Q3 2023 CVS Health Corp Earnings Call

Good morning, Good afternoon, welcome to today's third quarter 2023, Cvs Health earnings Coke My name is that to them and I'll be your operator for today.

I'll, let you ask a question in the Q&A portion of today's call. You May do you separate pressing star followed by one on the telephone keypad now.

The Florida Lottery Mcgrath to begin so Larry. Please go ahead when you're ready.

Good morning, and welcome to the Cvs Health third quarter 2023 earnings call and webcast.

I'm, Larry Mcgraw Senior Vice President of business development, and Investor Relations for Cvs Health.

And this morning, Mike Cowan Lynch.

<unk>, Chief Executive Officer, and Tom Kelly interim Chief Financial Officer.

Following our prepared remarks, we'll host a question and answer session that will include additional members of our leadership team.

Our press release and slide presentation have been posted to our website along with our Form 10-Q that we filed this morning with the SEC.

Today's call is also being broadcast on our website, where it will be archived for one year.

During this call we will make certain forward looking statements.

Our forward looking statements are subject to significant risks and uncertainties that could cause actual results to differ materially from currently projected results.

We strongly encourage you to review 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 in our most recent annual report filed on Form 10-K, our quarterly reports on Form 10-Q.

Most recent of which was filed this morning, and our recent filings on form 8-K, including this morning's earnings press release.

During this call we will use non-GAAP measures when talking about the company's financial performance and financial condition and.

And you can find a reconciliation of these non-GAAP measures in this morning's press release and in the reconciliation document posted to our Investor relations portion of our website.

With that I'd like to turn the call over to Karen Karen.

Thank you Larry good morning, everyone and thanks for joining our call today, we reported strong third quarter results highlighting the power of our diversified business model, we delivered adjusted EPS of $2 in 'twenty one.

And adjusted operating income of nearly $4 5 billion dollar a can.

<unk> revenues for the quarter of almost $90 billion reflect an increase of nearly 11% over the prior year and once again, we generated outstanding operating cash flow, bringing our year to date total to $16 $1 billion.

We are reconfirming, our guidance range for 2023, adjusted EPS of $8 52.

$8 75.

This reflects execution against our strategy with strong performance in our pharmacy and consumer wellness segment and continued momentum in our health services segment.

Operator: Good afternoon, welcome to today's third quarter, 2023 CVS Health Learning School. My name is Adam and I'll be your operator for today. If you'd like to ask a question at the Q&A portion of today's school, you may do so for pressing staff followed by one on your telephone keypad.

Setting incremental Medicare advantage medical cost pressures and our health care benefits segment.

The power of our integrated model is clear we demonstrated that with the significant progress made in restoring our Medicare advantage star ratings, our 'twenty 'twenty four ratings show that we will have 87% of our Medicare advantage members in plans rated four stars or better we accomplished this in a very short period of time.

Larry Mcgrath: I will now hand the floor to Larry McGrath to begin. So Larry, please go ahead when you were ready.

Larry Mcgrath: Good morning and welcome to the CVS Health third quarter, 2023 earnings call on webcast. I'm Larry McGrath, Senior Vice President of the Business Development and Investor Relations for CVS Health. I'm joined this morning by Karen Lynch, President and Chief Executive Officer and Tom Cowhey, Interim Chief Financial Officer. Following our prepared remarks, we'll host a question and answer session that will include additional members of our leadership team. Our press release and slide presentation have been posted to our website along with our form 10 queue that we filed this morning with the SEC.

By utilizing the full breadth of Cvs health touch point with our members.

We improved cap scores by an average of two thirds about a point by deriving powerful consumer insight to design experiences that address the unique needs of our member.

We also made improvements beyond cap for example to address data and patient safety measures are Medicare advantage team work closely with Cvs pharmacy, and caremark to help members improve medication adherent remove cost and transportation barriers and ensure members completed critical test screening and prevent a third.

Larry Mcgrath: Today's call is also being broadcast on our website, where it will be archived for one year. During this call, we will make certain forward-looking statements. Our forward-looking statements are subject to significant risks and uncertainties that could cause actual results to differ materially from currently projected results. We strongly encourage you to review 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 in our most recent annual reports filed on form 10K.

With it.

As a result of these efforts among many others Aetna was the top performer in both the part D patient safety and heinous domain or.

Our 2024 star ratings will improve our position in the 2025 plan here and will enhance our position well into the future.

Medicare advantage is a key strategic growth area for our business. While it is still early in the 2024 annual enrollment period, we are confident that our competitive offering an attractive benefit design will meet consumer expectations.

Aetna continues to be a leader in zero dollar of premium products and approximately 84% of Medicare eligible will have access to aetna plants in this category in 2024.

We are also expanding the breadth of our D SNP footprint and now cover more than two thirds of Medicare eligible up 6% from last year. Our D. SNP strategy focuses on offering the coordinated medical management. These members need to live healthier lives, including introducing them to care delivery options such as Oak Street.

Larry Mcgrath: Our questions are in the comments that we'll be asking for. Our forward-looking reports and form 10 queue, the most recent of which we will file this morning, and our recent filings inform 8K, including this morning's earnings press release. During this call, we will use non-gap measures when talking about the company's financial performance and financial condition, and you can find a reconciliation of these non-gap measures in this morning's press release and then the reconciliation document posted to our investor relations portion of our website. Thank you, Larry.

Karen Lynch: Good morning, everyone, and thanks for joining our call. Today, we reported strong third-quarter results highlighting the power of our diversified business model. We delivered adjusted EPS of $2.21 and adjusted operating income of nearly $4.5 billion. Our consolidated revenues for the quarter of almost $90 billion reflect an increase of nearly 11% over the prior year. And once again, we generated outstanding operating cash flows, bringing our year-to-date total to $16.1 billion.

Where appropriate.

Ability to offer access to convenient sites of care and the integrated benefits that seniors value Moe will position us to grow at or above the market in 2024.

Turning now to how we are unlocking new sources of value in healthcare this quarter, we announced the creation of core data a wholly owned subsidiary of Cvs Health. We have an established history of innovating to find ways to lower drug spend and to ensure that people. We serve have access to the medications they need to stay healthy.

Karen Lynch: We are reconfirming our guidance range for 2023 adjusted EPS of $8.50 to $8.70. This reflects execution against our strategy, which strong performance in our pharmacy and consumer wellness segment, and continued momentum in our health services segment. Offsetting incremental Medicare Advantage medical cost pressures and our health care benefits segment.

Core damage continues that history of innovation the biosimilar market in the U S is expected to be $100 billion opportunity by 2029. It represents one of the biggest sources of drug cost savings for consumers in the U S health care system.

Karen Lynch: The power of our integrated model is clear. We demonstrated this with the significant progress made in restoring our Medicare Advantage star rating. Our 2024 rating show that we will have 87% of our Medicare Advantage members and plans rated for stars or better. We accomplished this in a very short period of time by utilizing the full breadth of CBS Health Touchpoint with our members. We improve cap stores by an average of two thirds of a point by deriving powerful consumer insight to design experiences that address the unique needs of our members.

Through a car that we are working directly with manufacturers to bring a portfolio of biosimilar products to the market driving our growth and ensuring that our customers and clients will realize the significant savings potential available through biosimilar for years to come.

Let's turn to our performance in the quarter.

And our health care benefits segment, we grew revenues to more than $26 billion, an increase of nearly 17% and delivered adjusted operating income of one 5 billion dollar medical membership in the third quarter grew to $25 7 million, an increase of $1 4 million member versus the <unk>.

Karen Lynch: We also made improvements beyond cap. For example, to address fetish and patient safety measures, our Medicare Advantage team worked closely with CVS Pharmacy and Care Mark to help members improve medication adherence, remove costs and transportation barriers, and ensure members completed critical tests, screenings, and preventive services. As a result of these efforts, among many others, Etna was the top performer in both the Part D patient safety and heat of domain. Our 2024 star trading will improve our position in the 2025 plan year and will enhance our position well into the future.

Higher year, reflecting growth across multiple product lines, including individual exchange Medicare and commercial.

We continue to experience elevated utilization trends in our Medicare advantage business, primarily in outpatient and supplemental benefits such as dental behavioral health OTC and Fox card given.

Given the elevated cost trends that have emerged this year, we are executing on plans to unlock additional revenue clinical and network opportunities to help alleviate these pressure.

Karen Lynch: Medicare Advantage is a key strategic growth area for our business. While to spill early in the 2024 annual enrollment period, we are confident that our competitive offering and attractive benefit design will meet consumer expectations. Etna continues to be a leader in zero dollar premium products, and approximately 84% of Medicare eligible will have access to Etna plans in this category in 2024. We are also expanding the breadth of our deep-knit footprint and now cover more than two thirds of Medicare eligible, up 6% from last year.

And our health services segment revenues grew to nearly $47 billion, an increase of more than 8% adjusted operating income grew nearly 11% to $1 $9 billion.

These results once again reflect impressive performance in our pharmacy services business, where our commitment to lower drug costs and deliver innovative clinical solutions drive value for our consumers and our clients.

And the 2020 for selling season, our renewals are substantially complete and our retention remains strong in the high 90, excluding the 17 contracts our sales strategy for new business has been successful capturing over 60% of national employers that moved P. B M.

Karen Lynch: Our deep-knit strategy focuses on offering the coordinated medical management these members need to live healthier lives, including introducing them to care delivery options such as street health, where appropriate. Our ability to offer access to convenient sites of care and the integrated benefits that seniors value most will position us to grow at or above the market in 2024.

Turning to our care delivery assets, we are scaling capabilities to accelerate growth at both signify and Oak Street. We are progressing on our initiative to create integrated health experiences across multiple channels, including Aetna signify Cvs retail health and Cvs pharmacy.

Karen Lynch: Turning now to how we are unlocking new sources of value and health care.

For Oak Street Health, we are using these channels to educate Medicare eligible adults about the health services, they need and can receive in our primary care clinics.

Karen Lynch: This quarter, we announced the creation of Cordavis, a wholly owned subsidiary of CVS Health. We have an established history of innovating to find ways to lower drugs than and to ensure that people we serve have access to the medications they need to stay healthy. Cordavis continues that history of innovation. The biosomolar market in the US is expected to be a hundred billion dollar opportunity by 2029. It represents one of the biggest sources of drug cost savings for consumers and the US healthcare system.

It's still early the results of these initiatives are encouraging and we are excited to share more detail at our Investor day in December for.

Karen Lynch: Through Cordavis, we are working directly with manufacturers to bring a portfolio of biosomolar products to the market, driving our growth and ensuring that our customers and clients will realize the significant savings potential available to biosomolar for years to come.

For signify health, we are connecting more Cvs pharmacy patients to signify for in home evaluation and other services in the home our trusted relationship with 90 million patients at the pharmacy counter is a powerful connection and our most frequent engagement in health care by utilizing our pharmacist connection we have been able to reach me.

More than 50% of Aetna members that signify was previously unable to reach enhancing the opportunity to more effectively engage these members in their care.

This initiative has surpassed our initial conversion rate goal and we are excited by the prospects of scaling our capabilities.

Karen Lynch: Let's turn to our performance in the quarter. In our healthcare benefits segment, we grew revenues to more than $26 billion, an increase of nearly 17% and delivered adjusted operating income of one and a half billion dollars. Medical membership in the third quarter grew to 25.7 million, an increase of 1.4 million members versus the prior year, reflecting growth across multiple product lines, including individual exchange, Medicare and commercial. We continue to experience elevated utilization trends in our Medicare Advantage business, primarily in outpatient and supplemental benefits such as dental, behavioral health, OTC, and FUXCART.

In 2024 and beyond.

Turning to our pharmacy and consumer wellness segment revenues grew to nearly $29 billion up 6% versus the prior year, we generated $1 $4 billion of adjusted operating income in the quarter in line with our results in the prior year.

Performance in our retail pharmacy business was strong.

I'm store pharmacy sales increased nearly 12% versus the prior year, primarily driven by pharmacy drug Mac and brand inflation.

Same store prescription growth when excluding the impact of Covid grew by three 5%.

Turning to our consumer engagement strategy, our digital cloud.

Karen Lynch: Given the elevated cost trends that have emerged this year, we are executing on plans to unlock additional revenue, clinical, and network opportunities to help alleviate these pressures. In our health services segment, revenues grew to nearly $47 billion, an increase of more than 8%, adjusted operating income grew nearly 11% to $1.9 billion. These results once again reflect impressive performance in our pharmacy services business, where our commitment to lower drug costs and deliver innovative clinical solutions, drive value for our consumers and our clients.

Nearly 12% versus the prior year, primarily driven by pharmacy drug mix and brand inflation.

Same store prescription growth when excluding the impact of Covid grew by three 5%.

Turning to our consumer engagement strategy, our digital platform is helping consumers navigate and simplify their health journey. Our digital reach continues to grow with now over 55 million unique customers an increase of nearly 20% versus last year. This strong growth has been powered by our focus on.

Karen Lynch: In the 2024 selling season, our renewals are substantially complete and our retention remains strong in the high 90s, excluding the 17th contract. Our failed strategy for new business has since successful, capturing over 60% of national employers that moved CVM.

<unk> and delivering on experiences that matter most for our customers.

We have been removing barriers to digital adoption and making it easier for customers to access the services. They seek such as pharmacy refills and advanced scheduling for immunizations online our strong digital engagement and enhanced capabilities will strengthen our ability to drive seasonal flow Covid and RSV.

Karen Lynch: Turning to our care delivery asset, we are scaling capabilities to accelerate growth at both signify and illustrate. We are progressing on our initiatives to create integrated health experiences across multiple channels, including atna, signify, CVS retail health and CVS pharmacy. For Oak Street Health, we are using these channels to educate Medicare eligible adults about the health services they need and can receive in our primary care clinic. While it's still early, the results of these initiatives are encouraging and we are excited to share more details on our investor day in December.

Asian awareness and connect patients to our Cvs locations for these important health services.

Before I turn it over to Tom to discuss our financial results I'd like to highlight some recent changes to our leadership team.

As we previously announced I would like to welcome Brian Kane as our new President of Aetna.

Brian has extensive industry experience will be critical as he and his team worked to deliver consumer centric holistic health care to the more than 35 million members served by Aetna.

Karen Lynch: For Signify Health, we are connecting more CVS pharmacy patients to signify for in-home evaluations and other services in the home. Our trusted relationship with 90 million patients at the pharmacy counter is a powerful connection and the most frequent engagement in health care. By utilizing our pharmacist connection, we have been able to reach more than 50% of atna members that signify was previously unable to reach, enhancing the opportunity to more effectively engage these members in their care. This initiative has surpassed our initial conversion rate goals and we are excited by the prospects of scaling our capabilities in 2024 and beyond.

In mid October, we also announced that <unk>, and our Chief Financial Officer, and President of the Health services business is taking a leave of absence due to unforeseen family health reasons.

Tom Kelly has been appointed to the role of interim CFO and Mike <unk> has assumed the role of interim president of health services.

Both Tom and Mike are well positioned to continue to seamlessly execute on our strategy.

Finally, I would like to thank our colleagues for their commitment and dedication. They show every day to support our customers our clients and our patients.

I will now turn the call over to Tom to provide more details on our results and our guidance Tom.

Karen Lynch: Turning to our pharmacy and consumer wellness segment, revenues grew to nearly $29 billion, up 6% versus the prior year. We generated $1.4 billion of adjusted operating income in the quarter in line with our results in the prior year. Performance in our retail pharmacy business was strong. Same-store pharmacy sales increased nearly 12% versus the prior year, primarily driven by pharmacy drug mix and brand inflation. Same-store prescription growth when excluding the impact of COVID grew by 3.5%. Turning to our consumer engagement strategy, our digital nearly 12% versus the prior year, primarily driven by pharmacy drug mix and brand inflation. Same-store prescription growth when excluding the impact of COVID grew by 3.5%.

Thank you Karen and good morning, everyone.

Our third quarter results continue to demonstrate the power of our execution and the value of our diversified enterprise. This quarter, we saw strength across key metrics such as revenue adjusted earnings per share and cash flow from operations.

A few total company highlights.

Third quarter revenues of nearly $90 billion increased by double digit percentages over the prior year quarter, reflecting strong growth across each of our businesses.

We delivered adjusted operating income of nearly $4 5 billion.

Adjusted EPS of $2 21.

Representing growth of approximately 2% versus the prior year.

These increases were primarily due to continued strong execution in our pharmacy services operations, partially offset by pressure on health care benefits and the inclusion of Oak Street health results.

Karen Lynch: Learning to our consumer engagement strategy, our digital platform is helping consumers navigate and simplify their health journey. Our digital reach continues to grow with now over 55 million unique customers, an increase of nearly 20% versus last year. This strong growth has been powered by our focus on innovating and delivering on experiences that matter most for our customers. We have been removing barriers to digital adoption and making it easier for customers to access the services they seek, such as pharmacy refills and advanced scheduling for immunizations online. Our strong digital engagement and enhanced capabilities will strengthen our ability to drive seasonal flu, COVID, and RFC immunization awareness and connect patients to our CVS locations for these important health services.

Our ability to generate cash remains outstanding with year to date cash flow from operations of $16 1 billion.

Cash flows benefited from the timing of CMS payments that are expected to normalize in the fourth quarter.

Excluding this impact our year to date cash flows from operations remained strong at approximately $11 billion.

Shifting to the details for our health care benefits segment, we delivered strong revenue growth versus the prior year.

Third quarter revenue of $26 3 billion increased nearly 17% year over year, reflecting growth across all product lines were primarily attributable to Medicare and our individual exchange products.

Membership grew to $25 7 million, an increase of 54000 members sequentially, reflecting growth in our individual exchange and Medicare businesses, partially offset by the impact of Medicaid Redetermination.

Karen Lynch: Before I turn it over to Tom to discuss our financial results, I'd like to highlight some recent changes to our leadership team.

Adjusted operating income of $1 5 billion in the quarter declined approximately 6% versus the prior year. This decline was driven by a higher medical benefit ratio, partially offset by higher net investment income.

Karen Lynch: As we previously announced, I would like to welcome Brian Kane as our new president of Atina. Brian's extensive industry experience will be critical as he and his team work to deliver consumer centric, holistic health care to the more than 35 million members serve by Atina.

Our medical benefit ratio was 85, 7% increased 230 basis points from the prior year quarter, primarily reflecting lower prior period development as well as higher Medicare advantage utilization inside the quarter.

Karen Lynch: In mid-October, we also announced that Sean Gerton, our chief financial officer and president of the health services business, is taking a leap of absence due to unforeseen family health reasons. Tom Cally has been appointed to the role of interim CFO and Mike Pichel has assumed a role of interim president of health services. Both Tom and Mike are well positioned to continue to seamlessly execute on our strategy.

Utilization pressure was primarily attributable to the categories Karen highlighted earlier.

Outpatient and supplemental benefits, such as dental behavioral health OTC and flex costs.

Further we also experienced individual exchange growth in the special enrollment period that exceeded our expectations.

Karen Lynch: Finally, I would like to thank our colleagues for the commitment and dedication they show every day to support our customers, our clients, and our patients. I will now turn the call over to Tom to provide more details on our results and our guidance.

These members, particularly when added late in the year, we will drive a higher MBR.

As a result, our higher individual exchange growth is also contributing to our updated MBR guidance for the full year.

Tom Cowhey: Tom? Thank you, Karen.

We continue to closely watch utilization trends in our other lines of business, but at this stage, we have not observed any other trends that we would consider inconsistent with our total expectations.

Tom Cowhey: Good morning, everyone. Our third quarter results continue to demonstrate the power of our execution and the value of our diversified enterprise. This quarter, we saw strength across key metrics, such as revenue, adjusted earnings per share, and cash flow from operations. A few total company highlights. Third quarter revenues of nearly $90 billion, increased by double digit percentages over the prior year quarter, reflecting strong growth across each of our businesses. We delivered adjusted operating income of nearly $4.5 billion in a just EPS of $2.21, representing growth of approximately 2% versus the prior year.

These claims payable at the end of the quarter was $50 three up three four days sequentially and reserve growth exceeded premium growth sequentially.

Overall, we remain confident in the adequacy of our reserves.

Our health services segment, which includes our pharmacy services business and our health services operations generated revenue of approximately 47 billion, an increase of more than 8% year over year.

This increase was driven by pharmacy drug mix growth in specialty pharmacy brand inflation and the addition of signify and Oak Street.

Tom Cowhey: These increases were primarily due to continued strong execution in our pharmacy services operations, partially offset by pressure and healthcare benefits, and the inclusion of Oak Street Health Results. Our ability to generate cash remains outstanding, with year-to-date cash flow from operations of $16.1 billion. Cash flow is benefited from the timing of CMS payments that are expected to normalize in the fourth quarter. Excluding this impact, our year-to-date cash flows from operations remain strong at approximately $11 billion.

These increases were partially offset by the impact of continued client price improvements.

Adjusted operating income of nearly $1 9 billion.

Grew approximately 11% year over year, primarily driven by strong execution and improved purchasing economics, partially offset by ongoing client price improvements.

Total pharmacy claims processed in the quarter declined by less than 1% versus the prior year and were only down 40 basis points when excluding COVID-19 vaccinations.

This decline was primarily attributable to the New York Medicaid carve outs and lower COVID-19, vaccinations, partially offset by net new business.

Tom Cowhey: Shipping to the details for our healthcare benefits segment, we delivered strong revenue growth versus the prior year. 3rd quarter revenue of $26.3 billion increased nearly 17% over year, reflecting growth across all product lines, but primarily attributable to Medicare and our individual exchange products. Membership grew to 25.7 million, an increase of 54,000 members sequentially, reflecting growth in our individual exchange and Medicare businesses, partially offset by the impact of Medicaid determinations. Adjusted operating income of $1.5 billion in the quarter declined approximately 6% versus the prior year.

Total pharmacy membership remains steady at approximately 110 million members.

We continue to be encouraged by the performance and growth of our health services assets signify completed 655000 in whom evaluations in the quarter, an increase of 7% versus the same period last year and generated revenue growth of 21%.

<unk> ended the quarter with 192 centers in 191000 at risk lots.

Grown by 31 centers versus the prior year quarter.

Track to open a total of 35, new centers this year ramping to $50 to 60 centers in 2024.

Tom Cowhey: This decline was driven by a higher medical benefit ratio, partially offset by higher net investment income. Our medical benefit ratio of 85.7% increased 230 basis points from the prior year quarter, primarily reflecting lower prior period development, as well as higher Medicare advantage utilization inside the quarter. Utilization pressure was primarily attributable to the categories Karen highlighted earlier, including outpatient and supplemental benefits, such as dental behavioral health, OTC and flex cost. Further, we also experienced individual exchange growth in the special enrollment period that exceeded our expectations.

<unk> Street also significantly increased revenue in the quarter growing 44% compared to the same quarter last year.

<unk> clinical model continues to demonstrate exceptional performance.

Last week CMS released the 2022 savings performance of all ACO reach participants Oak Street was among the top 5% of program participants generating a meaningful gross savings rate from 21%.

Moving to our pharmacy and consumer wellness segment, we generated revenue of nearly 29 billion up 6% versus the prior year nearly 9% on a same store basis, reflecting the impact of pharmacy drug mix increased prescriptions and brand inflation.

Tom Cowhey: These members, particularly when added late in the year, will drive a higher MBR. As a result, our higher individual exchange growth is also contributing to our updated MBR guidance for the full year. We continue to closely watch utilization trends in our other lines of business, but at this stage, we have not observed any other trends that we would consider inconsistent with our total expectations. These claims payable at the end of the quarter was 50.3, up 3.4 days sequentially, and reserve growth exceeded premium growth sequentially.

These revenue increases were partially offset by continued reimbursement pressure the impact of recent generic introductions a decrease in store count and decreased COVID-19 related volume.

Adjusted operating income of $1 4 billion was in line with the prior year driven by continued reimbursement pressure and lower COVID-19 contributions largely offset by improved drug purchasing.

Tom Cowhey: Overall, we remain confident in the adequacy of our reserves. Our health services segment, which includes our pharmacy services business and our health services operations, generated revenue of approximately $47 billion, an increase of more than 8% year over year. This increase was driven by pharmacy drug mix, growth and specialty pharmacy, brand inflation, and the addition of signify and oak street. These increases were partially offset by the impact of continued client price improvements.

Increased prescription volumes and lower expenses.

Same store pharmacy sales were up nearly 12% driven by drug mix, a two 7% increase in same store prescription volumes and brand inflation.

The increase in same store prescription volumes, excluding the impact of COVID-19, vaccinations with three 5%.

As we continue to execute on our store closure initiative.

<unk> hundred 64 out of 900 planned stores, we encourage investors to focus on same store metrics to understand underlying growth.

Tom Cowhey: Adjusted operating income of nearly $1.9 billion, through approximately 11% year over year, primarily driven by strong execution and improved purchasing economics, partially offset by ongoing client price improvements. Total pharmacy claims process in the quarter declined by less than 1% versus the prior year and were only down 40 basis points when excluding COVID-19 vaccinations. This decline was primarily attributable to the New York Medicaid carve out and lower COVID-19 vaccinations partially offset by net new business.

Our front store business continues to exhibit resiliency in the face of industry challenges underscoring the value we offer consumers same.

Same store sales for the front store were down two 2%, primarily due to declines in cough cold and flu and OTC TUSK.

Excluding the impact of OTC test kits same store front sales were in line with the prior year.

Shifting to the balance sheet, our liquidity and capital position remains excellent our ability to generate cash flow remains a core strength of our organization and the enterprise continues to identify new opportunities to further optimize our balance sheet.

Tom Cowhey: Total pharmacy membership remains steady at approximately 110 million members. We continue to be encouraged by the performance and growth of our health services assets. Signify completed 655,000 in-home evaluations in the quarter and increase of 7% versus the same period last year and generated revenue growth of 21%. Oak street ended the quarter with 192 centers and 191,000 at-risk glass. We've grown by 31 centers versus the prior year quarter and are on track to open a total of 35 new centers this year, ramping to 50 to 60 centers in 2024.

Through the third quarter, we generated cash flow from operations of $16 $1 billion, including the CMS prepayment I discussed earlier we.

We ended the quarter with approximately $2 7 billion of cash at the parent in unrestricted subsidiaries.

This quarter, we returned $779 million to shareholders through our quarterly dividend.

<unk> committed to maintaining our current investment grade ratings, while preserving flexibility to deploy capital strategically.

Turning now to our full year outlook for 2023.

Tom Cowhey: Folks Street also significantly increased revenue in the quarter, growing 44% compared to the same quarter last year. Folks Street's clinical model continues to demonstrate exceptional performance. Last week, CMS released the 2022 savings performance of all ACO region participants. Folks Street was among the top 5% of program participants, generating a meaningful growth savings rate of 21%.

We are reaffirming our adjusted EPS of $8 50 to $8 77.

This primarily reflects our performance through the third quarter and the continuation of higher Medicare advantage medical cost trend for the remainder of 2023 offset by strength in our pharmacy and consumer wellness and health services segments.

And the health care benefits segment, we now expect our 2023 medical benefit ratio to be approximately 86% primarily driven by the previously mentioned impact of higher Medicare advantage utilization as well as the impact of higher than expected individual exchange growth during the special enrollment period.

Tom Cowhey: Moving to our pharmacy and consumer wellness segment, we generated revenue of nearly $29 billion, up 6% versus the prior year, and nearly 9% on a same-store basis, reflecting the impact of pharmacy drug mix, increased prescriptions and brand inflation. These revenue increases were partially offset by continued reimbursement pressure, the impact of recent generic introductions, a decrease in store count, and decreased COVID-19-related volume. Adjusted operating income of $1.4 billion was in line with the prior year, driven by continued reimbursement pressure and lower COVID contributions, largely offset by improved drug purchasing, increased prescription volumes and lower expenses.

As a result, we now expect adjusted operating income for the segment to be in a range of $5 63 to $5 $76 billion.

Our individual exchange business is expected to reduce adjusted operating earnings in 2023, largely a function of late year growth.

However, this business is now poised to reach an annualized run rate of more than $6 billion of revenue and we are well positioned to earn a positive margin in this business in 2024 based on specific actions our teams are implementing including pricing adjustments.

Tom Cowhey: Same-store pharmacy sales were up nearly 12%, driven by drug mix, a 2.7% increase in same-store prescription volumes and brand inflation. The increase in same-store prescription volumes, excluding the impact of COVID-19 vaccinations was 3.5%. As we continue to execute on our store closure initiative, having closed 664 out of 900 planned stores, we encourage investors to focus on same-store metrics to understand underlying growth. Our front-store business continues to exhibit resiliency in the face of industry challenges, underscoring the value we offer consumers.

And our health services segment, we are updating our adjusted operating income guidance to a range of $7, one 8% to 731 billion.

Reflecting the strong execution year to date in our pharmacy services business and our expectation of continued strength for the remainder of the year.

In our pharmacy and consumer Wellness segment, we now expect adjusted operating income in a range of $5 76 to $5 86 billion.

Primarily driven by higher contributions from seasonal immunizations, partially offset by lower than expected script volume primarily attributable to Medicaid redetermination.

Shifting to our cash flow given our strong performance year to date, we now anticipate full year 2023 cash flow from operations to be at the upper end of our range of 12, 5% to $13 5 billion.

Tom Cowhey: Same-store sales for the front-store were down 2.2%, primarily due to declines in cost, cold, and flu and OTC test kits. Excluding the impact of OTC test kits, same-store front sales were in line with the prior year.

Our expectation for capital expenditures is now two 5% to $2 7 billion. We're also updating our adjusted effective tax rate to 24, 9% and our share count to 109 1 billion.

Tom Cowhey: Shifting to the balance sheet, our liquidity and capital position remain excellent. Our ability to generate cash flow remains the core strength of our organization, and the enterprise continues to identify new opportunities to further optimize our balance sheet. Through the third quarter, we generated cash flow from operations at $16.1 billion, including the CMS prepayment I discussed earlier. We ended the quarter with approximately $2.7 billion of cash of the parent and unrestricted subsidiaries. This quarter, we returned $779 million to shareholders through our quarterly dividend, remaining committed to maintaining our current investment grade ratings, while preserving flexibility to deploy capital strategically.

You can find additional details on the components of our updated 2023 guidance on our Investor Relations webpage.

Before I conclude my prepared remarks, I want to give you an update on the headwinds and <unk> for 2024, starting with the headwinds.

As we previously discussed the decline in our star ratings for benefit year, 2024 will pressure, our Medicare advantage margins.

We now expect the impact to be closer to the low end of our previously communicated range of $800 million to $1 billion.

We continue to expect the current level of elevated utilization in our Medicare advantage book to persist and out of an abundance of caution we're maintaining a provision for further utilization pressure in 2024.

Tom Cowhey: Turning now to our full year outlook for 2023, we are reaffirming our adjusted EPS of $8.50 to $8.70. This primarily reflects our performance through the third quarter and the continuation of higher Medicare Advantage medical cost trend for the remainder of 2023, offset by strength in our pharmacy and consumer wellness and health services sector. And the health care benefits segment, we now expect our 2023 medical benefit ratio to be approximately 86%, primarily driven by the previously mentioned impact of higher medical advantage utilization, as well as the impact of higher than expected individual exchange growth during the special enrollment period.

As previously discussed contributions from Centene will decline as the contract ends on January one 2024.

We expect a lower contribution in our <unk> segment related to Covid consumer softness and incremental labor investments and we expect the $3 40 BP headwind from 2023 to annualize in 2024.

Shifting to the tailwind for 2024, we expect underlying growth in our core businesses.

We now expect the savings from our previously announced actions and cost initiatives come in at the higher end of our guidance.

Tom Cowhey: As a result, we now expect adjusted operating income for the segment to be in a range of $5.63 to $5.76 billion. Our individual exchange business is expected to reduce adjusted operating earnings in 2023, largely a function of late year growth. However, this business is now poised to reach an annualized run rate of more than $6 billion of revenue, and we are well positioned to earn a positive margin in this business in 2024, based on specific actions our teams are implementing, including pricing adjustments.

We expect a positive contribution from the pricing of our individual exchange business as well as commercial pricing actions.

We believe we have the opportunity to capture value from our newly created <unk> business.

And we expect incremental contributions from our health services businesses net of the impact from previously discussed clinic expansion.

At this distance based on the sum total of these headwinds and tailwind, including the uncertainty created by our recent utilization trends. We believe it is prudent for investors to ground their expectations for 2024 adjusted EPS at the low end of our previously communicated preliminary guidance range of $8 58.

Tom Cowhey: In our health services segment, we are updating our adjusted operating income guidance to a range of $7.18 to $7.31 billion, reflecting the strong execution year to date in our pharmacy services business, and our expectation of continued strength for the remainder of the year. In our pharmacy and consumer wellness segment, we now expect adjusted operating income at a range of $5.76 to $5.86 billion, primarily driven by higher contributions from seasonal immunizations, partially offset by lower than expected script volume, primarily attributable to Medicaid re-determination.

$8 70 and our.

Mr Day in December we will provide detailed 2020 for guidance and updated views on our long term growth algorithm.

To conclude we remain focused on operational execution and sustainable growth as we advance our goal of becoming the leading health solutions company for consumers. We look forward to providing more detailed updates on our progress against our strategy in December with that we'll now open the call to your questions operator.

Tom Cowhey: Shifting to our cash flow, given our strong performance year to date, we now anticipate full year 2023 cash flow from operations to be at the upper end of our range of $12.5 to $13.5 billion. Our expectation for capital expenditures is now $2.5 to $2.7 billion. We are also updating our adjusted effective tax rate to 24.9% and our share count to 1.291 billion. You can find additional details on the components of our updated 2023 guidance on our investor relations webpage.

Thank you.

A reminder, if you would like to ask a question today. Please press star followed by one on the telephone keypad now from the penthouse to your question. Please ensure your mute locally participants to limit themselves to one question per person. So we can process the Cuban catan.

Followed by one on the telephone keypad.

And the first question today comes from Justin Lake from Wolfe Research Justin Your line is open. Please go ahead.

Thanks wanted to see if we can get some more color on Medicare advantage cost trends, specifically, what did you see through the quarter. What did you assume for these.

Tom Cowhey: Before I conclude my prepare remarks, I want to give you an update on the headwinds and tailwinds for 2024, starting with the headwinds. As we previously discussed, the decline in our star ratings for benefit year 2024 will pressure our Medicare advantage margins. We now expect the impact to be closer to the low end of our previously communicated range of $800 million to $1 billion. We continue to expect the current level of elevated utilization in our Medicare advantage book to persist and, out of the abundance of caution, are maintaining a provision for further utilization pressure in 2024.

These value cards versus what kind of was.

Expected in.

Can you talk about how you would think that the business is going to perform in 2024 right. It looks like you invested in benefits. There. So maybe you could just tell us where do you think margins are this year, where do you think theyre going to be next year, and then hopefully walk us through where how investors should think about improvement in 2025 and <unk>.

<unk> is a re priced this business getting the stores back etcetera. Thanks.

Tom Cowhey: As previously discussed, contributions from Centine will decline as the contract ends on January 1, 2024. We expect a lower contribution in our PCW segment related to COVID, consumer softness and incremental labor investments. And we expect the 340B headwind from 2023 to annualize in 2024.

Good morning, Justin Thanks for the question Bear with me Theres a lot to go through here. So walk you through.

A couple of ways that we'd like you to think about 2024 really make sure that you understand what's happened in 'twenty three and then I'll turn it over to Brian to talk about some of your other questions.

Tom Cowhey: Shifting to the tailwinds for 2024, we expect underlying growth in our core businesses. We now expect the savings from our previously announced actions and cost initiatives coming at the higher end of our guidance. We expect a positive contribution from the pricing of our individual exchange business, as well as commercial pricing act. Actions. We believe we have the opportunity to capture value from our newly created four-dovice business, and we expect incremental contributions from our health services businesses, net of the impact from previously discussed on a expansion.

So you'll remember on our second quarter call. We discussed that we were seeing 100 to 110 bps of Medicare pressure in the first half and that was driven by higher than expected utilization in outpatient and some supplemental benefits such as dental and behavioral health.

We carried forward that pressure into the second half, resulting in an increase for the total company about 50 bps to the total year MBR guide.

We further indicated that we had captured a portion of the outreach outpatient trend pressure in our bids in 2024 and that the remaining pressure. We did not incorporate was reflected in the 2024 guide.

Tom Cowhey: At this distance, based on the sum total of these headwinds and tailwinds, including the uncertainty created by our recent utilization trends, we believe it is prudent for investors to ground their expectations for 2024 adjusted EPS at the low end of our previously communicated preliminary guidance range of $8.50, $8.70.

We also put a placeholder in for additional utilization and our 2020 for preliminary guidance range.

So as you look into the third quarter, we're experiencing higher utilization than we anticipated. The main driver of this pressure continues to be Medicare advantage, but are less impactful. Notable driver is continued strong growth in the individual exchange product through the S&P. So this S&P membership, particularly when it's added late.

Tom Cowhey: At our investor day in December, we will provide detailed 2024 guidance and updated views on our long-term growth algorithm. To include, we remain focused on operational execution and sustainable growth as we advance our goal of becoming the leading health solutions company for consumers. We look forward to providing more detailed updates on our progress against our strategy in December.

In the year carries a higher than average MBR.

So if you look specifically then at Medicare we've continued to see elevated utilization in outpatient including additional pressure in the second quarter.

Unknown Executive: With that, we'll now open the call to your questions.

Operator: Operator? Thank you. As a reminder, if you would like to ask a question today, please press star 4.1 on our telephone keypad now. When we're about to ask a question, please ensure you are unmuted locally. Participants are asked to limit themselves to one question per person so we can process the queue in good time. That's star 4.1 on your telephone keypad.

<unk> also seen incremental pressure in supplemental benefits in the third quarter, particularly dental behavioral health and OTC and flex carts.

OTC and flex cards is a differentiator for our 2023 plan design, but it's also an important part of how we were planning to grow in 2024 and part of our bid strategy.

Justin Lake: And the first question today comes from Justin Lake from Wolf Research. Justin, your line is open. Please go ahead. Thanks. I wanted to see if we can get some more color on Medicare event. It's cost-brands. Specifically, what did you see through the quarter? What did you assume for these value cards versus what kind of was expected? How did you think this business is going to perform in 2024?

Cards, a lot of members a fixed amount of cash typically on a quarterly basis that they can use for OTC as well as food among other purchases.

To date, we've seen meaningfully higher levels of utilization and the use of these cards than we had anticipated in our 2023 pricing and in our initial outlook.

If you roll that forward to the full year guide we've raised the MBR by 75 to 80 basis points.

10 to 15 basis points is primarily related to the exchange product growth in the S&P and its impact on our MBR.

Tom Cowhey: It looks like you invested in benefits there, so maybe you can just tell us where you think margins are this year, where you think they're going to be next year, and then hopefully walk us through how investors should think about improvement in 2025 and beyond as a reprises business, get your stars back, etc. Thanks. Good morning, Justin. Thanks for the question. Bear with me.

The remaining 65 bps is related to Medicare advantage, we've presumed that the elevated level of trend we observed in the third quarter persists into the fourth quarter.

Net of some revenue offsets that represents about $550 million of pressure in Medicare.

It's important to note, though as you look at our full year guidance.

Tom Cowhey: There's a lot to go through here, so we've got walking through a couple of ways that we'd like you to think about 2024, really make sure that you understand what's happened in 23, and then I'll turn it over to Brian to talk about some of your other questions. So you'll remember on our second quarter call, we discussed that we were seeing 100 to 110 dips of Medicare pressure in the first half, and that was driven by higher than expected utilization and outpatient and some supplemental benefits, such as dental and behavioral health.

Reduction in HCV, there are about $250 million of favorable non MBR items, which include things like net investment income fees and also expenses.

And a portion of these <unk> are expected to persist into 2024.

So as we think about how the MBR pressure in 'twenty three than impacts 24, as I mentioned, our 24 in a bid contemplated higher M&A utilization for outpatient and supplemental benefits, although the current experience exceeds the pricing provision.

Tom Cowhey: We carried forward that pressure into the second half, resulting in an increase for the total company on about 50 dips to the total year MBA archive. We further indicated that we had captured a portion of the outreach outpatient trend pressure in our bids in 2024, and that the remaining pressure we did not incorporate was reflected in the 2024 guide. We also put a placeholder in for additional utilization in our 2024 preliminary guidance range.

As it specifically relates to OTC and flex cards, we recognized how customers value. This benefit that it would be an important part of how we were going to market in 2024, and the sale of our products and therefore, we proactively assumed higher utilization.

Those cards, which is much more consistent with how 2023 has actually played out.

Consequently, 25 bps of the incremental 65 bps of pressure this quarter was contemplated and pricing on account of the OTC and flex cards, while the remaining 40 bps was not.

Tom Cowhey: So as you look at the third quarter, we're experiencing higher utilization than we anticipated. The main driver of this pressure continues to be Medicare advantage, but a less impactful notable driver is continued strong growth in the individual exchange product through the SEP. So this SEP membership, particularly when it's added late in the year, carries a higher than average NBR. So if you look specifically than at Medicare, we've continued to see elevated utilization and outpatient, including additional pressure in the second quarter.

So as you think then about that 40 bps of exposure. There's a couple of things that we think are offsets first as we progressed our stars mitigation and contract diversification efforts. We're now projecting that 2024 stars will be at the low the impact will be at the low end of our expectations or about $800 million verse.

The prior midpoint expectation of $900 million.

Second we've repriced our individual exchange members as we get them to move forward towards our target margins in 2020 for the incremental individual exchange membership coming through.

Tom Cowhey: We've also seen incremental pressure and supplemental benefits in the third quarter, particularly dental, behavioral health, and OTC and flex cards. So OTC and flex cards is a differentiator for our 2023 plan design, but it's also an important part of how we were planning to grow in 2024 and part of our bid strategy. The cards, a lot of members, a fixed amount of cash, typically on a quarterly basis that they can use for OTC as well as food among other purchases.

Actually provides upside opportunity in 'twenty four as these members get project properly documented for risk adjustment.

Third the net investment income tailwind that we've seen will almost certainly persist in light of the current macro environment, which was not previously contemplated and.

And finally, we expect to achieve the high end of our enterprise cost reduction initiatives, which we previously talked about being $700 million to $800 million next year.

Tom Cowhey: To date, we've seen meaningfully higher levels of utilization in the use of these cards than we had anticipated in our 2023 pricing and in our initial outlook. If you roll that forward to the full year guide, we've raised the NBR by 75 to 80 basis points. 10 to 15 basis points is primarily related to the exchange product growth in the SEP and its impact on our NBR. The remaining 65 Bips is related to Medicare Advantage, where we've presumed that the elevated level of trend we observed in the third quarter persists into the fourth quarter.

Altogether, we believe these tailwind can offset a meaningful portion of the incremental 2020 for Medicare headwind, but we're encouraging investors to focus on the lower half of our 24 guidance range until we understand where trends are UN stabilize it's worth noting out of an abundance of caution we've preserved.

Excess 2020 for Medicare utilization provision that we talked about in the second quarter inside our updated guidance range for 2024.

Tom Cowhey: Net of some revenue offsets, that represents about 550 million of pressure in Medicare. It's important to note, though, as you look at our full year guidance reduction in HCB, there are about 250 million of favorable non-NBR items, which include things like net investment income, fees, and also expenses. And a portion of these tailwinds are expected to persist into 2024. So, as we think about how the NBR pressure in 23 then impacts 24.

Brian Thank.

Thanks, Tom Let me talk a little bit about the utilization just to build on what Tom was saying that we could talk about the benefit design and Justin Your question on margins with respect to utilization just to Echo what Tom said.

Obviously you've been through.

Through the bids in detail really to understand all the detailed utilization assumptions and I would just say after all everything is fully baked and including the utilization breakage that Tom discussed the guide I believe fully reflects what's in our pricing as well as utilization break so I feel good about where we are for the <unk>.

Tom Cowhey: As I mentioned, our 24 MA bid contemplated higher MA utilization for outpatient and supplemental benefits, although the current experience exceeds the pricing provision. As it specifically relates to OTC and FlexCards, we recognize how customers value this benefit, that it would be an important part of how we were going to market in 2024 in the sale of our products, and therefore, we proactively assumed higher utilization in those cards, which is much more consistent with how 2023 has actually played out.

24 guide that Tom laid out just with respect to some other categories. I think it's important to say that none of the other service categories. Besides the outpatient and some of the supplemental benefits that Tom went through are showing any pressure and patient is well controlled for example, as well as other service categories on the individual side.

I think it's important to mention with Tom did which is to say, but we did get more members in the SCP period than we anticipated, which actually I think is a good thing for for 2024, and so whilst creating some pressure in 2023, because they come in late in the year and you don't have the opportunity to document their conditions between the pricing increases that we've put through as well.

Tom Cowhey: Consequently, 25 Bips of the incremental 65 Bips of the pressure of this quarter was contemplated in pricing on account of the OTC and FlexCards, while the remaining 40 Bips was not. So, as you think then about that 40 Bips of the exposure, there's a couple of things that we think are often. First, as we progress our stars mitigation and contract diversification efforts, we're now projecting that 2024 stars will be at the low, the impact will be at the low end of our expectations, or about 800 million versus the prior midpoint expectation of 900 million.

As a risk adjustment processes that will really ramp up for 2024, it's actually a nice tailwind for 2020 for our commercial business also is doing well our group commercial business and our Medicaid business. So theres no. Other pressures. There. This is really a Medicare story and as I said I think we're fully covered with our 2024 guide.

Just with respect to your benefits question.

It was important for us coming into 2024 to maintain benefits stability for our members.

Tom Cowhey: Second, we've reprised our individual exchange members as we get to move forward towards our target margins in 2024. The incremental individual exchange membership coming through SEP actually provides upside opportunity in 24, as these members get properly documented for risk adjustment. Third, the net investment income tailwinds that we've seen will almost certainly persist in light of the current macro environment, which was not previously contemplated. And finally, we expect to achieve the high end of our enterprise cost reduction initiatives, which we previously talked about being 700 to 800 million dollars next year.

In light of obviously the stars pressure that we faced this this is a important strategic priority for Medicare it not only impacts our business on the Aetna side, but also has wide ranging impacts across the enterprise and so this was a business that we are committed to maintaining benefits stability and being thoughtful and some of the investments that we made so for example on the <unk>.

<unk> side.

It's clearly an area, where we leaned in our focus was on the flex cards and as Tom said. These are cards that our members can use for food OTC utilities et cetera. We believe this was an attractive benefit but importantly, the assumptions we use for 2024 effectively assume full utilization and so there's just.

Tom Cowhey: All together, we believe these tailwinds can offset a meaningful portion of the incremental 2024 Medicare headwind, but we're encouraging investors to focus on the lower half of our 24 guidance range until we understand where trends are going to stabilize. It's worth noting out of an abundance of caution, we've preserved the excess 2024 Medicare utilization provision that we talked about in the second quarter inside our updated guidance range for 2024.

Not a lot of incremental breakage that can occur in 2024 relative to the D. SNP population I'd also remind you that our D. SNP population is largely HMO and so they werent impacted by the stars challenges that we've had for 2024. So as you think about marginal contribution and where our benefit design is and our anti.

Ah patients to grow that book actually we expect marginal profit contribution on new members for <unk>, So actually view that as a positive and on the general enrollment side, we're very targeted in our investments and the investments we made tended to be in new plans as opposed to existing plans, which actually was a thoughtful way of.

Brian Kane: Brian, thanks Tom. Let me talk a little bit about the utilization just to build on what Tom was saying, and then we can talk about the benefit design and just in your question on margins, you know, with respect to utilization, just to echo what Tom said, you know, obviously been through the through the bids in detail, really to understand all the detailed utilization assumptions. And I would just say after all, you know, everything is fully baked in, including the utilization breakage that Tom discussed.

Really driving opportunities for growth without burdening, the entire book with incremental costs. So again I feel good about 2024, we're positioned and I would say as Karen said in her opening remarks feel very good about our ability to achieve at or above market growth on the Medicare side and then finally on your margin question clearly.

Brian Kane: The guide, I believe, fully reflects what's in our pricing as well as utilization breaks. So, you know, I feel good about where, where we are for the 2024 guide that Tom laid out just with respect to some other categories. I think it's important to say that in none of the other service categories besides the outpatient and some of the supplemental benefits that Tom went through are showing any pressure in patient is well controlled, for example, as well as other service categories on the individual side.

We're way below where we need to be on 2020 for margins, we understand that our expectation for 2025 is that we'll take significant ground against our margin targets, obviously, we need to see where the rate notice comes outs with the competitive dynamic is but you should expect 2025 for us to see incremental margin improvement and hopefully material.

Brian Kane: I think it's important to mention what Tom did, which is to say, we did get more members in the SEP period than we anticipated, which actually I think is a good thing for for 2024. And so while it's creating some pressure in 2023, because they come in late in the year and you don't have the opportunity to document their conditions between the pricing increases that we put through as well as our risk adjustment processes that will really ramp up for 2024.

Improvement in that regard.

Yes.

The next question comes from Lisa Gill from J P. Morgan Lisa. Please go ahead. Your line is open.

Great. Thanks, very much good morning, I wanted to focus on the health care services side of the business and really had a few questions here one when I think about <unk> and I think about.

Brian Kane: It's actually a nice tailwind for 2024, our commercial business also was doing well our group commercial business and our Medicaid business. So there's no other pressures there. This is really a Medicare story. And as I said, I think we're fully covered with our 2024 guide. Justin, with respect to your benefits question, you know, it was important for us coming into 2024 to maintain benefits stability for our members in light of obviously the stars pressure that we faced.

The opportunity around Biosimilars is there a way for you to maybe frame how big that opportunity is.

Secondly, when we think about things like <unk> I would think of that as being a positive for this business can you help us to understand that and then thirdly there is.

Some expectation that there'll be some level of PVM.

Maybe a bill this year when we think about the reconciliation can you talk about what Youre seeing right now and is that built into any of your expectations around your business for 2024.

Brian Kane: This is a important strategic priority for Medicare. It not only impacts our business on the ethnic side, but also has wide ranging impacts across the enterprise. And so this was a business that we are committed to maintaining benefits stability. And being thoughtful in some of the investments that we made. So for example, on the decent side, that's clearly an area where we leaned in our focus was on the flex cards. And as Tom said, these are cards that our members can use for food, OTC utilities, etc.

Hi, Lisa let me take a couple and then I'm going to ask Scott and <unk>.

<unk>.

As the teams at <unk>, but just generally on the PVM Bell.

There's a lot of.

Unrest going on in the legislative body of the U S. We don't we may see something at the end of the year and the end of the in that reconciliation Bill our best thinking now is that is transparency, which we are fully aware of and have contemplated in.

Brian Kane: We believe this was an attractive benefit, but importantly, the assumptions we use for 2024 effectively assumed full utilization. And so there's just not a lot of incremental breakage that can occur in 2024 relative to the decent population. And I'd also remind you that our decent population is largely HMO. And so they weren't impacted by the stars challenges that we've had for 2024. So if you think about marginal contribution and where our benefit design is and our anticipation to grow that book.

In our business so.

But it remains to be seen what really will happen in that year end reconciliation package I think.

A lot going on in Washington, So it's unclear what will happen relative to <unk>, we view that as a significant opportunity as I mentioned in my prepared remarks.

Brian Kane: Actually, you know, we expect marginal profit contribution on new members for D snip. And so actually view that as a positive. And on the general moment side, we were very targeted in our investments. And the investments we made tended to be in new plans as opposed to existing plans, which actually was a thoughtful way of really driving opportunities for growth without burning the entire book with incremental cost. So again, I feel good about 2024 where we're positioned.

This is an opportunity for us to bring a healthy biosimilar market to the U S. So that we can.

Really bring.

All our drug cost to our customers.

<unk> has been doing a lot on this opportunity and I'll ask him to talk about kind of the magnitude of it but we are excited and we are in.

In a position to really have an impact it is $100 billion opportunity by 2029. So we have the opportunity over the next few years to really make a significant improvement in the <unk>.

Brian Kane: And I would say, as Karen said in our opening remarks, feel very good about our ability to achieve at or above market growth on the Medicare side. And then finally, on your margin question, clearly we're way below where we need to be on 2024 margins. We understand that our expectation for 2025 is that we'll take significant ground against our margin targets. Obviously, we need to see where the rate notice comes out with the competitive dynamic is, but you should expect 2025 for us to see incremental margin improvement and hopefully material improvement in that regard.

Lowering drug costs, and obviously and the performance of our company and then relative to <unk>. What I would say is that you know this is an area that has demonstrated and proven that we can see significant weight loss and improve.

And in health, but it comes at a very hefty price tag.

It is the reason why of PVM exist have really have.

The opportunity to reduce overall costs for DLP. One that's what we are very focused on doing by creating competitive environment.

Lisa Gill: The next question comes from Lisa Gill from JP Morgan. Lisa, please go ahead. Your line is open. Great. Thanks very much. Good morning.

Lisa Gill: I want to focus on the healthcare services side of the business and really had a few questions here. One, when I think about Kwardavis and I think about the opportunity around biosimilars, is there a way for you to maybe frame how big that opportunity is? Secondly, when we think about things like GLP ones, I would think of that as being a positive for this business. Can you help us understand that? And then thirdly, you know, there is, you know, some expectation that there'll be some level of PVM maybe a bill this year when we think about the reconciliation.

Is.

It could cost us a trillion dollars. If every American that is considered obese and that's about 70 million Americans were prescribed <unk> lines that would put significant pressure on the U S health care system. So it is imperative for us as a PVM to really reduce the overall cost.

Of those drugs and we're working very closely with our customers to do that as you can imagine our customers top priority is really understanding the cost of <unk> and David will talk about that but let me turn it over to Frank to talk about core data yes.

Lisa Gill: Can you talk about what you're seeing right now? And is that built into any of your expectations around your business for 2024? Hi, Lisa. Let me take a couple and then I'm going to ask and Premch talk about Kwardavis and I'll ask the team talk about GLP ones. But just generally on the PVM bill, you know, obviously, there's a lot of, you know, unrest going on in the legislative body of the US, we don't, you know, we may see something at the end of the year and the end of the in that reconciliation bill.

And just to add to what Kevin said put out is an extremely exciting opportunity for us and Lisa <unk> been around the industry for a long time and if you think about the competition that was created in the early part of the 2010 as it relates to the generic pipeline, we view the biosimilar pipeline as the competition for the specialty drugs and if you think about the amount of pharmacy spend that's in specialty drugs.

Greater than 50% at this point, so it's really important for us to be able to create that competition.

Lisa Gill: Our best thinking now is that is transparency, which we are fully aware of and have contemplated in, you know, in our business. So, but it remains to be seen what really will happen in that year and reconciliation package. I think, you know, there's a lot going on in Washington. So it's unclear what will happen. You know, relative to Kwardavis, we view that as a significant opportunity as I mentioned in my prepared remarks.

In Biosimilars and as I think about what core Davis is really intended to do its going to work with manufacturers to bring these products into the U S. Pharmaceutical marketplace. One of the big Big pieces that we need to ensure is what I'd say is continuity of supply of these products in the marketplace and Thats one of the things that <unk> workforce. So our first <unk>.

<unk> that will launch as we mentioned earlier in the year is going to be a contract with sandoz to co manufacturer and commercialize higher most of those biosimilar product for Humira and we'll be launching that in the first quarter of 2024 and recall, we mentioned that we're going to launch it at a list price that's greater than 80% lower than.

Lisa Gill: You know, this is an opportunity for us to bring a healthy biosimilar market to the US so that we can, you know, really bring lower drug costs to our customers. Premch has been doing a lot on this opportunity and I'll ask him to talk about kind of the magnitude of it, but we are excited and we are, you know, in a position to really have an impact. It is $100 billion opportunity by 2029.

The current list price for Humira, So again, a great creates lower costs for consumers better access and affordability across the board as we look out into 2024 with <unk> as we intend to have a full portfolio of products as we see other biosimilar competition coming in the specialty marketplace to facilitate the broader app.

Lisa Gill: So we have the opportunity over the next few years to really make significant improvement in the lowering drug costs and obviously in the performance of our company. And then relative to GLP ones, what I would say is that, you know, this is an area that has demonstrated improvement that we can see significant weight loss and improvement in health, but it comes at a very hefty price tag. And it is the reason why a PBM exists to really have the opportunity to reduce overall cost for GLP ones.

Access to these products in the U S and I'll hand, it over to Tom to talk about some of the questions on the financials on that yes.

Yes. Thanks, Lisa you asked about kind of the <unk> impact I think it's important to just talk about what the enterprise impact is there and then David can talk some more about some of the specifics on how the PVM helps here and some of the challenges that are self insured customers are facing.

In pharmacy services. The <unk> one is our a class of drugs that are uniquely suited to the value of the services that <unk> provides and so we do have a positive margin contribution from the <unk> in that segment on the Aetna side, it's really about whether or not we captured utilization in our pricing.

Lisa Gill: That's what we are very focused on doing by creating competitive environment. It could cost the US a trillion dollars if every American that is considered obese and that's about 70 million Americans were prescribed these GLP ones that would put significant pressure on the US health care system. So it is imperative for us as a PBM to really reduce the overall cost of those drugs and we are working very closely with our customers to do that.

But most of that pricing is really capturing indications for diabetes not for weight loss for weight loss, that's really something that our self insured customers, making individualized decision on or to buy up four hour.

Insured book and we believe that for 2023, we've appropriately priced that and we were taking our latest thinking into our pricing for 24 on the flipside branded products pressure margins in the <unk> business. So the GOP ones are generally a headwind to that business.

Lisa Gill: As you can imagine, our customers top priority is really understanding the cost of GLP ones and David will talk about that. But let me turn it over to Prem to talk about core to have it. Yeah, and just to add to what Karen said, Quirtown is an extremely exciting opportunity for us, and Lisa, you've been around the PVM industry for a long time, and if you think about the competition that was created in the early part of the 2010s as it relates to the generic pipeline, we view the bios of what pipeline as the competition for the specialty drugs, and if you think about the amount of pharmacy spend that's in specialty drugs, it's greater than 50% at this point, so it's really important for us to be able to create that competition in bio-similers and, you know,[inaudible] products in the U.S., and I'll head it over to Tom to talk about some of the questions on the financials on this.

Maybe David you could provide a little more context on kind of the PVM impacts sure. Thanks, Tom So as.

As Karen mentioned, the GOP ones or certainly at the top of every client's list in terms of areas that they are concerned about going into 'twenty four and beyond.

Good news is the PVM actually has played a critically important role in managing this category of drugs. So we really have three different ways in which we're trying to drive savings for our customers. The first is formulary. So we create competition and obviously as new entrants come into the market serve as an opportunity for us to continue to reduce the cost for our customers secondly, as utilization management.

Focusing on the appropriate use of the medications, including off label utilization and then lastly on.

And there is a significant investment being made in our advanced care management solutions, which is looking at the holistic view of the conditions of which we're treating and it's essentially complementing the drug therapy.

Giving us an opportunity to focus on the underlying causes of the conditions.

So as we look at the results at least year to date you look at the combination of our formulary management. In addition to the utilization management, we're saving nearly 70%.

Of course for our commercial clients. So again, it's a great proof point that we've been able to take cost out of the system as we're looking obviously at this growing cost of our medications.

The area that I would say we're focused on in 'twenty four as there is still a sizable percentage of our customers that that are included.

Basically our weight loss and it's an area, that's probably growing six X what the what the non or the diabetic utilization is and so there is a big focus right now on the both the ROI as well as making sure as new competitors come into the market that we're using as opportunities to focus on reducing the unit pricing of the product and then more more specifically.

Lisa Gill: Yeah, thanks, Lisa. You asked about the GLP-1 impact, but I think it's important to just talk about what the enterprise impact is there, and then David can talk some more about some of the specifics on how the PBM helps here, and some of the challenges that are self-insured customers are facing. In pharmacy services, the GLP-1 are a class of drugs that are uniquely suited to the value of the services that a PBM provides, and so we do have a positive margin contribution from the GLP-1s in that segment.

<unk> on the overall ROI for the services that is delivering.

So maybe if I could just pivot one minute on the court office.

Yes.

And there was a three part question Lisa and I know, we're trying to answer.

Variety of different ways, but I think the court offices are really important.

Unique opportunity for us in the market. So as Prem said CT August is brought to market a lowest priced product as the PVM.

Lisa Gill: On the Internet side, it's really about whether or not we capture utilization in our pricing, but most of that pricing is really capturing indications for diabetes, not for weight loss, for weight loss, that's really something that our self-insured customers make an individual decision on, or it's a buy-up for our in-sured book, and we believe that for 2023, we've appropriately priced that, and we're taking our latest thinking into our pricing for 24. On the flip side, branded products pressure margins in the PCW business, so the GLP-1s are generally a headwind to that business.

A formulary that looks at both clinical efficacy as well as driving low net cost for our customers. The good news is that we.

When we have influence we actually are moving to a product with the lowest prices as Prem mentioned, 80% below the current list price of the brands Humira. So it does require a change in the market. So if you look at our how we're looking at the opportunity going into 'twenty four.

Can we move enough share in order to create value for our customers and our models. We believe we can take 50% of the 2022 cost out for this category by moving aggressively to our lowest priced product. So when we have to then look at what gives us confidence that we can actually move the share. So we've mentioned obviously in previous calls.

Lisa Gill: Maybe David, you could provide a little more context on the PBM impact. Sure, thanks, Tom. So as Karen mentioned, the GLP-1s are certainly at the top of every client's list in terms of areas that they're concerned about going into 24 and beyond. Good news is the PBM actually plays a critically important role in managing this category of drugs. So we really have three different ways in which we're trying to drive savings for our customers, the first is formulae, so we create competition.

That we've had success with moving Lantus to basic Laura we had 97 plus percent conversion for that product back in the.

Many years ago, and if you look at it. One example, which is a client and Medicaid that has chosen to exclude the coverage of brand as humira.

Lisa Gill: And obviously as new entrance come into the market, it serves as an opportunity for us to continue to reduce the cost for our customers. Secondly, as utilization management, so focusing on the appropriate use of the medications, including off-label utilization, and then lastly, there's a significant investment being made in our advanced care management solutions, which is looking at the holistic view of the conditions of which we're treating, and it's essentially complimenting the drug therapy, and it's giving us an opportunity to focus on the underlying causes of the conditions.

Been able to move upwards of 90% of the product.

Within the last 30 days, so I think it's become a proof point that one we can actually move to low cost biosimilars, we can actually reduce the cost of <unk>.

The category for our customers and ultimately make sure we're preserving the experience for the member. So I think again, we're pretty bullish on our opportunity of changing the marketplace and capitalizing on on bringing new innovative therapies to market.

Thank you.

Lisa Gill: So as we look at the results, at least year-to-date, you look at the combination of our formulae management in addition to the utilization management, we're saving nearly 70% of costs for our commercial clients. So again, it's a great proof point that we've been able to take cost out of the system as we're looking obviously at this growing cost of medications. The area that I would say we're focused on in 24 is there's still a sizeable percentage of our customers that have included obesity or weight loss, and it's an area that's probably growing 6x, what the non or the diabetic utilization is, and so there's a big focus right now on the both the ROI.

The next question comes from Nathan Rich from Goldman Sachs. Nathan Your line is open. Please go ahead.

Great. Thanks, so much for the questions.

It sounds like.

Street is kind of scaling in line to maybe a bit better than your expectations. I guess could you maybe just update us on how youre thinking about the incremental platform contribution next year and what you see as the biggest opportunities for practices in terms of how they need to adapt.

Just given the tougher rate environment that we're going to be in for Medicare next year and from a capital deployment standpoint can you talk about your appetite for additional M&A from a care delivery standpoint is that something that you are looking at currently or do you need to kind of allow.

Lisa Gill: As well as making sure as new competitors come into the market that we're using these opportunities to focus on reducing the unit pricing of the product, and then more specifically focusing on the overall ROI for the services that is delivering.

A lot of the existing kind of assets to mature more before you'd look to build further.

Karen Lynch: So maybe if I could just pivot one minute on the court office because I just and there was a three-part question Lisa and I know we're trying to answer it in a variety different ways, but I think the court office is a really important unique opportunity for us in the market. So as Prem said, court office is brought to market a low list price product. As the PBM, we have a formulae that looks at both clinical efficacy as well as driving low net cost for our customers.

Yes, maybe I'll start on the operational priorities and then turn it over to Tom on the financials.

The biggest thing for us is keep focusing on what we do best wishes keep our patients helping out of the hospital.

And we know if we apply our care model will do that and we have the proof points, whether it's the Medicare shared savings program a couple of years ago, when we were top 1% performer.

Whether it's the ACO reached pretty much of a risk or caps or whether it's an M&A that we can create a lot of value by keeping our patients healthy and then capture that savings and so thats. The biggest focus at Oak Street is running our care model.

Karen Lynch: The good news is is that when we have influence, we actually are moving to our product with the low list price. As Prem mentioned, 80% below the current list price of the brand, if you may. So it does require changing the market. So if you look at our how we're looking at the opportunity going into 24, it's can we move enough share in order to create value for our customers. And our models we believe we can take 50% of the 2022 cost out for this category by moving aggressively to a low list price product.

Running a well running everyday running at every center, keeping our culture intact and if we do that we'll be in great shape and I actually think that if you think about the medium or longer term.

I think the changes and how theyre doing risk just it will be a tailwind for us because it's going to make sure that you're doing the right things to care for patients and that's what's driving our business and if its harder for others I think that'll just further differentiate the Oxford platform. So thats our focus.

Thanks, David as you as you think about the financial impact and I think youre, specifically, referring to <unk> 28 on the risk model, which is something that we spent a tremendous amount of time thinking through and diligence.

Karen Lynch: So when we have to then look at what gives us confidence that we can actually move the share. So we've mentioned obviously in previous calls that we've had success with moving Atlantis to basic law, we had 97% conversion for that product back in the, you know, many years ago. And if you look at at one example, which is a client and Medicaid that has chosen to exclude the coverage of brand as you may.

We think that there is a lot of opportunity here over the long term as we think about the ability of Oak Street their people their process their technology to really adapt to a changing regulatory environment.

And so we have a lot of confidence in their model.

Karen Lynch: We've been able to move upwards of 90% of the product by within the last 30 days. So I think it's a bit come a proof point that one, we can actually move the low cost by a similar, we can actually reduce the cost of of the the category for our customers and ultimately make sure we're preserving the experience for the members. So I think, again, we're pretty bullish on our opportunity of changing the marketplace and capitalizing on bringing new innovative therapies to market. Thank you.

We have a lot of confidence in their ability to execute this the issue as you think about this is really going to be.

What's the timing impact of this.

We have eliminated a lot of more generic codes and they've added a lot of HCC indexes to more complicated codes, where they think there is a higher correlation with costs.

And so we've got a both set the systems up to ensure that we're capturing the appropriate data to help not just think about what the gross impact is but what the net impact is and then we need to have the encounters happened to actually.

Nathan Rich: The next question comes from Nathan Rich from Goldman Sachs. Nathan, your line is I can please go ahead. Great, thanks so much for the questions. It sounds like Oak Street is kind of, you know, scaling in line to maybe a bit better than your expectations.

<unk> that data and there is lots of other met again I think as we looked at Oak Street, we're pretty comfortable that they're in better shape than a lot of other participants in the industry.

But because of kind of the timing of the implementation of these changes.

Nathan Rich: I guess, could you maybe just update us on how you're thinking about the incremental platform contribution next year and what you see is the kind of biggest opportunities for practices in terms of how they need to adapt just given the tougher rate environment that we're going to be in for Medicare next year. And from a capital deployment standpoint, you know, can you talk about your appetite for additional M&A from a care delivery standpoint? Is that something that you're looking at currently or do you need to kind of allow the existing kind of assets to mature more before you look to build further?

It is only a third phased in next year, but we think it will probably have about a 2% revenue impact, but we actually think that that gap will shrink over time, even as B 28 is more fully implemented.

So and all of that is captured within our preliminary guidance range overall, we actually feel really good about oak streets model its ability to deliver exceptional care.

I think the ACO reach results as just another Great example of how their model is differentiated versus what else is out in the marketplace.

And so we feel really great about the long term prospects, which is why we've actually doubled down and we're going to grow 50 to 60 centers next year and probably accelerate after that as.

Unknown Executive: Yeah, maybe I'll start on the operational priorities and then turn over to Tom on the financials. The biggest thing for us is keep focusing on what we do best, which is keep our patients helping out the hospital. And we know if we apply our care model, we'll do that. And we have the proof points whether it's the Medicare shared savings program a couple of years ago, where we were top 1% performer.

As we look to expand that footprint more aggressively.

<unk>.

So about capital in M&A I think.

We've we've done a lot of acquisitions this year and our focus in the near term is really on execution execution and growing those businesses, which are well on track for 23.

Unknown Executive: Whether it's the AC or each program which has risk or capsule, whether it's an M a that you know, we can create a lot of value by keeping our patients healthy and then capture that savings. And so that's the biggest focus. It's running our care model. Running a well running every day running every center and keeping that culture intact. And if we do that will be a great shape and actually think that if you think about the medium or longer term, I think the changes in how they're doing risk just will be a talent for us because it's going to make sure that you're doing the right things to care for patients. And that's what's driving your business.

And execution and continuing to drive synergies and growth.

The next question comes from Kevin Kevin Caliendo from UBS, Kevin. Your line is open. Please go ahead.

Okay. Thanks, Thanks for taking my question.

Unknown Executive: And if it's harder for others, I think that'll just further differentiate the oak street platforms. That's our focus. Thanks, Nate.

So go on to the retail segment and a little bit of pharmacy growth still remains elevated love to hear the competitive dynamics driving that if theres anything in particular.

Tom Cowhey: As you think about the financial impact, and I think you're specifically referring to the 28 on the risk model, which is something that we spent a tremendous amount of time thinking through and diligence. You know, we think that there's a lot of opportunity here over the long term as we think about the ability of oak street, their people, their process, their technology to really adapt to a changing regulatory environment. And so we have a lot of confidence in their model.

And then.

Also exactly how much the increase vaccine is contributing to the change in retail this year and what you expect for next year I know you called out a couple of the headwinds and tailwind.

Broadly, but specifically just for the retail segment, how should we think about any micro headwinds in tailwind within that segment for 24. Thanks.

Sure why don't I start and then Prem can give you a little bit more color on kind of the competitive environment.

Tom Cowhey: We have a lot of confidence and their ability to execute this. The issue is you think about this is really going to be, you know, what's the timing impact of this? You know, they've eliminated a lot of more generic codes and they've added a lot of, you know, HCC indexes to more complicated codes where they think there's a higher correlation with costs. And so we've got to both set the systems up to ensure that we're capturing the appropriate data to help not just think about what the gross impact is, but what the net impact is.

Tom Cowhey: And then we need to have the encounters happen to actually, you know, capture that data. And there's lots of other mitigants. I think as we looked at oak street, we're pretty comfortable that they're in better shape than a lot of other participants in the industry. But because of kind of the timing of the implementation of these changes, you know, it is only a third phase didn't next year, but we think they'll probably have about a 2% revenue impact.

You asked specifically about some of the tailwind in that segment I think there's two things that I'd call out. The first is just strengthen our immunization and franchise in the second.

I think that as you think as you look at where the consensus was for that business I don't think that we're getting enough credit there for some of the actions that we took to restructure quorum last year and some of the benefits that would provide some of the store closures, which continue to ramp in some of the benefits that you are starting to see from that particularly as.

We've exceeded all of our goals on employee retention, but importantly on script retention and also front store retention.

So we've done really well.

Most of that team on the execution there.

But as you think maybe about.

The immunization franchise, we did just under 8 million vaccines in the quarter.

Tom Cowhey: But we actually think that that gap will shrink over time, even as V28 is more fully implemented. And so, and all of that is captured within our preliminary guidance range. Overall, we actually feel really good about oak streets model. It's ability to deliver exceptional care. You know, I think the ACO reach results is just another great example of how their model is differentiated versus what else is out in the marketplace.

Flu represented probably about half of that total with COVID-19, probably about a quarter.

And the remainder is a variety of different vaccines, but also included the new RSV vaccine, which we saw strong growth in.

Unknown Executive: And so we feel really great about the long term prospects, which is why we've actually doubled down and we're going to grow 50 to 60 centers next year and probably accelerate after that.

Performance across that book was was quite good and a lot of that actually has to do with some of the efforts of our trade team.

Which helped to really drive some of the strength in the quarter.

We project that vaccines are probably going to peak early in the fourth quarter before declining in 2024, and Thats, primarily due to COVID-19 softening versus part of the early part of 'twenty three.

Unknown Executive: As we look to expand that footprint more aggressively, you asked also about capital and M&A. I think, you know, we've done a lot of acquisitions this year. And our focus in the near term is really on execution, execution and growing those businesses, which are well on track for 23 and execution and continuing to drive synergies and growth.

When the public health emergency was still in effect.

Covid moves into the endemic phase our plan is that we're going to talk about the vaccine franchise more holistically.

But we do think that theres going to be pressured their biggest COVID-19 is going to wane and I think as you think about next year.

We've anticipated that the current level of performance is not going to persist partially because of COVID-19, partially because of the typical dynamics of just wait and reimbursement pressure.

But also.

Kevin Caliendo: The next question comes from Kevin, Kevin Caliendo from UBS, Kevin Yolanda, I couldn't please go further. Thanks, thanks for taking my question. I will go on to the retail segment a little bit, the pharmacy growth still remains elevated, left to hear the competitive dynamics driving that there's anything in particular.

A little bit of a provision for consumer softness.

Maybe you could talk a little bit about more about kind of the script growth and underlying dynamics in the market. Yeah sure sure. Thanks, So our retail pharmacy business continues to be executed and delivered strong results across Scripps service and our transformational initiatives. If you think about our same store scripts, we grew two 7%.

Karen Lynch: And then also exactly how much the increased vaccine is contributing to the change in retail this year and what you expect for next year, and you called out a couple of the headwinds and tailwinds broadly, but specifically just for the retail segment, how should we think about any micro headwinds and tailwinds within that segment for 24? Thanks. Sure, why don't I start, and then Prem can give you a little bit more color on kind of the competitive environment?

Exclude COVID-19, we grew three 5%. So continued strong momentum on script growth on the service front, we continue to measure NPS. Our NPS year to date is about 40 basis points higher than prior year. So continue to have strong service and we know that services. The primary reason to retain and grow scripts and then lastly, I think the transformational initiatives that we're focused.

First and foremost how do we lower our cost of goods.

And then also continue to think about our engagement with consumers through our innovative omnichannel strategies and we continue to think about ways in which we can make the consumer experience easier one of the things that we did during Covid was we did group scheduling as well as multi vaccines scheduling. This year that's ahead.

Karen Lynch: You asked specifically about some of the tailwinds in that segment. I think there's two things that I call out. The first is just strengthen our immunization franchise, and the second is I think that as you look at where the consensus was for that business, I don't think that we're getting enough credit there for some of the actions that we took to restructure COREM last year, and some of the benefits that that would provide some of the store closures, which continue to ramp and some of the benefits that you're starting to see from that, particularly as we've exceeded all of our goals on employee retention, but importantly on script retention and also front-store retention.

Good results for our consumers in the marketplace. Lastly, we continue to look at our operating model. We have to continue to invest in our colleagues and working to really scale scale innovative technology solutions that can make the pharmacy easier for our colleagues and our stores that we continue to do that with some of the things that we're doing around sharing work across stores.

As well as some of the other model changes that Youre doing in 2024 and lastly.

Karen Lynch: So we've done really well and, you know, coos to that team on the execution there. But as you think maybe about the immunization franchise, you know, we did just under 8 million vaccines in the quarter. Flu represented probably about half of that total, with COVID probably about a quarter. And the remainder is a variety of different vaccines, but also included the new RSV vaccine, which we saw a strong growth in. Performance across that book was quite good, and a lot of that actually has to do with some of the efforts of our trade team, which helped to really drive some of the strength in the quarter.

Karen Lynch: We project that vaccines are probably going to peak early in the fourth quarter before declining in 2024, and that's primarily due to COVID softening versus, you know, part of the early part of 23, when the public health emergency was still in effect. You know, as COVID moves into the endemic phase, our plan is that we're going to talk about the vaccine franchise more holistically, but we do think that there's going to be pressure there because COVID is going to wane.

Karen Lynch: And I think as you think about next year, we've anticipated that the current level of performance is not going to persist partially because of COVID, partially because of the typical dynamics of just rate and reimbursement pressure, but also about, you know, a little bit of a provision for consumer softness. Pram, maybe you could talk a little bit about more about kind of the script growth and underlying dynamics in the market. Yeah, sure, sure.

Over the last year or so we've made a number of investment and for our labor.

By the end of the year will have wage investments of over $1 billion. We continue to invest in our technology to support our teams in the field. So that they can have streamlined workflows and you smoother operations. We are committed and continue to higher you know, it's a tight labor market.

Karen Lynch: Thanks. So our retail pharmacy business continues to be executing deliver strong results across script service and our transformational initiatives. If you think about our same store scripts, we grew 2.7% and if you exclude COVID, we grew 3.5%. So continued strong momentum on script growth. On the service front, we continue to measure MPS and our MPS, you know, year to date is about 40 basis points higher than prior year. So continue to have strong service.

But we've been having very good success in hiring or attrition numbers are stable and you know we are actively developing new training programs as well for the ongoing development of our colleagues, but you know as I said at the top of the Ah.

Karen Lynch: And we know that service is a primary reason to retain and grow scripts. And then lastly, I think the transformational initiatives that were focused on first and foremost, how to be lower our cost of goods. And then also continue to think about our engagement with consumers through our innovative omnichannel strategies. And we continue to think about ways in which we can make the consumer experience easier. One of the things that we did during COVID was we did group scheduling as well as, you know, multi vaccine scheduling this year that had very good results for our consumers in the marketplace.

Top here you know we are committed to making sure that this is a a powerful and employer we are an employer of choice.

Thank you so much.

The next question comes with <unk> curricular can please go ahead.

Thank you I wanted to come back to the headwinds and pier ones for health services in 2024 for 23. After we've seem pretty significant outperformance after the three or four you beat headwind early in the year and you've attributed this to sourcing, especially in drug mix and I'm reading the leg.

Karen Lynch: Lastly, we continue to look at our operating model. We have to continue to invest in our colleagues and working to really scale, scale innovative technology solutions that can make the pharmacy easier for our colleagues in our stores. If you continue to do that with some of the things that we're doing around sharing work across stores as well as some of the other model changes that we're doing in 2024. And lastly, it's incredibly important for us to continue to deliver a pay or value in terms of our clinical and value based programs for consumers focused on things like our stars rating.

<unk> is free data outperformance on G. O P. One biosimilar question, one is we're sourcing benefits outsized and twenty-three versus 22 or the.

Look for 24, and then question too is do you expect the drug mixer rebates will be encore par or better and 24 versus twenty-three given what we saw on Biosimilar introduction. This here and is this really a tailwind 24 itself or is it out of sheer ships.

Karen Lynch: So we work very closely with our MAPartners, including Edna on that to drive adherence and patient outcomes and be the number one national chain really across those measures. And really what's really important is also leveraging our engagement in these stores to connect into our other businesses, whether that's into our payer businesses or into Oak Street or into signify to really streamline and make those consumer experiences better. It relates to front store.

Over time.

A couple of things in there Eric So let me start and David can add any color commentary you sourcing benefits you know our our trade teams are exceptional they continue to execute every year you know some of the strength that we saw on the vaccine franchises, we own part of their.

Karen Lynch: We continue to grow share and help consumers, you know, what I would say is navigate the challenging market conditions through convenience and value and health and wellness product products. And we've continued to see that business perform really well. If you exclude COVID-OTC test kits, our front store, same store sales are about are flat. And we continue to grow drug share about 41 basis points, even despite the softening traffic we've ever seen.

For instance, I'm applying some of their strategies to what we do more broadly uhm. So I wouldn't say that there's anything exceptional except for the fact that that team is exceptional everyday.

<unk> your point on the drug mixing rebates <unk> I think it is spot on G. O P ones are a category that particularly with an hands competition is gonna presented an excellent opportunity for us to continue to drive lowest cost uhm, but the way that that's developed this year as <unk> as as you know made some of our guarantees.

Karen Lynch: Yeah, I just want to take this opportunity. Kevin, you talked about the competitive dynamics and, you know, there's a lot of discussion around the labor market. And what I would say is that as a company, we are committed to providing the best place to work for all of our colleagues, including our pharmacists and our pharmacy tech over the last year. So we've made a number of investments in for our labor. You know, by the end of the year, we'll have wage investments of over a billion dollars.

Karen Lynch: We can continue to invest in our technology to support our teams in the field so that they can have streamlined workflows and, you know, smoother operations. We are committed and continue to hire, you know, it's a tight labor market, but we've been having very good success in hiring our nutrition numbers are stable. And, you know, we are, you know, actively, you know, developing new training programs as well for the ongoing development of our colleagues. But, you know, as I said, at the top of the, you know, top here, you know, we are committed to making sure that this is a powerful and employer, we are an employer of choice.

Unknown Executive: Thank you so much.

Less on Arista hit and as we think about <unk> 2024, we absolutely believe that there will be a benefit Rio as we drive volume through that through that organization.

Oh No question, we have chocolate stays from Elizabeth Anderson from ethical I saw Elizabeth. Please go ahead your line as I can.

Hi, guys. Thanks, so much for that question I also wanted to return to some of the the head with a tailwind you talked about I think previously for the H S. S statement I think you talked about to pour a O y growth being like mid single digits for 2024, and the assumptions that you put through.

So I was wondering if you still like given out those headwinds. It shows that you think that that would be sort of how you would still position that business and then secondarily I I hear what you're saying about some of the the Labour investment how do we think about that I'm more of a like quality quantitative level in terms of 24 like you know versus obviously some of the the cost savings that you meant.

Eric Percher: The next question comes from Eric Pudcher from Neffron Research. Eric Cuellon is a complete go ahead. Thank you. I want to come back to the headwinds and tailwinds for health services in 2024. For 23 after we've seen pre-significant outperformance after that 340B headwind early in the year. And you've attributed this to sourcing, especially in drug mix and I'm reading the ladder as rebate out performance on GLP1. And by a similar question one is we're sourcing benefits outsized in 23 versus 22 or the outlook for 24.

No more corporate level. Thank you.

Yeah. There's thanks Elizabeth So I think that as you think about core growth I think that's probably the best way to start to think about this so you know we do things that you know you should see mid single digit core growth out of out of the business Uhm, but then you've got.

Some very specific items that kind of our pluses and minuses against that so the first would be the loss of a 17 contract and.

That we've we've size that for folks in the past or implicitly, but I think as you think about how well that businesses performed this year that number has become a little bit larger. We also as we talked about we have the annualization of 340, B and so both of those will help the pressure.

Eric Percher: And then question two is do you expect that drug mix or rebates will be on par or better in 24 versus 23 given what we saw on biosimilar introduction this year. And is Cordavis really a tailwind in 24 itself, or is it as shareships over time? A couple of things in there Eric, so let me start and David can add any color commentary, you know sourcing benefits, our trade teams are exceptional.

And offset some of that core growth offsetting that you are going to see incremental value from <unk> and you'll also see some of our overall cost savings that will be in the pharmacy services segment that will help to offset that but I think you're probably looking at a low single digit growth as you think about the <unk>.

Eric Percher: They continue to execute every year, you know some of the strength that we saw in the vaccine franchise as part of their efforts and some of applying some of their strategies to what we do more broadly, so I wouldn't say that there's anything exceptional except for the fact that that team is exceptional every year. Every day, your point on drug mix and rebates, I think is spot on, you know, GLP1s are a category that particularly with enhanced competition is going to present an excellent opportunity for us to continue to drive lowest net cost.

We'll provide a lot more details on that as we get to Investor day, as we think about the the Labour investments I think there are other places that that we can look to try to offset those it's clear uhm based on the environment that this is the right thing to do and we're committed to doing that.

I would also note that over the last few years through next year will have made over 1 billion dollar investment in wages and so we're committed to continuing that strength and making sure that we're a destination for employees.

Eric Percher: But the way that that's developed this year has made some of our guarantees less onerous to hit. And as we think about Cordavis in 2024, we absolutely believe that there will be a benefit as we drive volume through that organization. On a question we have time for today is from Elizabeth Anderson from Evacore ISI. Elizabeth, please go ahead. Your line is open. Hi guys, thanks so much for the question. I also wanted to return to some of the headwinds and tailwinds you talked about.

Alright. Thanks.

Thank you so much.

This concludes today's Q and a session. So cooped up to current Lynch for any concluding remarks.

Now thank you for joining a call we'll see you in December in Boston banks.

Eric Percher: I think previously for the HSS segment, I think you talked about sort of the poor AOI growth being like mid single digits for 2024 and the assumptions that you put through. So I was wondering if you still like given all those headwinds and tailwinds that you think that that would be sort of how you would still position that business. And then secondarily, I hear what you're saying about some of the labor investments.

Eric Percher: How do we think about that on more of a like quantitative level in terms of 24, like, you know, versus obviously some of the cost savings that you mentioned on the more corporate level. Thank you. Yeah, there's thanks Elizabeth. So I think that as you think about core growth, I think that's probably the best way to start to think about this. So, you know, we do think that, you know, you should see mid single digit core growth out of out of the business.

Eric Percher: But then you've got some very specific items that kind of are pluses and minuses against that. So the first would be the loss of the centine contract and, you know, that we've we've sized that for folks in the past or implicitly, but I think as you think about how well that business has performed this year, you know, that number has become a little bit larger. We also, as we talked about, we have the annualization of 340 B.

Eric Percher: And so both of those will help the pressure that, you know, an offset some of that core growth offsetting that you are going to see incremental value from core Davis. And you'll also see some of our overall cost savings that will be in the pharmacy service segment that will help to offset that. But I think you're probably looking at a low single digit growth as you think about the AOI there. And we'll provide a lot more details on that as we get to investor day.

Eric Percher: As we think about the labor investments, I think there are other places that we can look to try to offset those. It's clear based on the environment that this is the right thing to do and we're committed to doing that. I would also note that over the last few years through next year, we'll have made over a billion dollar investment in wages. And so, you know, we're committed to continuing that strength and making sure that we're a destination for employees. Thanks so much.

Karen Lynch: This concludes today's Q&A session. So I'll hand the call back to Karen Lynch for any concluding remarks. No, thank you for joining the call. We'll see you in December and Boston. Thanks.