Q1 2020 Earnings Call
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[music].
Good morning, and welcome to the CBS Health first quarter 2020 earnings conference call a.
A question and answer session will follow CBS is CBS helps prepared remarks as a reminder, this call is being recorded I'd now like to turn call over to Valerie Cartel Senior Vice President of Investor Relations for Cvs Health. Please go ahead.
Thank you and good morning, everyone welcome to the Cvs Health first quarter 2020 earnings call. As a reminder, this call is being recorded I'm Valerie Haertel Senior Vice President of Investor Relations for Cvs Health I'm joined this morning by Larry Merlo, President and CEO.
Yeah, and either Berardo executive Vice President and CFO. Following our prepared remarks will host a question and answer session that will include John Roberts Executive Vice President and Chief Operating Officer, Karen Lynch Executive Vice President and President of at Night, and Alan Matson Executive Vice President.
President of Caremark in order to provide more people with the chance to ask a question. During the Q1 day. Please limit yourself to no more than one question with a quick follow up in addition to this call our press release and form 10-Q, we have posted a slide presentation on our website. Please note that during this call we won't make.
For certain forward looking statements that reflect our current views, including our financial projections and statements related to our future financial performance future events industry and market conditions and the future impact of covert 19 on our enterprise. Our forward looking statements are based on management's estimates assumptions and projections.
And are subject to significant uncertainties and other factors many of which are beyond Cvs health control, including the future impact of covert 19 on our enterprise. We strongly encourage you to review the information we filed with the FCC regarding these risks and uncertainties in particular those those are described in the risk factor section.
Our 2019 annual report on form 10-K, and the cautionary statements concerning forward looking statements and risk factor 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 can find a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in this morning's earnings press release and the reconciliation document posted on the Investor Relations. Please.
One of our website.
And as always today's call is being broadcast on our website, where it will be archived for one year now I'd like to turn the call over to Larry.
Well, thanks, Valerie good morning, everyone and thank you for joining our 2020 Q1 earnings call.
Well. These are certainly unprecedented times for us all that's Cvs health our dedicated colleagues have been working on the front winds in the fight against the cope with 19 pandemic responding in real time with solutions for consumers and patients across the country.
Right to take a moment to express my sincere gratitude to our colleagues for their work in all parts of our organization.
They are doing a phenomenal job responding to the needs of our communities and I could not be more proud of their efforts.
Now as we all know over the last couple of months. The situation has rapidly intensified as the pandemic has spread from coast to coast.
Real state and local governments in partnership with the private sector and work to curb the spread of the virus and its impact on our population and the economy.
Cvs health is one of the largest provider so the central services. We are supporting these efforts through our community reach local presence brought health care offerings digital capabilities and our hard working colleagues and we are part of the solution. During these difficult times.
So let me provide an overview of the actions we've taken in response to cope with 19 with two key priorities in mind.
First as a well being and safety of our colleagues consumers think communities we serve.
Second is maintaining the continuity of our businesses and operations.
Now to do that we are making investments to support our consumers clients and members, while deepening our relationships and advancing our long term strategy a being the most consumer centric held company.
Starting with our colleagues, we took swift action decide to keep them safe well, we kept our stores and other operations up and running with minimal disruption.
We implemented social dispensing practices enhanced cleaning protocols distributed personal protective equipment and often in stores with plexiglas barriers.
We also provided our colleagues with enhanced benefits and resources, including family support and then I'll bonuses for our front line colleagues for their outstanding work.
All these actions have helped ensure the continuity of our operations at a time when they are needed the most.
For our consumers and members impacted by cope with 19, we are providing them with continued access to quality health care, while relieving some of the added costs and stress, resulting from the pandemic.
As previously announced we waived co pays for cobot 19 related diagnostic testing for all of our insured members.
For our commercial and Medicare advantage members, we waived member out of pocket cost for Covance 19 related inpatient admissions and Tele medicine visits through early June.
We have taken a broad approach to helping address the met someone emotional health impacts of the pandemic, including access to tele health and expanding our employee assistance programs for our members.
We're also proactively reaching out to the most at risk at the members to educate them about covert 19 protection measures and resources available to them.
And we're sending care packages to affect that members to show our care and support.
Cvs pharmacy has waived the fees associated with home delivery for prescriptions and accompanying front store products for all consumers and all that met and caremark and work with clients and their members to support medication access and inherence by waiving early refill limits and extending previously approved prior.
Authorizations for maintenance medications.
And for our debt in a contract that health care providers, we are streamlining processes easing administrative policies, making timely payments and enhancing tele medicine policies to allow them to focus on patient care.
To support our communities, we are creating action based solutions alongside local state and federal government partners as well as industry peers.
For example across five states, we have opened large scale cobot 19 testing sites and to date, we have been administered nearly 9000 tests with real time results.
We're also working to further expand our testing capabilities, which will continue to play an important role in helping with the reopening of the economy.
We recently expanded our core him services nationwide working in partnership with hospitals and providers to help transition eligible Ivy therapy patients to home based care freeing up important hospital capacity.
And finally, we are well positioned to provide medication therapies and vaccines when they become available at our retail pharmacy locations nationwide.
Now the actions, we have taken all point to our strategy and making health care access local and simple well, helping people achieve their best tell.
And we have worked to accelerate pilots and innovation and in conjunction with additional actions such as relaxing regulation, we are seeing a new normal emerge.
And in the near future there will be in a valuation point of what worked and what did it.
And as a result, we expect that elements of today's new norm will become part of Tomorrow's everyday routines.
Well the actions we have taken in response to the pandemic come at a cost we believe these investments and our people and our businesses are the right decisions and our differentiated offerings have enabled us to play a key role in responding to the pandemic.
So I want to spend the response to the actions we have taken well it is clear our consumer centric digital strategy has become even more relevant in the current environment as people are using technology more while they stay in place.
We've achieved higher levels of engagement across our digital assets in Q1 trend, which began in January and accelerated with Covance 19.
Now let me provide you a few examples.
Utilization of Tele medicine for virtual visits through a minute clinic and it's up about 600 per cent compared to Q1 19.
Retail prescription home delivery is up more than 1000 per se.
Additionally, we saw a fourfold increase and the number of consumers, adding front store items to their prescription deliveries, let's call. It the front store attachment rate.
We also saw double digit percentage increase in app usage across Cvs pharmacy caremark in specialty year over year and as an example in specialty pharmacy digital refills were approximately 50%.
Additionally, an hour Aetna health fab, we engaged more households in Q1, then we did in the first three quarters of 2019.
And to support our cobot 19 testing sites our team used our digital platforms to quickly watch a streamlined experience, which is unable to online screening and scheduling for testing with 85% of consumers highlighting a positive experience.
So we are pleased to see higher rates of customer satisfaction and loyalty. Thanks to our colleagues hard work and innovation and we will continue to mobilize our resources to support nationwide efforts to combat the bars.
So with that let me quickly touch on our first quarter results and how cold 19 has impacted our business performance.
In the quarter, we delivered adjusted earnings per share up $1.91 with total revenues of nearly 67 billion up 8%.
Our underlying core performance was strong and in March Coven 19 related business activity added approximately 10 cents to our Q1 adjusted earnings per share.
And our performance reflects an acceleration of prescriptions dispensed strong front store sales and a modest reduction in discretionary medical utilization all largely driven by covert 19.
Now we've been able to maintain an adequate supply of medications to meet the increased demand from our customers benefiting from the scale and expertise of Red Oak.
And setting aside the impact of Cobot 19, our Q1 results demonstrate the continued success of our integrated health care strategy, which is resonating with stakeholders across the health care system.
Now we are leaving our full year 2020, adjusted EPS guidance range unchanged at $7.04 to 717 and evil will take you through the key considerations on our guidance.
It is important to note that there are a variety of actions that market forces that will present opportunities as well as risks as we move forward and rest assured we are diligently working to minimize the adverse effects, while harnessing the opportunities to expand access to affordable care and delivered costs.
Having solutions to our clients and their members.
Cvs Health will continue to fight this pandemic on the front lives and this challenging time demonstrates the importance of our holistic consumer centric enterprise wide approach. We are committed to supporting the nations. So that we come out on the other side stronger together with the communities that we serve.
And with that I will turn the call over to Eva.
Thanks, Larry and good morning, everyone like Larry I want to take this opportunity to thank all of my colleagues for their hardware courage and dedication as we navigate this difficult time.
As Larry mentioned, the onset of decoded 19 pandemic brought about new challenges to all of the.
And Cvs has been adapting our business operations to support our key stakeholders.
During this Panasonic, we've continued to advance our cost reduction priority, including delivered.
Integration synergy call and are transforming it calls to become a more digital enterprise.
Rapid changes across the country in response to covert 19 has led us to accelerate some of those initiatives in light of to covert 19 uncertainty. We also took steps to enhance our liquidity and strengthen our capital we issued 4 billion in bonds in March as a preemptive measure against cash needs in a severe.
Early adverse scenario.
While this guy law at about 15 million additional interest expense monthly it puts us in a strong liquidity position to weather potential crises with access to over 5 billion of cash and short term investment at the end of March as well as 6 billion available by issuing commercial paper.
Our borrowing under our backup credit facilities and strong operating cash flows.
Once we return to normalcy, we expect to repay the incremental debt. We will also continue to prudently manage our operating expenses and will reduce our planned capital expenditures by 200 million this year.
Our long term leverage target remains unchanged and we can can prioritize paying down our debt and maintaining our dividend with no share repurchases plan until we meet our leverage target.
Moving to first quarter results.
Adjusted earnings per share was $1.90 line, nearly 18% higher than prior year consolidated revenues increased 8.3 per se. Your every year with growth coming from all segments, our business performance exceeded our expectation due impart to strong execution.
And our ability to meet elevated consumer and member needs, resulting from the 19th we generated 3.3 million of cash from operations and returned approximately 650 million to shareholders through cash dividend in Q1.
Turning to our operating results for the quarter by segment Pharmacy services total revenue increased 4.2% year over year specialty pharmacy revenue increased 19%, reflecting the full benefit than Jennie O. R. Accent. We started onboarding in Q2 2019 brand inflation also country.
I need it to the increase.
Total revenue growth was partially offset by the previously disclose client losses and continued price compression.
Adjusted script increased 12.4% with approximately 125 basis points related to coded 19 activity.
[noise] pharmacy services adjusted operating income increased 24.7% versus last year driven by.
Driven by specialty pharmacy volume, our continued improvement in purchasing economics, and an increase in generic dispensing rate growth in the quarter was partially offset by the previously mentioned client losses and continued price compression within pharmacy services, there was minimal impact from co. The 19.
The operating income during the first quarter.
We continue to progress nicely in pharmacy services, 2021, selling season, which more than 70% of renewals complete with a strong retention rate.
Moving to reach out long term care.
19 had a meaningful impact on segment performance with our retail pharmacies meeting essential needs of consumers inpatient.
Total revenues were up 7.7% with adjusted operating income of 27.7% year over year.
You key factors drove the results.
As Larry mentioned, we delivered strong pharmacy and front store volumes adjusted script growth of 8.2% was primarily driven by the continued adoption of our patient care programs.
The 19 related volume and Leap day, we estimate Kogan 19 impacted adjusted script growth by about 200 basis points.
Hi store total revenues increased 8.5% of which a significant portion was due to colder 19 before the search related to cope with 19 began front store total revenues were up about 2%.
Adjusted operating income growth was driven by strong sales performance benefit from generics front store margin improvement and lower S. DNA with SGN nave, reflecting favorable resolution of legal matters and our ongoing modernization efforts.
The growth was partially offset by continued pharmacy reimbursement pressure.
19 contributed about 40% of the adjusted operating income growth for the quarter, including the impact of additional operating expenses.
Moving to health care benefits total membership increased 2.4% or 554000 sequentially consistent with our strategic focus we're pleased with our strong sequential Medicare advantage membership growth of 11.3% outpacing the industry average.
In Medicaid. We're also pleased with the strength of our sequential net membership growth driven primarily by the acquisition of line I care commercial membership is down sequentially, primarily due to a decline in public in labor.
On a year over year basis total revenues increased approximately 7.4% primarily due to strong government products growth.
Operating expenses increased versus prior year, primarily due to the reinstatement of ahead and our government membership growth, including higher costs related to the Onboarding of a line I care members. This increase was partially offset by savings initiatives, including integration synergies.
[noise] NDR was 82.4%, primarily reflecting an improvement from the return of the head.
During the quarter. We also saw reduced discretionary utilization related to covert 19 that started in mid March. This was partially offset by the growth that our government business and the impact of leap day.
In Medicaid, while we're pleased with the membership growth, we are experiencing pressure on or NDR due impart to a heavier and longer flu season, as well as higher costs claimant in certain states.
Health care benefits adjusted operating income was slightly lower year over year, reflecting all the factors I. Just described coven 19 had a modest impact on health care benefits segment for the first quarter as the deferral of discretionary utilization more than offset the impact from lower net investment Inc.
Tom including realized capital losses.
The corporate segment adjusted operating loss increased by 54 million over 2019. This was predominantly related to higher legal and transformation costs. In addition, the segment recorded realized capital losses related to the capital markets volatility in coupon.
Going below the line interest expense was lower by approximately 50 million due to the lower average debt for Q1 2020 compared to 2019.
Prior to Kobin 19, our underlying core business performance was strong while acknowledging the inherent an unprecedented uncertainty surrounding the ongoing Colvin 19 pandemic and its impact we are leading our full year 2020, and our price gap EPA.
Yes, and adjusted EPS guidance range is unchanged at $5 down 47 cents to five dollar spent 60 cents and $7.04 to $7.17 respectively.
Cash flow from operations guidance for the full year of 10.5 to 11 billion is also unchanged.
This view is subject to a number of key considerations, including a significant uncertainty they continue to exist around the severity and duration of the co. The 19 pantelic, including its impact on the U.S. and global economy consumer behavior and healthcare utilization patterns.
Additionally, the timing scope and impact of stimulus legislation and other governmental responses to the pandemic remains to be seen.
The financial impact of these factors on the company will become clear in the months to calm.
Given the unusual situation this quarter I will elaborate on what we are seeing for Selectnet select metrics in April our slides provide the March comps along with the April comps for additional context.
Prescriptions are about flattish in both retail long term care and pharmacy services compared to April 2019.
As we saw the barge pull forward out prescriptions reverse and a drop in new prescriptions related to lower physician visits.
Front store sales are down about 11% compared to April 2019, as increased basket size was more than offset by a reduction.
In store traffic as shelter in place took call.
The reduction in discretionary utilization that health care benefits starting to see mid March continued through April and based on what we know today, our NBR could be at its lowest level in Q2.
Early data for the month of April suggests decreases in utilization of about 30% across an array of services compared to April 2019 I.
Additionally, we cannot predict what impact delays in utilization will have on its members with chronic condition as miss treatment could adversely affect their house.
In addition, Q2 over flagged a significant increase in Kogan 19 related operating expenses over Q1, as we recognize the investments we made in business continuity and other initiatives Larry mentioned.
The quarterly cadence of earnings is likely to vary from historical patterns and other key performance metrics are likely to play out differently than we expected at the time of our last earnings call given all of the moving pieces, we're not providing our more detailed guidance today.
With that let's open up the line for questions.
Thank you.
At this time, if you have your question or a comment. Please press star one on your Touchtone telephone you may we removed yourself from the Q by pressing the pound tea in the interest of time, we ask that you. Please limit yourself to one question and one follow up and please pick up your handset to allow optimal sound quality.
We'll take our first question from Lisa Gill.
P. Morgan your line is out.
Good morning, Thanks for taking my question and thank you Larry and team for all that that CBS is doing on on the front lines.
Let me just first start you, but one of the comments you made is that there was a strong underlying core.
Versus your expectations and in the first quarter can you just maybe talk about what what areas performed better on the Coresite than you were expecting and I know you're not gonna give any incremental guidance, but I just wanted understand how we think about the front end and the impact.
To overall result, so get you talked about the April update and I appreciate that being down.
10.9% on the front end if it stays like that for some period of time.
How does that impact the overall result, as we think about the the core guidance that you gave.
Hi, Lisa it's even things for thanks for your question and your comments about everything the company is doing I think as we commented on the strong underlying core right Oh I'll start with I'll start with the PV and you saw really strong topline and bottom line growth with with specialty.
He with specialty leading the way we're realizing the benefits of some of the initiatives that we had started last year in underlying sale in in the TV and so we're we're pleased with that and the performance. We've reported was above our initial expectations. Additionally, as you as you.
Look at though the retail business again strong performance Exco that you know pleased with the front store comps of 2% prior to prior to co then kill chain huge strong script growth and you know we reported over 8% script growth when you adjust for.
Season, when you adjust for coal that you're still above 6% and that's the continuation of our of our patient care programs, then and what have you and from a from a health care benefits perspective, I'd say our results were largely in line. We're pleased with the growth in the government sector, but.
On the Medicaid front as I outlined we have some NDR pressure that that were working that we're working through.
Lisa on the on the guidance question.
You know there I'll see there are a host of assumptions underneath us, leaving our our guidance unchanged and you know it's based on another factor is as you look good.
States coming back on board I don't see gets a it so I think consistent across.
The country right it'll be it'll be state by state and we've really tried to two factor all the different pieces in.
And John I don't if you want to add anything on the on the front store well I mean, Lisa listen I'm. All categories are obviously down in April coming off from the peak in March and it's still very early we have very limited data, but you know we are seeing that as shelter on orders are lifting and we were Turner hours of.
Operation.
To the normal hours were beginning to see sales improve so still early but you know the early view as.
Improving and we said sorry, just maybe one final point on that specific to you know to front store sales.
Keep in mind front store now represents eight 9% of enterprise revenues up you know continues to be important and teams done a great job in terms of you think about the underlying x. coal that you know the comp the sales performance was around 2%. So that reflects a lot of the.
Activities that we've talked about in the past around personalization.
So I think one of the things that that we're seeing and learning is and we talk about things that are happening today that are part of.
Today's norm, but you know a things that will migrate from today's norm took two tomorrow's everyday routines and as you heard in our prepared remarks, we've seen a draft dramatic increase and you'll hold delivery one of the questions that Weve you know that we've always had his how do we increase.
The front store attachment rate to prescriptions and again you know we've seen a fourfold increase in terms of those prescriptions being a company with a front store purchase. So yeah. We think that's an opportunity that we can capitalize on you know as we begin to return to Oh say at new.
[music] normal environment.
Great I appreciate the comments thank you.
Our next question comes from Eric Percher of Nephron Research Your line is open.
Thank you Eric procuring Josh Raskin here from Nephron, maybe building on the last question. When you norm May look like you spoke to some of the shift occurring in mail.
Like specialty shift.
And home infusion how material are these do you see the shift I think now is 5% of all scripts is being material and obviously across your model. If you can capture than a couple ways and I'd love to hear the same on specialty infusion, whether you think their share gain from the hospital.
Channel as well.
Yeah, Eric It's Larry maybe I'll start that ask Alan to you know to talk more specifically on mail.
I think the the the core him the home infusion is it's a great opportunity it ties back to something that we've talked about.
Many times when you think about you know how do we how do we provide you know care in the right care setting with the variables being you know convenience as well as cost and you know our infusion nurses have made 60000.
Is it since the pandemic began which is a great example of what we're talking about in terms of.
We freed up important hospital capacity by working with you know what is the hospitals in terms of a expediting discharge back into the home for those patients who need it to continue to require a you know Ivy therapy, and we're well enough to do that you know within the comfort of their home and.
We're able to provide that service. So you know there Eric a lot of this goes back to the strategy that we've been talking about for the last couple of years in terms of what we can do to make health care local and simple whether it's in the community in the home work in the palm of your hat.
So hard to tell them off and all that a couple of points you know one on on home delivery, we've seen increases in in home delivery in now, but I think.
When you think about mail and the power enterprise, where we'd have the ability to bring.
Chris is that people home not only through traditional now, but also as John talked about through home delivery from retail and that's also up dramatically over the last one I would make is that as we talk about the early view into what we're seeing with now in specialty in April were not seeing the same patterns of decline that we're seeing.
Being in the retail network.
And along the same line that early views are you see any change in pre authorization.
He side relative to that 30% decline.
That may move.
Hi, Eric its carrying in April it you know in Korea, we saw Oh the 40%.
Hi, our nation, and you know and <unk> and utilization like now, 30%, Oh, eight well I would tell you that as they are opening up. However, we are seeing a slight uptick in oh, yeah and.
Hi, I'm not dramatic increases yeah.
Thank you.
Our next question comes from Ann Hynes of Mizuho Securities. Your line is open.
Hi, good morning.
Hi, good morning.
Vacation, you've I know you put it at a hub get benefit segment results were in line with your estimate so when I looked at your prior guidance for health care benefits operating profit gains was up 5.7%. So it's not decline in negative 4.5% was that you want decline in line with your expectation going into the year on moving.
My first question to my second question as I know you touch that they and in your prepared remarks can you just remind us somebody initiatives you did in 2019 specialty.
This resulted in such strong results. Thank you.
Yes, sure so and on the health care benefits you I would say that the results are largely in line as I as I said before and as you as you think about as you think about the results a couple of things are up or.
For elevated in Q1 as were Onboarding the growth in the Medicare business that we spoke too as well as a line I care and bringing that acquisition on I'm recall I spoke last year to use some stranded cost related to that net PDP divestiture were again.
I simply working that down as we as we go throughout the year you know that said I did highlight some of the pressure on the Medicaid and NDR and that's certainly is it something where we're working through and I'll, let Alan provide some additional color on some of the specialty initiatives. This on the specialty side.
And Weve expanded our program because specialty expedite which is on a way to simplify the process of getting prescription started for both physicians and patients and shortens upon its been very well accepted in the provider community. We continue to refine specialty connect our approach.
Following patients to pick up or drop off prescription specialty prescriptions at retail is a very very popular approach again resonates very strongly in the provider community and we really continue to drive.
Our our digital adoption and the ability to interact with our specialty members by a paxton secure messaging, which again creates just a I've got.
A a tailwind for us as we work more closely with these patients.
And in ancillary just maybe just one final point keep in mind, you know when we talk about 19% specialty growth that now includes you know the specialty business within in Jennie O in those numbers as well.
Okay. Thanks.
Our next question comes from Charles read of Cowen Your line is open.
Yeah, Thanks for taking the questions.
Just a follow up remote earlier question around or John I think your responding to at least this question around the.
The experience we're seeing in the reopened states anything any more deals can give like a.
Breakdown between Nox Wormsley, but also front end in is it.
Is it the is it tropic that is accelerating in.
Well, maybe how consumers are kind of responding as they are a is it kind of going back to sort of a normalized the is first and then just going back I think earlier in the prepared remarks talked about strong retention rate in the PBM business.
Maybe talk about what new business start to be looks like is this year.
Is it is if everything that with all the disruptions that employers are seeing well, we should expect a lot less new business activity. Thank you.
Charles This is John I'll I'll start. So you know we are I mean, if you look at where most of the co. Good positive cases, or we're seeing more of a significant sales impact both on the front in the and the pharmacy than we see in other areas that are less impacted but as the shoulder and place orders are lift.
Good.
We are turning back on our marketing programs and personalization.
As a big part of our sales driving programs also returning our hours of operation back to normal. So as an example, 75% of our stores.
Huh.
Oh reduced their front store hours of operation and it was about 12% of the hours of returning over turn those back to normal as the communities opened up in pharmacy, we did less of an hours reduction about about 2%.
Listen in other words, it's still very early but you know we are seeing some positive trends as I said earlier earlier and pharmacy you know we're seeing.
Less of an impact and I think a lot of that is due to our home delivery program that Larry talked about in his remarks, but I think the biggest headwind, we're saying now in pharmacy is really around new therapy starts. So you've seen doctor visits are down and as a result of that we're saying about 20.
5%.
Less or lower new therapy starts for April then than we saw a year ago. So this includes new maintenance prescriptions as well as prescriptions for acute events and they typically grow about 7% each year in certain drug classes, such as antibiotics, new starts were down 40% to 50% so as position.
We'll start seeing patients again, we expect this volume through the normal on us.
That's all I'll jump in its down on on the new business question. So I'll first talking about retention as even mentioned we were about 70% all over 70% of the way through our own book were at a 97% to 98% retention rate.
So we're very happy with that on the with respect to new business will talk more about that next quarter, but I will tell you that RFP activity is consistent with what we've seen over the last two years, we have not seen much of the slowdown obviously I can't predict what's going to happen as we get towards the end of the year, but as of now.
Now, we're seeing roughly consistent what we've seen in the last two years.
Thank you.
Our next question comes from Ricky Goldwasser of Morgan Stanley. Your line is open.
[laughter], Yeah, hi, good morning, everybody.
Question is focused on your Medicaid comments [laughter] around some of the higher cost, but if we look forward. There was an article yesterday talked about states that are starting to cut [laughter] Medicaid rate [laughter]. So what are your thoughts about president that's going to be.
This year next year I'm in the impact on margins I think your long term target.
Investor Day was long low single digit to mid single digit so how should we think about.
The potential impact off rate cuts on that.
Yeah.
Hey, Ricky carrying a rapid here first question on a pressing we're seeing <unk>. There's really two factors. One is that we had a longer low season that impacted on Medicaid and other snack and I was.
Really around no unusually high claim that Oh in the Medicaid business relative to the Medicaid business on a go or they Oh right. Now we are working very closely with arm had he see we expect to see obviously improved enrollment in.
He asked me.
When you do last the unemployment Oh, yeah increase over time and you know we haven't had anything about race, yes, obviously, we like you know manage to a.
No no operating expenses you.
Hi, maintain it there was no single margin and South Korea.
And Ricky it's Larry but one final point had you know as you look forward, yes, I think that you know your question around.
Medicaid margins is it it's really an open question at this point because you know if you go back and look at.
The stimulus activity out of Washington.
Now, there's you know dialogue beginning on a stimulus for and so.
Some of this is you know can really be framed as a policy question that you know the ER. The stimulus you know today has not addressed.
The issue of individual subsidies for Cobra is an example, you know acknowledging that there was going to be a relationship between.
What happens to the Medicaid rosters, assuming unemployment you know does increase to some number you know versus what happens with Cobra. If there are subsidies applied for individuals to.
Enroll in corporate so that's something that won't be watching closely and and having discussion around.
So just one follow up on that have any view around what would be the risk profile I'm just gonna see that I've taken in Medicaid enrollment you know in past used to see sicker population actually I'm signing up to the Medicaid benefit do you think that did that given what were.
Seeing and encoded in how its impacting cross section of depopulation did you might have.
<unk> different preschool and maybe kind of like younger population signing up just wondering what what's your thoughts on that.
Yeah, Ricky I think you if you look at historical pattern when none in playing that I'm you look back in 2008 2009, Alan wetland we saw increases in Medicaid well Oh, well. He saw was eight more healthy population a man.
I see that it as well as we've got no commercial business you know relatively speaking a healthy so I think the rest profoundly changed somewhat and you do a healthy right.
Our next question is from Justin Lake of Wolfe Research.
Thanks, Good morning.
Couple of things here first can you I could you help us understand B and said benefit that you discussed here in terms of how much benefit to the bottom line from incremental revenue.
Our thoughts about that brought sorry incremental costs for closing remarks that might have offset some of that benefit and how we should think about the incremental cost from koby going forward for the rest of the year and then just my follow up would be the with the benefit of the legal resolution in the quarter in the pharmacy business, but.
Yeah, it's either a result right.
Hi, just gonna Tivo I'll take that question I think if you look at the 10 cents benefit and we outline this on our on our slide slide 19.
I would think about Q1, you can see that if it really largely coming from from the retail segment is the other segments really had you know a pretty pretty modest impact in there are some puts and some puts and takes and I think.
As you think about the margins that the investments that we've made and that Larry outline a lot of those investments are largely going to hit in Q2, given the nature of those underlying investment. So think about the benefit there are some investments, but more generally in line with underlying margins.
As the the other investments on compensation and what have you in the <unk>. The additional protected skier is really really ramped as as you came toward the toward the end of the quarter.
I'm going back to your other question on on the retail long term the retail long term care segment, you could see you know year over year, we have favorability in our in our underlying cost and I'm not going explicitly break out the legal matter, but year over year, we had some cost last.
Where we had some favorability this year. So net net it was a positive as you as you look at that as you look at that outside growth.
Got it thanks for the call.
Our next question is from Michael Cherny of Bank of America.
Good morning, Thanks for all the details so far you I want to summarize a few questions. You had a letter you went through a lot of details early on some of the benefits you see tied to the increase in Tele health.
Tied to some of the other dynamics on the ability to deliver at home.
Do you think about the pause you're taking on some of the longer term baskins longer term strategies, particularly around health hub is there anything you're learning right through this pandemic that can better educate you on how to think about helped build out given that there are a lot of dynamics in place that would appear at this point to have people.
That want to stay away from the average traditional retail store versus coming into board. So just balancing those dynamics with your approach towards having this incremental differentiated front end health care service at a time for the entire world is rethinking how much time, they want to spend outside their house.
Yeah, Mike It's a it's a great question and you know and I touched on this.
You know a a bit earlier that you know what we're seeing you know we you know we see validating our strategy and you know and you know we talked about some of the use cases that were seeing play out and you know whether it's you know home delivery Tele Medicine, then you know and then I'll touch one that absolutely.
He is in the community in that's testing. So so Mike you know when you think about yeah, we call it our triad of care in the community in the home you know in the Palmer. Your hand, you know who think about that is what we're defining here is omni channel for health and each one plays a role.
But as individuals will need all three in terms of Ah, yes in terms of what we do when we do it and how we do it and you know so back to your question are you know the learnings and the experience that we're seeing number one and validates our strategy number two.
We're working to further optimize what we're seeing to become part of an everyday routine and you know and I'll speak to the role of testing you know in the community as being an important part of you know diagnostics that yes, we're focused on you know.
Oh it testing today, but you know there's you know there's a broader universe, you know of diagnostics and monitoring that yeah. We've seen beach, we see becoming a an important part of our health hub strategy. So what we're evaluating all the products and services roadmap and I'm sure you're.
Gonna see us accelerate some of the things that are on our drawing board.
As a result of what we're experiencing.
Got it thanks, Larry so much.
Our next question is from Ralph Giacobbe of Citi.
Thanks. Good morning was hoping you could bifurcate the a the commercial risk membership decline between you know economic factors versus either lost or just shift too and so on and then how you're viewing the economic backdrop, specifically as it relates to the commercial market.
And then just to follow up to that is any greater appetite to get back into the exchanges in a bigger light at this point. Thanks.
Hi, Rob Yeah routed to membership we lost is very large sums and labor cases, and they were fully insured pieces, which is really this last year, reflecting a decrease in round numbers, yeah, and a year on year basis. As you know we have then we also have a decline modified.
And Oh Grim and email me then listing on March.
Sure So do I need to see them. They see this trend relative to be a question on blame. It last it's me yeah, we view that Oh I see declines in the latter half of the year I'll Yardi. Our theme song on membership decline in April a knock them or something.
Resolve that the economic downturn. However, we are seeing an increase in our Medicaid.
Membership is well in April so that's really what we're seeing that no depending on I'll, Let me know how that played out.
The duration up there.
No because they see decreases in our carcinoma.
And then the exchanges.
Uh huh.
Oh, Okay, and you know.
We are now in anything to today I, it's something that and we continue to evaluate and Ah. Yes, we'll continue to look at it we obviously won't be in 2021.
Okay. Thank you.
Our next question is from George Hill of Deutsche Bank.
Yeah I'm good morning, guys and thanks for taking the question I have to first for either I'm wondering if you can unpack the PBM performance a little bit maybe talk about the benefit of the improved purchasing economics, Vicki and the cost savings versus lapping Ingenio planning.
The negative impact to rebate guarantees and then I guess a follow up for Larry strategically I guess, how are you thinking about home delivery versus mail and you talk a little bit about the retail attachment rate Walmart is launching a two hour free service I guess do you see this is an answer for CBS to challenge I'm kind of the inclusion of all money to retail like it.
Okay. So George I'll start with your with your question around.
Around the PV and obviously as you look at the first quarter growth right. It's it's outsized relative to two how we spoke about the full year prior prior to cope with it but I think is as you look at that in in relation right. The Q1 operating income growth is above you know.
What you would think about as a as a full year given that the specialty benefits that Alan spoke about earlier disproportionately benefiting Q1, as we had the annualization of some generics.
And the new sales initiatives that but Alan spoke about we also have some timing <unk> related to related to other accrual at the core though specialty is performing very very well I'm on the rebate headwind I would say we continue to to manage that.
In the shape of the curve that I've described numerous times that 2019 was the peak it would come down and in 20 and diminishing or be de Minimis. In 2021 that that continues so that continues to be a benefit.
Well, it's just cost management and benefit from integration from integration synergies.
And then you know George on your home delivery question you know.
George thinks about the discussions we've been having probably for the last year in terms of.
How do we make sure we don't leave any white space for disruption and you know we started you know home delivery and you know in a few marks that in a few markets and I think it was last fall where you know we expanded the coast to coast. So you know George you think you know today about you know you can.
Pick up your prescription inside the store a in most of our stores through the drive through.
You know in the mail box you know at the front door or at the office and you know and we're experimenting with U.P.S. in terms of maybe on the line through trial.
So you know he is you know who do you want to be in terms of what makes the most sense for you from a convenience and access point of view in any given point in time and when you look at our integrated model. You know we can satisfy you know all avenues of access and convenience.
And George this is John the only thing I would add to that is the reason or home delivery program was so successful.
As is pandemic took hold is we have 70% of our retail customers engage digitally. So it was very easy for them to make the transition. So oh I think that will help us is people decide how they want to get their prescriptions in the future.
No that that's helpful. I have a bunch of follow ups will take off line. Thanks guys.
Alright, thanks very much.
Well take our next question from John ramps and of Raymond James.
Hey, good morning, everybody.
I was wondering and for care and what the medical loss ratio would have looked like in the first quarter without a cobot.
No because it had minimal impact on the quarter. So you can look at that loss ratio and.
It's minimal obviously they'll have a big impact on a in April elsewhere.
Let's see.
Yeah. Thanks.
Okay.
Great. My follow up is when we look at the commercial market place you know you're able to combine.
No and the PBM and and you know enough single package do you think that we would see more what I'd call Cross subsidization as you go to market you maybe using guaranteed rebates.
Or some other such things such that the margin in the two businesses is less and less relevant as you sell them as a single package.
Yeah, well, let's wait until we do that hey, we obviously have a price Oh, hey, and we'll look at Oh, Okay, then I guess.
Yes, no margin I mean, we bought yeah, okay. So not necessarily subsidizing right. Yeah, we look at Oh, Okay, well in line right at that.
Karen just just to add to that right well well look at the value they can be generated across a across the enterprise as as we.
As as we move forward.
Right. Thank you.
Our next question is from Lance Wilkes of Bernstein.
Yeah, good morning, and again, thanks, a lot for everything that the CBS team is doing out there in that community.
Just wanted to talk on health club, a little bit and wanted to focus on two particular aspects. One is you.
You could talk little bit about how tele hope is the integrated in or how separate it is within the minuteclinic and now the whole vote structures and what your thoughts are going forward with that but I guess the follow up is given some of the instability.
The physician practice.
An urgent care environment today with the go to drop off in volumes those are going to become.
Much for significant acquisition targets going forward is is acquisition and an important part of how you're going to build out capabilities and as you look at health club in maybe the expanded care delivery of retail.
Yeah. Lance this is John I'll take Tele health and medical on it. So we have the capability to do Tele health and medical clinic in every state that we operate in and Larry spoke about the significant increase I think it was 600% and telehealth visits so what's gonna be an integral part of how we go to market moves.
Going forward and we just got some recent consumer research and that compares last year consumer sentiment to this year's consumer sentiment and this is one example, where would they prefer to get their flu vaccines and we saw significant uptick in consumers that are interested in getting their flu vaccines.
In their local pharmacy as opposed to their doctors office. So it's a good example, hell minuteclinic will be able to provide services like that close tele health and and provide the convenience and choice that consumers are looking for.
Great and just on the on how you're looking at maybe the.
Opportunities that could present themselves with respect to the practices that are out there and I guess a follow up on the telehealth are you actually heavy tele health deployed using the Minuteclinic coalitions where is it in the central as format.
Yes, and say, we actually have both where you know the tele health is integrated with no medical clinic as well as you know a you know tele health with physician is access you know through our digital applications and.
No we talked about <unk> percent increase.
The saying about 60000, you know tele health.
You know engagements on a daily basis, which is a dramatic increase as well and you know in its not just one of the things. We were looking at is is it cope with related.
The answer is no. We're seeing an increase then I'll say you know PCP utilization.
As well as an increase and you know let's call. It behavioral health concerns and other type of specialized services. So you know we do believe that implies a complimentary role to what we're doing with our health hubs and it brings us right back to you know community home.
In hand.
Great. Thanks.
I will take us well, we know we've got time for two more questions. Please.
Well take a question from AJ Rice of credit Suisse.
Hi, everyone, but aired would say.
I appreciate all the comments that were made about economic impact on the health benefits business I Wonder if we could broaden it out obviously, it's been 10 years since the last economic downturn how does.
How do you think the other businesses responded how are they may be positioned differently today versus the.
The last time, we went into an economic downturn.
Yeah, Hey, Jay its ancillary or.
HM Okay, Yeah, it's a it's probably premature at a difficult comparison because to your point a lot has changed over the last 10 12 years and you know there are still an awful lot of uncertainties as to you know where we're going to be in the latter part of this year.
I will say the nature of our business. You know is you know to a degree you know recession resistant I wouldn't describe us as recession.
Proof and you know whether it's you know what you're looking at around you know the you know the role of our retail asset and you know and you think about our strategy that you know we've talked a lot about you know the the triad of you know community home and the high.
And you know and the fact that as you think about you know the provision of health care. You know a you know in a more challenging economic environment, you know cost will become a bigger.
Issue and we believe that we have the assets from the capabilities. When you think about the cost associated with care provision and the offerings that we have with our integrated Bob.
And like I say, if I if I can just died AJ as you you know looking back at the pass. This is an unprecedented situation in so many so many unknowns, but as Larry highlighted we're a different business, we have a lot of diversified assets.
Karen got some questions on Medicaid in our P.D.N., we have a very large Medicaid we've a very large Medicaid he saw and you heard in Larry's prepared remarks around the health services that were offering and an expanding in accelerating some of our diagnostic testing. So there's there's.
There's a tremendous amount of of moving pieces and we're going to work to to really drive to drive the business follower in these challenging times.
Okay. Thanks, a lot.
Well take our final question from Steven Valiquette of Barclays.
Great. Thanks, Good morning, everyone hope everyone staying safe, hoping you can hear me okay.
Just a quick follow up question regarding the.
April prescription trends I'm curious if there is any way from your analytics capabilities to determine how much of this slowdown in April is tied to the pull forward in March versus the reduction in physician visits.
And you mentioned a that 30% reduction in.
And an array of health care services in April our in person physician visits in particular down in line with that 30% higher or lower from your review just separate from <unk>.
Yeah, Yeah, let me I'll give you the pieces and they roll around 50 realizations, we saw I see about flat, we've gotten pacing down over 30% out nation was down about 25% acquisition right now Oh, 35% and then.
Oh, there, which would be I imagine, how radiology and home cell site services.
They were down about almost 50% or do you have a broad array of this season.
You need to 30% reduction deals nation and then Steve. This is John we saw a lot of 30 to 90 day conversions in March in pharmacy, So that did take some prescription though the April pipeline and I would say you know the when when I talked about the.
New therapy starts being down I think that is do you know we think about it as being in line with physician visits so as a physician offices start open in patient start coming back we expect that volume to normalize it Steve the one thing that I do want to emphasize because oh I'm proud of the work that we've done at CBS and quite.
Frankly.
I'm proud of the work that our industry has done you know the the continuity of the pharmaceutical supply chain.
Is not something that you've seen a lot in the news.
And you know everyone has worked hard to make sure those with.
Chronic disease are staying at here to their medications and not compounding. This problem that we have today with you know with Covance with another problem that you know a you know, which as you know gridlock, our health care system. So you know, it's really been a job well done in that regard.
Great. Thank you.
So with that but let me just let me just wrap up and you know.
Again, we're very pleased with our underlying business performance in the quarter. We believe as you've heard from you know the dialogue we've had in the queue in a that our integrated innovation driven health care model is proving to benefit participants across the health care system and these unprecedented times and it will continue to do so both for the crime.
Yes, and well into the future and we remain focused on growing CBS.
As an integrated health care Enterprise, then and we'll continue to invest for sustainable long term growth. So thanks again for joining US This morning, and please stay safe and healthy and we'll talk to you said.
This does conclude todays Cvs health first quarter 2020 earnings call and webcast. Please disconnect. Your line at this time and heavy wonderful day.
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Okay.