CVS 2014 Annual Report Download - page 33

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2014 Annual Report
• Our gross profit as a percentage of revenues benefited from the increase in our total generic dispensing rate,
which increased to 82.2% and 80.5% in 2014 and 2013, respectively, compared to our generic dispensing rate of
78.2% in 2012. These increases were primarily due to new generic drug introductions and our continued efforts to
encourage plan members to use generic drugs when they are available. We expect these trends to continue, albeit
at a slower pace.
Operating expenses in our Pharmacy Services Segment, which include selling, general and administrative
expenses, depreciation and amortization related to selling, general and administrative activities and retail specialty
pharmacy store and administrative payroll, employee benefits and occupancy costs, decreased to 1.4% of net
revenues in 2014 compared to 1.5% in 2013 and 2012.
As you review our Pharmacy Services Segment’s performance in this area, we believe you should consider the
following important information:
• Operating expenses increased $106 million or 9.2%, to $1.3 billion, in the year ended December 31, 2014,
compared to the prior year. The increase in operating expenses is primarily related to increased costs associated
with infusion services due to the 2014 acquisition of Coram, as well as an $11 million gain from a legal settlement
during the year ended December 31, 2013. The slight decrease in operating expenses as a percentage of net
revenues was primarily due to expense leverage from net revenue growth.
• During 2013, the increase in operating expenses of $22 million or 1.9%, to $1.2 billion compared to 2012, is
primarily related to costs associated with the remediation of Medicare Part D sanctions and coverage determina-
tion issues discussed below. Operating expenses as a percentage of net revenues remained relatively flat.
Medicare Part D — The Company participates in the Medicare Part D program by (1) providing Medicare
Part D-related PBM services to our health plan and other clients that have qualified as Medicare Part D plans, and
(2) offering Medicare Part D pharmacy benefits through the Company’s SilverScript prescription drug plan (“PDP”),
which offers benefits to individual members and through employer group waiver plans. At the beginning of the 2013
Medicare Part D plan year, the Company implemented an enrollment systems conversion process and other actions
to consolidate its Medicare Part D PDPs into the Company’s SilverScript PDP. These consolidation efforts impacted
certain enrollment and coverage determination services the Company provided to SilverScript enrollees following
commencement of the 2013 plan year. Effective January 15, 2013, the Centers for Medicare and Medicaid Services
(“CMS”) imposed intermediate sanctions on the SilverScript PDP, consisting of immediate suspension of further
plan enrollment and marketing activities. On December 20, 2013, the Company announced that CMS completed
its review of the corrective actions taken to address the enrollment processing and related issues resulting from the
Company’s plan consolidation efforts and the sanctions were removed. SilverScript began to enroll new choosers
with effective dates starting in February 2014 as they aged into Medicare. The low income subsidy (“LIS”) auto-
enrollment and annual reassignment exclusion was lifted on February 21, 2014 and SilverScript began receiving
LIS enrollees again with effective dates May 1, 2014 and forward.