Q4 2019 Earnings Call
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I would now like to have the conference over to your speaker today salary hotels senior Vice President of Investor Relations for Cvs Health.
Please go ahead matter.
Thank you and good morning, everyone welcome to the Cvs Health fourth quarter and full year 2019 earnings call. As a reminder, this call is being recorded I'm salary Hotel senior Vice President of Investor Relations for Cvs Health I'm joined this morning by Larry Merlo, President and CEO.
Oh, Eva Berardo Executive Vice President and CFO. Following our prepared remarks will host a question and answer session that will include John Roberts, Chief Operating Officer, Karen Lynch President of at night, and Derica Rice President of Caremark in order to provide more people with the chance to ask a question during the.
Today, please limit yourself to no more than one question with a quick follow up.
Consistent with our practice in addition to this call I never press release, we have posted a slide presentation on our website. Our form 10-K will be filed next week and will be available on our website at that time. Please note that during this call we will make certain forward looking statements that reflect our current views related to our future.
Financial performance future events, and industry and market conditions as well as expected consumer benefits of our products and services at our financial projection projections, including synergies from the at not acquisition. These forward looking statements are subject to risks and uncertainties that could cause actual results to.
Really from what maybe indicated in them. We strongly encourage you to review the information in the reports we filed with the FCC regarding these risks and uncertainties in particular those that are described in the risk factor section of our annual report on form 10-K, and the cautionary statements concerning forward looking statements disclosures.
In our quarterly reports on form 10-Q, you should also review the section entitled cautionary statements concerning forward looking statements in this morning's earnings press release.
During this call will use non-GAAP financial measures when talking about the company's performance and financial condition in accordance with FCC regulations, you could find a reconciliation of these non-GAAP measures to comparable GAAP measures in this morning's earnings press release and a reconciliation document posted on the Investor relations portion of our website.
[noise] and there's always today's call is being broadcast under website, where it will be archived for one year now I'll turn the call over to Larry.
Well, thanks, Valerie and good morning, everyone and thanks for joining us.
2019 was a transformational year for CBS Hill, and we have made significant progress in our first full year after acquiring Adnan.
We've been executing against our plan, which has been delivering substantial value above our initial expectations and this values driven by growth across our businesses as well as contributions from our integration synergies.
Evil will provide the details on our 19 performance along with our improved dot work for 2020, and I'll provide a few financial highlights and discuss our operational execution.
For the full year 2019, we delivered adjusted earnings per share of $7, an eight cents.
Total revenues of nearly 257 billion up 32%, reflecting a full year of Edmonds operations and positive momentum across our enterprise.
We generated strong cash flows from operations of 12.8 billion, enabling us to repaid 4.7 billion of net long term debt returned 2.6 billion to shareholders in the form of cash dividends and continue to invest to accelerate future growth of our enterprise.
Moving to 2020, we expect continued progress with adjusted earnings per share in the range of $7.04 to 717, representing growth of approximately 3% to 5% over our 2019 baseline of $6, an 83 cents, which excludes net realized capital gains in prior.
For years development.
This growth is ahead of what we outlined at our June Investor Day last year.
Our strong performance as a combined company along with positive feedback from our key stakeholders gives us even greater confidence in our ability to accelerate growth in 2020 and beyond.
We have set a clearer and bold path for CBS health to be the most consumer centric held company transforming the way care is delivered in the U.S. and.
In a significant part of that is delivering an expanded suite of integrated health services across our businesses.
And with over a year of successful integration, we have laid a strong foundation for growth.
We remain focused on making health care more vocal across the country, making health care simpler to help consumers better navigate their health and make informed decisions and helping people achieve their best health outcome, particularly when it comes to managing chronic disease.
Well, we have four priorities the guide our transformation as we outlined at our June Investor Day.
And they are growing differentiate our businesses.
Deliberate transformational products and services.
Create a consumer centric technology infrastructure, and modernize enterprise functions and capabilities.
And we have advanced all four of these priorities in the past year and I'll briefly touch on a few recent highlights to demonstrate areas, where we have momentum and are driving innovation.
In health care benefits, we've grown our membership to 22.9 billion up nearly 4% over last year driven by strong growth in our government services businesses in particular, our Medicare advantage business grew by over three times the industry average in 2019 generating outstanding member.
A ship growth of over 30% in both our individual and group Medicare products.
Last year in our commercial book, we implemented zero or low co pay options for members that are met at clinics with 3 million members enrolled for January 2020.
It Caremark, we recently announced a new zero out of pocket program for diabetes care.
We expect enrolled members on average to save an estimated $467 per year in out of pocket expenses.
In the area of chronic disease management, we have developed a number of innovative pilot programs and service offerings as.
As an example transform oncology care is a new program that pulls together, our integrated assets and capabilities and includes a precision medicine program that uses the latest genomic science and technology to help patients received the most effective cancer treatments.
We're also bringing innovation to the point of care at our retail pharmacies, which are at the forefront of our effort to make quality health care more accessible simple seamless and affordable.
And our health clubs are the most visible aspect of our integrated offerings and an important component of our comprehensive strategy to fundamentally transform the way, we deliver care to millions of Americans locally.
Now as we expand our mini clinics in health clubs, where our practitioners can treat about 80% of what a primary care physician can treat we expect to help patients avoid more costly or unnecessary care.
We also began rolling out pharmacists panels at our health hubs, which we will expand to other retail locations and these panels provide a holistic 360 degree view of the patient by combining pharmacy in medical data.
And having integrated data at their fingertips, our pharmacist can improve medication adherence optimize medication regimens close gaps in care and connect patients to their health plan, a minute clinic or other appropriate resources.
Our hubs continue to outperform their control group with higher script volume and increased medical clinic visits and our front store sales are in line with expectations and we continued to see increased utilization of health related services.
Now a key part of our consumer centric care strategy is meeting people, where they are including in the palm of their hand.
And we're seeing positive uptake of our digital strategy as consumers increasingly engaged with us through our apps online and via text messaging and we're seeing higher rates of satisfaction and loyalty from our digitally engaged consumers.
So those are just a few of our accomplishments with several more listed in our slide presentation and they are the validation points that the ethnic integration activities over the past year have established a solid foundation to accelerate the pace of innovation bring our unique offerings to more and more people and drive.
Profitable growth.
As we continue to innovate and execute we will stay close to the markets. We serve in response to the needs of our clients and what this means for our four key priorities is the following.
Within the health plan landscape, our clients, they're looking to us for solutions and innovation in particular, the expansion of government programs creates a need for our services to manage complex high acuity and chronic condition consumers and with our convenient and local touch points in place and with our advanced.
Got it and analytics, we have the ability to creatively and efficiently deliver local personal high touch care with new products and service offerings coming to market.
Second the importance of specialty medicine, and gene therapy benefit management solutions and services it continues to grow.
This year, we estimate about 60% of pharmacy spend is specialty and that includes that paid onto the medical benefit and it could reach 25% of total health care costs over the next several years.
We are continuously innovating and bringing new programs and solutions to our clients and further innovation in this area is imperative to delivering a better patient experience and lowering costs.
Third as the importance of our open platform approach and we're committed to extending to our many health plan clients the technology offerings and health care services that we developed in house.
We have about 350 health plan relationships and over 100 health system alliances across the enterprise and it's vital that we continue to grow these relationships and help these clients solve the issues. They are managing an hour integrated model will benefit us as we not only transformed our business, but also lead.
Transformation of the greater healthcare landscape.
And finally as discussed earlier, we are continuing to enhance our local offerings through our health hubs and our medical clinics working to not leave any white space for disruption.
For us the value within the four walls of our retail locations is only growing in the form of higher margin products and services increased traffic and medical cost savings.
So with the substantial progress that we have made executing our plan today's leadership announcement positions our company to further accelerate growth.
These changes will enable us to more rapidly bring our innovations to market by placing our experienced leaders in areas, where their immediate past experience and deep relationships in the businesses will enhance execution of both our core growth initiatives and our transformation strategies.
This announcement also reflects our deep and talented bench along with the opportunities our business model creates for personal growth.
So let me take a moment to congratulate Alan Jonathan Alec on their new roles and I also want to thank derica for his leadership and contributions and Derek and Alan will work together to ensure a smooth transition.
So I am confident that we have the right leadership team in place and we're at the forefront of driving a sea change and how our key stakeholders think about us.
And how consumers work with us to take control of their health.
And with that let me turn it over to Eva.
Thanks, Larry and good morning, everyone as Larry stated our strong performance across the enterprise continued in the fourth quarter capping off a successful year across all of our businesses in the fourth quarter, we delivered adjusted EPS of $1.73 and our consolidated adjusted revenues grew 23.
0.1% year over year the increase in revenue was primarily driven by the addition of that no in the health care benefits segment, followed by higher volume in both the pharmacy services and retail long term care segments.
The fourth quarter also benefited from a lower than anticipated tax rate.
Looking at our fourth quarter results by segment within Pharmacy services total revenues increased 6.2% year over year exceeding our expectations. Our growth was driven by increased volume specialty, including the onboarding of in Jennie O Rx and brand inflation farm.
See services adjusted operating income increased 1.5% versus last year inline with expectations, primarily due to increased claims volume shift of Aetna's mail order in specialty operations into our pharmacy services segment and improved purchasing economics, including the bad.
Benefit from synergies this was partially offset by continued price compression.
Moving to our retail long term care segment performance was in line with our expectations with total revenues up 2.5% year over year, we delivered strong adjusted script growth of 5.6% with comps scripts up 6.9%, primarily driven by the continued adoption of our patient care.
Programs, our fourth quarter share of retail scripts was 26.8% up 80 basis points.
Front store sales and operating income continued to be a positive driver in the fourth quarter.
Same store front store sales increased 8.7%, primarily driven by increases in health and beauty, including strength in cough and cold sales.
Adjusted operating income for retail long term care declined 4.4% as expected primarily due to the continued reimbursement pressure throughout the year retail long term care adjusted operating income benefited from increased volumes and higher generic dispensing rate.
Turning to health care benefits. The segment delivered results that were inline with our expectations total revenues continue to benefit from strong membership growth in our government products total health NBR was 85.7% for the quarter and 84.2% for the year inline.
And with our expectation.
Healthcare benefit expenses were higher in the fourth quarter related to our readiness investments for one one plan starts.
Next I'll briefly touch on our strong cash generation and disciplined capital allocation strategy in 2019, we generated significant cash from operations of 12.8 billion coming in materially above our expectations cash flow was primarily driven by improvements in working.
In capital, including the timing of certain payables and receivables, which will partially impact our 2020 guidance.
We used approximately 4.7 billion of cash to repay net long term debt in 2019 and since the close of the transaction. We've repaid approximately 8 billion of net long term debt.
As Larry mentioned, we also returned 2.6 billion to shareholders through cash dividends during the year.
Transitioning to our 2020 guidance full year adjusted earnings per share is expected to be in the range of seven no four to 717, reflecting an increase of 3% to 5% from our 2019 baseline of Sixeighty three given our successful integration Act.
Tivity and execution of our strategic priorities, our outlook is more favorable with growth projections improving to low to mid single digit growth versus our previous expectation for low single digit growth.
As a reminder, our 2020 financial projections exclude net realized capital gains in prior years development, which contributed about 25 cents to the full year 2019 results.
We expect consolidated full year 2020, adjusted operating income to be in the range of 15.5 to 15.8 billion up 1.25% to 2.75% with consolidated total revenues in the range of 262 to two high.
Injured and 65.5 billion up 2% to 3.5%.
We expect integration synergies in the range of 800 to 900 million in 2020.
From our previous expectation of about 800 million integration synergies in 2020, we'll continue to come from the integration of our operations streamlining of functions contracting efficiencies and medical cost savings as we've discussed in the path.
Projected integration costs of approximately $450 million are excluded from our non-GAAP results.
We expect to deliver between 10.5 and 11 billion of cash flow from operations in 2020 as I've. Previously stated this includes the timing impact.
Certain payables and receivables that contributed to our 2019 outperformance.
After the payment of our shareholder dividends.
Capital retention to support projected growth in our insurance operations and gross capital expenditures of 2.3 to 2.6 billion. We plan to use the remaining 4.2 to 4.6 billion of cash available to continue to pay down debt.
We remain on track to reach our goal of low three times leverage in 2022, we continue to expect to generate between 10 to 12 billion in cash annually to enhance shareholder value in the long term.
As previously stated we will maintain our dividend of $2 per share demonstrating our commitment to return capital to our shareholders.
Keep in mind that because we are not repurchasing shares the weighted average shares outstanding continues to increase with compensation related share issuance, including option exercises are 2020 adjusted earnings per share guidance reflects approximately eight cents of dilution from those incremental share.
Yes.
Moving to our segments for the full year 2020, we expect pharmacy services revenues to be in the range of 137.5 to 139.5 billion with adjusted operating income of 5.2 to 5.3 billion representing projected growth of 2.25 to three.
3.75% this improvement relative to our Investor day outlook is due to improved business retention and stronger purchasing economics since our Q3 earnings call net new business improved by 2.8 billion, reflecting our business momentum included in our net new business.
This is the retention of a larger portion of the centene contract as well as additional client wins. We're pleased to report that we've extended our contract with Centene through 2020 to.
Year over year adjusted operating income growth is attributable to specialty performance continued improvement in purchasing economics and enterprise modernization offsetting these positive factors is continued industry wide price compression and the net losses in the selling season.
We continue to cycle through our rebate guarantee challenges, resulting from lower brand inflation, which we've discussed on previous calls a.
Additionally, looking ahead to the 2021 selling season, we are pleased to report that to date, we've completed approximately 65% over of renewals with strong retention, including me extension of the FCP contract through 2021, and the renewal of the wells care contractor.
The 2023.
Our PBM model continues to be vital in managing drug cost the importance of scale expertise and customer relationships will continue to be Paramount and we remain focused on delivering the value that our clients expect.
Now, let me turn to retail long term care, we expect full year 2020 retail long term care total revenues to be between 87.5, an 88.8 billion with adjusted operating income of 6.7 to 6.8 billion representing projected growth a 0.25.
To 1.75%.
Retail is expected to continue to deliver strong adjusted script growth of 4.5% to 6.5% due to continued successful execution of our patient care programs, including pharmacy clinical care that improve those medication adherence and patient retention.
We expect our pharmacy growth to be partially offset by continued reimbursement pressure.
Front store operations are expected to drive increased bottomline growth with a focus on our health and beauty business and improve personalization in customer engagement.
Finally, we expect retail long term care to benefit from operating productivity enhancements delivered by our enterprise modernization.
Within the healthcare benefits segment, we expect total revenues to be in the range of 74.1 to 74.8 billion with adjusted operating income of 5.5 to 5.6 billion in Twentytwenty, representing projected growth of five to six in three quarters percent growth is off.
Reported 2019 result.
We expect continued strength in our government products driving topline growth, we expect to end 2020 with between 23.1 and 23.4 million medical members fueled by Medicare advantage and Medicaid growth, including the acquisition the ilmenite care from Centene.
There are few items to consider for health care benefits first integration synergies will continue to disproportionately benefit the healthcare benefits segment.
Our full year MDR is expected to be approximately 83% plus or minus 50 basis points compared to 2019, there's an approximate 160 basis point benefit from the inclusion of the Hes in 2020.
From an adjusted EPS perspective, the effect of the hit is a drag of approximately 13 cents year over year.
Our core commercial medical cost trend is expected to be approximately 6% plus or minus 50 basis points, even with the effective leap day adjusted operating income will be impacted by the divestiture wellcare and partially offsetting that is the acquisition of Illinois care.
Starting in 2020, we will no longer provide quarterly earnings per share guidance. We will continue to provide directional color and insights on our expected performance drivers that may impact the quarterly progression of earnings relative to historical results to provide transparency as we transfer.
Former business, we're highly focused on the enterprise as a whole and achieving our goals. We are managing our integrated business with the goal of driving long term shareholder value and our internal compensation metrics are also based on our annual performance.
With that introduction, let me provide some color about the quarterly progression of earnings we expect in 2020.
Q1 is expected to be the lowest earnings.
Quarter for the year due to the seasonality in the pharmacy services and retail long term care segments similar to 2019 health care benefits lowest earnings quarter will be the fourth quarter due to the earnings progression for that segment.
Including spending to support January readiness, we also expect that benefit from enterprise modernization to ramp over the course of the year while into integration synergies will be more ratable throughout the year.
In summary, we're very pleased with the progress we've made since the close of Vietnam acquisition and have strong confidence in our outlook for 2020 as well the long term trajectory of our enterprise over.
Over the course of the year, we'll provide you with additional updates on our progress related to our transformation efforts and the status of our health hub rollout with that let's open the line for questions.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one when your telephone keypad.
First question comes from Georgia.
Your line is open.
Hey, good morning, guys and thanks for taking the question I think I want to start in the PBM segment.
Larry you need it and I guess, if we look at the 2020 guide versus 2019. The revenue numbers are very close the claims numbers are very close but profitability seems.
Markedly improved so I guess could you talk about the dynamic of what's going on in that segment, where kind of a similar claims number any similar revenue number is driving kind of better than expected profitability.
Yes. George This is this is Eva I'll start and then it's Larry or Derica want to to jump in overall, we're quite pleased with the expectations for the PBM segment that we laid out today clearly it's a significant improvement from what we gave at our Investor day in his view as you look at that.
Business there are two key drivers from.
The improvement that we provided from the results. We provided previously a improvement in the selling season that that we outline and see what I'll call continued purchasing economics. So we've worked hard in improving our underlying cost of goods thinking about our rebates working through everyday Chow.
His improvements in in the network generics and as we look at all of those factors is yielding the results. Additionally, I don't want to lose our modernization effort is also contributing to the expectations for the PBM.
And.
George This is Derek I would also say you're also recall that 2019 was an investment year for us in terms of the at the more Ingenio Rx implementation and we've stated that in Twentytwenty that becomes a profitable.
Position for Us and we call is EBIT said, Weve, obviously been working hard to to reverse our rebate exposure and we've seen that that exposure has lessened in our outlook for 2020 versus the peaks that we realized in 2019. So we're on track in fact ahead of where we thought we'd be in terms of bringing that reduce kinetics.
What was your and mitigating that overtime.
And.
Coal as you think about our claims in year over year in Mclean deal you will see the benefit of the wrath of the Onboarding the anthem contract on the network perspective, and that does not flow through to two revenue is that account is on a net basis.
Okay. That's helpful. And then maybe just a quick follow up is you brought up enterprise modernization. It seems like you guys narrowed the range on that a little bit I guess I would just ask.
Kind of what drove the narrowing versus the top end and I guess did you feel like there were any opportunities that you sell before that you're not able to capitalize on or.
Just any comments on there that would be helpful. Thank you.
No George for from an overall financial perspective, we're really confident in that program as we got closer we just wanted to tighten the range of bid to you know as we look out in 2020 and John can provide some color on some of the initiatives, yes, George So we're well underway with our mob modernization effort very happy with where.
We are in as you recall, we're focused on working smarter to deliver substantial cost benefits, while that same time, delivering an unmatched consumer experience. So some key focus areas or technology modernization. So rationalizing the number of applications that we use across our enterprise.
Helping centers of excellence that will deliver higher levels of service at lower costs examples data robotics or centers of excellence for US. We're also moving to a hybrid cloud environment that will not only lower costs, but significantly reduce the time to build and deploy new capabilities. We're also working on productivity improvements optimize.
And your call centers by taking calls out.
By leveraging artificial intelligence natural language processing and robotics, along with other technologies rationalizing the vendors and optimizing those and then there are business initiatives that will focus on the digitization of manual processes across our company.
And finally, we're leveraging it in advancing or integrated data and analytics capabilities and as an example that will allow us to implement enhanced workforce management tools that allows us to schedule to better serve our customers. So those are some examples I think we we actually see the opportunity or we originally.
Envision then this was a multiyear effort that will deliver substantial savings while at the same time, improving service to both our customers and our own employees.
Your next question comes from Justin.
Research your line is.
Justin.
Mr. Luke you may be on me.
Yes.
Now we can hear you tell Justin.
While the first following up on the question.
His comments on rebate.
Just quickly we kind of seeing the bottom there or I know youre expecting another level of improvement into 2021.
Kind of recapture happen faster or should we still see a meaningful change in 2021, a repeat guarantees.
Yes, I think on just in on the rebate guarantee as we said the the impact was greatest in 2019. It is still a headwind in 2020, albeit less of a headwind and we do you see the issue essentially immaterial as you head into.
2021.
And just and keep in mind as you heard us talk throughout 2019.
We were able to mitigate a portion of those headwinds with working with clients and clients adopting a more complete formulary, which created a win win there was value for them and that helped us offset some of the potential headwind associated with it.
Thanks, and then my question was just around.
Intercompany numbers.
Your intercompany number about backing into correctly it looks like it's down a few billion dollars year over year on revenue, which makes sense I think.
Given the divestiture of those at the PDP lives.
Property actually profitability.
And also apply to wind down instead got worse instead of getting better.
It looks like it's actually bigger negative EBIT year over year, which I talked a little bit strange I was wondering if you could flesh it out would happen or whatever copy, especially.
Increased drag on intercompany corporate.
EBIT perspective thanks.
Yeah, I think just spend as you as you look at the intercompany clearly with the net new business selling season being down that that can affect that elimination. If those clients had had maintenance choice in and what have you in.
You look at the margin that that we record there right that that reflects the underlying margin of our of the.
Oh that business.
For which that is adopted maintenance choice, if theres an aspect of price compression that that flows through there.
Your next question comes from Robert Jones with Goldman Sachs. Your line is open.
Great. Thanks for the questions I guess, maybe over on the retail guidance, we have the specific guidance now, which just seems largely in line with your previous communications for low single digit growth, but now we're a quarter closer.
I'm wondering if maybe you could just walk through the major building blocks.
Turning off a year clearly that you saw your high single digit declines in EBIT growth.
In 19, so just wondering you know if you could give us the major blocks.
And now probably having a little bit more clarity than you did.
The time Elas communication that helps get us from the down high single to the to the up low single will be really helpful.
Yes.
This is Eva I'll take that so as you look at returning to low single digit growth I think there for things that I'll highlight right. It's the result of continued solid script growth.
Improvement from generic.
In a meaningful impact from modernization and as we said the modernization initiative I think disproportionately benefit the retail segment versus versus our other segments. As we look at a 2020, all I'll remind you that we no longer have the headwind of the tax reform investment.
We were wrapping through in the first half of.
2019.
And this is John Robert the only thing I would say is we're also working to reposition the front store with a focus on health and beauty, we're pivoting to the health clubs and then we're growing in the front.
Growing margin in the front growing the top line, a little bit through our focus and execution around personalization.
No. That's helpful. Then I guess the follow up to that would be something as you guys are now closer to transitioning a lot of these stores is there any contemplation around what the drag or setback could be on on comps I know you know when you go through these transitions obviously there is usually.
EBIT of one step backwards before two steps forward is is that contemplated as you think about.
The growth in the retail segment overall in 2020.
Bob It's Larry It is and in this you've heard us talk.
Late last year as we get a bigger critical mass of the of the hubs operational.
We'll provide more quantitative guidance and you can expect that will be in the spring mid year timeframe.
Your next question comes from Ricky Goldwasser.
Morgan Stanley Your line is open.
Yes, hi, good morning, So one follow up and then another question on the follow up you highlighted the his headwind is 13 cents.
When we think about what's changed in terms of his impact.
What would be the impact from midyear.
Renewals and a commercial side due to the history pill.
Hey, making it a karin obviously, we would factor that into our overall pricing as we move forward and I renewals with the commercial business it would be factored in and it should be overall, yeah, we'll balance that reduction with our margin expectation.
And.
In Ricky this is either so as we spoke about the his back in June really yet that's the only change the repeal for for 2021 relative to what we've discussed back in June.
It's been Ricky just just to make sure where we're all on the same page the 13 cents comprehends the question that you're asking.
No I I understood. My question was was it 10 cents before now there is an incremental three cents. So we just get a sense self off how much youre ahead versus your original guide that that that was the purpose off the question.
Yes, I think Ricky the repealed we haven't broken that out but it was a pretty it was a pretty modest change to us adding.
Couple of pennies.
Okay understood and then from my primary question.
Gary Obviously, you are expanding on to health have held Todd and one of the question that we're getting from investors is where they're at some point, we gonna see you adding.
Primary care function to the health hub strategy obviously.
Primary care has become an important part also vertical strategy for others into industry.
In one or two get kind of like your view on whether to see something that you're considering in the future I know it. If you have the relation with Teladoc Teladoc assumes to address kind of like the acute needs of the population versus primary care.
That is.
Could create greater stickiness overtime.
Yes, Rick it's great question and you know as as we sit today, we've talked a lot about utilization of Teladoc. Okay were.
Or our technology capabilities. There is what was the opportunities that we have across the aetna provider network.
You know Ricky you heard in our prepared comments that you know today, our nurse practitioners can treat about 80% of what is treated in PCP office. The one element that I want to emphasize that I want to make sure doesn't get lost in all of this because we talk about being a complement to the role that primary care physician and.
As we talk to you know our Oh are at the members our consumers. They do talk about the value that they have done that relationship with the PCP and at the same time.
They also talk about the need for they use words like navigator, we call. It caught see errors in the fact that it gets back to one of the imperatives in terms of the ability to be local.
And the fact that people are working how can you help me access how can you help me use my benefits how could you help me navigate through this complex Mays called health care.
Our health clubs are playing that role.
So I don't want that to get lost in this in this overall equation.
Your next question comes from Lisa Gill.
Good.
[music].
Great. Thanks, very much good morning.
I just wanted to start with that 2021, selling season and kind of compare it to 2020. So Larry I heard you talk about in your prepared remarks, the zero to low co pay plan options for commercial members. One is that just really in your book of business are you selling that.
With.
That the caremark component and then as we think about some of that plan designs that drove 2020, and you talked about that better profitability and aligning formulary et cetera, how do we compare what you're selling for 2021 versus 2000 funny.
Yes.
Maybe I'll ask they're going to start than just start with the selling season broadly and then we'll we'll dig into the questions there.
Good morning, Lisa.
Think about it when we came into the selling season, our book of business that was up for renewal was around 50 billion.
And today, we've completed about 65% of that with a very high retention rate. So we're off to a very strong start and as you heard from even his opening comments that included.
The retention of ETP, which we signed through 2021 as well as we were also able to renew the wellcare book of business as well.
When you think about the economics of this this is whats helping to drive our outlook for not only 2020, but our outlook for 21 as well. So we don't have we don't anticipate having the net new business loss to overcome and 21 that obviously were overcoming and our guidance for 2020, so that bodes very well and then obviously.
When we when Larry talked about the formulary management that really related to our efforts to mitigate our rebate exposure and again as I've stated previously.
It was expected to peak.
20 in 2019, that's began to mitigate in 2020, and we expected to be Diminimus by the time, we'll get to 21 and then in terms of the.
Zero dollar co pay recall that we just launched a program here recently RF zero.
For our diabetes patients were essentially we've removed the out of pocket burden, we think that that will not only improve access but it here its but it will translate into improved health outcomes. When we think about the medical claims that we expect to see downstream so and we are selling that to all our clients as well as our zero dollar copay.
Yes, and Lisa to that point, and then I'll flip it over to Karen because to Derek is point that that's zero co pay at the diabetes care category is.
Both for the members as well as caremark members and the excitement around that is today as you know the rebates get pass it back to the plan sponsor and they have that tug and pull in terms of two why apply those discounts at the pharmacy, Connor or do I apply those discounts and buying.
You know the monthly premium and this takes that off the table and by clients adopting the value formulary, okay, and the benefits of improved adherence reducing medical costs. They no longer have to make that decision and that is the beauty of that program.
So care and maybe have flipped over to you and Lisa just to give you some color on the Tony Tony enrollment we have seen.
Strong interest in the integrated pharmacy medical we actually sold more integrated pharmacy member in January 2020 than we did all of 2019. So obviously a significant interest in the integration value and about 40% of our new at about 40% increase in.
New business was also filled with RBC, so really strong results relative to the integrated story.
And how do we think about the profitability of things like.
The Rx Fierro diabetes program is pharma in some way, helping to fund that and in the way that you contracted for that.
Is it safe that you're making it up with incremental scripts because people are going to be more adherence to the program. Just how do we think about those kind of programs and that the profitability as we think about these going forward.
Hi, Lisa this is Derek Oh, no pharma is not funding. This in fact, if you think about the way we've constructed is pretty but self funded so one through the client adopting our value formulary, they're able to create offsets in terms of their cost structure and then obviously they get the second offset with the improved medical al.
Comes downstream by have an improved adherence and compliance with the bad on the part of the diabetes patients. So again, it's a win win for both both the the out of pocket burden for the member as well as the cost control in terms of downstream medical claim costs for the client themselves or the plan sponsor.
Your next question comes from Kevin.
Yes your line is.
Hi, Thanks for taking my call I want to go through some of the.
Comments around the stronger purchasing economics, you mentioned, both generics and and and the PBM I'm guessing. There's also better purchasing on specialty is well, what's the dynamic like what's changing that's making your purchasing better incrementally.
Just slipped to understand what sort of changing over the last six months there.
So now I'll start rate overall.
But with our Red oak venture as well as our internal teams right, where we work to improve our cost structure, each and every each and every day and we look for opportunities you're right. There's their specialty opportunities. There's generics are rebate Nick.
She Asian, our network negotiations are all part of a contributor yeah. This is John Kevin. So I mean as you look out over the next couple of years, you, there's going to be significant launches of generics and bio similars as a matter of fact between 2020 and 2023 theres going to be 41 billion of these launches in as Eva.
Says, we're very happy with with Red Oak, and we see an opportunity not only with new launches, but also up at all we also see opportunities and how we purchase existing complex generics single source generics and existing bio similars.
And just don't underestimate also the comments Larry made earlier route having better formulary compliance on the part of our clients as well, which also improves the yield in terms of the utilization.
Okay and one just one quick follow up I was little confused about the.
C N C 17 renewal and the second in the past it was a 3.6 billion dollar headwind now it's.
900 million or so with the Wellcare renewal can you just help me understand sort of what happened there in terms of the headwind from that contract am I thinking about that writer this more detail around that would be really helpful.
Yes, Kevin the in keep in mind that with Wellcare.
With the Wellcare centric excuse me Centene transaction just closing these were two separate events. So you know the Wellcare contract was extended is it as you'll recall that contract went through 2020 and has been extended for another three year period effective.
One 121.
And the dynamic around Centene is.
That contract was renewed again, a three year period, starting one 124, a larger portion.
Of the Centene business than what was originally planned.
So some of the business rolled off Okay, too you know Rx advance largely the exchange business and you know some Medicaid programs.
And you know, we're retaining the balance of that business and.
And we expect in both cases to.
Operate that business for the value of that contract over the three year contractual periods.
Your next question comes from Michael Cherny Bank of America.
Yes.
Good morning, and thanks, so much for taking the question I guess I just want to circle back.
At least it asking questions about the selling season, when you think about the selling season and this.
Somatic relative to the overall enterprise, how do you feel about where you need to be from a tipping point perspective, when all of the pieces you are putting together within the integrated pharmacy medical offerings are fully resonating in the market and I guess, along those lines what else are the consultants or planned sponsors asking you to do.
That you're not already doing or that you have planned in the hopper, but maybe trying to accelerate to make sure that they can maximize the value they have of working with you.
Michael This is Derek I'll kick it off for the PBM and Karen If you have anything you want to add in terms of the at no book of business, but as it relates to the PBM I'll say that we've had really good feedback from both the client base when we talk to our health plan and employer clients as well as the benefit console.
Thats when we hold our advisory meeting than we actually just held one here recently at the beginning of January they're extremely excited about the opportunities with the help hub and our ability to integrate our pharmacy, our medical claims and use that four point. So intervention on behalf of the member in order for them to invite them to take their next best at.
And from there their own personal health that is resonating very well, Michael and what we've seen is that.
There was some question around how with health plans take onto this new integrated model. We've now had a number of health plans that have come in chosen to pilot with us on some of our care management programs.
We have and development. So again consistent with our open platform concept, we're bringing some of those new inventions and insights to them at we're developing along side with our Edna colleagues and that is actually playing out very well in the marketplace. So I do think that that is contributing to our success will start to the.
2021, selling season, and I would expect that to continue as we think about the remainder of the sell the season as we move into 2022 as well.
Michael very similar responses from our customers. They recently met with our customers and our brokers, they're very excited about the opportunity from the health.
Increasingly excited about the con activity of the data and analytics and really connecting the members on throughout their personal health journey and so that's where they are really I'm excited about our care management programs, how we're connecting their employees into the community because it's Ben.
Resonating quite well I think thats why weve seen the increase in the integrated pharmacy.
Medical sales than we had this with this open enrollment season, but as we look to 2021, we'll continue to develop new capabilities will be advancing our behavior change program life, threatening advice or or that next best action you will continue to drive that local sites of care using the hell hubs.
In Minuteclinics as a primary play for those sites of care will continue to drive that new benefit design like our low cost on no no co pay minuteclinic, but also looking at additional plan design for first dollar coverage and then we'll be continuing to round out our new clinical program like arc.
Our zero program and our chant transform oncology and our kidney care program, all of which have been really resonating with customers and the brokers. So.
So Michael what's what's really getting traction is our ability to to solve for both the client and the member.
It's not a either orders in hand, and I think thats, where the power in this really lies.
Your next question comes from Lance Wilkes with Bernstein.
Yes.
Yeah. Thanks for taking the question.
I wanted to take a step back and let you address little bit.
Management changes.
I've been taking place and some of the new appointments, you've got and maybe to put that in context with kind of your overall.
Strategic vision and how you're looking at the company going forward and how you see the organization supporting that if there are different rules and different sorts of talents are looking for.
Yes, ancillary look I I think as everybody on this call is aware organization structures evolve overtime.
Depending on the needs of the business and we've always had a very robust management planning and and development program across the organization and we're pretty proud of the results that we've seen with that so yes, we have results in a very deep and talented bench and as you heard in my prepared remarks. These.
Changes really reflect.
The the priorities that we have today the opportunity to.
In the excitement around these products and services coming to market and and the opportunity to.
Get them into the hands of more and more people as quick as we possibly can so.
We're we're very pleased.
With where we're at today and and excited about what's in front of us.
Great I appreciate and if you could maybe just trying to.
Smaller point talk a little bit about fourth quarter commercial medical cost your experience relative to your projections and if there's anything else for with from a medical cost standpoint, maybe amongst the businesses that impacted fourth quarter positively or negatively.
Yes. Lance. This is this is even as we look at our fourth quarter medical cost trend. It was it was inline with our guidance I'd say it was at the lower end of our guidance range of 6% plus or minus 50 basis points. As you look at 2000 in a 19 year.
The year played out largely as as we expected and there's really no changes to call out.
Lantheus anything I would add is we felt we heard at least on earlier will be then in December.
As you likely know it we've seen on it happened in December coming down in January but nothing out of the ordinary it is the influenza be they incidences are a little bit higher in outpatient by we aren't seeing the severity that we've seen in past years relative to the flu season, and we feel like Weve adequately cover.
Dan and her.
Hi, there.
Your next question comes from roster.
Of Citi. Your line is.
Thanks. Good morning can you just give us a little bit better idea on the enrollment trends by end market in the health benefits segment, and specifically the commercial market and the split between our solid commercial as we think about 20 twond.
Well, let's say to the commercial on business. As you know we are continue to offer choice to our commercial business. We have seen you know that transition from a risk to AFFO, particularly particularly in the lower end of the small segment.
And we began offering.
A self insured product at the smaller end of the segment to combat non what we've seen relative to those changes.
Relative to AMC business, and our National account business as we came into the year, we expect to see what kind of flat to down in January but we are well aware of some national account that we'll see coming toward that to us in that latter half of the years, we expect to increase that number in the latter half of the year and then in.
Small group, we continue to be pressured in our in that business and we are contracting in that business.
Okay. So is it fair to say commercial business down year over year, and 20, and then I guess you know we've talked a lot about sort of the to selling season, specifically, so that's sort of on the on the pharmacy side I'm just as we think about sort of the medical selling season. If you will see them as we move through the year would sort of the integrated pitch.
Is it more selective to sort of match with the help hub rollout call that's going to be more expansive going into 2022.
Or is this something that we should see resonating and start to see commercial growth in 21, given given sort of the integration of the Vietnam and Thats you guys pieces. Thanks, yes, given the integration of the pieces, we should expect to see better commercial growth and 2021.
Ralph keep in mind that you know it's.
Our plan for the hubs will be between 606 50 by year end. So we do need to build those critical mass is it's not going to surprise you that as we prioritize markets.
We have worked to match concentration of.
The members for these first phases.
So Chris we've got time for two more questions.
Thank you Sir your next question Carl comes from Charles.
Your line is.
Hey, thanks for taking the questions.
Maybe just going back to it as you're talking about the health up there.
When you look when you look at these new health clubs formats are thing along with adding all the health services aspects of it Theres also been sort of a remodeling of how you're looking at.
We mall in the front end and how you kind of shelving the products, maybe a more intuitive way there.
Do you see that being extended out just beyond the health clubs and cannot be applied across all your stores and and I asked because you know when when we think back historically when when retailers have gone into.
Phase of trying to we refreshed stores thats kind of come with a uplift in same store sales.
And is that something that you've seen so far in the health hubs. It goes to control group than it is that something we can expect as you kind of go forward as we think beyond just the 5000 health clubs.
Yes, Charles this is John so.
Remember in the health clubs were taking probably 20% of the sales floor converting it to the hub services and at the same time were shrinking the general merchandise and adding a lot of health and wellness items and when we look at our 2019 health hub stores, we're actually seeing positive growth in.
The front store sales and margin because health and wellness are actually carrying higher margin that we are taking components of what we're learning in the health clubs and we're deploying those products and categories across our our fleet. So.
So yes, there is an opportunity to expand that yes to all stores and we have different formats, depending up on volumes in geographies that that stores around.
And also recall over the last several years, we've remodeled just about the majority of our fleets were feeling really good about the shape that these stores are in our ability to the continue to grow.
Thanks, a follow up then maybe partly related when we will give the synergy guidance looks like in 2019, you outperformed that fairly nicely about 100 million or so.
When you look at the 2020 guidance you kind of bumped it up a little bit ticking up the range 800 900 from call it roughly 800.
Anything to think in that is is that more of a pacing and timing of like how quickly can realize synergies orders or is there an opportunity there are weakened.
Again exceed probably better given where and target out in 2021 is thanks, yes. It should Charles it really reflects on the quality of the the integration work in terms of the fact that it was done extremely well and we were able to accomplish many of those activities ahead of schedule. So.
It really a great job by the team.
Your final question comes from Steven Valiquette of Barclays. Your line is open.
Great. Thanks, good morning, everyone. So.
You touched on this topic, a little bit, but just a question around the commercial medical cost trend for 2020 in particular, we have seen some other managed care companies talk about lower trends in 2020 due to better pharmacy integration.
So with your 6% expend to commercial trend for 20, you mentioned on page 23 in the slide deck.
Curious are there any elevated cost areas, maybe either an inpatient or outpatient than maybe offsetting some pharmacy savings maybe more importantly is there any bias for the 6% trend to improve over time as you get the further along in the the overall CBSN a merger integration. Thanks.
Well said to our trend we I, we don't know what our competitors, including third their trend expectation, but yes, we obviously factoring in a variety of things like the economy provider consolidation you said technology.
Continued emergence of specialty transfer Theres nothing out you know included in our trend that is out of the ordinary we've factored in and what we typically factored in accounting for where we think savings will occur as well and were.
Quite quite confident in how we're projecting our trend that sprint plus or minus 50 basis point.
From the merger overall version this trend come down over time, I mean should commercial cost trend be a beneficiary of the overall merger.
Yes, so Steve we haven't provided longer term trend trend projections right, but as you saw back in in back at Investor Day right. We are.
Driving towards meaningful medical cost savings through through the integration and we'll have more to say about that as time progresses.
So with that let me just stuff thank everybody for their time, because just summarizing quickly here I I hope you agree with us that today's results really reflect the importance.
Of our strategy and making health care more simple local and affordable and we're really pleased with the progress that we have made in executing our plan and.
A lot of the credit for that goes to our nearly 300000 colleagues for all their hard work and commitment to our purpose and.
All of US here are confident in our ability to meet the needs of the diverse markets that we serve while continuing to accelerate growth.
That I'm sure we'll talk to many of you soon.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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