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Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2023

Schedule of reconciliation of cash and cash equivalents

The following is a reconciliation of cash and cash equivalents on the unaudited condensed consolidated balance sheets to total cash, cash equivalents and restricted cash on the unaudited condensed consolidated statements of cash flows:


In millions	September 30, 2023		December 31, 2022
Cash and cash equivalents	$	13,043	$	12,945
Restricted cash (included in other current assets)	96		144
Restricted cash (included in other assets)	236		216
Total cash, cash equivalents and restricted cash in the statements of cash flows	$	13,375	$	13,305

Schedule of accounts receivable, net

Accounts receivable, net at September 30, 2023 and December 31, 2022 was composed of the following:


In millions	September 30, 2023		December 31, 2022
Trade receivables	$	10,424	$	8,983
Vendor and manufacturer receivables	16,646		12,395
Premium receivables	3,254		2,676
Other receivables	2,603		3,449
Total accounts receivable, net (1)	$	32,927	$	27,503

_____________________________________________

(1)Includes accounts receivable of $227 million which were accounted for as assets held for sale and were included in assets held for sale on the unaudited condensed consolidated balance sheet at December 31, 2022. See Note 2 ‘‘Acquisitions and Assets Held for Sale’’ for additional information.

Rollforward of deferred acquisition costs

The following is a roll forward of deferred acquisition costs for the nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30,
In millions		2023		2022
Deferred acquisition costs, beginning of the period		$	1,219	$	879
Capitalizations		414		423
Amortization expense		(196)		(163)

Deferred acquisition costs, end of the period		$	1,437	$	1,139

Schedule of disaggregation of revenue

The following tables disaggregate the Company’s revenue by major source in each segment for the three and nine months ended September 30, 2023 and 2022:


In millions	Health Care Benefits		Health Services		Pharmacy & Consumer Wellness		Corporate/ Other		Intersegment Eliminations		Consolidated Totals
Three Months Ended September 30, 2023
Major goods/services lines:
Pharmacy	$	—	$	44,985	$	22,977	$	—	$	(11,764)	$	56,198
Front Store	—		—		5,371		—		—		5,371
Premiums	24,645		—		—		12		—		24,657
Net investment income (loss)	187		—		(2)		92		—		277
Other	1,464		1,906		526		1		(636)		3,261
Total	$	26,296	$	46,891	$	28,872	$	105	$	(12,400)	$	89,764

Health Services distribution channel:
Pharmacy network (1)			$	27,981
Mail & specialty (2)			17,004
Other			1,906
Total			$	46,891

Three Months Ended September 30, 2022
Major goods/services lines:
Pharmacy	$	—	$	42,652	$	21,084	$	—	$	(11,361)	$	52,375
Front Store	—		—		5,581		—		—		5,581
Premiums	20,989		—		—		14		—		21,003
Net investment income (loss)	101		—		(10)		110		—		201
Other	1,406		602		582		18		(609)		1,999
Total	$	22,496	$	43,254	$	27,237	$	142	$	(11,970)	$	81,159

Health Services distribution channel:
Pharmacy network (1)			$	26,334
Mail & specialty (2)			16,318
Other			602
Total			$	43,254


In millions	Health Care Benefits		Health Services		Pharmacy & Consumer Wellness		Corporate/ Other		Intersegment Eliminations		Consolidated Totals
Nine Months Ended September 30, 2023
Major goods/services lines:
Pharmacy	$	—	$	133,428	$	67,371	$	—	$	(36,754)	$	164,045
Front Store	—		—		16,597		—		—		16,597
Premiums	74,079		—		—		38		—		74,117
Net investment income (loss)	556		—		(4)		333		—		885
Other	4,285		4,269		1,614		5		(1,854)		8,319
Total	$	78,920	$	137,697	$	85,578	$	376	$	(38,608)	$	263,963

Health Services distribution channel:
Pharmacy network (1)			$	83,050
Mail & specialty (2)			50,378
Other			4,269
Total			$	137,697

Nine Months Ended September 30, 2022
Major goods/services lines:
Pharmacy	$	—	$	123,627	$	61,496	$	—	$	(33,932)	$	151,191
Front Store	—		—		16,630		—		—		16,630
Premiums	63,848		—		—		46		—		63,894
Net investment income (loss)	278		—		(44)		281		—		515
Other	4,205		2,180		1,799		51		(1,844)		6,391
Total	$	68,331	$	125,807	$	79,881	$	378	$	(35,776)	$	238,621

Health Services distribution channel:
Pharmacy network (1)			$	76,358
Mail & specialty (2)			47,269
Other			2,180
Total			$	125,807

_____________________________________________

(1)Health Services pharmacy network is defined as claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and LTC pharmacies. Effective January 1, 2023, pharmacy network also includes 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. Maintenance Choice activity was previously reflected in mail & specialty. Prior period financial information has been revised to conform with current period presentation.

(2)Health Services mail & specialty is defined as 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. Effective January 1, 2023, mail & specialty excludes Maintenance Choice activity, which is now reflected within pharmacy network. Prior period financial information has been revised to conform with current period presentation.

Schedule of receivables and contract liabilities from contracts with customers

The following table provides information about receivables and contract liabilities from contracts with customers:


In millions	September 30, 2023		December 31, 2022
Trade receivables (included in accounts receivable, net)	$	10,424	$	8,983
Contract liabilities (included in accrued expenses)	167		71

Below is a summary of such changes:


	Nine Months Ended September 30,
In millions	2023		2022
Contract liabilities, beginning of the period	$	71	$	87
Rewards earnings and gift card issuances	250		250
Redemption and breakage	(267)		(263)
Acquired contract liabilities	109		—
Other	4		—
Contract liabilities, end of the period	$	167	$	74

Schedule of adjustments resulting from applying new accounting standard

The following summarizes changes in the balances of long-duration insurance liabilities as a result of the adoption of the long-duration insurance standard effective January 1, 2021:


In millions	Large Case Pensions		Long-Term Care		Other
Balance at December 31, 2020, net of reinsurance	$	3,224	$	1,142	$	480
Add: Reinsurance recoverable	—		—		274
Balance at December 31, 2020	3,224		1,142		754
Change in discount rate assumptions	604		553		44
Removal of shadow adjustments in accumulated other comprehensive income	(181)		—		—
Adjusted balance at January 1, 2021	3,647		1,695		798
Less: Reinsurance recoverable	—		—		308
Adjusted balance at January 1, 2021, net of reinsurance	$	3,647	$	1,695	$	490

Impact of Long-Duration Insurance Standard Adoption on Financial Statement Line Items

As a result of applying the long-duration insurance standard using a modified retrospective method, the following adjustments were made to amounts reported in the unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2022:


	Impact of Change in Accounting Policy
In millions	As Reported September 30, 2022		Adjustments		Adjusted September 30, 2022
Three Months Ended
Condensed Consolidated Statement of Operations:
Operating costs:
Health care costs	$	17,419	$	(18)	$	17,401
Operating expenses	9,606		6		9,612
Total operating costs	85,090		(12)		85,078
Operating loss	(3,931)		12		(3,919)
Loss before income tax benefit	(4,456)		12		(4,444)
Income tax benefit	(1,047)		2		(1,045)
Net loss	(3,409)		10		(3,399)
Net loss attributable to CVS Health	(3,416)		10		(3,406)
Net loss per share attributable to CVS Health:
Basic	$	(2.60)	$	0.01	$	(2.59)
Diluted	$	(2.60)	$	0.01	$	(2.59)

Nine Months Ended
Condensed Consolidated Statement of Operations:
Operating costs:
Health care costs	$	52,976	$	(162)	$	52,814
Operating expenses	28,128		(5)		28,123
Total operating costs	234,493		(167)		234,326
Operating income	4,128		167		4,295
Income before income tax provision	2,519		167		2,686
Income tax provision	654		37		691
Net income	1,865		130		1,995
Net income attributable to CVS Health	1,847		130		1,977
Net income per share attributable to CVS Health:
Basic	$	1.41	$	0.10	$	1.51
Diluted	$	1.40	$	0.09	$	1.49


	Impact of Change in Accounting Policy
In millions	As Reported December 31, 2022		Adjustments		Adjusted December 31, 2022
Condensed Consolidated Balance Sheet:
Other current assets	$	2,685	$	(49)	$	2,636
Total current assets	65,682		(49)		65,633
Intangible assets, net	24,754		49		24,803
Total assets	228,275		—		228,275
Health care costs payable	10,406		(264)		10,142
Other insurance liabilities	1,140		(51)		1,089
Total current liabilities	69,736		(315)		69,421
Deferred income taxes	3,880		136		4,016
Other long-term insurance liabilities	6,108		(273)		5,835
Other long-term liabilities	6,732		(2)		6,730
Total liabilities	156,960		(454)		156,506
Retained earnings	56,145		253		56,398
Accumulated other comprehensive loss	(1,465)		201		(1,264)
Total CVS Health shareholders’ equity	71,015		454		71,469
Total shareholders’ equity	71,315		454		71,769
Total liabilities and shareholders’ equity	228,275		—		228,275

As a result of applying the long-duration insurance standard using a modified retrospective method, the following adjustments were made to amounts reported in the unaudited condensed consolidated statement of cash flows for the nine months ended September 30, 2022:


	Impact of Change in Accounting Policy
In millions	As Reported September 30, 2022		Adjustments		Adjusted September 30, 2022
Condensed Consolidated Statement of Cash Flows:
Reconciliation of net income to net cash provided by operating activities:
Net income	$	1,865	$	130	$	1,995
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,198		(17)		3,181
Deferred income taxes and other noncash items	(2,250)		37		(2,213)
Change in operating assets and liabilities, net of effects from acquisitions:
Other assets	(311)		67		(244)
Health care costs payable and other insurance liabilities	4,687		(211)		4,476
Other liabilities	7,377		(6)		7,371