XML 37 R9.htm IDEA: XBRL DOCUMENT
v3.20.1

Significant Accounting Policies | 3 Months Ended
--- | ---
Mar. 31, 2020
Accounting Policies [Abstract] |
Significant Accounting Policies | Significant Accounting Policies Description of Business CVS Health Corporation (“CVS Health”), together with its subsidiaries (collectively, the “Company”), has approximately 9,900 retail locations, approximately 1,100 walk-in medical clinics, a leading pharmacy benefits manager with approximately 102 million plan members, a dedicated senior pharmacy care business serving more than one million patients per year and expanding specialty pharmacy services. The Company also serves an estimated 34 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 believes its innovative health care model increases access to quality care, delivers better health outcomes and lowers overall health care costs. The coronavirus disease 2019 (“COVID-19”) pandemic has severely impacted the economies of the U.S. and other countries around the world. The impact of COVID-19 on the Company’s businesses, operating results, cash flows and financial condition in the three months ended March 31, 2020, as well as information regarding certain expected impacts of COVID-19 on the Company, is discussed throughout this Quarterly Report on Form 10-Q. The Company has four reportable segments: Pharmacy Services, Retail/LTC, Health Care Benefits and Corporate/Other, which are described below. Pharmacy Services Segment The Pharmacy Services segment provides a full range of pharmacy benefit management (“PBM”) solutions, including plan design offerings and administration, formulary management, retail pharmacy network management services, mail order pharmacy, specialty pharmacy and infusion services, clinical services, disease management services and medical spend management. The Pharmacy Services segment’s clients are primarily employers, insurance companies, unions, government employee groups, health plans, PDPs, Medicaid managed care plans, plans offered on public health insurance exchanges (“Public Exchanges”) and private health insurance exchanges, other sponsors of health benefit plans and individuals throughout the United States. The Pharmacy Services segment operates retail specialty pharmacy stores, specialty mail order pharmacies, mail order dispensing pharmacies, compounding pharmacies and branches for infusion and enteral nutrition services. Retail/LTC Segment The Retail/LTC segment sells prescription drugs and a wide assortment of general merchandise, including over-the-counter drugs, beauty products, cosmetics and personal care products, provides health care services through its MinuteClinic® walk-in medical clinics and conducts long-term care pharmacy (“LTC”) operations, which distribute prescription drugs and provide related pharmacy consulting and other ancillary services to long-term care facilities and other care settings. As of March 31, 2020, the Retail/LTC segment operated approximately 9,900 retail locations, approximately 1,100 MinuteClinic locations as well as online retail pharmacy websites, LTC pharmacies and onsite pharmacies. Health Care Benefits Segment The Health Care Benefits segment is one of the nation’s leading diversified health care benefits providers. 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, Medicaid health care management services, workers’ compensation administrative services and health information technology products and services. The Health Care Benefits segment’s customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers (“providers”), governmental units, government-sponsored plans, labor groups and expatriates. 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.” Corporate/Other Segment The Company presents the remainder of its financial results in the Corporate/Other segment, which 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, information technology and
finance departments, expenses associated with the Company’s investments in its transformation and Enterprise modernization programs and 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.
Basis of Presentation The accompanying unaudited condensed consolidated financial statements of CVS Health and its subsidiaries have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. In accordance with such rules and regulations, certain information and accompanying note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted, although the Company believes the disclosures included herein are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. Because of the influence of various factors on the Company’s operations, including business combinations, certain holidays and other seasonal influences, net income for any interim period may not be comparable to the same interim period in previous years or necessarily indicative of income for the full year. Principles of Consolidation The unaudited condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries and variable interest entities (“VIEs”) for which the Company is the primary beneficiary. All material intercompany balances and transactions have been eliminated. The Company continually evaluates its investments to determine if they represent variable interests in a VIE. If the Company determines that it has a variable interest in a VIE, the Company then evaluates if it is the primary beneficiary of the VIE. The evaluation is a qualitative assessment as to whether the Company has the ability to direct the activities of a VIE that most significantly impact the entity’s economic performance. The Company consolidates a VIE if it is considered to be the primary beneficiary. Assets and liabilities of VIEs for which the Company is the primary beneficiary were not significant to the Company’s unaudited condensed consolidated financial statements. VIE creditors do not have recourse against the general credit of the Company. Reclassifications Certain prior year amounts have been reclassified to conform with the current year presentation. Restricted Cash Restricted cash included in other assets on the unaudited condensed consolidated balance sheets represents amounts held in a trust in one of the Company’s captive insurance companies to satisfy collateral requirements associated with the assignment of certain insurance policies. All restricted cash is invested in time deposits, money market funds or commercial paper. 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 | March 31, 2020 |  | December 31, 2019
Cash and cash equivalents | $ | 10,081 |  |  | $ | 5,683 |
Restricted cash (included in other assets) | 256 |  |  | 271 |
Total cash, cash equivalents and restricted cash in the statements of cash flows | $ | 10,337 |  |  | $ | 5,954 |
Accounts Receivable Accounts receivable are stated net of allowances for credit losses, customer credit allowances, contractual allowances and estimated terminations. Accounts receivable, net is composed of the following:
In millions | March 31, 2020 |  | December 31, 2019
Trade receivables | $ | 7,698 |  |  | $ | 6,717 |
Vendor and manufacturer receivables | 8,585 |  |  | 7,856 |
Premium receivables | 3,916 |  |  | 2,663 |
Other receivables | 2,838 |  |  | 2,381 |
Total accounts receivable, net | $ | 23,037 |  |  | $ | 19,617 |
The Company’s allowance for credit losses was $340 million as of March 31, 2020. When developing an estimate of the Company’s expected credit losses, the Company considers all available relevant information regarding the collectability of cash flows, including historical information, current conditions and reasonable and supportable forecasts of future economic conditions over the contractual life of the receivable. The Company’s accounts receivable are short duration in nature and typically settle in less than 30 days. The Company’s allowance for doubtful accounts was $319 million as of December 31, 2019. Revenue Recognition Disaggregation of Revenue The following table disaggregates the Company’s revenue by major source in each segment for the three months ended March 31, 2020 and 2019:
In millions | Pharmacy Services |  | Retail/ LTC |  | Health Care Benefits |  | Corporate/ Other |  | Intersegment Eliminations |  | Consolidated Totals
Three Months Ended March 31, 2020 |  |  |  |  |  |  |  |  |  |
Major goods/services lines: |  |  |  |  |  |  |  |  |  |  |
Pharmacy | $ | 34,774 |  |  | $ | 17,355 |  |  | $ | — |  |  | $ | — |  |  | $ | (10,257 | ) |  | $ | 41,872 |
Front Store | — |  |  | 5,208 |  |  | — |  |  | — |  |  | — |  |  | 5,208 |
Premiums | — |  |  | — |  |  | 17,621 |  |  | 19 |  |  | — |  |  | 17,640 |
Net investment income | — |  |  | — |  |  | 93 |  |  | 69 |  |  | — |  |  | 162 |
Other | 209 |  |  | 186 |  |  | 1,484 |  |  | 2 |  |  | (8 | ) |  | 1,873 |
Total | $ | 34,983 |  |  | $ | 22,749 |  |  | $ | 19,198 |  |  | $ | 90 |  |  | $ | (10,265 | ) |  | $ | 66,755 |
Pharmacy Services distribution channel: |  |  |  |  |  |  |  |  |  |
Pharmacy network (1) | $ | 21,100 |  |  |  |  |  |  |  |  |  |  |
Mail choice (2) | 13,674 |  |  |  |  |  |  |  |  |  |  |
Other | 209 |  |  |  |  |  |  |  |  |  |  |
Total | $ | 34,983 |  |  |  |  |  |  |  |  |  |  |
Three Months Ended March 31, 2019 |  |  |  |  |  |  |  |  |  |
Major goods/services lines: |  |  |  |  |  |  |  |  |  |  |
Pharmacy (3) | $ | 33,413 |  |  | $ | 16,118 |  |  | $ | — |  |  | $ | — |  |  | $ | (11,001 | ) |  | $ | 38,530 |
Front Store | — |  |  | 4,799 |  |  | — |  |  | — |  |  | — |  |  | 4,799 |
Premiums | — |  |  | — |  |  | 16,259 |  |  | 23 |  |  | — |  |  | 16,282 |
Net investment income | — |  |  | — |  |  | 164 |  |  | 85 |  |  | — |  |  | 249 |
Other (3) | 145 |  |  | 198 |  |  | 1,447 |  |  | 2 |  |  | (6 | ) |  | 1,786 |
Total | $ | 33,558 |  |  | $ | 21,115 |  |  | $ | 17,870 |  |  | $ | 110 |  |  | $ | (11,007 | ) |  | $ | 61,646 |
Pharmacy Services distribution channel: |  |  |  |  |  |  |  |  |  |
Pharmacy network (1) (3) | $ | 21,532 |  |  |  |  |  |  |  |  |  |  |
Mail choice (2) (3) | 11,881 |  |  |  |  |  |  |  |  |  |  |
Other | 145 |  |  |  |  |  |  |  |  |  |  |
Total | $ | 33,558 |  |  |  |  |  |  |  |  |  |  |
_____________________________________________
(1) | Pharmacy Services pharmacy network is defined as claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and LTC pharmacies, but excluding Maintenance Choice® activity, which is included within the mail choice category. Maintenance Choice 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.
(2) | Pharmacy Services mail choice is defined as claims filled at a Pharmacy Services mail order facility, which includes specialty mail claims inclusive of Specialty Connect® claims picked up at a retail pharmacy, as well as prescriptions filled at the Company’s retail pharmacies under the Maintenance Choice program.
(3) | Certain prior year amounts have been reclassified for consistency with the current period presentation.
Contract Balances Contract liabilities primarily represent the Company’s obligation to transfer additional goods or services to a customer for which the Company has received consideration, and include ExtraBucks Rewards and unredeemed Company gift cards. The consideration received remains a contract liability until goods or services have been provided to the customer. In addition, the Company recognizes breakage on Company gift cards based on historical redemption patterns. The following table provides information about receivables and contract liabilities from contracts with customers:
In millions | March 31, 2020 |  | December 31, 2019
Trade receivables (included in accounts receivable, net) | $ | 7,698 |  |  | $ | 6,717 |
Contract liabilities (included in accrued expenses) | 85 |  |  | 73 |
During the three months ended March 31, 2020 and 2019, the contract liabilities balance includes increases related to customers’ earnings in ExtraBucks Rewards or issuances of Company gift cards and decreases for revenues recognized during the period as a result of the redemption of ExtraBucks Rewards or Company gift cards and breakage of Company gift cards. Below is a summary of such changes:
| Three Months Ended March 31,
In millions | 2020 |  | 2019
Contract liabilities, beginning of the period | $ | 73 |  |  | $ | 67 |
Rewards earnings and gift card issuances | 99 |  |  | 90 |
Redemption and breakage | (87 | ) |  | (82 | )
Contract liabilities, end of the period | $ | 85 |  |  | $ | 75 |
Health Insurer Fee Since January 1, 2014, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”) has imposed an annual premium-based health insurer fee (the “HIF”). The HIF, which is payable each September, is not deductible for federal income tax purposes. There was no expense related to the HIF in the three months ended March 31, 2019, since there was a one-year suspension of the HIF for 2019. In the three months ended March 31, 2020, operating expenses included $271 million related to the Company’s estimated share of the 2020 HIF. In December 2019, the HIF was repealed for calendar years after 2020. Related Party Transactions The Company has an equity method investment in SureScripts, LLC (“SureScripts”), which operates a clinical health information network. The Company utilizes this clinical health information network in providing services to its client plan members and retail customers. The Company expensed fees for the use of this network of $20 million and $10 million in the three months ended March 31, 2020 and 2019, respectively. The Company’s investment in and equity in the earnings of SureScripts for all periods presented is immaterial. The Company has an equity method investment in Heartland Healthcare Services, LLC (“Heartland”). Heartland operates several LTC pharmacies in four states. Heartland paid the Company $21 million and $25 million for pharmaceutical inventory purchases during the three months ended March 31, 2020 and 2019, respectively. Additionally, the Company performs certain collection functions for Heartland and then transfers those customer cash collections to Heartland. The Company’s investment in and equity in the earnings of Heartland for all periods presented is immaterial. New Accounting Pronouncements Recently Adopted Measurement of Credit Losses on Financial Instruments In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). This standard requires the use of a forward-looking expected credit loss impairment model for trade and other receivables, held-to-maturity debt securities, loans and other instruments. This standard also requires impairments and recoveries for available-for-sale debt securities to be recorded through an allowance account and revises certain disclosure requirements. The Company adopted this new accounting standard on January 1, 2020. The Company adopted the credit loss impairment model on a modified retrospective basis and recorded a $3 million cumulative effect adjustment to reduce retained earnings as of the adoption date. The Company adopted the available-for-sale debt security impairment model on a prospective basis. The adoption of this standard did not have a material impact on the Company’s consolidated operating results, cash flows or financial condition. Refer to “Accounts Receivable” above for a discussion of the Company’s expected credit loss impairment policy for its accounts receivable. The following is a discussion of the Company’s available-for-sale debt security impairment policy and expected credit loss impairment policy for mortgage loans under the new credit loss impairment standard: Debt Securities Debt securities consist primarily of United States Treasury and agency securities, mortgage-backed securities, corporate and foreign bonds and other debt securities. Debt securities are classified as either current or long-term investments based on their contractual maturities unless the Company intends to sell an investment within the next 12 months, in which case it is classified as current within the unaudited condensed consolidated balance sheets. Debt securities are classified as available for sale and are carried at fair value. If a debt security is in an unrealized loss position and the Company has the intent to sell the security, or it is more likely than not that the Company will have to sell the security before recovery of its amortized cost basis, the amortized cost basis of the security is written down to its fair value and the difference is recognized in net income. If a debt security is in an unrealized loss position and the Company does not have the intent to sell and it is more likely than not that the Company will not have to sell such security before recovery of its amortized cost basis, the Company bifurcates the impairment into credit-related and non-credit related components. In evaluating whether a credit related loss exists, the Company considers a variety of factors including: the extent to which the fair value is less than the amortized cost basis; adverse conditions specifically related to the issuer of a security, an industry or geographic area; the payment structure of the security; the failure of the issuer of the security to make scheduled interest or principle payments; and any changes to the rating of the security by a rating agency. The amount of the credit-related component is recorded as an allowance for credit losses and recognized in net income, and the amount of the non-credit related component is included in other comprehensive income (loss). Interest is not accrued on debt securities when management believes the collection of interest is unlikely. The credit-related component is determined by comparing the present value of cash flows expected to be collected from the security, considering all reasonably available information relevant to the collectability of the security, with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security, the Company records an allowance for credit losses, which is limited by the amount that the fair value is less than amortized cost basis. For mortgage-backed and other asset-backed securities, the Company recognizes income using an effective yield based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The Company’s investment in the security is adjusted to the amount that would have existed had the new effective yield been applied since the acquisition of the security, with adjustments recognized in net income. Mortgage Loans Mortgage loan investments are valued at the unpaid principal balance, net of an allowance for credit losses. Mortgage loans with a maturity date or a committed prepayment date within twelve months are classified as current on the unaudited condensed consolidated balance sheets. The Company assesses whether its loans share similar risk characteristics and, if so, groups such loans in a risk pool when measuring expected credit losses. The Company considers the following characteristics when evaluating whether its loans share similar risk characteristics: loan-to-value ratios, property type (e.g., office, retail, apartment, industrial), geographic location, vacancy rates and property condition. Credit loss reserves are determined using a loss rate method that multiplies the unpaid principal balance of each loan within a risk pool group by an estimated loss rate percentage. The loss rate percentage considers both the expected loan loss severity and the probability of loan default. For periods where the Company is able to make or obtain reasonable and supportable forecasts of expected economic conditions (e.g., gross domestic product, employment), the Company adjusts its expected loss rates to reflect these forecasted economic conditions. For periods beyond which the Company is able to make or obtain reasonable and supportable forecasts of expected economic conditions, the Company reverts to historical loss rates in determining expected credit losses. Interest income on a potential problem loan (i.e., high probability of default) or restructured loan is accrued to the extent it is deemed to be collectible and the loan continues to perform under its original or restructured terms. Interest income on problem loans (i.e., more than 60 days delinquent, in bankruptcy or in process of foreclosure) is recognized on a cash basis. Cash payments on loans in the process of foreclosure are treated as a return of principal. Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and other - Internal-Use Software (Topic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This standard requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Topic 350-40 to determine which implementation costs to capitalize as assets. The Company adopted this new accounting guidance on January 1, 2020 on a prospective basis. The adoption of this standard did not have a material impact on the Company’s consolidated operating results, cash flows, financial condition or related disclosures. New Accounting Pronouncements Not Yet Adopted Targeted Improvements to the Accounting for Long-Duration Insurance Contracts In August 2018, the FASB issued ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts (Topic 944). This standard requires the Company to review cash flow assumptions for its long-duration insurance contracts at least annually and recognize the effect of changes in future cash flow assumptions in net income. This standard also requires the Company to update discount rate assumptions quarterly and recognize the effect of changes in these assumptions in other comprehensive income. The rate used to discount the Company’s liability for future policy benefits will be based on an estimate of the yield for an upper-medium grade fixed-income instrument with a duration profile matching that of the Company’s liabilities. In addition, this standard changes the amortization method for deferred acquisition costs and requires additional disclosures regarding the long duration insurance contract liabilities in the Company’s interim and annual financial statements. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. The Company is currently evaluating the effect that implementation of this standard will have on the Company’s consolidated operating results, cash flows, financial condition and related disclosures. Simplifying the Accounting for Income Taxes In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Accounting Standards Codification 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption is permitted. The Company is currently evaluating the effect that implementation of this standard will have on the Company’s consolidated operating results, cash flows, financial condition and related disclosures.

X
- References No definition available. + Details
Name: | us-gaap_AccountingPoliciesAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
Name: | us-gaap_BasisOfPresentationAndSignificantAccountingPoliciesTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration