Ladies and gentlemen, thank you for standing by for Cigna's First Quarter 2021 Results Review. At this time, all callers are in a listen-only mode. We will conduct a question-and-answer session later during the conference and review procedures on how to enter the queue to ask questions at that time. [Operator Instructions] As a reminder, ladies and gentlemen, this conference, including the Q&A session, is being recorded. We'll begin by turning the conference over to Ms. Alexis Jones. Please go ahead, Ms. Jones.

Good morning, everyone, and thank you for joining today's call. I am Alexis Jones, Lead Principal for Investor Relations. With me on the line this morning are David Cordani, our President and Chief Executive Officer; and Brian Evanko, Cigna's Chief Financial Officer. In our remarks today, David and Brian will cover a number of topics, including Cigna's first quarter 2021 financial results, as well as an update on our financial outlook for 2021. As noted in our earnings release, when describing our financial results, Cigna uses certain financial measures, adjusted income from operations, and adjusted revenues which are not determined in accordance with accounting principles generally accepted in the United States, otherwise known as GAAP. A reconciliation of these measures to the most directly comparable GAAP measures, shareholders' net income and total revenues, respectively, is contained in today's earnings release, which is posted in the Investor Relations section of cigna.com. We use the term labeled adjusted income from operations and adjusted earnings per share on the same basis as our principal measures of financial performance. In our remarks today, we will be making some forward-looking statements, including statements regarding our outlook for 2021 and future performance. These statements are subject to risks and uncertainties that could cause the actual results to differ materially from our current expectations. A description of these risks and uncertainties is contained in the cautionary note to today's earnings release and in our most recent reports filed with the SEC. Before turning the call over to David, I will cover a few items pertaining to our financial results and disclosures. Regarding our results, in the first quarter, we recorded an after-tax special item benefit of $1.1 million or $0.29 per share related to debt extinguishment costs incurred during the period, as well as after tax special…

Thanks, Alexis. Good morning, everyone, and thank you for joining us on our call today. But today's we meet our environment remains highly dynamic with COVID-19 continues to affect the world, our industry and our economy. At Cigna, this rapidly changing landscape has only reinforced the tremendous responsibility we have to improve the health, wellbeing and peace of mind of those we serve. This remains the primary focus that drives our 70,000 co-workers each and every day. And it's the reason we work to continue to deliver for our customers, clients, patients, partners and our communities, all while delivering strong financial results for you, our shareholders. During the first quarter, we delivered adjusted revenue of $41 billion and adjusted EPS of $4.73 per share. We also deployed significant capital to our investors through share repurchase and the payment of a meaningful quarterly dividend, reinforcing the strength of our capital like framework. Building on our conversation from several weeks ago at our Investor Day, today, I'm going to talk more about how we are continuing to navigate through the current environment to balance and meet the needs of all of our stakeholders, our ability to consistently deliver strong results by executing on a growth framework and the competence we have in achieving our increased outlook by delivering differentiated and sustained growth for the long term. Then Brian will share more details about our first quarter results and our 2021 outlook. And after that, we'll take your questions. Since we last met at our Investor Day in March, the macro landscape remains fluid. In the U.S. proposed legislation as well as regulation and executive actions to expand extend and further support both public and private programs. Globally, social and political tensions remain high as COVID-19 with its multiple variants continue to take…

Thanks, David. Good morning, everyone. Today, I'll review key aspects of Cigna's first quarter results, including the ongoing impact of COVID-19 on our business, and I'll discuss their updated outlook for the full year. Key consolidated financial highlights for first quarter 2021 include adjusted revenue of $41 billion, adjusted earnings of $1.7 billion after tax and adjusted earnings per share of $4.73. Results in the first quarter reflects strong top line growth with contributions across our businesses. And first quarter earnings came in somewhat ahead of our expectations. The favorable first quarter earnings were primarily driven by strong Evernorth performance, favorable net investment income, and favorable prior year medical cost development, partially offset by non-recurring operating expenses. Our results reflect our ability to deliver a dynamic, rapidly evolving environment, including navigating the ongoing impacts of the COVID-19 pandemic. Regarding our segments, our first comment on Evernorth. First quarter 2021, adjusted revenues grew to $30.6 billion and adjusted pretax earnings grew to $1.2 billion. Evernorth strong results in the quarter were driven by effective execution of supply chain initiatives, continued strong performance in Accredo, our industry leading specialty pharmacy, and organic growth of our services with deepening partnerships, all while continuing to invest for ongoing growth. Our adjusted pharmacy script volume was $393 million during the quarter, a 9% increase over first quarter 2020. Overall, Evernorth continued as positive momentum and delivered another strong quarter financial results. Turning to U.S. medical, we entered the year expecting to see the majority of COVID-19 testing and treatment cost pressure in the U.S. medical segment in the first half of 2021, particularly in the first quarter. As we progress throughout the first quarter we saw COVID-19 case counts and hospitalizations declined more rapidly than we originally anticipated. Additionally, as COVID-19 cases decelerated, we saw…

[Operator Instructions] Finally, we ask that you please limit yourself to one question to allow sufficient time for questions from those remaining in the queue. One moment please for our first question. Our first question comes from Mr. Robert Jones with Goldman Sachs. Go ahead with your question, sir.

Great. Thanks for taking the question. Maybe it's just done on the PBM. The segment grew pre-tax income 13% year-over-year. And I think this is the quarter where you're actually lapping some benefits from COVID pull forward last year. So just wanted to see if there's anything you'd call out further within the PBM in the quarter? And then relatedly, if I look at the guidance from this point forward, it does seem to imply for the remaining three quarters kind of mid single digit growth, income growth within the PBM. So curious if you have line-of-sight into what might cause a deceleration from the strong performance in the first quarter? Thanks.

Good morning, Bob. It's Brian. So thanks for the question. And yes, we're really pleased with the strong start to the year in Evernorth, which as I mentioned in my comments, gives us the confidence to increase the full year guidance to at least $5.65 billion of operating income. Quarter-to-quarter there will be some level of variability in the segments. I would encourage you not to overreact to the singular quarter that we had here. But certainly pleased with 13% quarter-over-quarter earnings growth. I would remind you that our Prime Therapeutics partnership launched April 1, 2020. So the base period last year and the first quarter did not have contributions from Prime Therapeutics. So that was a bit of a benefit to this quarter that will not recur to the same degree for the balance of the year. So to your point on the operating income growth appearing to slow to some degree later in the year. That's one contribution that you should -- that they should keep in mind. Additionally, we continue to invest aggressively in Evernorth to expand and diversify the suite of solutions in that portfolio. So, as you think about Care Solutions, Benefits Management insights, we will make a continued organic and on a targeted basis in organic investments to continue to expand that portfolio, which will increase SG&A in to some degree temper the income growth for the balance of the year. David, anything you want to add to that?

Just highlighting the fact that in support of that, for example, our Evernorth Benefits business performed very strongly in the first quarter. So on a year-over-year basis, that was a partial contributor to the year-over-year increase as Brian articulated. And we remain committed to continue to invest in the businesses, all while meeting now our increased earnings outlook for the full year.

Great. Thanks.

Thank you, Mr. Jones. Our next question comes from Mr. Ralph Giacobbe with Citi. Your line is open. You may ask your question.

Thanks. Good morning. The SG&A on the U.S. Medical side that was higher. And I think you mentioned non-recurring operating expenses. So just hoping to give a little bit more details on what that exactly was and if you're willing to quantify the Evernorth? Thanks.

Good morning, Ralph. It's Brian. So maybe let me unpack the U.S. Medical non-recurring items a little bit. This might speak to the core of your question a little bit. As I mentioned in my comments, overall, our U.S. medical earnings in the quarter were above our expectations. But when you remove the effect of the three non-recurring items, we were in line with our expectations. So there's a three non recurring items that I cited, we had some favorability in the quarter and net investment income. We had some favorability in the quarter and prior year medical cost development, and that was offset by non-recurring operating expenses. And so, to the core of your question, the non-recurring operating expenses, you can think of as litigation-oriented matters associated with operations from several years ago. So these are not related to current time periods. These are unrelated to Anthem. These are matters from several years ago, but they're related to operations. And as a result of that, we chose to book them through SG&A as opposed to considering them as a special item below the line or anything like that. They were appropriate in our eyes to book through SG&A above the line. And in order of magnitude, you can think of that as approximately offsetting the favorable benefit that we had from net investment income in the quarter within U.S. medical. But those are truly non-recurring items since they're related to periods from several years ago and those matters should now be closed.

Okay. Helpful. Thank you.

Thank you, Mr. Giacobbe. Our next question comes from Mr. Justin Lake with Wolfe Research. You may ask your question.

Thanks. Good morning. I want to squeeze in a couple quick questions. First, in terms of medical cost expectations through the year, you give us an update on COVID, but wanted to get an idea of what you're thinking into the back half of the year in terms of -- in terms of utilization pick up, post the vaccine. What you built in versus kind of typical trend. And then, you mentioned, you divested -- plan to divest -- to sell that Texas Medicaid business. Just wanted to see if there's any background there in terms of what drove you to kind of the divest that? And then, kind of updated thoughts on your kind of Medicaid strategy going forward to be helpful? Thanks.

Hey, Justin. Good morning. It's David. Let me just frame the medical costs for a moment and then ask Brian to talk a little bit more about our framework and our expectations for the year. And then I'll come back and address the Medicaid divestiture and our Medicaid direction more broadly. First, from a medical cost standpoint, big picture. We're pleased with the start to the year. Big picture broadly speaking, we're pleased to start to the year. And I just want to underscore a couple of components. One, our organization works tirelessly to try to drive elevated utilization of certain services like preventative care services. And importantly, we saw in the first quarter, the use of preventative care services like mammographies, colonoscopies, childhood immunizations, cervical cancer screenings to be at an approximate level of pre-pandemic levels. That's a tremendous result of offsetting what might have been a dampening to utilization. The national data we see more broadly is that utilization of those preventative care services is at a more dampened rate, but ours is an elevated or more consistent rate from that standpoint, which is quite important. Secondly, I would just remind you that and I'll tie this back in our Medicaid comment a little later, is that we have a de minimis amount of Medicaid within our portfolio. And our national data suggests to our services businesses, through Evernorth services business that in the first quarter Medicaid medical costs were a bit more dampened year-over-year in the first quarter of 2021. That's not an effect on our portfolio. But we can see that in the services that we're providing. And I'll ask Brian to give you a little bit more color forward looking on the year, then I'll come back and address Medicaid.

Yes. Good morning, Justin. So, just a few other comments on the quarter and the balance of the year. Overall, as I mentioned in my comments, the U.S. Medical MCR was in line with our expectations for the first quarter, when you exclude the benefit of PYD [ph], or prior development. When you include the benefit of prior year development, we're actually a little bit favorable on the first quarter. And that was at an elevated level, as we expected, when we stepped into the year. For the balance of the year, we expect that deceleration in COVID-19, testing and treatment costs, we expect an uptick in non-COVID related utilization in quarters two through four, with those factors roughly offsetting one another. And so, when we constructed our full year outlook of an 81% to 82% medical care ratio, we stress tested a variety of scenarios about -- associate with those two levers and are quite confident in our ability to achieve the full year 81% to 82% medical care ratio for U.S. medical. David, maybe on the Texas Medicaid and our broader Medicaid strategy, over to you sure.

Sure. Justin. We chose to divest of that single site Medicaid operation we had. So number one, it was -- we have one of one. So it was one off within our portfolio that has a de minimis impact on our P&L at the enterprise level. So putting that aside, we determined it was best for that business to be served by an expert or specialist. And we're pleased to effectuate and seek to close a successful transition to Molina. We think that's beneficial to the customers being served than our co-workers in that business. Looking forward, we continue to see Medicaid and government services first and foremost as an attractive growth opportunity within our Evernorth service portfolio. Whether it's Evernorth Pharmacy, Evernorth Care, Evernorth Benefits, Evernorth Intelligence, the opportunity to bring expanded services largely through health plans today in support of Medicaid will be a growing organic part of our portfolio. Over time, we see opportunities that will manifest themselves state-by-state on state specific service relationships against Evernorth. And then finally, as you recall from our Investor Day conversation, within our M&A priority, we continue to have an expansion of our U.S. government programs as an M&A priority. So we'll be opportunistic from that standpoint, if we see the ability to further strengthen any of our capabilities looking forward. But that divestiture was again, it was a one-off de minimis impact and we deemed that was best in the hands of a specialist. Thanks, Justin.

Thank you, Mr. Lake. Our next question comes from Mr. George Hill with Deutsche Bank. You may ask your question.

Yes. Good morning, guys. And thanks for taking the question. I guess, David, I would ask a little bit more color about the MDLIVE acquisition? And how you guys are thinking about care delivery partnerships? And I'd love a little bit of commentary maybe on how the digital formulary is progressing. And if you could maybe talk about if that's going to have meaningful revenue contribution that's in the Evernorth segment?

So thanks for the question, George. So specific to MDLIVE, first important to reference the fact that we had a multiyear relationship with MVLIVE both partnering to continue the services, but also through our very successful multiyear Cigna Ventures organization. So, we start from a learned shared experience and even deeper collaboration during the COVID environment. Specific to the asset and the direction, as we discussed in our Investor Day, we see rapid expansion of what we call alternative side of care to be one of the three major trends as we look forward over the next five to 10 years. This is an important part of those building blocks, and it's an important part of our Evernorth care portfolio of capabilities. We see it as much greater than telemed or even basic virtual care triaging. We see the ability to obviously expand virtual care, primary care, behavioral care. We see the ability to expand that further in terms of longitudinal chronic care programs, polychronic, and ultimately complex care programs and capabilities. So it provides us an accelerant to our strategic direction with a known partner that will now be part of the overall Cigna portfolio. And we're excited. Because net-net, it drives, improved service, improved access, improved affordability with strong clinical outcomes for the benefit of our consumers. So truly an aggregate win-win in the portfolio. Specific to the digital formulary that innovation continues to be somewhat unique in the marketplace. Our clients really appreciate the approach relative to the digital formulary, helping to essentially curate and apply externally validated expertise to the vast array of digital alternatives that exists in the ecosystem to help, to provide employers more informed decisions for those that may have the greatest outcome and impact for the benefit of the customer. So, I view that as a part of our consultative approach in terms of providing support, and a part of our approach to -- in this case partner and curate additional services on a go forward basis. Taking in the whole, we see, again, our Evernorth care capabilities as an exciting part of the broader economic growth capabilities, and we see the ability to do that in a complimentary nature with our proven value based care relationships within our Cigna, our portfolio as well. Hope that helps, George.

Thank you, Mr. Hill. Our next question comes from a Mr. A.J. Rice. Your line is open sir, with Credit Suisse. You may ask your question.

Hi, everybody. I'm going to just ask about the selling season, both for Medical and for Evernorth on the PBM side. I know last year, there was some discussion about potentially people being delayed, different people had different views as to how much of that activity actually happened. I wondered what you've seen in terms of RFP activity on both sides of the business, anything to discuss in terms of new and innovative ways that Cigna is going to market in those two sides of your business? And any discussion about early wins, losses?

A.J. Good morning, it's David. So relative to the selling season, looking to 2022, your question goes at the commercial side, as well as the services side of the business. First, on the commercial side of the portfolio, at this stage of the year, we're typically looking at the national accounts environment. And remind you that we define national accounts in -- for our U.S. commercial portfolio a little bit more narrowly than some in the market. So it's commercial employers, 5,000 or more employees who are multi-state in nature. As we look to 2022, right now, we see an environment where the RFP volume, so the opportunity to pursue new business is up somewhat. I think order of magnitude 10%. And we see the portion of our book of business that's out to bid is being up marginally less than that 10% number. So that's a little bit of framing. We have some early traction, some early wins, that exists in our portfolio. And as we sit here at this stage of the environment, we're optimistic that we'll have a very good commercial outlook in aggregate for our portfolio as we look to 2020. I'll bridge with a trend comment and then I'll come to the Evernorthportfolio. Clearly affordability remains a top decision criteria for commercial employers,. There's no doubt about that. We spent ample time on that at our Investor Day, and it remains a top strategic imperative. Further, beyond that is the flexibility necessary, and then the innovation required to truly integrate or coordinate mental and physical health programs, and then expand and coordinate access to care in a less fragmented way through alternative site of care framework, et cetera. So we see the trends being well lined up to our direction. As relates to within Evernorth and specific to your question within pharmacy services. As you recall, we have now multiple years of very attractive growth under our belts as a combined organization. And we're pleased with that. As we look to 2022, we have an environment where to date our employer renewal process is manifesting itself quite strongly. And our health plan renewal process is manifesting itself rather strongly beyond the two known losses that we previously discussed, relative to the health plan business. Taken as a whole, we'd expect the retention in that business as we sit here right now to be a bit less than our recent couple of years, which have been historic highs in the upper 90s, we'll expect it to be more in the mid 90s as a consistent rate. And then taken as a whole, we will expect to see both revenue and earnings growth in our Evernorth portfolio in 2022. So, both pointing in a positive direction would be the summary I would leave you with.

Okay, great. Thanks.

Thank you, Mr. Rice. Our next question comes from Mr. Kevin Fischbeck with Bank of America. You may ask your question.

Okay, great. Thanks. The way that you were framing the drop-off and COVID utilization, and then I guess the earlier return in volumes. To me implied that the COVID impact might actually end up being less than what you were forecasting. But you obviously reaffirm that number. So just any thoughts about kind of the puts and takes of COVID is dropping faster than you thought? Can then, do you still feel like about half of that coming back next year is the right way to think about that? Thanks.

Good morning, Kevin. It's Brian. So, a few thoughts on your question. I appreciate the framing of it. Broadly in the quarter, as I said earlier, the MCR for U.S. Medical was in line with our expectations when you include the federal benefit from prior year development. Now the components within were a little bit different than we anticipated. So to your point, the COVID-19 testing and treatment burden on our book was a little bit lower than we anticipated for the quarter. However, non COVID utilization was a little bit higher than we anticipated coming into the quarter. So net effect of those two factors led to the U.S. Medical MCR, being back in line with where we expected it to be. As we trend out the balance of the year, we continue to expect that phenomenon to perceive, meaning, deceleration in COVID-19 testing and treatment costs, and a little bit of an uptick in non COVID related utilization. So to your point, we expect about 50% of the EPS headwind associated with COVID-19, a $1.25 to continue to show up in the U.S. Medical MCR. And bridging over into 2022, we continue to anticipate about half of that $1.25, or a little bit over half of that to return in the form of earnings in our 2022 enterprise portfolio. And as such, we would expect that our long term annual growth rate in EPS of 10% to 13%. We would expect to achieve results that's at or above the high end of that range relative to our updated guidance of at least $20.20 per share.

Helpful. Thanks.

Thank you, Mr. Fischbeck. Our next question comes from Miss. Lisa Gil with JPMorgan. You may ask your question.

Thanks very much for taking my question. I just wanted to go back, David, and ask a question around the comments that you made around MDLIVE. Specifically, you talked about expanding primary care and longitudinal care. You talked earlier about your relationship with Ginger around mental health. So, my question here is really twofold. First, where do you see the opportunities with MDLIVE around lowering overall medical costs for Cigna? Second, do you believe that you need to buy or continue to build out something around behavioral health? And then thirdly, can you just give us an idea of how many Cigna Lives actually use MDLIVE today?

Lisa, thanks. Appreciate the ongoing interest in the space for sure. So number one, bigger picture framing, I appreciate that you brought MDLIVE, Ginger together, for example. We don't -- we do not believe that this is a one-and-done type activity. So, we don't believe that a corporation secures itself a virtual care asset. And then this were for the alternative delivery space. This is a fluid environment. It's a dynamic environment, and it’s an environment that has massive promise relative to bringing the expanded access, coordination of services, and improve overall value coming back to the affordability. Our organic capabilities are strong, the MDLIVE asset advances that massively. But as Brian noted in his prior comments, as well, we continue to invest in the space. So I want you to view that we view it as a dynamic and fluid space and we very much like our positioning. Two is, just like in the -- what we'll call it the traditional care delivery space, the coordination of physical and mental health is mission critical. Just because it's in a virtual care environment, doesn't mean that the coordination of the leverage opportunity there is not -- is critical. And in fact, the virtual capabilities allow us to take fragmentation out of the system more aggressively and more comprehensively. To your affordability comment, unequivocally, we see an ability to further improve affordability through alternative site of care and through our virtual capabilities. You may recall from Investor Day, we identified alternative site of care or site of care leverage as a meaningful opportunity to further deflect or improve overall affordability. And an example maybe, we see already in a virtual care delivery, less use of unnecessary or redundant diagnostic services. That's a tangible illustration of a improvement in affordability. Conversely, we see opportunities to even further close gaps in care or increase utilization of the right services, like maintenance medications, through the dynamic, more intimate, ongoing interaction with customers or patients from that standpoint. So my points are threefold. One, continuation of investment here and innovation off of a very strong base. Two, a continued need to use the capabilities to close fragmentation within the system or get more complimentary leverage, most notably between the medical health and the mental health capabilities. And three, unequivocally a contributor to further improved affordability.

Okay. Thank you.

Thank you, Miss. Gill. Our next question comes from Mr. Joshua Raskin with Nephron Research. You may ask your question.

Hi, thanks. Good morning. Here with Eric Percher as well. Can you speak to the progress in both the individual exchanges? I think I heard 17% number as well as the small group markets. I'm specifically interested in membership growth. And when you think you have enough information around medical costs and sort of utilization of new product, et cetera to better understand sort of profit trajectories here, this year?

Hey, Josh, good morning. It's David. Let me just start and frame the growth trajectory. And then ask Brian to will provide a little bit of additional color, relative to our insights on the performance. First, we're very pleased. We're very pleased with the sustained performance starting with the individual exchanges. Just as you recall, we entered the exchanges in the first year, and we've sustained engagement in the exchanges since its inception. We've innovated within the exchanges. We've delivered a proven model. And now we're in an expansion mode relative to additional geographies, in large part with our collaborative accountable care and aligned value based relationships from the healthcare delivery system. And we're pleased with the results, both the base results in individual exchange, as well as thus far our early look at the additional enrollment we're seeing because the expanded SEP. I'll ask Brian just give you a little color relative to that dimension. As relates to the small employer marketplace. As you know, we, Cigna historically have not played in the small employer marketplace. What we've focused above 51 lives or above 100 lives depending on the regulation more broadly. We have continued to view it as an underserved market, a market that has had more traditional or rigidly designed programs, less innovation and less flexibility, and less leverage of more modern specialty and clinical services. And our determination was, it was best to pursue that market in partnership, leveraging our partnership DNA. And we've entered that market successfully with our partnership with Oscar. We're really early in that journey, some positive indicators for sure, we're really in the journey. Our early indicators are positive, though, that has us accelerating our geographies. And in collaboration with Oscar, and again back to in partnership with our healthcare delivery partners. So, Brian, maybe just a little color in terms of what we view the SEP process looking like and the economics within the individual exchange?

Sure. Good morning, Josh. Our individual membership year to-date is a little bit above our expectations for a couple of different reasons. One is, I'm sure you know, we stepped into 80 new counties in 2021. And the enrollment, the annual enrollment period there was a little bit above our expectations. Additionally, the expanded special enrollment period window that President Biden introduced has generated some new lives in our portfolio as of the end of the first quarter. We have no reason to believe at this juncture that those customers will perform meaningfully differently than the balance of our individual exchange portfolio to your point on when will we know for sure. It will take several months, as we understand the risk adjuster profile, and the persistency of those new lives, et cetera. But I also would remind you the individual exchange membership only represents about 5%, 6% of our total U.S. Medical portfolio. So it won't be a significant needle mover relative to the MCR for your outlook for U.S. Medical.

Thank you.

Thank you, Mr. Raskin. Our next question comes from Mr. Scott Fidel with Stephens. You may ask your question.

Hi. Thanks, and good morning, everyone. Question just first, if it be helpful, maybe you could break down just on the $1 billion raise revenue guidance. How you would sort of break that down between each of the three segments? And then also, interested just in sort of what you're seeing in aggregate right now around the debate around inflation, and not just think about medical inflation, but obviously, Cigna has a lot of insights into just general inflation dynamics across all of your businesses. So, interested in terms of what you're seeing in the first quarter as relates to whether you're actually seeing inflation rising and, and how you're thinking about the outlook for that over the course of the year? Thanks.

Scott, good morning. It's David. I'm going to ask Brian, just to give you a little color on our really strong sustained revenue performance. And then I'll come back and seek to address your inflation question.

Good morning, Scott. So really pleased with the Q1 performance on revenue as well as the full year increase in our guidance of at least $166 billion. You should think of the majority of that increase coming from the Evernorth segment. But importantly, we're also seeing strength within U.S. Medical. So we think of most of it from Evernorth and a bit of an uptick in U.S. Medical as well. David, back to you on the inflation question.

Sure. Scott, on the inflation question, I'm going to come out with two ways. First, through the core visibility of our business and then more broadly for those we serve. Thus far within our business, we do not see a large trajectory change relative to what I would call cost of goods sold inflationary pressure. There's always some, makes no doubt about it. There is always some. But through ongoing innovation, ongoing productivity, ongoing value based collaboration, broadly speaking, I would not call a large sea [ph] change from that standpoint. Beyond that, in the broader economy, whether we look at it through a U.S. lens or pockets of markets outside the United States, there's clearly a warming up. There's an indisputable warming up of the economy. And there's a clearly warming up of inflationary indicators, but none of which have triggered across a threshold to suggest any one industry safe for some unique outliers, any kind of orange going to red threshold levels of inflation, but the robustness of the economy and some of the underlying cost drivers in some sub sectors are slowly beginning to elevate. And I think have a lot of industry leaders watching to ensure that any movement in curves, any movement in cost curves could be anticipated, either eradicated through pricing actions, like CPG companies that are being intensively discussed, cost pressures in some sub sectors of the technology ecosystem where the chip industry is out of pattern relative to supply and demand from that standpoint. But broadly speaking, I would say again, nothing affecting our space over the immediate term horizon from an inflationary standpoint.

Okay. Thanks.

Thank you, Mr. Fidel. Our next question comes from Mr. Matthew Borsch with BMO Capital Markets. You may ask your question.

Thank you. Let me ask the question about Medicare Advantage in the outlook. How do you think it's going to work with rates? I know that I'm asking about 2023. And I know that's a light year away. But my question really is Medicare Advantage benefited from the lower expenses in 2020? I'm wondering how you think that's going to roll through the rate calculation. Because right now, CMS has 2020, down 8% per capita, and then increasing about 11% in this year and the next year. And so I guess my question is, do you think that kind of trajectory is likely for medical costs? And then, if you can comment on how you think that might work into the 2023 rate?

Matthew, a pretty complex, Rubik's cube would put on the table. Thoughtful, but nonetheless complex. I think a you -- as I think your question and [Indiscernible] question. If we look at the 2020 to 2021 environment, clearly, the posture of CMS recognize the COVID dislocation, recognize that dislocation, for examples, implication on risk adjusters sought to in their own methodology, seek to provide some offset to that relative to their rate setting environment, as well as their guidance relative to delivery system reimbursement, and set themselves up for what I would say is a pretty fluid and complex environment over the ensuing couple of years ahead. So, I would expect the next couple years cycle to be a little non-traditional from that standpoint, given the need to adjust the various moving parts that result in a net rate setting environment. History would tell us that the result of all of the above, plus or minus a point or two largely gets the program to a balanced sustainable outcome. And looking forward, I would expect that because the Medicare Advantage program continues to deliver outstanding value, as you know, for seniors, hence the tremendous support from a senior standpoint, as well as overall clinical quality and affordability of which through the bonus programs and the reimbursement programs the federal government's budget actually benefits from. So I would expect it to be able to be balanced for that, but a little bit more lumpy than it has been in the past. And I think this year's risk adjuster through ups will be really mission critical in terms of how CMS sees the industry, recapturing a little bit more of the information that they deem necessary to get the risk adjusters and then they'll factor that into the forward looking 2023 rate environment. Stay tuned for more.

Okay, David. Thank you.

Thank you Mr. Borsch. Our next question comes from Miss. Ricky Goldwasser with Morgan Stanley. You may ask your question.

Yes. Hi. Good morning. Thank you for taking my question. One for David. You talked about sort of the return of some of the diagnostic procedures did now are in line with for pandemic. Are you clearly, acuity is a big uncertainty for the rest of the year? But now that you starting to have this data as individuals are starting to come back for preventive care testing. Are you seeing any changes in acuity? That's one. And then my second question goes back to M&A and investments, clearly, a very big focus and part of your growth strategy. So what metric do you use when you evaluate a buy versus a partner or a build decision?

Ricky, good morning, It's David. We're going to take both of your questions. And your first question. To be very clear, we have seen consistent, strong utilization of preventative care services. And notably, what I called out is, for example, in the first quarter of 2021, broadly speaking, preventative care services inclusive of mammographies, colonoscopies, childhood immunizations, cervical cancer screening, plus or minus in the commercial portfolio business, approximate pre pandemic levels. We think that's a very good thing. I mean, underscore. It's a very good thing and something that our team has worked tirelessly to try to effectuate elevating those levels. We see that performance against a national dataset that suggests the utilization of those preventative care services are down versus pre pandemic levels 10% to 15% for our book of business they are not. As a predictor then to the future, we see that as a mitigant for an elevation of acuity, all other things remaining equal, because you're consistently identifying an earlier stage through the preventative diagnostics or the preventative services. Equally as important, as I noted in my prepared remarks, are, for example, within our Evernorth portfolio and within our Evernorth Pharmacy portfolio, for those customers being served by our mail order, we've actually seen get even further elevation of medication adherence. That's really important for the chronic population to avoid spikes in acuity moving forward, whether it's for a diabetic, COPD, asthmatic or other patients from that standpoint. So, broadly speaking, we're working tirelessly to get the right clinical quality and services to be consumed and supported with the clinical resources we have to avert spikes and acuity going forward. And therefore we don't expect a large spike in acuity on a look forward basis, given the strong preventative or medication compliance. As it relates to your M&A question, there's not a simple way to answer your question, importantly, though, to frame. We look at all either growth or expansion of capability opportunities through buy-build-ally frameworks. We relentlessly go through a buy-build-ally framework. So for example, today within our Evernorth benefit portfolio, we're organically building out additional post acute care capabilities after evaluating buying, further partnering or insourcing those capabilities. We typically will look at that three, right-to-win, a strategic positioning and an economic framework. So you'll look at it through a variety of frameworks. It's not a simple economic hurdle rate. Your question didn't infer that it was a single measure, but it's not a single economic hurdle rate. It's through a right-to-win size and trajectory of the market, the resources with which to pursue whether it's organic build collaboration through a partnership, or from an acquisitive standpoint. And obviously, certain economic hurdle rates come into play, which we don't discuss probably, those are proprietary, but you would imagine we're quite disciplined in terms of our return to capital thresholds. Ricky, hope that helps?

Thank you.

Thank you, Miss Goldwasser. Our next question comes from Mr. Steve Valiquette with Barclays. Your line is open. You may ask your question.

Thanks. Good morning, everyone. So there was a question earlier on inflation. I actually have a question on deflation. Just want to check the box and get your quick thoughts on generic pricing as there's been some mixed signals and the level of generic deflation in the first quarter. I guess I was curious, was there any evidence of accelerated deflation that may have played a role in better cost of goods sold in your mail water operations within Evernorth? And also you mentioned the effective supply chain initiative again this quarter. Just curious what that means for 2021 in particular, whether is that just code for better drug purchasing and procurement this year? Are there other factors within the "supply chain initiative" driving better results? Thanks.

Good morning, it's David. So two-point questions. First, there's no doubt there are some pockets of generic deflation within the within the pricing environment which is the cost environment. Importantly, they're in line with our expectations. So it's not a deviant or driver of deviation for us in any way shape or form in terms of our broad portfolio. But unequivocally there are some pockets of deflation there in line with our expectations. As relates to the supply chain activity, I would ask you just to continue to think about supply chain initiatives as being an inherent strength within the overall portfolio through a variety of lenses, whether it's collaboration on the medical side of the equation, the traditional supply chain activity, the value-based supply chain activity, et cetera. And we have a continuous drive to improve value, albeit, to partner as we go through the process and as we get into some more of the complex dimensions of the higher costs, drugs and medications, we think there's further opportunity through the supply chain activity around value based care relationships, aligned incentive relationships more specifically with the manufacturers and with ourselves on a go forward basis. So I wouldn't call out any unique driver. More importantly, it's a continuous improvement part of our portfolio, and it's an underlying strength of our portfolio. And lastly, our sustained growth supports that in a very positive way.

Got it? Okay. Thanks.

Thank you, Mr. Valiquette. Our last question comes from Mr. David Windley with Jefferies. You may ask your question.

Hi, good morning. Thanks for squeezing me in. I wanted to come back to the telemedicine topic and David thinking about your capital light strategy relative to providers and network. I'm wondering if Evernorth and Cigna has an opportunity to leverage MDLIVE into your collaborative care partnerships or otherwise into partnered networks as opposed to own networks in your case? And then alternatively, do you have an opportunity to use MDLIVE to feed volume or refer volume, catch volume if you so to speak in parts of -- other parts of Evernorth, especially pharmacy mail or delivery, things like that by owning and controlling telemedicine through MDLIVE?

Good morning. Appreciate the question. So twofold. The first part of your question, the simple answer is yes. So to be really clear. Again, we see the opportunity, obviously, from a standalone, if you will fulfillment and delivery of the service but also an opportunity in collaboration in alignment as a panel extender for high performing collaborative accountable care relationships. And those conversations are dynamic and underway. To the second part of your question, very thoughtful framework and appreciate it. If we come back and think about first and foremost, our ability to further improve affordability. You may recall at our Investor Day, we talked about four major ways in which we further improve affordability off of our strong overall cost environment today. One, is to further increase the percentage of utilization that takes place in the highest performing clinical settings, be they physicians or facilities. Second, is to work to reduce the cost of drugs further. Third, is to effectively leverage alternative sites of care. For example, the difference between a knee replacement that is inpatient versus outpatient is about a third less than cost. And we see a massive shift at the physical side of care is similar in virtual side of care. And then fourth, the ability to further coordinate the fragmented system specifically in the areas of medical and behavioral. So back to your question. Our evolution of our telemedicine and virtual care capability present opportunities to contribute to a variety of these areas to help to support individual customers or patients accessing higher cost healthcare specialists or delivery system partners, helping to drive further leverage relative to the pharmaceutical equation in terms of medication compliance, or alternative lower cost medications, and the ability to merge or coordinate services be the behavioral and pharmacy behavioral and medical are being in that quarterback position with a customer patient from that standpoint. So we see it as being complimentary to a variety of those initiatives. And we see it being both complimentary to your first question, proprietary driving on our own, and in collaboration is a panel extended for high performing healthcare professional partners. Thanks for the question.

Yes. Thank you.

Thank you Mr. Windley. I will now turn the call back over to David Cordani for closing remarks.

First, thanks for our time today. We really appreciate spending time to discuss our Cigna results and our outlook. I just want to wrap up our call with a few headlines. First and foremost, we delivered strong financial performance during the quarter as we continue to navigate through what is undoubtedly a dynamic environment. And we work to meet and balance the needs of all of our stakeholders, as we act as champions for healthcare that is affordable, predictable and simple. In addition, our strong foundation driven by our growth framework and track record of success gives us confidence in our ability to achieve our increased EPS outlook for 2021 of $20.20. As well as positions as well for our ongoing long term average annual revenue growth rate of 68% and our 10% to 13% average annual adjusted EPS growth rate, all while continuing to pay attractive dividend. With that again, we thank you for joining our call and we look forward to our future conversations.

Ladies and gentlemen, this concludes Cigna's first quarter 2021 results review. Cigna Investor Relations will be available to respond to additional questions shortly. A recording of this conference will be available for 10 business days following this call. You may access the recorded conference by dialing 800-551-8152 or 203-369-3810. There is no passcode required for this replay. Thank you for your participating. We will now disconnect.