CVSCVS Health

•In April 2024, 2025, CMS issued its final notice detailing final 2025 2026 Medicare Advantage payment rates. Based on CMS’ notice, Medicare Advantage rates resulted in an expected average increase in revenue for the Medicare Advantage industry of 3.70%, which includes a risk score trend increase of 3.86%. Risk scores vary among Medicare Advantage plans depending on the specific population served, so this increase does not represent an actual guaranteed payment increase. Without including the risk score trend increase, the 2025 rates result in an expected average decrease in revenue for the Medicare Advantage industry of 0.16%, though the rates may vary widely depending on the provider group and patient demographics. On January 10, 2025, CMS issued an advance notice detailing proposed 2026 Medicare Advantage payment rates. The 2026 Medicare Advantage rates, if finalized as proposed, will result in an expected average increase in revenue for the Medicare Advantage industry of 4.33%, 7.16%, which includes a risk score trend increase of 2.10%. Without including the risk score trend increase, the advance 2026 rates will result in an expected average increase in revenue for the Risk scores vary among Medicare Advantage industry of 2.23%, though the rates may vary widely plans depending on the provider group and patient demographics. CMS intends to publish the final 2026 rate announcement no later than April 7, 2025. The Company faces challenges from the impact of the increasing cost of medical care (including prescription medications), changes to methodologies for determining payments and CMS local and national coverage decisions that require the Company to pay for services and supplies that are not factored into the Company’s bids. We cannot predict how the rates will be finalized, future Medicare funding levels, the impact of future federal budget actions or ensure that such changes or actions will not have a material adverse effect on our Medicare operating results.

U.S. ex rel. Bassan et al. v. Omnicare, Inc. and CVS Health Corp. (U.S. District Court for the Southern District of New York). In December 2019, the U.S. Attorney’s Office for the Southern District of New York filed a complaint-in-intervention in this previously sealed qui tam case. The complaint alleges that for certain non-skilled nursing facilities, Omnicare improperly filled prescriptions beyond one year where a valid prescription did not exist and that these dispensing events violated the federal False Claims Act. In April 2025, the jury found both Omnicare and CVS Health Corporation liable. The jury awarded approximately $136 million due to Omnicare’s conduct. This amount is automatically required to be tripled by statute to approximately $407 million. Accordingly, a litigation reserve was recorded related to this matter in the three months ended March 31, 2025. The jury found no damages attributable to CVS Health Corporation. In July 2025, the Court awarded penalties against Omnicare for $542 million, for which the Company recorded an incremental litigation reserve in the three months ended June 30, 2025. The Court also found CVS Health Corporation to be jointly and severally liable for $165 million of the $542 million in penalties. The Company is defending itself against these claims. has filed an appeal to the Second Circuit. As discussed in Note 1 ‘‘Significant Accounting Policies’’, on September 22, 2025, Omnicare initiated a voluntary court-supervised Chapter 11 bankruptcy process and was deconsolidated in the three months ended September 30, 2025. The litigation reserve of $165 million that CVS Health Corporation was jointly and severally liable for remained as a liability on the consolidated balance sheet at December 31, 2025.

Although the Company believes the financial projections used to determine the fair value of the Government Health Care Delivery reporting unit were reasonable and achievable, continued utilization pressure within pressure, insufficient CMS Medicare rate increases relative to underlying medical cost trend or further reductions to the Medicare product line and continued higher acuity in Medicaid number of existing primary care centers or new primary care center openings may affect the Company’s ability to increase operating income results in the Government Health Care Delivery reporting unit at the rate estimated when such goodwill impairment test was performed. Some of the key assumptions included in the Company’s financial projections to determine the estimated fair value of its Government Health Care Delivery reporting unit include future health care costs, changes in medical membership, revenue growth rates, operating margins including the impact of annual new primary care center openings, and operating expense ratios. income. The estimated fair value of the Government Health Care Delivery reporting unit is also dependent on multiples of market participants in the health insurance care delivery industry, as well as the risk-free interest rate environment which impacts the discount rate used in the discounted cash flow method. As If the Company does not achieve its forecasts, given that the fair value and the carrying value of December 31, 2024, the Health Care Delivery reporting unit were the same following the goodwill balance in impairment charge recorded during the Government reporting unit was approximately $21.2 billion. third quarter of 2025, it is reasonably

During the years ended December 31, 2024, 2023, and 2022, the The Company recorded office real estate optimization charges of $30 million, $46 million, and $117 million, respectively, primarily related to the abandonment of leased real estate and the related right-of-use assets and property and equipment in connection with the planned reduction of continuously evaluates its corporate office real estate space in response to its ongoing flexible work arrangement. arrangement and changes in employee work arrangement requirements to ensure it has the appropriate space to support the business. As a result of its assessment, the Company determined that it would vacate and abandon certain leased corporate office spaces. During the years ended December 31, 2025, 2024 and 2023, the Company recorded $10 million, $30 million, and $46 million, respectively, of office real estate optimization charges primarily related to operating lease right-of-use assets and property and equipment. The office real estate optimization charges were recorded in operating expenses within each segment.