	$	3,374
Amortization of intangible assets (1)	294		144		60		1		499
Net realized capital (gains) losses (2)	21		(15)		—		15		21

Acquisition-related integration costs (3)	—		—		—		45		45
Loss on Accountable Care assets (4)	—		247		—		—		247
Omnicare litigation charge (5)	—		—		387		—		387
Office real estate optimization charges (6)	4		—		2		—		6
Adjusted operating income (loss)	$	1,993	$	1,603	$	1,313	$	(330)	$	4,579


	Three Months Ended March 31, 2024
In millions	Health Care Benefits		Health Services		Pharmacy & Consumer Wellness		Corporate/ Other		Consolidated Totals
Operating income (loss) (GAAP measure)	$	428	$	1,213	$	1,113	$	(483)	$	2,271
Amortization of intangible assets (1)	294		150		64		—		508
Net realized capital losses (2)	10		—		—		8		18

Acquisition-related integration costs (3)	—		—		—		60		60



Opioid litigation charge (7)	—		—		—		100		100


Adjusted operating income (loss)	$	732	$	1,363	$	1,177	$	(315)	$	2,957

(1)The Company’s acquisition activities have resulted in the recognition of intangible assets as required under the acquisition method of accounting which consist primarily of trademarks, customer contracts/relationships, covenants not to compete, technology, provider networks and value of business acquired. Definite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the carrying value may not be recoverable. The amortization of intangible assets is reflected in operating expenses within each segment. Although intangible assets contribute to the Company’s revenue generation, the amortization of intangible assets does not directly relate to the underwriting of the Company’s insurance products, the services performed for the Company’s customers or the sale of the Company’s products or services. Additionally, intangible asset amortization expense typically fluctuates based on the size and timing of the Company’s acquisition activity. Accordingly, the Company believes excluding the amortization of intangible assets enhances the Company’s and investors’ ability to compare the Company’s past financial performance with its current performance and to analyze underlying business performance and trends. Intangible asset amortization excluded from the related non-GAAP financial measure represents the entire amount recorded within the Company’s GAAP financial statements, and the revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. Intangible asset amortization is excluded from the related non-GAAP financial measure because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised.

(2)The Company’s net realized capital gains and losses arise from various types of transactions, primarily in the course of managing a portfolio of assets that support the payment of insurance liabilities. Net realized capital gains and losses are reflected in net investment income (loss) within each segment. These capital gains and losses are the result of investment decisions, market conditions and other economic developments that are unrelated to the performance of the Company’s business, and the amount and timing of these capital gains and losses do not directly relate to the underwriting of the Company’s insurance products, the services performed for the Company’s customers or the sale of the Company’s products or services. Accordingly, the Company believes excluding net realized capital gains and losses enhances the Company’s and investors’ ability to compare the Company’s past financial performance with its current performance and to analyze underlying business performance and trends.

(3)During the three months ended March 31, 2025 and 2024, the acquisition-related integration costs relate to the acquisitions of Signify Health and Oak Street Health. The acquisition-related integration costs are reflected in operating expenses within the Corporate/Other segment.

(4)During the three months ended March 31, 2025, the loss on the wind down and sale of Accountable Care assets represents the pre-tax loss on the divestiture of the Company’s Medicare Shared Savings Program (“MSSP”) operations, which the Company sold in March 2025, as well as costs incurred in connection with the commencement of the wind down of the Company’s Accountable Care Organization Realizing Equity, Access and Community Health (“ACO REACH”) operations during the first quarter of 2025. The loss on Accountable Care assets is reflected in operating expenses within the Health Services segment.

(5)During the three months ended March 31, 2025, the Omnicare litigation charge relates to an April 2025 jury verdict finding Omnicare, L.L.C. (f/k/a Omnicare, Inc. “Omnicare”) and CVS Health Corporation liable for damages in connection with alleged violations of the federal False Claims Act related to dispensing practices by Omnicare from 2010, prior to its acquisition by the Company in 2015, through 2018. Damages were found only with respect to Omnicare. The Omnicare litigation charge is reflected in operating expenses within the Pharmacy & Consumer Wellness segment. The judgment will not be final until the Court enters penalties at a later date. The Company intends to appeal the verdict once the judgment is entered.

(6)During the three months ended March 31, 2025, the office real estate optimization charges primarily relate to the abandonment of leased real estate and the related right-of-use assets and property and equipment in connection with the Company’s evaluation of corporate office real estate space in response to its ongoing flexible work arrangement. The office real estate optimization charges are reflected in operating expenses within each segment.

(7)During the three months ended March 31, 2024, the opioid litigation charge relates to a change in the Company’s accrual related to ongoing opioid litigation matters.

Health Care Benefits Segment

The following table summarizes the Health Care Benefits segment’s performance for the respective periods:



	Three Months Ended March 31,						Change
In millions, except percentages and basis points (“bps”)	2025			2024				$			%
Revenues:
Premiums	$	32,808		$	30,379			$	2,429		8.0	%
Services	1,615			1,504				111			7.4	%
Net investment income	387			353				34			9.6	%
Total revenues	34,810			32,236				2,574			8.0	%
Health care costs	28,637			27,458				1,179			4.3	%
MBR (Health care costs as a % of premium revenues)	87.3		%	90.4		%		(310)		bps

Operating expenses	$	4,499		$	4,350			$	149		3.4	%
Operating expenses as a % of total revenues	12.9		%	13.5		%
Operating income	$	1,674		$	428			$	1,246		291.1	%
Operating income as a % of total revenues	4.8		%	1.3		%
Adjusted operating income (1)	$	1,993		$	732			$	1,261		172.3	%
Adjusted operating income as a % of total revenues	5.7		%	2.3		%
Premium revenues (by business):
Government	$	24,902		$	21,716			$	3,186		14.7	%
Commercial	7,906			8,663				(757)			(8.7)	%

(1)See “Segment Analysis” above in this report for a reconciliation of Health Care Benefits segment operating income (GAAP measure) to adjusted operating income, which represents the Company’s principal measure of segment performance.

Commentary - Three Months Ended March 31, 2025 vs. 2024

Revenues

Total revenues increased $2.6 billion, or 8.0%, in the three months ended March 31, 2025 compared to the prior year primarily driven by increases in the Medicare product line, including the impact of improved Medicare Advantage star ratings for the 2025 payment year.

Medical Benefit Ratio (“MBR”)

Medical benefit ratio is calculated by dividing the Health Care Benefits segment’s health care costs by premium revenues and represents the percentage of premium revenues spent on medical benefits for the segment’s Insured members. Management uses MBR to assess the underlying business performance and underwriting of its insurance products, understand variances between actual results and expected results and identify trends in period-over-period results. MBR provides management and investors with information useful in assessing the operating results of the Health Care Benefits segment’s Insured products.
The MBR decreased to 87.3% in the three months ended March 31, 2025 compared to 90.4% in the prior year driven by the favorable year-over-year impact of prior-year development, as well as improved underlying performance in Medicare, including the impact of improved Medicare Advantage star ratings for the 2025 payment year. These decreases were partially offset by the $431 million (130 basis points) premium deficiency reserve recorded as health care costs in the first quarter of 2025 described below.

Premium Deficiency Reserve

*•*During the first quarter of 2025, the Company recorded a premium deficiency reserve of $448 million in its individual exchange product line related to anticipated losses for the 2025 coverage year. The $448 million premium deficiency recorded was comprised of $17 million of operating expenses related to the write-off of unamortized acquisition costs and $431 million of health care costs.

Operating expenses

Operating expenses in the Health Care Benefits segment include selling, general and administrative expenses and depreciation and amortization expenses.
Operating expenses remained relatively consistent in the three months ended March 31, 2025 compared to the prior year.

Adjusted operating income

Adjusted operating income increased $1.3 billion, or 172.3%, for the three months ended March 31, 2025 compared to the prior year primarily driven by the favorable year-over-year impact of prior-year development, as well as improved underlying performance in Medicare, including the impact of improved Medicare Advantage star ratings for the 2025 payment year. These increases were partially offset by the $448 million premium deficiency reserve recorded in the first quarter of 2025 described above.

The following table summarizes the Health Care Benefits segment’s medical membership for the respective periods:


	March 31, 2025			December 31, 2024			March 31, 2024
In thousands	Insured	ASC	Total	Insured	ASC	Total		Insured	ASC	Total
Medical membership:
Commercial	3,961	15,250	19,211	4,691	14,160	18,851		4,735	14,111	18,846
Medicare Advantage	4,220	—	4,220	4,447	—	4,447		4,205	—	4,205
Medicare Supplement	1,253	—	1,253	1,282	—	1,282		1,300	—	1,300
Medicaid	1,983	412	2,395	2,094	421	2,515		1,972	447	2,419
Total medical membership	11,417	15,662	27,079	12,514	14,581	27,095		12,212	14,558	26,770

Supplemental membership information:
Medicare Prescription Drug Plan (stand-alone)			4,094			4,882				4,947

Medical Membership

Medical membership represents the number of members covered by the Health Care Benefits segment’s Insured and ASC medical products and related services at a specified point in time. Management uses this metric to understand variances between actual medical membership and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of medical membership on the Health Care Benefits segment’s total revenues and operating results.
Medical membership as of March 31, 2025 of 27.1 million remained relatively consistent compared with December 31, 2024, reflecting membership declines in the individual exchange and Medicare product lines, which were largely offset by an increase in Commercial ASC membership.
Medical membership as of March 31, 2025 of 27.1 million increased 309,000 members compared with March 31, 2024, reflecting an increase in Commercial ASC membership, partially offset by a membership decline in the individual exchange product line.

Medicare Update

On April 7, 2025, CMS issued its final notice detailing final 2026 Medicare Advantage payment rates. Final 2026 Medicare Advantage rates resulted in an expected average increase in revenue for the Medicare Advantage industry of 5.06%, excluding the CMS estimate of Medicare Advantage risk score trend.

Health Services Segment

The following table summarizes the Health Services segment’s performance for the respective periods:



	Three Months Ended March 31,						Change
In millions, except percentages	2025			2024				$		%
Revenues:
Products	$	41,135		$	37,717			$	3,418	9.1	%
Services	2,313			2,568				(255)		(9.9)	%
Net investment income	14			—				14		100.0	%
Total revenues	43,462			40,285				3,177		7.9	%
Cost of products sold	40,115			37,532				2,583		6.9	%
Health care costs	1,047			701				346		49.4	%
Operating expenses	1,073			839				234		27.9	%
Operating expenses as a % of total revenues	2.5		%	2.1		%
Operating income	$	1,227		$	1,213			$	14	1.2	%
Operating income as a % of total revenues	2.8		%	3.0		%
Adjusted operating income (1)	$	1,603		$	1,363			$	240	17.6	%
Adjusted operating income as a % of total revenues	3.7		%	3.4		%
Revenues (by distribution channel):
Pharmacy network (2)	$	23,114		$	20,464			$	2,650	12.9	%
Mail & specialty (3)	18,068			17,262				806		4.7	%
Other	2,266			2,559				(293)		(11.4)	%
Net investment income	14			—				14		100.0	%

Pharmacy claims processed (4)	464.2			462.9				1.3		0.3	%

(1)See “Segment Analysis” above in this report for a reconciliation of Health Services segment operating income (GAAP measure) to adjusted operating income, which represents the Company’s principal measure of segment performance.

(2)Pharmacy network revenues relate to claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and LTC pharmacies, as well as activity associated with Maintenance Choice, which permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS pharmacy retail store for the same price as mail order.

(3)Mail & specialty revenues relate to specialty mail claims inclusive of Specialty Connect® claims picked up at a retail pharmacy, as well as mail order and specialty claims fulfilled by the Pharmacy & Consumer Wellness segment.

(4)Includes an adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.

Commentary - Three Months Ended March 31, 2025 vs. 2024

Revenues

Total revenues increased $3.2 billion, or 7.9%, in the three months ended March 31, 2025 compared to the prior year primarily driven by pharmacy drug mix, growth in specialty pharmacy and brand inflation. These increases were partially offset by continued pharmacy client price improvements.

Operating expenses

Operating expenses in the Health Services segment include selling, general and administrative expenses; and depreciation and amortization expense.
Operating expenses increased $234 million, or 27.9%, in the three months ended March 31, 2025 compared to the prior year. The increase was primarily due to the $247 million pre-tax loss on Accountable Care assets recorded during the three months ended March 31, 2025. See Note 1 ‘‘Significant Accounting Policies’’ to the unaudited condensed consolidated financial statements for further information on the Company’s Accountable Care exit.

Adjusted operating income

Adjusted operating income increased $240 million, or 17.6%, in the three months ended March 31, 2025 compared to the prior year primarily driven by improved purchasing economics and pharmacy drug mix. These increases were partially offset by continued pharmacy client price improvements.
As you review the Health Services segment’s performance in this area, you should consider the following important information about the business:
The Company’s efforts to (i) retain existing clients, (ii) obtain new business and (iii) maintain or improve the rebates, fees and/or discounts the Company receives from manufacturers, wholesalers and retail pharmacies continue to have an impact on adjusted operating income. In particular, the Company continues to share with clients a larger portion of rebates, fees and/or discounts received from pharmaceutical manufacturers. In addition, marketplace dynamics and regulatory changes have limited the Company’s ability to offer plan sponsors pricing that includes retail network “differential” or “spread,” and the Company expects these trends to continue. The “differential” or “spread” is any difference between the drug price charged to plan sponsors, including Medicare Part D plan sponsors, by a PBM and the price paid for the drug by the PBM to the dispensing provider.

Pharmacy claims processed

Pharmacy claims processed represents the number of prescription claims processed through the Company’s pharmacy benefits manager and dispensed by either its retail network pharmacies or the Company’s mail and specialty pharmacies. Management uses this metric to understand variances between actual claims processed and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of pharmacy claim volume on segment total revenues and operating results.
Pharmacy claims processed remained relatively consistent on a 30-day equivalent basis in the three months ended March 31, 2025 compared to the prior year primarily driven by increased utilization, largely offset by the impact of an additional day in 2024 due to the leap year.

Pharmacy & Consumer Wellness Segment

The following table summarizes the Pharmacy & Consumer Wellness segment’s performance for the respective periods:



	Three Months Ended March 31,						Change
In millions, except percentages	2025			2024				$		%
Revenues:
Products	$	31,285		$	28,120			$	3,165	11.3	%
Services	627			605				22		3.6	%

Total revenues	31,912			28,725				3,187		11.1	%
Cost of products sold	25,804			22,760				3,044		13.4	%

Operating expenses	5,244			4,852				392		8.1	%
Operating expenses as a % of total revenues	16.4		%	16.9		%


Operating income	$	864		$	1,113			$	(249)	(22.4)	%
Operating income as a % of total revenues	2.7		%	3.9		%
Adjusted operating income (1)	$	1,313		$	1,177			$	136	11.6	%
Adjusted operating income as a % of total revenues	4.1		%	4.1		%
Revenues (by major goods/service lines):
Pharmacy	$	26,076		$	22,784			$	3,292	14.4	%
Front Store	5,243			5,370				(127)		(2.4)	%
Other	593			571				22		3.9	%

Prescriptions filled (2)	435.5			417.6				17.9		4.3	%
Same store sales increase (decrease): (3)
Total	14.2		%	5.3		%
Pharmacy	17.7		%	7.3		%
Front Store	(0.3)		%	(2.2)		%
Prescription volume (2)	6.7		%	5.8		%

(1)See “Segment Analysis” above in this report for a reconciliation of Pharmacy & Consumer Wellness segment operating income (GAAP measure) to adjusted operating income, which represents the Company’s principal measure of segment performance.

(2)Includes an adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.

(3)Same store sales and prescription volume represent the change in revenues and prescriptions filled in the Company’s retail pharmacy stores that have been operating for greater than one year and digital sales initiated online or through mobile applications and fulfilled through the Company’s distribution centers, expressed as a percentage that indicates the increase or decrease relative to the comparable prior period. Same store metrics exclude revenues and prescriptions from LTC and infusion services operations. Management uses these metrics to evaluate the performance of existing stores on a comparable basis and to inform future decisions regarding existing stores and new locations. Same-store metrics provide management and investors with information useful in understanding the portion of current revenues and prescriptions resulting from organic growth in existing locations versus the portion resulting from opening new stores.

Commentary - Three Months Ended March 31, 2025 vs. 2024

Revenues

Total revenues increased $3.2 billion, or 11.1%, in the three months ended March 31, 2025 compared to the prior year primarily driven by pharmacy drug mix and increased prescription volume. These increases were partially offset by continued pharmacy reimbursement pressure.
Pharmacy same store sales increased 17.7% in the three months ended March 31, 2025 compared to the prior year. The increase was primarily driven by pharmacy drug mix, including branded GLP-1 drugs, and the 6.7% increase in pharmacy same store prescription volume on a 30-day equivalent basis. Excluding the impact of the leap year, pharmacy same store prescription volume increased 7.3% in the three months ended March 31, 2025 compared to the prior year. These increases were partially offset by continued pharmacy reimbursement pressure.
Front store same store sales decreased 0.3% in the three months ended March 31, 2025 compared to the prior year. The decrease was primarily due to the impact of an additional day in 2024 due to the leap year. Excluding the impact of the leap year, front store same store sales increased 0.8% in the three months ended March 31, 2025 compared to the prior year.

Operating expenses

*•*Operating expenses in the Pharmacy & Consumer Wellness segment include payroll, employee benefits and occupancy costs associated with the segment’s stores and pharmacy fulfillment operations; selling expenses; advertising expenses; depreciation and amortization expense and certain administrative expenses.

Operating expenses increased $392 million, or 8.1%, in the three months ended March 31, 2025 compared to the prior year. The increase in operating expenses was primarily due to the $387 million litigation charge related to a jury verdict against Omnicare recorded during the three months ended March 31, 2025.

Adjusted operating income

Adjusted operating income increased $136 million, or 11.6%, in the three months ended March 31, 2025 compared to the prior year primarily driven by increased prescription volume and improved drug purchasing. These increases were partially offset by continued pharmacy reimbursement pressure and the impact of softening consumer demand in the front store in the three months ended March 31, 2025.
As you review the Pharmacy & Consumer Wellness segment’s performance in this area, you should consider the following important information about the business:
The segment’s adjusted operating income has been adversely affected by the efforts of managed care organizations, PBMs and governmental and other third-party payors to reduce their prescription drug costs, including the use of restrictive networks, as well as changes in the mix of business within the pharmacy portion of the Pharmacy & Consumer Wellness segment. If the pharmacy reimbursement pressure accelerates, the segment may not be able to grow revenues, and its adjusted operating income could be adversely affected.

Prescriptions filled

Prescriptions filled represents the number of prescriptions dispensed through the Pharmacy & Consumer Wellness segment’s retail and long-term care pharmacies and infusion services operations. Management uses this metric to understand variances between actual prescriptions dispensed and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of prescription volume on segment total revenues and operating results.
Prescriptions filled increased 4.3% on a 30-day equivalent basis in the three months ended March 31, 2025 compared to the prior year primarily driven by increased utilization, partially offset by the impact of an additional day in 2024 due to the leap year.

Corporate/Other Segment

The following table summarizes the Corporate/Other segment’s performance for the respective periods:



	Three Months Ended March 31,				Change
In millions, except percentages	2025		2024			$		%
Revenues:
Premiums	$	12	$	12		$	—	—	%
Services	2		2			—		—	%
Net investment income	119		101			18		17.8	%
Total revenues	133		115			18		15.7	%

Health care costs	46		47			(1)		(2.1)	%
Operating expenses	478		551			(73)		(13.2)	%


Operating loss	(391)		(483)			92		19.0	%
Adjusted operating loss (1)	(330)		(315)			(15)		(4.8)	%

(1)See “Segment Analysis” above in this report for a reconciliation of Corporate/Other segment operating loss (GAAP measure) to adjusted operating loss, which represents the Company’s principal measure of segment performance.

Commentary - Three Months Ended March 31, 2025 vs. 2024

Revenues

Revenues primarily relate to products for which the Company no longer solicits or accepts new customers, such as large case pensions and long-term care insurance products.
Total revenues increased $18 million, or 15.7% in the three months ended March 31, 2025 compared to the prior year primarily driven by higher net investment income, largely due to higher average fixed income investments during the three months ended March 31, 2025.

Adjusted operating loss

Adjusted operating loss remained relatively consistent in the three months ended March 31, 2025 compared to the prior year.

Liquidity and Capital Resources

Cash Flows

The Company maintains a level of liquidity sufficient to allow it to meet its cash needs in the short-term. Over the long term, the Company manages its cash and capital structure to maximize shareholder return, maintain its financial condition and maintain flexibility for future strategic initiatives. The Company continuously assesses its regulatory capital requirements, working capital needs, debt and leverage levels, debt maturity schedule, capital expenditure requirements, dividend payouts, potential share repurchases and future investments or acquisitions. The Company believes its operating cash flows, commercial paper program, credit facilities, as well as any potential future borrowings, will be sufficient to fund these future payments and long-term initiatives. As of March 31, 2025, the Company had approximately $10.1 billion in cash and cash equivalents, approximately $1.5 billion of which was held by the parent company or nonrestricted subsidiaries.

The net change in cash, cash equivalents and restricted cash during the three months ended March 31, 2025 and 2024 was as follows:


	Three Months Ended March 31,				Change
In millions, except percentages	2025		2024		$		%
Net cash provided by operating activities	$	4,556	$	4,903	$	(347)	(7.1)	%
Net cash used in investing activities	(762)		(2,094)		1,332		63.6	%
Net cash used in financing activities	(2,332)		(1,227)		(1,105)		(90.1)	%
Net increase in cash, cash equivalents and restricted cash	$	1,462	$	1,582	$	(120)	(7.6)	%

Commentary

Net cash provided by operating activities decreased by $347 million in the three months ended March 31, 2025 compared to the prior year. The decrease was primarily due to the timing of payments and receipts.
Net cash used in investing activities decreased by $1.3 billion in the three months ended March 31, 2025 compared to the prior year primarily due to higher proceeds from sales and maturities of investments in the three months ended March 31, 2025 compared to the prior year.
Net cash used in financing activities was $2.3 billion in the three months ended March 31, 2025 compared to $1.2 billion in the prior year. The change in cash used in financing activities was primarily due to lower net proceeds from commercial paper borrowings and higher repayments of long-term debt during the three months ended March 31, 2025 compared to the prior year, partially offset by higher share repurchases in the prior year.

Short-term Borrowings

Commercial Paper and Back-up Credit Facilities

The Company had $1.3 billion of commercial paper outstanding at a weighted average interest rate of 5.00% as of March 31, 2025. In connection with its commercial paper program, the Company maintains a $2.5 billion, five-year unsecured back-up revolving credit facility, which expires on May 11, 2027, a $2.5 billion, five-year unsecured back-up revolving credit facility, which expires on May 16, 2028, and a $2.5 billion, five-year unsecured back-up revolving credit facility, which expires on May 16, 2029. The credit facilities allow for borrowings at various rates that are dependent, in part, on the Company’s public debt ratings and require the Company to pay a weighted average quarterly facility fee of approximately 0.03%, regardless of usage. As of March 31, 2025, there were no borrowings outstanding under any of the Company’s back-up credit facilities.

Federal Home Loan Bank of Boston

A subsidiary of the Company is a member of the Federal Home Loan Bank of Boston (the “FHLBB”). As a member, the subsidiary has the ability to obtain cash advances, subject to certain minimum collateral requirements. The maximum borrowing capacity available from the FHLBB as of March 31, 2025 was approximately $1.2 billion. As of March 31, 2025, there were no outstanding advances from the FHLBB.

Debt Covenants

The Company’s back-up revolving credit facilities, term loan agreement and unsecured senior notes contain customary restrictive financial and operating covenants. These covenants do not include an acceleration of the Company’s debt maturities

in the event of a downgrade in the Company’s credit ratings. The Company does not believe the restrictions contained in these covenants materially affect its financial or operating flexibility. As of March 31, 2025, the Company was in compliance with all of its debt covenants.

Debt Ratings

As of March 31, 2025, the Company’s long-term debt was rated “BBB” by Fitch Ratings, Inc. (“Fitch”), “Baa3” by Moody’s Investor Service, Inc. (“Moody’s”) and “BBB” by Standard & Poor’s Financial Services LLC (“S&P”), and its commercial paper program was rated “F2” by Fitch, “P-3” by Moody’s and “A-2” by S&P. The outlook on the Company’s long-term debt is “Negative” by both Fitch and S&P and “Stable” by Moody’s. In assessing the Company’s credit strength, the Company believes that Fitch, Moody’s and S&P considered, among other things, the Company’s capital structure and financial policies, as well as its consolidated balance sheet, its historical acquisition activity and other financial information, including the Company’s expectations for full year earnings and cash flows. Although the Company currently believes its long-term debt ratings will remain investment grade, it cannot predict the future actions of Moody’s, S&P and/or Fitch. The Company’s debt ratings have a direct impact on its future borrowing costs, access to capital markets and new store operating lease costs.

Share Repurchase Programs

The following share repurchase programs have been authorized by CVS Health Corporation’s Board of Directors (the “Board”):


In billions Authorization Date	Authorized		Remaining as of March 31, 2025
November 17, 2022 (“2022 Repurchase Program”)	$	10.0	$	10.0
December 9, 2021 (“2021 Repurchase Program”)	10.0		1.5

Each of the share Repurchase Programs was effective immediately and permit the Company to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase (“ASR”) transactions, and/or other derivative transactions. Both the 2022 and 2021 Repurchase Programs can be modified or terminated by the Board at any time.

During the three months ended March 31, 2025, the Company did not repurchase any shares of its common stock. During the three months ended March 31, 2024, the Company repurchased an aggregate of 39.7 million shares of common stock for approximately $3.0 billion pursuant to the 2021 Repurchase Program. This activity includes the share repurchases under the ASR transaction described below.

Pursuant to the authorization under the 2021 Repurchase Program, the Company entered into a $3.0 billion fixed dollar ASR with Morgan Stanley & Co. LLC. Upon payment of the $3.0 billion purchase price on January 4, 2024, the Company received a number of shares of CVS Health Corporation’s common stock equal to 85% of the $3.0 billion notional amount of the ASR or approximately 31.4 million shares, which were placed into treasury stock in January 2024. The ASR was accounted for as an initial treasury stock transaction for $2.6 billion and a forward contract for $0.4 billion. The forward contract was classified as an equity instrument and was recorded within capital surplus. In March 2024, the Company received approximately 8.3 million shares of CVS Health Corporation’s common stock, representing the remaining 15% of the $3.0 billion notional amount of the ASR, thereby concluding the ASR. These shares were placed into treasury and the forward contract was reclassified from capital surplus to treasury stock in March 2024.

At the time they were received, the initial and final receipt of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share.

Critical Accounting Policies

The Company prepares the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles, which require management to make certain estimates and apply judgment. Estimates and judgments are based on historical experience, current trends and other factors that management believes to be important at the time the unaudited condensed consolidated financial statements are prepared. On a regular basis, the Company reviews its accounting policies and how they are applied and disclosed in the unaudited condensed consolidated financial statements. While the Company believes the historical experience, current trends and other factors considered by management support the preparation of the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles, actual results could differ from estimates, and such differences could be material.

For a full description of the Company’s other critical accounting policies, see “Critical Accounting Policies” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2024 Form 10-K.

Cautionary Statement Concerning Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a “safe harbor” for forward-looking statements, so long as (1) those statements are identified as forward-looking and (2) the statements are accompanied by meaningful cautionary statements that identify important factors that could cause actual results to differ materially from those discussed in the statement. We want to take advantage of these safe harbor provisions.

Certain information contained in this Quarterly Report on Form 10-Q (this “report”) is forward-looking within the meaning of the Reform Act or Securities and Exchange Commission rules. This information includes, but is not limited to the forward-looking information in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part I, Item 2 of this report. In addition, throughout this report and our other reports and communications, we use the following words or variations or negatives of these words and similar expressions when we intend to identify forward-looking statements:


·	Anticipates	·	Believes	·	Can	·	Continue	·	Could
·	Estimates	·	Evaluate	·	Expects	·	Explore	·	Forecast
·	Guidance	·	Intends	·	Likely	·	May	·	Might
·	Outlook	·	Plans	·	Potential	·	Predict	·	Probable
·	Projects	·	Seeks	·	Should	·	View	·	Will

All statements addressing the future operating performance of CVS Health or any segment or any subsidiary and/or future events or developments, including, but not limited to, statements relating to the Company’s investment portfolio, operating results, cash flows and/or financial condition, statements relating to corporate strategy, statements relating to future revenue, operating income or adjusted operating income, earnings per share or adjusted earnings per share, Health Care Benefits segment business, sales results and/or trends, medical cost trends, medical membership, Medicare Part D membership, medical benefit ratios and/or operations, Health Services segment business, sales results and/or trends and/or operations, Pharmacy & Consumer Wellness segment business, sales results and/or trends and/or operations, incremental investment spending, interest expense, effective tax rate, weighted-average share count, cash flow from operations, net capital expenditures, cash available for debt repayment, statements related to possible, proposed, pending or completed acquisitions, joint ventures, investments or combinations that involve, among other things, the timing or likelihood of receipt of regulatory approvals, the timing of completion, integration synergies, net synergies and integration risks and other costs, enterprise modernization, transformation, leverage ratio, cash available for enhancing shareholder value, inventory reduction, turn rate and/or loss rate, debt ratings and actions taken by ratings agencies, the Company’s ability to attract or retain customers and clients, store development and/or relocations, new product development, and the impact of industry and regulatory developments as well as statements expressing optimism or pessimism about future operating results or events, are forward-looking statements within the meaning of the Reform Act.

Forward-looking statements rely on a number of estimates, assumptions and projections concerning future events, and are subject to a number of significant risks and uncertainties and other factors that could cause actual results to differ materially from those statements. Many of these risks and uncertainties and other factors are outside our control.

Certain additional risks and uncertainties and other factors are described under “Risk Factors” included in Part I, Item 1A of the 2024 Form 10-K and under “Risk Factors” included in Part II, Item 1A of this report; these are not the only risks and uncertainties we face. There can be no assurance that the Company has identified all the risks that may affect it. Additional risks and uncertainties not presently known to the Company or that the Company currently believes to be immaterial also may adversely affect the Company’s businesses. If any of those risks or uncertainties develops into actual events, those events or circumstances could have a material adverse effect on the Company’s businesses, operating results, cash flows, financial condition and/or stock price, among other effects.

You should not put undue reliance on forward-looking statements. Any forward-looking statement speaks only as of the date of this report, and we disclaim any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events, uncertainties or otherwise.

Form 10-Q Table of Contents

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