And there’s a variety of initiatives as you might expect that are driving through in the industry and for us that will create additional value. Second tranche is more personalization. The decision to take more variability out or more averages out and drive more specific personalization back to individual solutions, networks, interventions, predictability, which points a little bit to where you came through. And then third is in clinical intervention, either predictability of clinical intervention or precision in terms of direction. If you think about where we are in the curve, we’re furthest along in the first, entering in second — in the second, and cautiously testing the third because the third requires a significant amount of human oversight and intervention as we go forward.
Having said that, there’s a significant amount of promise to bring in even more precision as we go forward and we’re excited about that, and the breadth of our capabilities will — are well-positioned to be able to do so. Eric, I’ll ask you to expand a little bit more on the dosages.
Eric Palmer: Yeah, great. Thanks, David, and good morning, Sarah. Yeah, I think this actually touches on exactly an area where we’re focused on positioning Evernorth. Evernorth has the positioning with the capabilities, the information, the data, the clinical depth, and the touch points with both the prescribers and the patients to really have a direct impact in such here. So that’s an exciting opportunity broadly. Specific to your question, our solution that we introduced last week is the first solution to bring interchangeable biosimilar Adalimumab across all the concentrations. We’ve got the maximum number of available dosages in the market. And those elements, coupled with our robust supply chain, coupled with the proposition we put together will be really effective for the market overall.
So we’re excited about that. I think and the clinical opportunity coupled with our data, coupled with the technology to ensure we’re working with precision to get our patients the medicines they need is really the theme at every takeaway. In terms of other things in the pipeline, just a handful that come to mind, think about Neulasta, Stelara, Prolia, Soliris, Eylea, all those things coming in the next couple of years. And as David noted in his prepared remarks, if you look at the top 25 specialty drugs by spend, we see biosimilar or biosimilar options coming to market for 50% or more of that spend over the course of the next five or six years. So really excited about the opportunity for this to be a lever to drive improved access and improved affordability to these life-changing medicines for the benefit of our patients and plan sponsors.
Sarah James: Very helpful. Thank you.
Operator: Thank you. Our next question comes from Kevin Fischbeck with Bank of America. You may ask your question.
Kevin Fischbeck: Great. Thanks. If I could do a couple of questions here. I guess, first on Change, you mentioned there’s some extra costs related to that. Can you spike out how much that was and just get a sense today where you think your visibility and claims submission is post Change? And then question on the Specialty Care and Services. I think it’s the first time we’re seeing kind of the margins. The margins were down year-over-year. I get why the pharmacy margins were down with new implementation costs. Is there a similar dynamic on Specialty or is there something else driving the margin there? Thanks.
David Cordani: Kevin, good morning. Let me just frame a little bit on the macro aspect to Change and then ask Brian to peel back the specifics of your question. First and foremost, indisputably, the disruption was felt across the industry. I just want to underscore how proud I am of how our team prioritized first and foremost, access to care prioritization, in addition to that, member service and then working tirelessly relative to healthcare professional service and support, and our team had to, as you might expect, flex a variety of programs, operational leverage, where possible, flex to other vendors to enable us to be able to continue to do what we need to do and then expand staffing levels. Part of that comes back to your cost dimension.
As Brian steps in, we’ll separate through the reserving piece that he walked through, but I’ll ask him to reamplify the way we look at the medical cost side of the equation. And then our SG&A ratio is up in the first-quarter and we ensured that we were in position to deliver the services that were necessary. Part of that is influenced by the Change disruption. Brian?
Brian Evanko: Yeah. Thanks, David. Good morning, Kevin. So these comments might be a little bit redundant with what I covered earlier, Kevin, but I think it’s important to re-amplify. So we did have some disruption to claims submissions and payments in the quarter and we did have some level of incremental operating expenses across the enterprise, all of which we were able to manage through successfully and are reflected in our results. The $650 million of additional reserves that I had flagged earlier, specific — specifically associated with the Change Healthcare dynamic, about two-thirds of that is purely a timing issue where the claims were submitted late in the quarter and had not yet been paid. Those are now essentially all paid.
So that’s kind of purely a timing issue. The other, call it, one-third of the incremental reserve associated with the Change Healthcare item is our estimate of claims that were incurred but not yet reported over and above the normal IBNR due to disrupted provider workflows. Now, we’re a month plus out from the end of the quarter and have a better level of visibility as it relates to all of that. Feel good about the full-year outlook we put forward, feel good about our cost trend expectations, and our reserving posture. I’d also note that during the quarter, our clinical programs and protocols operated as expected. So while we certainly prioritized access to care when the disruption occurred, we do not estimate that it resulted in higher utilization than what would have otherwise transpired within the quarter.
So we’re proud of the way the Cigna team rallied here and delivered a good quarter despite the disruption. As it relates to the Specialty and Care Services segment within Evernorth, we’re, first of all, very pleased with the performance of this business. You can see it over a multi-year period. And our 8% to 12% average annual growth for the Specialty and Care Services operating segment going forward is something that we feel really good about as was indicated by some of the prior questions as well. You’ll also note there was 12% year-over-year revenue growth in the first quarter after several years of double-digit revenue growth previously. Now, income at the operating segment level within Evernorth will show some quarter-to-quarter variability and in particular, the first-quarter growth rate in income for Specialty and Care Services was impacted by a particularly strong first quarter 2023 income performance in this operating segment, which included some timing-related impacts in SG&A and other items.
So while the margin is down a bit year-over-year, I would not read anything into that in terms of any one-time factors that caused it, more of a matter of quarter-to-quarter variability.
Operator: Thank you. Our next question comes from A.J. Rice with UBS. You may ask your question.
A.J. Rice: Hi, everybody. Maybe going back to the or go to the capital deployment questions. I know, Brian, you mentioned that the majority of discretionary cash flow for the back half of the year would go to repurchases. I know coming into the year, you guys gave a target for how much you would do in share repurchase in the first half. Do you have an updated estimate as to how much you might end up doing for the entirety of 2024? And then as you think about the landscape and the market, has anything on capital priorities or the ability to potentially do transactions that would fit those priorities? And any updated thoughts on all of that?
David Cordani: A.J., good morning. It’s David. Let me take the second part of your question first and then ask Brian to pick up on the first portion of your question. The second portion of your question was on our capital priorities. Big-picture, capital priorities have not changed. Continue to ensure the business has the assets it needs to grow, innovate, et cetera. So capital underlying our growth, CapEx budget, et cetera. Second, we always systematically continue to look at opportunities for M&A. I’ll come back to that, strategic and financially attractive. And third, return excess capital to shareholders. 2024 is another year where a significant portion of our excess capital will be returned to shareholders through share repurchase on top of our very attractive dividend.
Specific to the M&A portion of the priorities, as we discussed at our recent Investor Day, the underpinnings of our growth strategy is grounded in our proven organic growth model. So our ability to continue to harness the performance of our foundational businesses and continue to innovate them and bring new services to market, coupled with the acceleration of our attractive accelerated businesses couples and drives our very attractive sustained organic growth profile and we’re excited about the outlook. Our cash flow production is estimated to be about $60 billion over the next five years as we look forward and project. And as it relates to M&A, as we discussed at Investor Day, we’ll continue to be open yet disciplined relative to evaluating either capability or reach expansion — addressable market expansion capabilities.
But again, the growth strategy is grounded in that strong performing organic portfolio. Brian, I’ll ask you to talk about our share repurchase and the outlook for the year.
Brian Evanko: Yeah. Good morning, A.J. So broadly speaking, what we conveyed at our Investor Day continues to guide our actions in terms of our framework for capital deployment. So our capital health remains very strong. We continue to expect at least $11 billion of cash flow from operations here in 2024 and our strong cash generation is one of the company’s greatest strengths. So the capital deployment priorities continue to focus first and foremost on internal reinvestment. Following that, we remain committed to an attractive shareholder dividend. Of course, we’ll repay debt to maintain our targeted 40% debt-to-cap ratio over time and then the balance of our deployable capital will be utilized for strategic M&A or share repurchase.
Now specific to 2024, we remain on track to execute against the share repurchase plans for the year, which includes completing at least $5 billion by the end of June as it relates to share repurchase. And as David said, we continue to expect the majority of our discretionary cash flow in 2024 to be used for share repurchase and that’s all reflected in our full-year weighted-average shares outstanding guide as well as the EPS guide. Thanks for the question.
