Q4 2020 CVS Health Corp Earnings Call
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Ladies and gentlemen, and good morning, and welcome to the Cvs Health fourth quarter and full year 2020 earnings conference call.
This time, all participants are in a listen only mode.
A question and answer session will follow and Cvs health prepared remarks at which point, we will review instructions on how to ask your questions.
As a reminder, today's conference is being recorded.
I would now like to turn the call over to Valerie Haertel Senior Vice President of Investor Relations for Cvs Health. Please go ahead.
Thank you and good morning, everyone welcome to the Cvs Health fourth quarter and full year 2020 earnings call I'm, Valerie Haertel Senior Vice President of Investor Relations for Cvs Health I am joined this morning by Karen Lynch, President and CEO and Eva Berardo Executive Vice.
Didn't and CFO.
Following our prepared remarks, we'll host a question and answer session that will include John Roberts, Chief operating officer, and Alan lots and President of Caremark, Our press release and slide presentation have been posted to our website along with our annual report on form 10-K that we filed with the SEC. This morning during this call.
We will make certain forward looking statements, reflecting our current views related to our future financial performance future events industry and market conditions as well as the expected consumer benefits of our products and services and our financial projections and our forward looking statements are subject to significant risks and uncertainties that.
Could cause actual results to differ materially from what may be indicated in them. We strongly encourage you to review the information in the reports we file with the SEC regarding these risks and uncertainties in particular those that are described in the cautionary statement concerning forward looking statements and risk factors section in this morning's earnings press <unk>.
Elyse and included in our form 10-K.
During this call we will use non-GAAP financial measures when talking about the company's performance and financial condition in accordance with SEC regulations. You can find a reconciliation of these non-GAAP measures to the comparable GAAP measures in this morning's earnings press release and the reconciliation document posted on the Investor relations portion of our website.
Today's call is being broadcast on our website, where it will be archived for one year now I would like to turn the call over to Karen.
Thank you Barry and good morning, everyone and thank you for joining our call today.
Before we begin I'd like to acknowledge Larry Merlo his leadership.
We set a bold path for Cvs health to change the health care industry and this country, Larry did an incredible job, bringing together, our unique asset and establishing the foundation for our future.
Our transformation over the last decade has enabled us to become the nations, leading diversified health services company.
It's one of the most trusted brands and America, our presence and communities across the country allows us to meet consumers, where they are and become a bigger part of their everyday health.
Our unparalleled capabilities reach and relationship with over 100 million people uniquely positions us to support them for every meaningful moment of health throughout their lifetime.
These are unprecedented times and our purpose to help people on their path to better health has never been more important.
Cvs colleagues are on the front lines every day, helping millions of Americans with Covid testing and vaccines and home and virtual care services and face to face care and our Cvs locations.
We understand our responsibility to support our customers members and communities. During these difficult times and we are delivering I am proud of the nearly 300000 colleagues on the Cvs health team and all that we've achieved and this past year.
Turning to performance our strong results and 2020 show that both our strategy and business model are working we exceeded our earnings commitments, while delivering 6% year over year adjusted EPS growth.
We grew revenue four and 5% to achieve adjusted revenues of $268 billion.
We delivered continued strong growth and our P. B M and government services business once again.
Leaving solid results and Medicare advantage.
We generated strong cash flow from operations of nearly $16 billion as we.
And you to Delever, while investing and our business for future growth.
We served a prominent role and supporting our customers providers and communities during one of the biggest public health crisis and our nation's history.
We continue to progress against our strategic roadmap and.
And we set 2021 adjusted EPS guidance of $7.39.
The $7 55, and with mid single digit growth from our baseline.
Eva will go into much more detail about our performance and our outlook.
Turning to our three business segments.
We delivered strong results and 2020 and the health care benefits segment. We grew total revenue by 8% for the year with increases and our government businesses, partially offset by declines and our commercial business in.
In the fourth quarter, we saw utilization of total health care services and the aggregate return to more near normal seasonal levels as higher COVID-19 related costs were partially offset by somewhat lower levels of traditional services.
Adjusted operating income was in line with expectations.
As we head into 'twenty and 'twenty, one we demonstrated growth within each of our Medicare product lines and January.
Overall, we are on track for another very strong year of Medicare growth.
For years, we've used our voice to advocate for policies programs and regulations at the local state and national levels that support access to affordable care for all Americans.
After careful consideration, we have decided to reenter the individual public exchange market as of January 1st 'twenty and 'twenty two.
As the HCA has evolved there's evidence of market stabilization and remedies to earlier structural issues.
It is now time for us to participate in these markets.
We'll show that we can bring great value to those who seek coverage you can expect to hear more about our exchange reentry plans and future updates.
Turning to our P. B M. Our pharmacy services segment has been resilient through the pandemic, we demonstrated the value we bring to our customers and our members.
We achieved strong retention rates and positive momentum and winning new business and 2021 and.
And finally, and our retail long term care segment, we continue to advance our clinical program, which improve medication adherence and health outcomes, we increase the level of engagement with our loyalty and subscription customers and we also achieved high customer satisfaction results.
During the last year, we delivered new market solutions, and we strengthened our role as a personal and trusted health care partner and response to COVID-19, we.
And we pivoted and rapidly innovated to meet customer needs for Covid testing and the community.
We also advanced our digital capabilities to create a seamless experience across Cvs health touch points.
Today, we remain the largest community testing organization and the U S.
And we've administered approximately 15 million tests and our more than 4800 testing locations nationwide.
Over 50% of these tests have been administered and communities with significant need for support according to the CDC social vulnerability index.
Additionally, we launched a return ready solution to help employers and universities as they execute their return to work and school strategies today.
The day 100 clients have enrolled representing over 1.5 million individuals with interest continuing to grow.
Such leadership enabled us to establish new relationships with approximately 8 million consumers through our Covid testing effort. These are people who are new to Cvs health.
Turning to vaccines.
We've been working with the federal government on vaccine distribution readiness for several months we.
We were selected as one of the partners for vaccine administration and long term care facilities. We've.
And we've administered more than 3 million vaccine doses to the patients and staff and over 40000 and long term care facilities across the country.
We completed the first doses of vaccine administration, and all skilled nursing facilities and will complete the second doses by the end of the month as planned.
We are on track to complete both doses of vaccine administration for assisted living facilities by mid March.
This will fulfill our commitment to administer vaccines and long term care facilities.
We've also been selected as one of the National partners for the Federal Pharmacy partnership program.
This is the linchpin of the bite and administrations plan to Vaccinate 300 million Americans by the end of the summer.
As part of this program weird administering approximately 250000, COVID-19 immunizations across 11 states and and over 350 Cvs locations each week.
Early feedback from customers has been very positive on their overall experience across both our in person and digital channels.
And we'll continue to add stores as the vaccine supply increases.
So the commitment and hard work of our employees, we have the capacity to administer 20 to 25 million doses per month, depending on supply availability.
Millions of new customers will engage with Cvs health for the first time through testing and vaccine administration services we.
We will use this opportunity to shape, a health experience that demonstrates the value we bring.
It will create the opportunity to expand our customer base, while deepening relationships with current customers.
We have made measurable and important progress with our strategy as a health services company that utilizes all our assets that integrates them for superior consumer experience and firmly addresses the total cost of care. For example, we are creating health platforms that combine local <unk>.
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Moat biometric monitoring and access to health care professionals, all within a personalized consumer centric model.
Our new diabetes program is an example of this we have approximately one 4 million members and this new program with about 50% representing integrated Caremark Aetna plan members.
We've had strong reception to our fully integrated plan B Aetna connected plan and expect to add 15 markets in 'twenty and 'twenty one.
Key features include zero dollar co pay that minute clinic locations standard formulary and use of our coram infusion services.
We deepened our pharmacy penetration and the health care benefits segment through increased cross sell of medical and pharmacy plan.
This is expected to result in approximately $350 million and incremental revenue in 'twenty and 'twenty one.
We are bringing dialysis services into the home to better manage chronic kidney disease.
This program offers a simpler more patient centered approach it delays the onset of end stage renal disease reduces hospital admissions and supports people with treatment options are.
Our kidney program will engage and targeted cohort across businesses currently available to over seven and a half million eligible members.
And finally, our oncology program helps patients start on the best treatment and matches eligible patients to clinical trial.
Our goal is to improve patient outcomes and lower overall costs at every point of the cancer care journey.
Our program has expanded to more than 100 and twenty-five provider systems across 28 states covering over 30% of aetna's insured oncology population.
As we engage consumers and addressing their most prevalent costly and complex health conditions impacting their lives. We are also concentrating on expanding access to affordable quality care.
We launched new medical benefit plans designed with low copay or no co pay at Minuteclinic to offer broader access to care.
We have approximately 6 million commercial and Medicare members enrolled to date.
And our small group product, which was the first to adopt we achieved 25% greater use of minute clinics and Cvs pharmacy retail scripts increased from 30% to 65 per cent.
This continues to strongly demonstrate the value of bringing Cvs assets together to support members across their health care needs.
We continue to expand access through our integrated care delivery approach we.
We ended 2020 with just over 650 health hubs nationwide, including locations in underserved communities.
Health hubs are one of many channels, we have to engage with consumers for their health that also complement the traditional health care system.
We continue to expand our virtual care capabilities, we launched our E clinic service and our minute clinic footprint across 33 states and and and in the district of Columbia.
Consumers are now able to interact with nurse practitioners for comprehensive virtual care and a convenient way.
Through this offering we can help customers with both episodic care and provide a longitudinal integrated care experience.
We launched our virtual first primary care program members engage with providers virtually.
They are then directed to lower cost high quality sites of care, such as minute clinic or other face to face and network provider care setting as needed.
We are delivering value by creating a superior system that is centered around the consumer where they want and need health care.
In closing we are starting 'twenty 'twenty, one with strong momentum.
We are accelerating our pace of progress to drive our consumer centric strategy.
Our strategy built upon the fundamental belief that solving consumer health needs and will create value for all our customers our communities our people and our shareholders.
We will further develop and refine our strategy to leverage the rapid shift and health care underway and the U S trends that we are not only on top of but in many places driving.
As we move forward with this work the touchstone of our strategy will remain focused and the following areas.
We will demonstrate the integrated value of Cvs health unique portfolio of products and assets.
We will enhance the consumer experience through the expansion of digital services and platforms that seamlessly connect to in person channel.
We will expand our portfolio with new innovative consumer oriented solutions that improve health lower medical costs, while creating better health outcomes.
We will continue to build a high performing organization that is passionate about our purpose that reflects the diverse populations, we serve and empowered to do the right thing the right way for consumers health and wellbeing I.
I am confident and our future and our ability to help people on their path to better health.
Cvs health will lower costs and improve customer experience enhance access and be their trusted health care partner.
Now I'll turn it over to our Chief Financial Officer, Eva Burrito.
Thanks, Karen and good morning, everyone as Karen stated our strong performance across the enterprise continued in the fourth quarter as we executed on our strategy. During this challenging time for the full year, we delivered $7.50 adjusted earnings per share and importantly achieved over 900 million.
And of integration synergies above the high end of our expectations. We've hit the 'twenty 'twenty, one run rate and the synergies are fully embedded in the business.
During the quarter, we generated $3 6 billion of cash from operations, bringing our full year to 15.9 billion, which is above the high end of our expectations and we paid down $2 5 billion of net debt in the quarter exiting the year at a low four times leverage ratio.
Since the close of the Aetna transaction, we have paid down more than $12 2 billion and net debt and remain on track with our low three times leverage ratio goal in 2022.
We maintained our dividend while we also invested in our enterprise to support our colleagues and customers during the pandemic and to accelerate future growth.
Looking at our fourth quarter results by segment, our health care benefits segment total adjusted revenues increased nine 6% year over year, driven by membership growth and our government products and the reinstatement of the hip.
Adjusted revenues exclude the a C a risk quarter payment received during the fourth quarter. Adjusted operating income was 153 million in line with our expectations largely reflecting the planned COVID-19 related investments benefiting customers.
Westing and treat low cost and the divestitures of the Aetna PDP and our workers' comp business.
Total membership increased about 140000 and sequentially with Medicaid membership up about 90000 as states continue to respond to the COVID-19 pandemic by suspending eligibility redetermination. Additionally, our Medicare portfolio continues to show growth with <unk>.
Strong Medicare advantage and med sup membership growth increasing sequentially about 90000 up over 2%.
These increases were partially offset by a modest sequential decrease in commercial membership of about 35000 members driven by additional membership attrition due to COVID-19.
Our adjusted MBR for the quarter, excluding the a C E payment was 88, 3% and in line with our expectations, representing an increase of 260 basis points compared to the prior year.
The higher MBR was driven by COVID-19 related investments testing and treatment costs. The divestiture of the PDP business, partially offset by the reinstatement of the health.
Overall fourth quarter utilization was generally in line with our baseline, including higher COVID-19 related costs.
Days claims payable were 48 days for Q4, 'twenty and 'twenty consistent with our Q4 19, and a day lower than Q3, 'twenty and 'twenty.
Largely driven by pharmacy payments, we remain confident and the adequacy of our reserves moving.
Moving to pharmacy services total revenues declined approximately 2% versus last year, primarily driven by the previously disclosed client losses and continued price compression the.
The decline in revenue was partially offset by growth and specialty pharmacy of approximately 4% and brand drug price inflation.
Total pharmacy claims grew <unk> seven per cent and Q4 compare to last year, driven by net new business momentum and pharmacy services continues with adjusted operating income increasing seven 9% compared to the fourth quarter last year improvements and purchasing economics.
Ex and the ongoing benefit to our clients and Cvs health from several generic launches and our continued success with customers and managing specialty pharmacy continues to fuel the growth.
The quarter also reflected higher investments to support our successful 2021 welcome season.
And finally retail long term care total revenues grew six 6% year over year, driven by a 2% increase in prescription volume, including strong flu immunizations and as well as benefits from our diagnostic testing and brand inflation.
Partially offset by a one 6% decline in front store sales.
Our COVID-19 diagnostic testing program contributed nearly 400 million and the quarter.
Prescription growth was driven in part by continued adoption of our patient care programs offsetting the growth was lower incidence of flu and flu like illness, which reduced flu related scripts, nearly 40% and affected cough and cold sales in the front store by approximately 30%.
Gross margins for the segment declined 140 basis points versus 2019, driven by continued reimbursement pressure and mix, partially offset by testing a.
Adjusted operating income declined 12, 6% year over year, reflecting the items I have discussed as well as costs related to COVID-19 move.
Moving to other items on the income statement, we incurred lower interest expense as a result of our continued debt pay down and the adjusted tax rate was higher in Q4 compared to Q4 19, primarily due to the return of the half.
Transitioning to 'twenty 'twenty, one guidance full year adjusted EPS is expected to be and the range of $7.39 to $7.55, an increase of approximately 4% to 6% from our 'twenty and 'twenty baseline of about $7 and 11, it sets and inline with our.
Mid single digit growth expectation.
Consistent with our practice net realized capital gains or losses and prior year's development are excluded from our outlook we.
We expect to generate between 12 and $12 5 billion of cash flow from operations in 2021. This.
This includes the impact of timing of certain payables and receivables that contributed to our 'twenty and 'twenty outperformance.
Our gross capital expenditure expectations of 2.7 to 3 billion is above historical levels as we expand our investments in technology and digital enhancing our app and systems workflow and we continue to invest and our health hubs.
As noted over the course of 'twenty and 'twenty, there were positive and negative impacts from COVID-19, many that offset across our segments stemming from changes in consumer behavior. We are pleased with our ability to pivot to deliver the products and services and demand to drive.
Continued growth at our enterprise as we create a better way to deliver health care.
And 'twenty 'twenty, one COVID-19 is expected to have an immaterial impact on our adjusted earnings per share as we have highlighted in our slides COVID-19 is expected to have a benefit to the retail long term care segment and have and unfavorable temporal impact to the health care benefits segue.
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Importantly, we will continue to drive our enterprise cost savings initiatives, which we expect to deliver between 901.1 billion and will ramp as we move throughout the year.
Key drivers of savings include ongoing digitization of our businesses, along with system technology improvements and our operations such as our call centers real estate changes, including our decision to reduce office space by about 30%, resulting from COVID-19 and.
Work Force management changes and how we are working as well as productivity and operational efficiency initiatives within each segment. We expect consolidated full year adjusted operating income to be and the range of 15.5 to $15 7 billion with consolidated total revenues in the range of 200.
And 76.1 to 280.6 billion up 3% to 4.5%.
We are maintaining our shareholder dividend of $2 per share.
Moving on to our segments as a result of continued strength and Medicare products, We expect H E. B total revenues to be and the range of 79.4 to 87 billion.
Medical membership is expected to be between 23.2, and $23 6 million medical members at the end of 'twenty 'twenty, one fueled by growth in each of our Medicare lines of business.
Partially offsetting the growth and Medicare is the transition of two large Medicaid contracts and our guidance includes an expectation that state redetermination and do not return in 'twenty and 'twenty one.
We believe the strength of our unmatched benefit plan designs that utilize our enterprise assets positions us well for 'twenty and 'twenty, one and beyond.
In health care benefits, we expect adjusted operating income and the range of 5.1 to $5 2 billion.
Our outlook reflects the negative impact of COVID-19 of approximately 450 to 550 million largely attributable to the Medicare risk adjuster impacts and the recent regulatory changes from the consolidated Appropriations Act.
The removal of the hits insurance fee, which we expect to decrease 'twenty 'twenty, one adjusted operating income by approximately $175 million and strong growth and Medicare membership.
Our full year MBR is expected to be approximately 84, 7% plus or minus 60 basis points.
Which reflects the return to more normal levels of utilization the removal of the hip.
Lower risk adjusted revenue and.
And mix shifts and our business.
And pharmacy services, we expect total revenue to be and the range of 144.5 to 147 billion driven by strong net new business of $3 3 billion and continued growth and specialty pharmacy and brand drug inflation in the mid single digit range.
The 'twenty 'twenty, one selling season is largely complete and we maintained a strong 98% retention rate with gross wins, a 4.9 billion.
Adjusted operating income is expected to be within the range of 6 billion to $6 1 billion driven by continued growth and specialty and our ability to drive further improvements to purchasing economics, partially offset by industry wide price compression.
Turning to retail long term care, we expect revenue of 93.8 to $95 1 billion, we expect strong adjusted script growth and the range of 7.25 to 9.25, driven by the continued successful execution of our patient care programs.
Expected return of provider visits and COVID-19, vaccinations, and we expect front store traffic will increase as we move throughout the year.
We expect adjusted operating income to be and the range of $6 six to $6 7 billion benefiting from continued pharmacy volume growth and approximately 400 to 500 million from COVID-19.
The benefit from COVID-19, and reflects the positive impact of vaccines and testing related revenues net cost associated with these programs, partially offset by the adverse impacts of front store and pharmacy and.
And our continued investments.
And COVID-19 related protocols.
Operating income growth also continues to be unfavorably affected by reimbursement pressure.
Moving to other income statement items, we expect interest expense of about 2.6 billion benefiting from the paydown of our debt and our liability management actions and our effective tax rate is expected to be approximately 25%, reflecting the repeal of the half.
Finally, we expect quarterly earnings cadence to be fluid over the course of the year, but let me share. Some perspectives on Q1 Q1 is expected to be the lowest earnings quarter for the year and retail long term care lower traffic in the front store and lower script volume has persisted into.
January in part due to the weaker flu season.
Q1 is also impacted by investments to advance our vaccine program.
Health care benefits is expected to have higher earnings in the first half of the year and the lowest in the fourth quarter.
Cost savings initiatives across our segments are expected to ramp over the course of the year.
In summary, we continue to deliver on our financial expectations and are confident and our ability to achieve the 'twenty 'twenty one guidance. We outlined today, we are making progress toward driving sustainable long term growth as Karen mentioned, we are accelerating aspects of our consumer focused strategy.
To meet the consumer's health needs of the future before opening it up for questions I would like to take a moment to thank Valerie for our work here and Investor Relations.
Disappointed to see Valerie leave over the next month, but and the grateful for the advancements that Valerie made during the time she was with Cvs health.
Wish Valerie the best of luck and her next venture now, let's open it up to questions.
At this time, if you wish to ask a question. Please press star one on your Touchtone phone.
You may remove yourself from the queue by pressing the pound key.
And the interest of time, we ask that you. Please limit yourself to one question and one quick follow up.
And we will take our first question from Lisa Gill with Jpmorgan. Please go ahead.
Thanks, very much I hope you can hear me, Okay. Karen I just wanted to go back to the comments that you made around virtual first primary care. So can you maybe just help me to understand a little bit better one just the number of people that you have enrolled and that program today and then secondly.
When you think about that first of all first primary care is it virtual and then they come into the minute clinic are you know how does the physician network set up there I'm just trying to better understand how that program is working and how many people you were able to enroll for 'twenty and 'twenty one.
Hi, Lisa and good morning on the virtual care. This is a program that we started with one of our large national accounts essentially what we're doing is are they the last day virtual primary care physician they interact verse of that virtual primary care.
Doctor and then that if that person needs to be seen what they do is they send them first you know our hope is to the minute clinic and that's kind of the way we've contracted and then if there needs to be other in network providers and they would've from refer them there, but they are and what their first interaction would be with this virtual primary.
And care is in pilot and so with our large national that's from one customer and our expectation is that we'll continue to roll it out.
And as we go forward.
And can you give us any idea of like what the cost savings is to that that commercial client versus kind of a traditional program as we think about potential interest around these kinds of things.
It's a little too early to tell but we are expecting a lower cost savings and that's it and when we're pitching it to the national accounts customers. We've seen you know lower costs with primary care physicians being for virtual and so but a little early to tell at this point, Okay. Great and then just my follow up would be for.
And Eva around what you have and the guidance for vaccines.
You know I heard the comments around 250000 per week at this point, but the.
Capacity for 20 to 25 million per month, what what do you actually have and the guidance that you gave us today.
Good morning, Lisa Thanks for thanks for the question.
Start with as you as you look at the retail long term care segment guidance and the prescription growth of seven and a quarter to 9.25 I would think about the vaccines contributing about two to three percentage points of that of that growth obviously, it's fluid.
<unk> sales depend on supply availability and the selection of of Cvs health, but as Karen said, we're ready to do 20 to 25 million per month.
And as you think about the profitability.
Of the vaccine lease I would say for the vaccinations that will administer in our stores. The EBIT contribution similar to a to a flu vaccination.
And as we've worked through long term care.
The contribution from that program is pretty de Minimis.
As you know it was a complex process requiring multiple visits to the site and with lower lower of individuals' there to vaccinate.
So overall the costs were higher so I would think about that is as de minimis. Okay.
Okay, great. Thanks for the comments.
And we will take our next question from Robert Jones with Goldman. Please go ahead.
Great. Thanks, so much for the questions and maybe just a follow up on the $4 to $500 million benefit.
One point of clarification is that actually would be ex COVID-19 baseline. So we expect a four to 500 in the retail long term care. So we need to be on top of the $7.11 at the enterprise level and then I guess just more importantly, as we think about.
The year 2021 ex Covid.
Covid related benefit could you, maybe just share a little bit about how youre thinking about.
Other underlying assumptions returning back to normal or closer to normal as we as we get through the year.
Alan Let me start with some of the assumptions and I'll kick it over to Eva for some of the metrics on the assumptions you know we've assumed that the you know the public health emergency would stay in place all year, obviously that impacts the the Medicaid business relative to utilization.
Have modest assumptions for deferred utilization and the you know first quarter or so and then we're assuming that you know we you know head back to a normal baseline as we and as we ended the year a course of 2020, we had no near normal baseline level.
And of utilization, obviously COVID-19 had an impact on that so as you think about the year I think about some very modest deferred utilization, but returning to normal levels on the utilization from Eva.
Yeah, Bob and and your question on the on the retail side of the business. The 400 to 500 million Covid related benefit I would think about that across a couple of categories. One is the continuation of testing while cases remain elevated to the benefits.
From from our vaccination program offset by obviously the incremental cost that that we will that we will incur at the at the enterprise level. As I said Covid is is de Minimis as you look at the impacts on the H E B side as Karen just outline and.
The impacts on the retail long term care side.
Got it and then I guess, just a quick follow up Karen and interesting decision to reenter the individual markets for 'twenty two.
If you could just share a little bit more about the decision process. There and then as you think about your one how many how many geographies and markets and that you'd be targeting.
Yeah. So you know we've been studying the individual market for a while and what we decided you know its obviously stabilize over time you know some of the remedies have been put in place you know clearly there's a big market and you know 10 to 15 million people that we are participating and today, we view that you know that.
Combination of the insurance and the Cvs health assets gives us a unique opportunity to put a competitive product into the market. It will be our first branded Cvs health at and a product that we put into the market and relative to the number of markets and we're still you know we still haven't finalized, though so more to come and when we talk.
And the second quarter.
Great. Thanks, so much.
And we will move next with Ricky Goldwasser with Morgan Stanley. Please go ahead.
Yeah, Hi, good morning, and.
So Karen you know you talked about in the third quarter and and to dig in and about the Aetna members that have zero copay access to the health hubs.
Can you just maybe give us an update of what percent of members have debt and any early I know, it's been kind of flow.
Six weeks, but any early indication is how these members are using debt benefit.
Yeah, Ricky so yeah, we now have 6 million Aetna members that have the zero copay no cost co pay a benefit and we put it into the Medicare business. This year as well so that that you know we went from four to six as we turned the corner on 'twenty and 'twenty, one we have seen where this from our <unk>.
Mall group business had adopted this co pay early on we've seen an increase and minute clinic visits of about 25% and from that cohort of individuals and so it is an indication that people are using minute clinic are interested and using it with that copay design.
So that's the that's the number that's the $6 million is where we are and we'll be able to watch that throughout the year.
And as a follow up just on the Pbms business. She doesn't just get a little bit more color on just kind of like the selling season, and and you talked in the prepared remarks about the change and in the business mix in 2020, and and a 22% to 'twenty 'twenty, one and two how should we think about business mix them up.
Renewal and and opportunities and the marketplace for 'twenty and 'twenty two and.
And what are the key new products.
And you are selling them this year and you think we will.
Two into next year.
So Ricky first let me just comment on on P. B M. You know where we're at.
Pleased with our integrated approach with the P. P M and the health care side as I mentioned and our opening remarks, we have $350 million of incremental revenue that has been it and focus for us to drive integration you know the P. B M business had Eva said, 98% retention and about $4 $9 billion of Nu.
Sales. So we're quite pleased with the performance of the P B and business and let me turn it over to Alan who can give you more details around the products and the services that we're selling yeah, hi, Ricky. Thank you for the question. So just on with respect to is resonating and the market I think there's a couple of key points. So one is the most important thing to our our customers right now.
The management of specialty and and and we've continued to advance and.
And that area and and separate ourselves from the pack and differentiate with a series of products, whether it's things that are connected digitally to our customers, whether it's thinking that things are connected digitally to.
Our provider groups and.
And also as was mentioned earlier better management of oncology.
And that's really what's what's what's driven that with respect to when we look at the.
'twenty 'twenty two in terms of what's up for renewal, it's a year, that's smaller and smaller exposure of our own customers up for renewal and we've seen from the past two years about 32 billion compared to sort of and the $50 billion range. The prior two years.
Thank you.
And we will take our next question from Charles Free with Cowen. Please go ahead.
Yeah. Thanks for taking the question guys.
First question, you don't care and I think you've talked about and the diabetes management program, you're about one 4 million members and you said about 50% of them was sort of represent and caremark Aetna and.
Integrated members here can you talk a little bit more about that.
I guess first is the 50% represents and then.
Fully insured members and the.
Others are and so clients and are participating in this.
And.
What kind of Pwc and in terms of maybe cost savings.
By going through this approach.
Yeah. So Charles let me just comment on the diabetes program first and you know it's focused on a data driven identification and targeting of our member specific gaps and five areas. We're focused on medication optimization medication adherence screenings, a lifestyle and nutrition.
And blood glucose monitoring you know, it's a basically it's a multichannel approach and we do as you mentioned, we have one 4 million members you know that 50% represents kind of all all of our members. It's I can't I don't know the split we can certainly get you that split at some point.
And so we launched it and we do have a large group better care account on it as well, but preliminary results are showing that you know our engagement rate is.
And it is improving Ah, we're closing diabetes GAAP for about 50% of those engaged members. So far you know what we've seen is we're pleased with the preliminary results, but obviously you know it's relatively new to the market. So we need to see sort of that longitudinal study, but it is resonating with our customers.
And is that being delivered through.
Our health hubs themselves or is it more broadly to the Minuteclinic channel.
And is being delivered through the health hubs are itself and you know being sold through both the Aetna and caremark are teams and we're really looking at it from and integrated perspective.
And I forgot.
And with all of you also talked about.
The efforts and the digital channel and obviously a lot of numbers coming through to see EPS for the first time.
They are coming through Cvs and through the Cvs App for example, or are they coming.
Through the store because they're looking to maybe book a COVID-19 appointment.
How would they first reaching out to you like what percentage of that is digital.
And then can you maybe talk a little bit about that strategy retaining them digitally.
And at least.
And Charles I assume you're talking about the interactions with our testing and vaccines all of our customers are coming and digitally they're required to make an appointment and four and and and it's all a digital experience. We are receiving quite a positive response from those.
Customers relative to their digital experience you know clearly we also have phone capability for people.
When they don't have those digital experiences.
Experiences, but most of our customers are coming and digitally I'm very pleased with and the level of.
The results, we're getting from our digital.
No team and you know the experience that our customers are having a we've received such positive response and comparison to others as they've been I'm trying to get appointments elsewhere and our systems have been incredibly stable.
Thank you.
And we'll move next to Matt Borsch with BMO. Please go ahead.
Thank you.
And just a question on your outlook for utilization this year I gather.
You're expecting some deferral early in the year and then really normal utilization after that are you projecting.
C much sort of pent up demand or catch up and.
If not what are some of the factors that in.
Influence your beauty.
Hi, Matt let me I'm sorry.
How are you. So let me just comment on pent up demand and a QE and we are not projecting high levels of you know pent up demand, we think that system capacity will constrain you know that they use and the health care system. I would also tell you that we have spent a lot of time this year reaching out to.
Our members to close gaps in care. So we have been very specifically targeting.
Individuals that have diabetes and if it you know pregnant moms. So that we are reaching out to them. So that we were connecting them virtually that we're connecting them to services. So that we could I'm not sort of have that acuity occur over the long periods of time, obviously, we probably didn't catch everyone but.
You know if there's a huge pent up demand you know that you know that could have an impact, but I think the system will constrain it are obviously.
Okay that makes sense and if I if I can.
Just a follow up how do you.
How did things go with commercial enrollment.
The large accounts coming into the new year.
I'm, sorry, Matt I didn't hear you I'm, sorry, I was just asking a follow up about.
Large account retention and enrollment coming onto health HDD side coming in from January one.
Oh relative to come and commercial membership for one 121, you know essentially and you know the pipeline was not as strong as we had anticipated we did have solid retention and what I would tell you. It would assume it was flat for our national account membership.
Great. Thank you.
And we will take our next question from Michael Cherny with Bank of America. Please go ahead.
Good morning.
Wanted to dive in a little bit further and maybe a more overarching basis from from the digital investment and making Karen you believe shrinking some of the thought process that you have.
The primary care first.
All right.
The other components as you can.
And especially the step up that you had and digital scan and the strategic investments you're making what.
Kevin timeline are you, giving yourself to measure the success of those and and how are you thinking about the hurdle rate.
In terms of the conversion factor, but he's already Joseph to be successful.
And thank thanks for the question and I, you know us as you would imagine I'm you know we are investing more and our digital capabilities, you know clearly to demonstrate that seamless experience or in person in person connections connected to our digital capabilities.
Well well be as we look at the return on investment and that give us some time to do that you know clearly to stay competitive to be and the market and we really do need to enhance those digital capabilities either through our virtual first you know primary care or you know our.
And our digital capabilities, our retail locations are testing and vaccines. We are trying to make this seamless connection across the consumer experience today, our consumers interact with us through the health care segment through the pharmacy segment through the retail segment, and we really want to make sure those connections our stainless across all our all our segments.
And so that consumers can engage with Cvs health, you know once and feel that experience as a Cvs health, Let me turn it to Eva She can talk about our return.
Yeah. Thanks for the question, Mike I think just to give you some examples and and add on to what Karen said no. We we did a thorough kind of review of our of our technology and and decided to accelerate and and a few areas and and it is all about improving the customer experience, while reducing costs and I'll highlight a couple of exam.
For your first we're.
And we're deploying intelligent agents across our across our call centers and <unk>.
And we utilize this technology at the outset for a COVID-19 vaccine scheduling and what we've been able to seize the deployment of this technology took 70 to 80 per cent of the calls out of our stores and the call center, so real meaningful impact and are in a very short period of time.
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Another area that we're really focused on is how we utilize machine learning for greater personalization across all aspects of our business to to increase the returns. There. So we'll continue to evaluate and and look at the returns and and invest and.
And here to to drive the business forward.
Thanks, and if I could just ask one more quick one on the vaccine side I appreciate all the color you've given around your current pacing.
Do you think about debt.
<unk> contribution on the Scripps side relative to the vaccine how much of that is dependent on some of the new molecules coming to market that dependent on having J&J and having some of the other ones or is that.
And on what the correct.
Dynamic ads in terms of what's available and what youre able to dispense.
And what what are current as you know our current allocations or based on what the government has currently as we think about ramping up and for the rest of the year. It is dependent upon them. The vaccines. The J&J getting approved and we anticipate that will get approved obviously the country and need.
And to have J&J get approved to get to the numbers that the buy and administration has put out there.
And this is John I would just say add debt and our conversations with the pharmaceutical manufacturers. We're estimating about 500 million doses of vaccine between now and and the end of June. So we think theres going to be good supply and it should begin to open up in April.
Great. Thanks.
And we will move next with George Hill with Deutsche Bank. Please go ahead.
Oh, good morning, guys and thanks for taking the question you had mentioned that the 2022 leverage ratio and a couple of the other 2022 Kpis I hate to look forward that far but I guess, what I was asking what I would ask is did the other long term earnings targets hold provided and the 2019 analyst day or is there any reason that we should think the double digit earnings growth target or any of the other target.
Get reset because of Covid.
Yeah. Thanks for thanks for the question George would all say, we remain very focused on our long term growth targets that we outlined right. As you think about 'twenty 'twenty two it's it's a very fluid environment right now so it's it's difficult to comment explicitly on that.
But we're focused on driving the organization forward over the longer term to deliver on our targets.
Okay and then maybe my brief follow up would be is it looks like the COVID-19 tailwind.
Tailwind represents all the growth to the retail LTC segment and 21, I guess is that the right way to think about that and I don't know if theres any other big moving pieces that you could talk about particularly reimbursement.
George I'll take that well and writers as you look at as you look at the retail and algorithm in 'twenty and 'twenty, one or high single digit growth rate is is attributable to strong prescription growth rate seven and a quarter to nine and a quarter.
Which includes our patient care programs as as well as the COVID-19 vaccination. We expect diagnostic testing will continue as you think about it as vaccines ramp up the testing.
We'll we'll ramp down and and normal returns and the front store is as we move toward the second half of the year.
You know reimbursement pressure is an offset to that.
And it continue to consistent levels as we've seen and as we've seen in the past as well as our cost reduction initiatives.
Overall, I think about gross margins as as flattish given the mix change in the in the business, particularly as you think about the COVID-19 vaccination and the the revenues I'm not reflecting the product costs down and the administrative fee.
Okay. That's helpful. Thank you.
And we'll move next with Lance Wilkes with Bernstein. Please go ahead.
Good morning.
And you just talk a little bit about your comment on them and.
And increase in the pace of targeted investments.
And it was interesting just to understand.
And which areas and will those be.
Organic growth.
Through acquisitions.
Hi, Lance I'm, you know relative to our investment there organic investments are really I'm focused on you know technology, our digital assets and also we have some investments or yeah reentry into the marketplace.
So those are you know primarily some of the incremental and let me turn it to Eva to add add some more comments here.
And I think Karen and I think he got it okay well.
And then just could you just comment related to that on you've obviously added a bunch of talent and already.
Can you talk a little bit about your talent additions and then if there are any implications reward structure, new rules et cetera, as you're thinking about that thanks.
So lance yeah, we we brought in three new individuals' and onto the team and Neil and Montgomery, who is leading our retail organization. Yeah. She brings you know significant consumer and and digital experience. We've also brought in a Michelle Palooza who brings us.
Great again digital experience customer experience marketing experience and we've also brought in a new leader of Ah Ah Ah Ah.
New Chief people Officer, Lori Hovanec, who brings you know cultural change a diversity and inclusion and really health and helped drive them you know the work force other than the the future I'm quite pleased with the the talent that we have on the team and you know.
Across the board so very pleased with the complement of talented and drive the business forward.
Great. Thanks.
Operator, we have time for one more question.
And we will take our last question from a J rice with credit Suisse. Please go ahead.
Thanks, Hi, everybody.
Just maybe.
And I ask you about the Medicare advantage and look I know.
Steve This morning with the February numbers it looks like year to date, you are up 6% could you give us maybe a little flavor for where you think that land over the course of the year and I know and your 10-K filed this morning.
And it will be about increasing costs and medical care and CMS local and national coverage decision sort of begs the question and where do you think and MA margins Youre going to go this year.
Hi, a J, let me let me just take a step back. So I think it's important to look at our Medicare business as a portfolio of products I'm, you know and we have grown in January and each of the products and our Medicare portfolio. So if I start with our Medicare advantage and as you mentioned the new files are out.
Yeah, we're pleased with the year over year growth of low double digit growth on a year over year basis.
You know, we have made progress and our group Medicare advantage business as well you were growing and January we've also as part of our strategy and you saw a large commercial to group and MA conversion you would've saw that and the files. This morning, as well and we've had very strong performance and our duals.
Business, we grew 100% and our dealer business and as you might recall that was a.
Deliberate strategy of ours, and then our Medicare supplement business grew impressively and 'twenty 'twenty, we expect it to continue to grow in 'twenty and 'twenty, one and then finally, a J. Our you know P. D. P and grew in January outperform the industry there as well it was a very targeted and disciplined.
Our approach to growing P. D. P. As you know our strategy is to see if we can drive P. D. P performance PDP conversions to M. A we've had good success there and we expect to continue to do so yeah. We are you know targeting our you know our.
Business at our targeted margins a J. So we expect that that that's where the performance will be.
Okay, and if I could just follow up that'd be and the last question and answer a little cleanup here when you get back into the public exchange do you have a view of what the target margin for those probably change should be and then I will get back seed you Didnt say anything about Ronnie and add on and should we think of the vaccine for Covid like day magazine.
Blue where there is some added benefit and the front of store.
Yeah. So for the IV out you know more to come and we're still evaluating our pricing our market. So you know more to come on that and then relative to vaccines and front store, let me ask John to answer that question for you and so we do see and opportunity with the vaccines and building relationships with new customers.
And to convert them to long term Cvs health customers. So yeah. Let me just give you. An example, you know our customers after they get the vaccine and I have to wait 15 minutes.
And we observed them to make sure. They don't have an adverse reaction. So we're going to give them a series of value adds to encourage them to engage further so from shopping pass and the store to Minuteclinic education, and ultimately care pass Onboarding.
And then remember as we said earlier every one of these customers is coming through our digital front and so we have their email we have their text message and we have the ability to communicate with them regularly. So I would think of it beyond just the add on front store I would think about it as adding new customers to the Cvs channel and getting their pharmacy business closer from.
From a business.
And that's all day.
Oh I'd like to thank everyone and for our call. This morning, and as you can see we've made measurable and important progress on our strategy as a health services company, we're starting a 'twenty 'twenty one with strong momentum and we are accelerating our pace of progress to drive our consumer centric approach and I do again want to thank all of our employees.
As for their strong performance with.
With that I'll, but I'll say and say thank you for joining us today.
Thanks, everyone.
This concludes today's Cvs health fourth quarter and full year 2020 earnings call and webcast. You may disconnect. Your lines at this time and a wonderful day.
Okay.
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