Q4 2023 CVS Health Corp Earnings Call

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Operator: Good morning or good afternoon, all, and welcome to the CVS Health Q4 2023 Earnings Results Call. My name is Adam, and I'll be your operator today. If you'd like to ask a question during the Q&A portion of today's call, you may do so by pressing star followed by 1 on your telephone keypad. I will now hand the call to Larry McGrath. So Larry, please go ahead when you are ready.

Speaker Change: Good morning, or good afternoon, and welcome to the Cvs Health Q4, 'twenty change three earnings results. My name is and I'll be real price at stake if you'd like to ask a question. During the Q&A portion of today's call you said by pressing star one on your telephone keypad through into the queue.

Larry J. Merlo: I will now hand, the call to Larry Mcgrath to begin its Larry. Please go ahead, when you're ready good morning, and welcome to the Cvs Health fourth quarter and full year 2023 earnings call and webcast.

Larry J. Merlo: Good morning, and welcome to the CVS Health fourth quarter and full year 2023 earnings call on Web. I'm Larry McGrath, Senior Vice President of Business Development and Investor Relations for CVS Health. I'm joined this morning by Karen Lynch, President and Chief Executive Officer, and Tom Carey, Chief Financial Officer. Following our prepared remarks, we'll host a question and answer session that will include additional members of our leadership. Our press release and slide presentation have been posted to our website along with our Form 10-K filed this morning with the SEC. Today's call is also being broadcast on our website, where it will be archived for one year.

Larry J. Merlo: Terry Mcgraw Senior Vice President of business development, and Investor Relations for Cvs Health.

Larry Mcgrath: Joining this morning by Karen Lynch.

Speaker Change: <unk>, Chief Executive Officer, and Tom Kelly, Chief Financial Officer.

Speaker Change: So in your prepared remarks, we'll host a question and answer session that will include additional members of our leadership team.

Speaker Change: Our press release and slide presentation have been posted to our web site along with our Form 10-K filed this morning with the SEC.

Speaker Change: Today's call is also being broadcast started website, where it will be archived for one year.

Larry J. Merlo: During this call, we'll 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 our currency projections. We strongly encourage you to review the reports we filed 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 Form 10-K. During this call, we'll use non-GAAP measures when talking about the company's financial performance and financial conditions, 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. Okay? Karen?

Speaker Change: During this call we will make certain forward looking statements.

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

Speaker Change: We strongly encourage you to review the reports we file with the SEC regarding these risks and uncertainties in.

Speaker Change: In particular those that are described in the cautionary statements concerning forward looking statements and risk factors in our Form 10-K, we filed this morning.

Speaker Change: During this call we'll use non-GAAP measures when talking about the company's financial performance.

Speaker Change: Financial condition.

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

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

Karen S. Lynch: Thank you, Larry. Good morning, everyone, and thanks for joining us on our call today. In 2023, we made strong progress on our journey, bringing together integrated health solutions that meet the needs of consumers where and when they want help. We successfully navigated a challenging environment and delivered on our financial commitments, a powerful testament to the strength of our diversified company. We are building America's health platform, enabling access to high-quality, convenient, and affordable care that supports individuals in building healthier lives. In the fourth quarter of 2023, we delivered adjusted operating income of $4.2 billion and adjusted EPS of $2.12. For the full year, our total revenues were $358 billion, an increase of 11% versus the prior year. We delivered adjusted operating income of $17.5 billion and adjusted EPS of $8.74.

Karen S. Lynch: Thank you Larry good morning, everyone and thanks for joining our call today and.

Karen S. Lynch: In 2023, we made strong progress on our journey, bringing together integrated health solutions that meet the needs of consumers, where and when they want health care, we successfully navigated a challenging environment and deliver on our financial commitment.

Karen S. Lynch: Powerful testament to the strength of our diversified company.

Karen S. Lynch: We are building America's health platform, enabling access to high quality convenient and affordable care that supports individual and building healthier lives.

Karen S. Lynch: In the fourth quarter of 2023, we delivered adjusted operating income of $4 $2 billion and adjusted EPS of $2 12.

Karen S. Lynch: For the full year, our total revenues were $358 billion, an increase of 11% versus the prior year.

Karen S. Lynch: We delivered adjusted operating income of $17 $5 billion and adjusted EPS of $8 74.

Karen S. Lynch: We generated $13.4 billion of operating cash flow, demonstrating the power of our business model and supporting our strategy. This morning, we revised our full year 2024 guidance for adjusted EPS to at least $8.30 and cash flow from operations to at least $12 billion. While utilization pressure in Medicare Advantage continues to be attributable to the same categories we have previously highlighted, a part of which was contemplated in our 2024 guidance, we are taking a cautious stance on our outlook for Medicare Advantage utilization until we have further clarity on these industry-wide trends. Tom will provide additional details on the components of our guidance.

Karen S. Lynch: We generated $13 4 billion of operating cash flow demonstrating the power of our business model and supporting our strategy.

Speaker Change: This morning, we revised our full year 2024 guidance for adjusted EPS to at least $8 30.

Speaker Change: And cash flow from operations to at least $12 billion.

Speaker Change: While utilization pressure in Medicare advantage continues to be attributable to the same categories. We have previously highlighted a part of which was contemplated in our 2024 guidance. We are taking a cautious stance on our outlook for Medicare advantage utilization until we have further clarity of these industry wide.

Speaker Change: <unk>.

Tom will provide additional details on the components of our guidance.

Karen S. Lynch: While the Medicare Advantage market has been challenged recently, our view of the long-term opportunity offered by this business remains unchanged. As we discussed in December, we are committed to achieving our targeted 4% to 5% margins in Medicare Advantage over time. And we will begin that journey in 2025.

Speaker Change: While the Medicare advantage market has been challenged recently, our view of the long term opportunity offered by this business remains unchanged as we discussed in December we are committed to achieving our targeted 4% to 5% margin in Medicare advantage over time, and we will begin that journey in 2025.

Karen S. Lynch: At CVS Health, we have both the scale to transform how health care is delivered and the ability to personalize care and coverage for each individual we serve. By bringing together the powerful capabilities of our brands, including Aetna, CVS Pharmacy, CVS Health Fire, and Caremark, we can deliver significant value to the customers and communities we serve and unlock tremendous potential for our shareholders. When all of our assets work together, we are able to lower the total cost of care, improve health outcomes, and deepen patient engagement and increase loyalty.

Speaker Change: At Cvs Health, we have both the scale to transform how health care is delivered and the ability to personalize care and coverage for each individually Sir.

Speaker Change: By bringing together the powerful capabilities of our brands, including Aetna, Cvs Pharmacy, Cvs health buyer and caremark, we can deliver significant value to the customers and communities, we serve and unlock tremendous potential for our shareholder.

Speaker Change: When all of our assets work together, we are able to lower the total cost of care improve health outcomes.

Speaker Change: Deepened patient engagement and increase loyalty.

Karen S. Lynch: We are able to unlock up to three to four times more enterprise value when we engage members in more than one CVS Health business. Today, we have more than 55 million CVS Health customers that engage with at least two of our offerings. We see tremendous opportunities to expand engagement with customers across CVS Health through our multi-payer capabilities and vast consumer reach. We're also creating new value in health care with innovative models and offerings that create more transparency and choice for consumers and clients. In December, we unveiled our new CVS Cost Vantage model in our Pharmacy and Consumer Wellness business. This model proactively addresses the persistent reimbursement pressures in the retail pharmacy industry and eliminates cross-subsidization and creates a more durable and transparent pharmacy business that is fairly compensated for value delivered to customers and patients for all prescriptions dispensed.

Speaker Change: We were able to unlock up to three to four times more enterprise value when we engage members and more than one Cvs health business.

Speaker Change: Today, we have more than 55 million Cvs health customers that engage with at least two of our offering we see tremendous opportunities to expand engagement with customers across Cvs health or a multi payer capabilities and vast consumer reach.

Speaker Change: We're also creating new value in healthcare with innovative models and offerings that create more transparency and choice for consumers and clients in.

Speaker Change: In December we unveiled our new Cvs cost advantaged model in our pharmacy and consumer wellness fitness.

Speaker Change: This motto proactively addresses the persistent reimbursement pressures in the retail pharmacy industry.

Speaker Change: It eliminates cross subsidization and creates a more durable and transparent pharmacy business that is fairly compensated for value delivered to customers and patients for all prescriptions dispensed.

Karen S. Lynch: We have made notable progress since we announced the new model in December. We recently delivered initial terms and conditions to several PBMs and are actively engaged in constructive discussions. CVS Cost Vantage is a dramatic change to the current reimbursement model and will provide a clear pathway to greater transparency while passing along our industry-leading cost of goods improvement. We've reached preliminary agreements with multiple cash discount card administrators to begin using CVS Cost Vantage on April 1st.

Speaker Change: We have made notable progress since we announced the new model in December we recently delivered initial terms and condition to several pbms and.

Speaker Change: And are actively engaged in constructive discussions.

Speaker Change: Cvs Cocks vantage is a dramatic change to the current reimbursement model and will provide a clear pathway to greater transparency, while passing along our industry leading cost of goods improvement.

Speaker Change: We have reached preliminary agreement with multiple cash discount card administrators to begin using Cvs cost advantage on April 1st.

Karen S. Lynch: This is a foundational step that sets the stage to create more predictable pricing at the pharmacy counter for consumers. We also announced our new CVS Care Mark TrueCost model. This innovative client option offers pricing that reflects the true net cost of prescription drugs with continued client visibility into administrative costs. Simplified pricing will help consumers be more confident that their pharmacy benefit provides the best possible price and ensures members have stable access to our national pharmacy network. Finally, we continue to drive greater adoption of biosimilars and increase the affordability of these critical specialty drugs for our clients and their members. Beginning on April 1st, Caremark will remove Humira from its major commercial template formula.

Speaker Change: This is a foundational step that sets the stage to create more predictable pricing at the pharmacy counter for consumers.

Speaker Change: We also announced our new Cvs caremark through cost model. This innovative client option offers pricing that reflects the true net cost of prescription drugs with continued client visibility into administrative fee simple.

Speaker Change: Simplified pricing will help consumers to be more confident that their pharmacy benefit provides the best possible price and insurance members have stable access to our national Pharmacy network.

Speaker Change: Finally, we continue to drive greater adoption of Biosimilars and increase the affordability of these critical specialty drug for our clients and their members.

Beginning on April 1st Caremark will remove humira from its major commercial template formulary through core data, we will offer a cobranded humira product.

Karen S. Lynch: Through Cordavis, we will offer a co-branded Humira product. Cordavis plays an important role in reducing drug costs while helping to ensure a consistent supply of affordable, high-quality biosimilars for the patients we serve. These steps are truly innovative and will be pivotal as we look to unlock the tremendous value that new pharmacy models and offerings will deliver for our clients and their members. We are passionate about expanding access to care, lowering costs, improving health outcomes, and creating more transparency and choice for consumers. Our colleagues are committed to this important purpose and will deliver on these goals.

Speaker Change: <unk> plays an important role in reducing drug costs, while helping to ensure a consistent supply of affordable high quality biosimilar for the patients we serve.

Speaker Change: These steps are truly innovative and will be pivotal as we look to unlock the tremendous value that new pharmacy models and offerings will deliver for our clients.

Speaker Change: And their members.

Speaker Change: We are passionate about expanding access to care lowering costs, improving health outcomes, and creating more transparency and choice for consumers.

Our colleagues are committed to this important purpose and will deliver on these goals.

Karen S. Lynch: I'll now turn to the highlights from each of our businesses in the quarter. In our health care benefits segment, we continue to navigate through elevated utilization trends in our Medicare Advantage system. In the quarter, we grew revenues to nearly $27 billion, an increase of over 16 percent, and delivered adjusted operating income of $676 million. Medical membership ended the year at 25.7 million, an increase of 1.3 million members versus the prior year, reflecting growth across multiple product lines, including individual exchange, Medicare, and commercial.

Speaker Change: I'll now turn to the highlights from each of our businesses in the quarter.

Speaker Change: And our health care benefits segment, we continue to navigate through elevated utilization trends in our Medicare advantage business in the quarter. We grew revenue nearly $27 billion, an increase of over 16% and delivered adjusted operating income of $676 million.

Speaker Change: Medical membership ended the year at $25 7 million, an increase of one 3 million members versus the prior year, reflecting growth across multiple product lines, including individual exchange Medicare and commercial med.

Karen S. Lynch: Medicare Advantage is integral to the CVS Health strategy. After a very successful 2024 annual enrollment period, we expect to add at least 800,000 new members in 2024. Our success was driven by targeted investments that were strengthened by CVS Health assets and allowed us to create differentiated value for members. We are improving member experiences by focusing on simplicity, offering unique design, and maintaining stable networks.

Speaker Change: Medicare advantage is integral to the Cvs health strategy. After a very successful 2024 annual enrollment period, we expect to add at least 800000, new members in 'twenty 'twenty four.

Speaker Change: Our success was driven by targeted investments that were strengthened by Cvs health assets and allowed us to create differentiated value for member.

Speaker Change: We are improving member experiences by focusing on simplicity offering unique design and maintaining stable network.

Karen S. Lynch: Last week, we received the proposed 2025 rate notice. The funding level was broadly consistent with our expectations, which we do not believe is sufficient to cover current medical cost trends. We believe that the changes to Part D, as a consequence of the Inflation Reduction Act, necessitate additional funding to cover the comprehensive member benefits provided and the increased risk that plans are assuming as a result of the redesign. We look forward to providing our comments to CMS in the coming weeks. In our health services segment, CVS Health Fire, revenues grew to more than $49 billion in the quarter, an increase of more than 12%, reflecting strong growth in our pharmacy services business, as well as the acquisitions of Oak Street and Signify Health. Adjusted operating income grew more than 4% to nearly $1.9 billion.

Speaker Change: Last week, we received the proposed 2025 rate notice the funding level was broadly consistent with our expectation.

Speaker Change: Which we do not believe is sufficient to cover current medical cost trends, we believe that the changes to part D. As a consequence of the inflation reduction Act necessitate additional funding to cover the comprehensive member benefits provided and the increased risks that plants are assuming as a result of the redesign.

We look forward to providing our comments to CMS in the coming weeks.

Speaker Change: And our health services segment, Cvs Health fire revenues grew to more than $49 billion in the quarter, an increase of more than 12%, reflecting strong growth in our pharmacy services business as well as the acquisition of Oak Street and signify health.

Speaker Change: Adjusted operating income grew more than 4% to nearly $1 9 billion.

Karen S. Lynch: In our Caremark business, we recently completed a highly successful welcome. We onboarded more than 3 million new members and ensured our patients had access to their critical medication and specialty therapies. Our consistent ability to deliver exceptional customer and member experiences is what makes Caremark a leader in the marketplace.

Speaker Change: And our Caremark business, we recently completed a highly successful welcome season, we on boarded more than 3 million new members and ensured our patients had access to their critical medications and specialty therapies, our consistent ability to deliver exceptional customer and member experience is what makes caremark a leader in the.

Speaker Change: Yes.

Karen S. Lynch: We continue to drive success in our health care delivery business. We have tremendous momentum engaging multi-payer Medicare Advantage members with Oak Street Clinics through our extensive CVS Health Touchpoint. Oak Street ended the year with 202,000 at-risk lives, an increase of 27 percent.

We continue to drive success in our health care delivery business, we have tremendous momentum engaging multi payer Medicare advantage members with Oak Street clinics through our extensive Cvs health touch points.

Speaker Change: Australia ended the year with 202000 at risk lives and increase of 27% versus the prior year through January the number of Aetna members enrolled in Oak Street clinic.

Karen S. Lynch: The number of Aetna members enrolled in Oak Street Clinic has doubled. Signify Health continues to demonstrate the value of its in-home capabilities for all of our multi-payer Medicare Advantage partners. Signify completed 649,000 in-home evaluations in the quarter, an increase of 20% versus the same period last year. Among our Aetna customers, we are broadening our addressable market, utilizing Signify's strong capabilities in other products, including individual exchange and Medicaid. We will be expanding these capabilities with other clients and will deliver value by engaging consumers and their health across multiple channels. In our Pharmacy and Consumer Wellness segment, which serves more than 120 million customers, revenues grew to more than $31 billion, an increase of nearly 9% versus the prior year. We generated $2 billion of adjusted operating income in the quarter, up nearly 10% versus the prior year.

Speaker Change: That's doubled.

Speaker Change: Signify health continues to demonstrate the value of its in home capabilities for all of our multi payer Medicare advantage partner signified completed 649000 and home evaluations in the quarter, an increase of 20% versus the same period last year.

Speaker Change: Among our Aetna customers, we are broadening our addressable market utilizing signifies strong capabilities and other products, including individual exchange and Medicaid will be expanding these capabilities with other clients and we will deliver value by engaging consumers and their health across multiple channels.

In our pharmacy and consumer wellness segment, which serves more than 120 million customers revenues grew to more than $31 billion, an increase of nearly 9% versus the prior year, we generated $2 billion of adjusted operating income in the quarter up nearly 10% versus the prior year P.

Karen S. Lynch: PCW's performance in the fourth quarter was driven by strong operational execution. We continue to play an important role in providing access to critical immunization in the communities we serve and delivered on pharmacy performance measures for our health plan partners. We made progress on our store closure initiative, having closed 630 stores to date and are on track to close 900 by the end of the year.

Speaker Change: P C. W performance in the fourth quarter was driven by strong operational execution. We continue to play an important role in providing access to critical immunization and the communities, we serve and delivered on pharmacy performance measures for our health plan partners we.

We made progress executing on our store closure initiative, having closed 630 stores to date and are on track to close 900 by the end of the year on a comparable basis total same store sales were up more than 11% versus the same quarter in the prior year same store prescription volumes in the quarter were up more than.

Karen S. Lynch: On a comparable basis, total same store sales were up more than 11% versus the same quarter last year. Additionally, same store prescription volumes in the quarter were up more than 4% versus last year. 2023 highlighted our exceptional execution and the power of our diversified business. Our financial performance and differentiated strategy created strong momentum into 2024. Our integrated health model grows in relevance and importance every day for the consumers, customers, communities, and the shareholders we serve. I will now turn the call over to Tom to provide more details on our results and our guidance. Tom said,

Speaker Change: 4% versus last year.

Speaker Change: 2023 highlighted our exceptional execution and the power of our diversified business, our financial performance and differentiated strategy create strong momentum into 2020 for our integrated health model growth and relevance and importance everyday consumers customers communities.

And the shareholders, we Sir I will now turn the call over to Tom to provide more detail on our results and our guidance Tom.

Tom: Thank you, Karen, and good morning, everyone. Our fourth quarter results truly highlight our unwavering focus on execution and the power of our diversified businesses. We ended the year with strong results and key metrics such as revenue, adjusted earnings per share, and cash flow from operations. A few total company highlights. Fourth quarter revenues of nearly $94 billion increased by nearly 12% over the prior year quarter, reflecting strong growth across each of our businesses.

Tom Kelly: Thank you Karen and good morning, everyone. Our fourth quarter results truly highlight our unwavering focus on execution and the power of our diversified businesses. We ended the year with strong results in key metrics such as revenue adjusted earnings per share and cash flow from operations.

Tom Kelly: A few total company highlights.

Tom Kelly: Fourth quarter revenues of nearly 94 billion increased by nearly 12% over the prior year quarter, reflecting strong growth across each of our businesses.

Tom: We delivered an adjusted operating income of approximately $4.2 billion and adjusted EPS of $2.12 billion, representing growth of approximately 4% versus the prior year. These increases were primarily due to strong results in our pharmacy and consumer wellness and pharmacy services businesses, as well as lower corporate expenses, partially offset by continued pressure on health care benefits. Our ability to generate cash remains outstanding, with full-year cash flow from operations of $13.4 billion.

We delivered adjusted operating income of approximately $4 2 billion and adjusted EPS of $2 12, representing.

Tom Kelly: Representing growth of approximately 4% versus the prior year.

Tom Kelly: These increases were primarily due to strong results in our pharmacy, and consumer wellness and pharmacy services businesses as well as lower corporate expenses, partially offset by continued pressure on health care benefits.

Tom Kelly: Our ability to generate cash remains outstanding with full year cash flow from operations of $13 $4 billion.

Tom: Shifting to details for our healthcare benefits segment, we delivered another strong quarter of revenue growth versus the prior year. Fourth quarter revenue of $26.7 billion increased more than 16% year over year, reflecting growth across all product lines, particularly in our individual exchange and Medicare business. Membership was 25.7 million, a slight decrease of 29,000 members sequentially, reflecting the impact of Medicaid redeterminations, partially offset by growth in individual exchange, adjusted operating income for the fourth quarter was $676 million.

Tom Kelly: Shifting to details for our health care benefits segment, we delivered another strong quarter of revenue growth versus the prior year.

Tom Kelly: Fourth quarter revenue of $26 $7 billion increased more than 16% year over year, reflecting growth across all product lines, particularly in our individual exchange and Medicare businesses.

Tom Kelly: Membership was $25 7 million a slight decrease of 29000 members sequentially, reflecting the impact of Medicaid redetermination, partially offset by growth in the individual exchange.

Tom Kelly: Adjusted operating income for the fourth quarter was $676 million the decline in adjusted operating income versus the prior year was primarily driven by growth in the individual exchange business, including the related impact of seasonality and increased utilization in Medicare advantage, partially offset by higher net investment income.

Tom: The decline in adjusted operating income versus the prior year was primarily driven by growth in the individual market, including the related impact of seasonality and increased utilization in Medicare Advantage, partially offset by higher net investment income. Our medical benefit ratio of 88.5% increased 270 basis points from the prior year quarter, primarily reflecting higher Medicare Advantage utilization and a lower contribution from positive prior period development. Utilization pressure continues to be attributable to the same categories we highlighted in the previous quarter, including outpatient and supplemental benefits such as dental and vision. We also saw an uptick in costs related to seasonal immunization, including the newly launched RSV vaccine.

Tom Kelly: Our medical benefit ratio of 88, 5% increased 270 basis points from the prior year quarter, primarily reflecting higher Medicare advantage utilization and a lower contribution from positive prior period development.

Tom Kelly: Utilization pressure continues to be attributable to the same categories, we highlighted in the previous quarter, including outpatient and supplemental benefits such as dental and vision. We also saw an uptick in costs related to seasonal immunizations, including the newly launched RSV vaccine.

Tom: Other categories remain largely consistent with our previous medical cost trend assumptions. These claims payable at the end of the quarter were 45.9, down 4.4 days sequentially, and returning to normalized levels consistent with what we experienced in pre-COVID periods after adjusting for the impact of Medicaid pass-through payments. Overall, we remain confident in the adequacy of our. Our health services segment, which includes our pharmacy services and healthcare delivery businesses, generated revenue of approximately $49 billion, an increase of more than 12% year-over-year. This increase was driven by pharmacy drug mix, growth in specialty pharmacy, brand inflation, and the addition of Signify and Oakshine. These increases were partially offset by the impact of continued client price improvement. Adjusted operating income of nearly $1.9 billion grew approximately 4% year-over-year, primarily driven by improved purchasing economics and growth in specialty pharmacy, partially offset by ongoing client price improvements. Total pharmacy claims processed in the quarter increased slightly versus the prior year.

Tom Kelly: Other categories remain largely consistent with our previous medical cost trend assumptions.

Tom Kelly: These claims payable at the end of the quarter was $45 nine down for four days sequentially and returning to normalized levels consistent with what we experienced in pre COVID-19 periods. After adjusting for the impact of Medicaid pass through payments.

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

Tom Kelly: Our health services segment, which includes our pharmacy services and health care delivery businesses generated revenue of approximately $49 billion.

Tom Kelly: An increase of more than 12% 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.

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

Tom Kelly: Adjusted operating income with nearly $1 9 billion grew approximately 4% year over year, primarily driven by improved purchasing economics and growth in specialty pharmacy, partially offset by ongoing client price improvements total pharmacy claims processed in the quarter increased slightly versus the prior year. The increase was primarily.

Tom: The increase was primarily driven by net new business and increased utilization. However, the increase was largely offset by the impact of the New York Medicaid carve-out; total pharmacy membership as of January 1st, 2024 is approximately 89 million, down primarily due to the previously announced loss of a large. We continue to be encouraged by the performance and growth of our health care delivery system, which signified generated revenue growth of 39% in the quarter compared to last year. Oak Street ended the quarter with 204 centers, an increase of 35 centers in 2023.

Tom Kelly: Were really driven by net new business and increased utilization. The increase was largely offset by the impact of the New York Medicaid carve out total pharmacy membership as of January one 2024 is approximately 89 million members down primarily due to the previously announced loss of a large client.

Tom Kelly: We continue to be encouraged by the performance and growth of our health care delivery assets.

Tom Kelly: Signify generated revenue growth of 39% in the quarter compared to last year.

Tom Kelly: <unk> Street ended the quarter with 204 centers and increase of 35 centers in 2023.

Tom: We continue to expect to add 50 to 60 centers in 2020. Oak Street also significantly increased revenue, growing 36% compared to the same quarter last year. Moving to our pharmacy and consumer wellness business, we generated revenue of over $31 billion, up nearly 9% versus the prior year and over 11% on the same store basis, reflecting the impact of pharmacy drug mix, increased prescription volume, brand inflation, and increased contributions from vaccination. These revenue increases were partially offset by the impact of recent generic introductions, continued reimbursement pressure, and a decrease in store. Adjusted operating income was approximately $2 billion, an increase of nearly 10% versus the prior year, driven by improved drug purchasing, increased contributions from vaccinations, the increased prescription volume described above, and lower operating costs.

Tom Kelly: We continue to expect to add 50 to 60 centers in 2024.

Tom Kelly: <unk> Street also significantly increased revenue in the quarter growing 36% compared to the same quarter last year.

Tom Kelly: Shifting to our pharmacy and consumer wellness segment, we generated revenue of over $31 billion up nearly 9% versus the prior year and over 11% on a same store basis.

Tom Kelly: Reflecting the impact of pharmacy drug mix increased prescription volume brand inflation and increased contributions from vaccinations.

Tom Kelly: These revenue increases were partially offset by the impact of recent generic introductions continued reimbursement pressure and a decrease in store count.

Tom Kelly: Adjusted operating income was approximately $2 billion, an increase of nearly 10% versus the prior year driven by improved drug purchasing increased contributions from vaccinations. The increased prescription volume described above and lower operating expenses.

Tom: These increases were partially offset by continued pharmacy reimbursement pressure. Seamstore pharmacy sales were up 15.5% versus the prior year, and Seamstore prescription volumes increased by 4.4%. However, same source sales in the front store were down by about 3% versus the same quarter last year. Shifting to the balance sheet, our liquidity and capital position remain. Our ability to generate cash flow remains a core strength of our organization. Full year 2023 cash flow from operations was $13.4 billion. We ended the year with approximately $735 million of cash as a parent and unrestricted subsidies.

Tom Kelly: These increases were partially offset by continued pharmacy reimbursement pressure.

Tom Kelly: Same store pharmacy sales were up 15, 5% versus the prior year and same store prescription volumes increased by four 4%.

Tom Kelly: Same store sales and front store were down by about 3% versus the same quarter last year.

Tom Kelly: Shifting to the balance sheet, our liquidity and capital position remains excellent our ability.

Tom Kelly: To generate cash flow remains a core strength of our organization.

Tom Kelly: Full year 2023 cash flow from operations was $13 4 billion.

Tom Kelly: We ended the year with approximately $735 million of cash at the parent in unrestricted subsidiaries.

Tom: We remain committed to maintaining our current investment grade ratings while preserving flexibility to deploy capital strategically. In the fourth quarter, we returned $779 million to shareholders through our quarterly dividend. We also entered into an $3.6 billion accelerated share repurchase transaction, which became effective on January 3rd, 2024. Turning now to our full year outlook for 2020. In recognition of the marketplace uncertainty around utilization trends in Medicare Advantage, we revised our 2024 Adjusted EPS guidance to at least $8.36. In the health care benefits segment, we now expect our 2024 medical benefit ratio to be approximately 87.7 percent, an increase of 50 basis points from our previous. As I already noted, we observed elevated medical cost trends in our Medicare Advantage business in the fourth quarter, which pressured our full year 2023 medical benefit ratio by approximately 10 basis points relative to our prior guidance.

Tom Kelly: We remain committed to maintaining our current investment grade ratings, while preserving flexibility to deploy capital strategically.

Tom Kelly: In the fourth quarter, we returned $779 million to shareholders through our quarterly dividend.

Tom Kelly: We also entered into a 3 billion $6 accelerated share repurchase transaction, which became effective on January three 2024.

Tom Kelly: Turning now to our full year outlook for 2024.

Tom Kelly: In recognition of the marketplace uncertainty around utilization trends in Medicare advantage, we revised our 2024 adjusted EPS guidance to at least $8 30.

Tom Kelly: And health care benefits segment, we now expect our 2020 for medical benefit ratio to be approximately 87, 7% an increase of 50 basis points from our previous guidance.

Tom Kelly: As I already noted we observed elevated medical cost trends in our Medicare advantage business in the fourth quarter, which pressured our full year of 2023 medical benefit ratio by approximately 10 basis points relative to our prior guidance.

Tom: The remaining pressure on the quarter was largely a function of mixed and higher revenue offsets than we previously projected. Based on our review of our recently completed fourth quarter 2023 medical cost trend analysis, we are prudently assuming that the elevated medical cost trends we observed in the fourth quarter will carry forward into 2020. Accordingly, we have increased our full-year 2024 MBR guidance by approximately 40 basis points to account for this pressure.

The remaining pressure in the quarter was largely a function of mix and higher revenue offset than we previously projected.

Tom Kelly: Based on our review of our recently completed fourth quarter 2023 medical cost trend analysis, we are prudently assuming that the elevated medical cost trends, we observed in the fourth quarter will carry forward into 2024.

Accordingly, we have increased our full year 2024, MBR guidance by approximately 40 basis points to account for this pressure.

Tom: As discussed throughout 2023, we have included a provision for elevated utilization in our 2024 Medical Benefit Ratio Guidelines, and we'll continue to hold that provision until we have more clarity on the Medicare Advantage utilization environment. The revised outlook also reflects an expectation of at least 800,000 new Medicare Advantage members in 2024. As we have previously discussed, the profile of these new members is attractive, with nearly three-quarters of these members switching from other Medicare plans and about a third of members expected in December. We continue to expect these new members will be neutral to earnings, but the mixed impact from incremental new membership represents approximately 10 basis points of today's 2024 MBR guidance revision. When combined with the additional 40 basis points of medical cost pressure we are projecting, we have increased our 2024 MBR projection by 50 basis points to 87.7.

Tom Kelly: As discussed throughout 2023, we had included a provision for elevated utilization and our 2020 for medical benefit ratio guidance and we will continue to hold that provision until we have more clarity on the Medicare advantage utilization environment.

Tom Kelly: Our revised outlook also reflects an expectation of at least 800000, new Medicare advantage members in 2024.

Tom Kelly: As we have previously discussed the profile of these new members is attractive with nearly three quarters of these members switching from other Medicare plans and about a third of members expected in decent plans.

Tom Kelly: We continue to expect these new members will be neutral to earnings, but the mix impact from incremental new membership represents approximately 10 basis points of today is 2024 MBR guidance revision.

Tom Kelly: When combined with the additional 40 basis points of medical cost pressure. We are projecting we have increased our 2024 MBR projection by 50 basis points to 87, 7%.

Tom: We anticipate a number of favorable items will partially offset the impact of the expected elevated utilization levels, including higher investment income and higher than previously projected commercial revenues. Adding up all the pieces, we now expect adjusted operating income for the health care benefits segment to be at least $5.4 billion, a decrease of $370 million from our prior. In our Pharmacy and Consumer Wellness segment, we now expect a portion of the outperformance from the end of 2023 to persist into 2024. As a result, we now project adjusted operating income of at least $5.6 billion, an increase of approximately $90 million from our prior guidance. In our health services segment, we're updating 2024 adjusted operating income to at least $7.4 billion, a decrease of approximately $90 million.

Tom Kelly: We anticipate a number of favorable items were partially offset the impact of the expected elevated utilization levels, including higher investment income and higher than previously projected commercial membership.

Tom Kelly: Adding up all the pieces, we now expect adjusted operating income for the health care benefits segment to be at least $5 4 billion a.

Tom Kelly: A decrease of $370 million from our prior estimates.

Tom Kelly: In our pharmacy and consumer wellness segment, we now expect a portion of the outperformance from the end of 2023 persist into 2024 as a result, we now project adjusted operating income of at least $5 6 billion.

Tom Kelly: An increase of approximately $90 million from our prior guidance.

Tom Kelly: And our health services segment, we're updating 2024 adjusted operating income to at least $7 4 billion a decrease of approximately $90 million.

Tom: While our health care delivery businesses were able to successfully manage through medical cost trend pressures in 2023, we think it is prudent to recognize the potential for emerging risks in our payer partners until we have further clarity on 2024 utilization trends. Finally, we've made a corresponding adjustment to cash flow from operations, which we now project will be at least $12 billion. As you think about the cadence of earnings in 2024, we expect to generate less than 50% of our adjusted EPS in the first half. More specifically, we expect to generate roughly 20% of full year adjusted EPS in the first quarter. This pattern will look different than 2023, primarily due to the way Medicare Advantage utilization emerged over the course of 2023 and the timing and impact of prior period. As a result, Health Care Benefits 2024 MBR will see the largest year-over-year increase in the first quarter and the smallest in the fourth. You can find additional details on the components of our updated 2024 guidance on our investor relations website. Beyond 2024, we are committed to returning our Medicare Advantage margins to our target of 4 to 5 percent while also preserving the projected returns on capital for our 2023 act. Our S.T.A.R.S.

Tom Kelly: Our health care delivery businesses were able to successfully manage through medical cost trend pressures in 2023, we think it is prudent to recognize the potential for emerging risks and our payer partners until we have further clarity on 2024 utilization trends.

Tom Kelly: Finally, we've made a corresponding adjustment to cash flow from operations, which we now project, who will be at least $12 billion. This year.

Tom Kelly: As you think about the cadence of earnings in 2024, we expect to generate less than 50% of our adjusted EPS in the first half.

Tom Kelly: More specifically, we expect to generate roughly 20% of full year adjusted EPS in the first quarter.

This pattern will look different in 2023, primarily due to the way Medicare advantage utilization emerged over the course of 2023, and the timing and impact of prior period development.

Tom Kelly: As a result healthcare benefits 2024, MBR will see the largest year over year increase in the first quarter the smallest in the fourth quarter.

Tom Kelly: You can find additional details on the components of our updated 2020 for guidance on our Investor Relations webpage.

Tom Kelly: Beyond 2024, we are committed to returning our Medicare advantage margins toward target of 4% to 5%. While also preserving the projected returns on capital for our 2023 acquisitions.

Tom Kelly: Our stores recovery in 2025 will enhance our earnings trajectory, even as we work to adjust our plans to account for the preliminary 2025, Medicare advantage rate notice, which does not adequately cover recent medical cost trends.

Tom: Recovery in 2025 will enhance our earnings trajectory even as we work to adjust our plans to account for the preliminary 2025 Medicare Advantage rate notice, which does not adequately cover recent medical costs. For 2025, our goal is to deliver low double-digit adjusted EPS growth off our updated 2024 guide. We expect to update investors later this year on our progress against this cold. To conclude, 2023 was a year where CVS Health demonstrated the power of our diversified enterprise. As we begin 2024, we remain focused on operational execution and sustainable growth as we advance our goal of becoming the leading health solutions company for consumers. With that, we'll now open the call to your questions. Operator.

Tom Kelly: For 2025, our goal is to deliver low double digit adjusted EPS growth off our updated 2024 guidance, we expect to update investors later this year on our progress against this goal.

Tom Kelly: To conclude 2023 was a year, where Cvs health demonstrated the power of our diversified enterprise as we begin 2024, we remain focused on operational execution and sustainable growth as we advance our goal of becoming the leading health solutions company for consumers.

Speaker Change: 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 followed by one on your telephone keypad now to enter the queue. Our first question today comes from Lisa Gill from J.P. Morgan. Lisa, please go ahead; your line is open. Thanks very much.

Speaker Change: Thank you so as a reminder, if you would like to ask a question today. Please press star followed by one on the telephone keypad announcements to queue.

Speaker Change: Our first question today comes from Lisa Gill from Jpmorgan. Please go ahead. Your line is open.

Alright, thanks, very much good morning, Tom Thanks for all of that color, but I just wanted to go a little bit deeper and just really understand how do I think about what happened in the fourth quarter.

Tom: But I just want to go a little bit deeper and just really understand how I think about, you know, what happened in the fourth quarter? How that is affecting how you're thinking about 2024. What happened at your investor day in December, you know, that's really influencing this? Did you see claims coming in throughout December that's influencing how you're thinking about 2024? And then you touched a little bit on this around the new members and the fact that they're switchers.

Lisa C. Gill: How that is influencing how you're thinking about 2024, what happened from your ear.

Lisa C. Gill: <unk> day in December that that's really influencing this did you see claims coming in throughout December that's influencing how you're thinking about 'twenty four and then you touched a little bit on this around the new members.

Lisa C. Gill: Fact that Theyre switchers and any impact there, but just wondering if you can give us any more color on how to think about the risk coding.

Tom: And the impact there, but just wondering if you can give us any more color on how to think about their risk coding and the level of comfort that you have there, just it being just 10 basis points with adding so much membership. And then, just lastly, how do I think about the medical cost trend versus supplemental benefits when we think about 24? Sure, maybe, thanks Lisa, maybe I'll take the first part of that, and I'll ask Brian to take the back parts.

And the level of comfort that you have there just skipping just 10 basis points with adding so much membership and then just lastly, how do I think about medical cost trend versus supplemental benefits. When we think about 'twenty four.

Speaker Change: Sure maybe thanks, Lisa maybe I'll take the first part of that and I'll ask Brian to take the the back parts.

Tom: So as you think about what changed from our investor day, we actually saw really high levels of paid claims in the back half of December, and we noted that when we appeared at your conference in January. As we got deeper into what went on in the fourth quarter, maybe I just want to walk you through kind of what we've seen in aggregate.

So as you think about what changed from our Investor Day, we actually saw a really high levels of paid claims in the back half of December.

Brian: We noted that when we appeared at your conference in January.

As we dove deeper into what went on in the fourth quarter, maybe let me just walk you through kind of what we've seen in aggregate.

Tom: So if you start with the fourth quarter of 2023 and just think about its impact on the full year performance, we ended the year at 86.2, which was about 20 basis points higher than our guidance. Roughly half of that pressure is things that we do not believe should carry into 2024. So key drivers of that would be things like Medicaid pass-through payments and also higher SEP membership. As you know, once redeterminations start to end in the first half, we shouldn't see that same sort of pressure in the back half this year.

Brian: So if you start with the fourth quarter of 2023, and just let's think about its impact on our full year performance. So we ended the year at $86, two which was about 20 basis points higher than our guidance roughly half of that pressure is things that we do not believe should carry into 2024.

Brian: So key drivers of that would be things like Medicaid pass through payments and also higher S&P membership as you know once redetermination start to end in the first half we shouldnt see that same sort of pressure in the back half of this year.

Tom: And we've also repositioned our portfolio across the board and individually. As you think about the other half, that 10 basis points, that's all related to the trend pressure that we saw in Medicaid. So it's a lot of the same categories though that we've been talking about all year and that we've been trying to actively get ahead of in our guidance. So the outpatient trend accelerated slightly in the fourth quarter. So hips and knees.

Brian: And we've also repositioned our portfolio across the board in individual.

Brian: As you think about the other half that 10 basis points, that's all related to trend pressure that we saw in Medicare.

Brian: So it's a lot of the same categories, though that we've been talking about all year and that we've been trying to actively get ahead of our guidance.

Brian: Outpatient trend accelerated slightly in the fourth quarter, so hips and knees.

Tom: We also continue to see elevated trends in supplemental benefits, but really, it's more dental and vision than the OTC cards that we talked about earlier this year. And finally, we saw some pressure in the quarter from vaccinations, which is really RSV relief. As we look across the other categories, the cost trends themselves, on a dollar basis, they're essentially in line with where it is that we thought that they would be. So how does that translate, then, into 24?

Brian: We also continue to see elevated trends in supplemental benefits, but really use more dental and vision and the OTC cards that we talked about earlier this year.

Brian: And finally, we saw some pressure in the quarter from vaccinations, which is really our <unk> related.

Brian: As we look across the other categories the cost trends themselves on a dollar basis, they're essentially in line with where it is that we thought that they would be.

Brian: So how does that translate then into 'twenty four we've taken about 10 basis points of pressure and we've pulled it through into the 2024 baseline. So accordingly, we've increased our estimate for medical cost by over $400 million and our forward guidance for 2004.

Tom: We've taken that 10 basis points of pressure and we've pulled it through into the 20-24 basis. So accordingly, we've increased our estimate for medical costs by over $400 million in our forward guidance. With the additional mix impacts from the new members, that additional 200,000 plus that we've talked about since investor day, we think that that gets you to about a 50 basis point increase, which is the totality of what we did this morning. As I said in the prepared remarks, I just want to remind you that when we first started talking about our guidance for 2024 on the second quarter call, we talked about putting an additional provision into 2024 for enhanced utilization. We've maintained that provision in our guidance, and so we hope that that will be a prudent posture, but we want to see where trends are gonna settle.

Brian: With the additional mix impacts from the new members that additional 200000, plus that we've talked about since Investor day, We think that that gets you to about a 50 basis point increase which is the totality of what we've done this morning.

Brian: As I said in the prepared remarks, and just remind you.

Brian: When we first started talking about our guidance for 2024 at the second quarter call, we talked about putting in additional provision into 2024 for enhanced utilization, we've maintained that provision and our guidance.

Brian: So we hope that that will be a prudent posture, but we want to see where trends are going to settle.

Tom: I'd also just note that as you think about the Medicare business now, that book is now only projected to be marginally profitable in 2024. And that's something that we will actively be looking to address with our 2025. He'll turn it over to Brian.

Brian: I'd also just note that as you think about the Medicare business now that book is now only projected to be marginally profitable in 2024, and that's something that we will actively be looking to address with our 2025.

Brian: Ill turn it over to Brian I would just add on other new members, we said to your question.

Brian: Yeah, I would just add all the new members, Lisa, to your question. There's nothing that we've seen in those new members that would give us pause. The risk scores look reasonable, and the fact that so many of the members are switchers is a really important component of that. The fact that we have a big portion that are de-SNPs, a third, as Tom mentioned, his remarks matter because we don't have a stars issue in that book of business. So overall, you know, we feel we feel good about the new membership. And I would just add that that new membership also has a very important tailwind for 2025 as those members get coded next year and as the cost of distribution wears off for 2025. So we feel very good about the new members that we have received. There's nothing that we've seen that gives us pause there.

Brian: There's nothing that we've seen in those new members that would give us give us pause the risk scores look reasonable. The fact that so many of the members are switchers is a really important component of that.

Brian: Fact that we have a big portion that our D SNP or third as Tom mentioned his remarks matters, because we don't have a stars issue.

Brian: In that book of business. So overall, we feel we feel good about the.

Brian: A new membership and I would just add that that new membership also has a very important tailwind for 2025 as those members get coded next year and as the cost of the distribution. We're off for 2025. So we feel very good about the new members that we received there is nothing that we've seen that that gives us pause there and we think everything is fully <unk>.

Brian: And we think everything is fully reflected in our 2024 guide, as Tom went through. With respect to your question on supplemental benefits, we believe we've fully reflected the cost of those benefits in our 24 guide. We mentioned on the last quarterly call that we've effectively assumed full utilization of those flex cards that were giving us a lot of challenges this year. And the dental and vision type pressure has also been fully reflected in our guide.

Brian: Selected and our 2024 guide as Tom went through with.

Brian: With respect to your question on supplemental benefits.

Brian: We believe we've fully reflected the cost of those benefits and our 24 guide we mentioned on the last quarterly call that we've effectively assumed full utilization of those flex cards that were giving us a lot of challenges this year and the dental and vision type pressure has also been fully reflected in our guide again, we feel good as Tom said that we have.

Brian: Again, we feel good, as Tom said, that we fully reflected the 23 baseline in our 24 numbers. We put a normalized, very reasonable trend on top of that baseline. And today, we put additional dollars on top of that through the increase in the MBR. So, all in all, we feel good about how we're positioned for 24. Yeah, and Lisa, I just want to re-emphasize the point that Tom made about 2025, and I said this in our prepared remarks, that we are committed to margin recovery and Medicare Advantage for 2025, and we'll account for that in our bids. Thank you for the comments. The next question comes from Justin Lake from Wolf Research. Justin, your line is open, please go ahead. Thanks. Good morning.

Brian: Fully reflected the 23 baseline and our 24 numbers, we put a normalize very reasonable trend on top of that baseline and today, we put additional dollars on top of that through the increase in the MBR. So all in all we feel good about how we're positioned for 'twenty four.

Speaker Change: Yeah, and Lisa I, just want to reemphasize the point that Tom made about 2025 and I said this in our prepared remarks that we are committed for margin recovery in Medicare advantage for 2025 and will account for that in our beds.

Speaker Change: Great. Thank you for the comments.

Okay.

Speaker Change: Yeah.

Speaker Change: The next question comes from Justin Lake from Wolfe Research Justin Your line is open. Please go ahead.

Justin Lake: Thanks, Good morning, I wanted to ask about the 2025 bidding strategy.

Karen S. Lynch: I wanted to ask about the 2025 bidding strategy and specifically, I know you're going to get some tailwind and margin improvement from STARS in 2025, but I wanted to talk beyond that. I found your comments helpful on the rates, and I know that could be a pressure and that's going to cause benefit reduction. But beyond that, do you expect to cut benefits beyond whatever the rates would suggest to start recapturing margin beyond STARS for the higher cost trend? How should we think about that positioning for 2025, and how quickly do you think we can get back to that four to five percent margin? Thanks. Hey Justin, it's Karen, and I'll hand this over to Brian in a second, but I just want to comment on the rate notice because that's critical to how we think about 2025 bids. You know, there are kind of three things I would say here.

Justin Lake: And specifically I know youre going to get some tailwind in margin improvement from stars in 2025, I wanted to talk beyond that I found your comments helpful. On the rates that I know that to be a pressure and thats going to cause benefit reductions, but beyond that do you expect to cut benefits beyond whatever the rates.

Justin Lake: Would suggest to start recapturing margin beyond stars for the higher cost trend how should we think about that that positioning for 2025, and how quickly do you think youll get back to that 4% to 5% margin.

Speaker Change: Hey, Jeff Thanks, Karen I'll hand, this over to Brian in a second but I just want to comment on the rate notice because that's critical to how we think about 2025 beds.

Brian: Theres kind of three things I would say here. One is yeah. We believe you know it's in line with our expectations relative to being flat. However, we do not believe it covers overall cost trends that have been emerging in Medicare advantage. We also know that there's complexity around the risk model and so we will be.

Karen S. Lynch: One is, you know, we believe it's in line with our expectations relative to being flat. However, we do not believe it covers overall cost trends that have been emerging in Medicare Advantage. We also know that there's complexity around the risk model, and so we'll be contemplating that as we think about our bids. And then, finally, there's some uncertainty around how the Inflation Reduction Act impacts Part D, and we'll be taking that under consideration when we do our bids as well, and providing comments to CMS, you know, relative to those points. So, all of those will factor in to our bid process, but, you know, we will be driving for margin recovery. And let me have Brian specifically answer your detailed questions. Sure. Thanks, Karen.

Brian: <unk> that as we think about our beds and then finally there is some uncertainty around how the inflation reduction act impacts part D and that will be taking that under consideration when we do our beds as well and providing comments to CMS you know relative to these points. So all of those will factor in to our bid.

Brian: Process, but we will be driving for margin recovery and let me have Brian specifically answer your detailed questions sure. Thanks, Karen I'll just reiterate again that we are committed to the 4% to 5% margin, it's top of mind and extremely important that we get there as we've said.

Brian: And I'll just reiterate again that we are committed to the 4% to 5% margin. It's top of mind and extremely important that we get there. As we've said multiple times, it will be a multi-year journey to get there, but we intend to take significant ground against that target in 2025, while also being very disciplined and reflecting the trends that we see in our business to make sure that's fully reflected in the pricing. You know, Karen mentioned some of the headwinds with respect to the rate notice and that we don't believe it fully reflects medical trends.

Brian: Multiple times it will be a multiyear journey to <unk>.

Brian: Get there, but we intend to take significant ground against that target in 2025, while also being very disciplined and reflecting the trends that we see in our business to make sure that's fully reflected.

And the pricing Karen mentioned some of the headwinds with respect to the rate notice and that we don't believe it fully reflects medical trend. There are some issues around part D that we need to work through as the benefit has been meaningfully enhanced.

Brian: There are some issues around Part D that we need to work through as the benefit has been meaningfully enhanced as part of the IRA, and also, we as an industry are taking on meaningfully more risk in the catastrophic layer, which will have to be reflected in our bids, and that's something we intend to do. We are also limited, as you know, by TBC or total beneficiary change limitations that we are working through that could, to some extent, constrain what we're able to do. That being said, we do intend to take additional margin actions. Our goal is to do so in excess of our STARS, you know, our STARS tailwind that we have.

Brian: As part of the IRA and also we as an industry are taking on a meaningfully more risk in the catastrophic layer that will have to be reflected in our bids and that's something we intend to do we're also limited as you know by TBC are total beneficiary change limitations that were working through that could to some extent constrained what we're able to do.

Brian: That being said, we do intend to take additional margin actions. Our goal is to do so in excess of our stars.

Brian: Our stars tailwind that we have.

Brian: I would also note, as I mentioned in the prior question that Lisa asked, it's really important to think about this 800,000 members that we're getting as a meaningful tailwind to 2025, again, because these members haven't been fully documented from a coding perspective and because the distribution costs are very expensive throughout the year that will wear off in 2025, and so you get a nice tailwind there. The last point I make, which I think is important, is that although the IRA did enhance the benefits, as we said, on Part D, the result of that will likely be, notwithstanding some of the risk model changes that were made for PDP, will likely result in meaningful premium increases on the PDP side, which we believe will actually help the relative attractiveness of MA, and I think that's an important component as we think about the attractiveness of MA for 2025.

Brian: I'd also note as I mentioned in the prior question that Lisa asked.

Brian: It's really important to think about this 800000 members that we're getting as a meaningful tailwind to 2025 again because these members haven't been fully documented from a coding perspective and because the distribution costs are very expensive throughout the year that will wear off in 2025, and so you get a nice.

Brian: And there the last point I'd make which I think is important is that although the IRA.

Brian: Did enhance the benefits as we said on part D. The result of that will likely be notwithstanding some of the risk model changes that were made for PDP will likely result in meaningful premium increases on the PDP side, which we believe will actually help the relative attractiveness of M&A and I think that's an important component as we think.

Brian: <unk>.

Brian: The attractiveness of the MA for 2025, and the last point I'd make which I think is important as an industry not only this MA offer superior benefits and we believe that even with some of the changes that we intend on making it'll still be a compelling value proposition for our customers, but the thing that doesn't get talked about enough is a.

Brian: And the last point I make, which I think is important as an industry, not only does MA offer superior benefits, and we believe that even with some of the changes that we intend on making, it'll still be a compelling value proposition for our customers, but the thing that doesn't get talked about enough is the significant benefits around care coordination, around navigating the healthcare system that our members get as a result of choosing an MA plan that is far superior to a traditional Medicare fee-for-service plan, and that's something that will be top of mind for us, and our intention is to continue to enhance that experience, especially with our new members, to make sure that we retain them for 2025. The next question comes from Kevin Caliendo from UBS. Kevin, your line is open, please go ahead.

Brian: <unk> benefits around care coordination around navigating the health care system that our members get as a result of choosing an MA plan that is far superior to traditional <unk>.

Brian: Medicare fee for service plan, and that's something that we will be top of mind for us and our intention is to continue to enhance that experience, especially with our new members to make sure that we retain them for 2025.

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

Karen S. Lynch: Thanks. Thanks for taking my question. I want to go maybe a little bit further on Justin's question. And when you think about getting the four to five percent over time, I guess what we're all. Transcripts provided by Transcription Outsourcing, LLC, with stars coming back or not, but can you get to your margin target and still grow in line or better than the expected market? Well, look, I appreciate the question. There's still some questions out there. We got to see where the final rate notice obviously shakes out in terms of overall where where where margins can go and, of course, get a real handle on where we think the trend will be for 2025. Be very disciplined about that.

Kevin Caliendo: Thanks, Thanks for taking my question I wanted to go maybe a little bit further on Justin's question.

Kevin Caliendo: When you think about getting the 4% to 5% over time.

Kevin Caliendo: I guess, what we're all trying to understand or worried about or just trying to maybe its the strategy like you're positioning can you still take share and enhance margin knowing what you know maybe talk a little bit about <unk>.

Kevin Caliendo: CBS is positioned and their ability to bid versus others.

Kevin Caliendo: And the marketplace what are your advantages and disadvantages in can you.

Kevin Caliendo: With stars coming back or not but can you get to your margin targets and still grow in line or better than than the expected market growth.

Speaker Change: Well look I appreciate the question.

Speaker Change: Theres still some questions out there we've got to see where the final rate notice obviously shakes out in terms of overall.

Speaker Change: Where margins can go and of course get.

Speaker Change: A real handle around where we think trend will be for 2025 be very disciplined about that and so that'll be an important calculus as we think about margin recovery as we think about relative share look we believe that we have a compelling value proposition as an enterprise with all the various assets, we can bring to bear for our Medicare members, we do think that our.

Brian: And so that'll be an important calculus as we think about margin recovery and relative share. Look, we believe that we have a compelling value proposition as an enterprise with all the various assets we can bring to bear for our Medicare members. We do think that our stars coming back does, on the margin, provide an advantage there.

Speaker Change: Our stars coming back does on the margin provide an advantage there as I will reiterate again the significant membership growth that we got in 2024 also gives us some tailwind going into 2025, but I will tell you. We are first and foremost focused on recovering margin and market share gains as a secondary consideration.

Brian: As I will reiterate again, the significant membership growth that we got in 2024 also gives us some tailwinds going into 2025. But I will tell you, we are first and foremost focused on recovering margin, and market share gains are a secondary consideration. Obviously, we want to grow, as I said in the prior question. We believe this is a compelling space. We believe it's compelling for members.

Speaker Change: Obviously, we want to grow as I said on the prior question. We believe this is a compelling space and we believe it's compelling for members and we believe we have the assets to be able to manage those members and provide a superior customer experience relative to the competition and as a consequence, I think we're very well positioned to grow our business and overtime take share.

Brian: And we believe we have the assets to be able to manage those members and provide a superior customer experience relative to the competition. As a consequence, I think we're very well positioned to grow our business and, over time, take share. The next question comes from Nathan Rich at Goldman Sachs. Nathan, please go ahead, your line is open.

Speaker Change: Okay.

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

Tom: Great, good morning and thanks for the questions. You know, it's obviously, you know, been challenging this year for many companies to kind of get their hands around utilization. So, I don't know if you have any kind of early comments on how January played out maybe relative to the fourth quarter on both the outpatient trend as well as supplemental benefits, and then as it relates to the 2024 MBR now, I think being up 150 basis points, I guess, you know, at a high level, would you be able to break that, you know, increase down between utilization pressure, the impact that new members will have, you know, the STARS headwind that you face, and is there pressure also in there from the risk model or is that something that you price for, just as we think about the different components that contribute to the 2024 MBR? Thank you.

Nathan Rich: Great. Thanks, good morning, and thanks for the questions.

Nathan Rich: It's obviously been challenging this year for many companies to kind of get their hands around utilization. So I don't know if you have any kind of early comments on how January played out maybe relative to the fourth quarter on both the outpatient trend.

Nathan Rich: As well as supplemental benefits and then as it relates to the 'twenty 'twenty four MBR now I think being up 150 basis points I guess at a high level would you be able to break that.

Nathan Rich: The increase down between utilization pressure the impact that new members will have the stars headwind that you face and is there a pressure also in there from the risk model or is that something that you price for this as we think about the different components that contribute to the 24 MBR. Thank you.

Tom: Nate, why don't I take the second part of your question first, and then I'll turn it back over to Brian. So, as you look at the year-over-year MBR increase, almost the entirety of it is related to the Medicare Advantage business. So there are some smaller items. We have made an improvement in our individual exchange business, and then there are some other offsets there. But, you know, as we think about our guidance, we never project prior-year reserve development, and so that's, you know, those two, for the most part, net.

Speaker Change: Nate why don't I take the second part of your question first and then I'll turn it back over to Brian.

Nate: So as you look at the year over year MBR increase.

Nate: Almost the entirety of it is related to the Medicare advantage business. So there are some smaller items. So we have an improvement in our injury in our individual exchange business and then there's some other.

Speaker Change: Offsets there, but we also as we think about our guidance, we never project prior year Reserve development.

Speaker Change: And so that's that.

Speaker Change: <unk> for the most part net.

Brian: And so what you are left with is the vast majority of the increase is related to Medicare. And so about 65 basis points of that specifically relate to the $800 million STARS headwind that we have. And then the remainder is a combination of provisions for the new member mix because we're assuming the higher MBR there and, you know, that that will be plus or minus break even. And then the rest of it is really a provision for Medicare utilization pressure. And with respect to January trends, it's really way too early to comment on that.

Speaker Change: And so what you are left with is the vast majority of the increase is related to Medicare and so about 65 basis points of that specifically relates to the $800 million stars headwind that we have and then the remainder is of <unk>.

Speaker Change: Combination of provisions for the new member mix, because we're assuming the higher MBR there and.

Speaker Change: It will be plus or minus breakeven.

Speaker Change: And then the rest of it is really a provision for Medicare utilization pressure.

Speaker Change: And with respect to January trends, it's really way too early to comment on that there's nothing that we've seen in our January data that gives us pause relative to the guidance that we've given today, obviously, we're going to monitor it very closely as you can imagine and as we get more information, we will absolutely share that with you.

Brian: There's nothing that we've seen in our January data that gives us pause relative to the guidance that we've given today. Obviously, we're going to monitor it very closely, as you can imagine. And as we get more information, we will absolutely share that with you. But I would comment just on the risk model. I just make a quick comment about the V28 provisions. And we talked about this at our investor day. Not every player is impacted the same way by this.

Speaker Change: Comment just on the risk model just make a quick comment about the V 28 provisions and we talked about this at our Investor day not every player is impacted the same way by this and as we've said we have a relatively low portion of duals and D. Snips. It's obviously something that we are growing significantly this year, but were way way under <unk>.

Brian: And as we've said, we have a relatively low portion of duals and D-SNPs. It's obviously something that we're growing significantly this year, but we're way under indexed to D-SNPs relative to some of our competitors. And I think that's an important element because that's a population that's been impacted more by these risk model changes. We also, and we think this is ultimately an opportunity, but we are also under penetrated when it comes to our full risk VBC relationships. And those types of relationships also result in, I would say, a bigger impact on V28 relative to a non-VBC type relationship.

Speaker Change: <unk> <unk> relative to some of our competitors and I think thats an important element because that's a population that's been impacted more by these risk model changes. We also and we think this is ultimately an opportunity but we also are underpenetrated when it comes to our full risk BBC relationships and those types of relationships also results in.

Speaker Change: I would say a bigger impact on V 28 relative to a non BBC type relationship. This is something again, we want to expand over time and it is a critical strategic priority for us, but with respect to the risk model change were actually benefited by the fact that we have a much lower penetration in some of our peers.

Brian: This is something, again, we want to expand over time, and it's a critical strategic priority for us. But with respect to the risk model change, we're actually benefiting from the fact that we have a much lower penetration than some of our peers. Neat, I might just say, you know, one of the things that we spent a lot of time looking at specifically was inpatient care. And there are some puts and takes there. But on the whole, that category remains consistent with our expectations.

Speaker Change: Need I might just say one of the things that we spent a lot of time looking at specifically was in patient.

Speaker Change: There were some puts and takes there but on the whole that category remains consistent with our expectations we.

Tom: Now, we did make a provision in both our bids and, you know, therefore, which is incorporated in our guidance for the changes that would happen in January from the two midnight rule that's fully encapsulated inside the guide. And it's something that we're obviously watching very closely because, you know, to make sure that our estimate is consistent with what we're going to see come through. The next question comes from Ann Hynes from Mizzou Home, and your line is open. Please go ahead.

Speaker Change: We did make a provision in both our bids and therefore, which is incorporated in our guidance for the changes that would happen in January from the two midnight rule, that's fully encapsulated inside the guide and it's something that we're obviously watching very closely because of to make sure that our estimate is consistent with what we're going to see come through the system.

Speaker Change: The next question comes from Ann Hynes from Mizuho. Your line is open. Please go ahead.

Karen S. Lynch: Great, thanks. Maybe I'll shift away from MLR and focus on retail and just the new pricing model. I know you discussed this in your comments, but can you just give us any more details on the initial feedback you're receiving from payers? Have your discussions changed your view on the ability to change the model or the timing?

Ann Hynes: Great. Thanks, maybe I'll shift away from MLR and a focus on retail and just the new pricing model I know you discussed in your comments, but can you just give us any more details on the initial feedback you're receiving from payers.

Ann Hynes: Have your discussions changed your view on the ability to change the model of the timing and just to clarify. This is a military program. So Paris basically have to switch with you and if I guess, what's the risk of payer relationships if they don't want it to.

Karen S. Lynch: And just to clarify, this is a mandatory program, so payers basically have to switch with you. And I guess what's the risk of payer relationships if they don't want to? Thanks. Good morning, Ann.

Ann Hynes: Thanks.

Speaker Change: Good morning, and yes, I would say that the the comments on the feedback have generally been positive with the discussions initially obviously theres a lot of details to go through and to work through but we're really pleased with the initial reaction and I'll ask Frank to give you a little bit more detail here, yes.

Karen S. Lynch: Yeah, I would say that the comments and the feedback have generally been positive about the discussions so far. Obviously, there's a lot of details to go through and to work through, but we're really pleased with sort of the initial reaction. And I'll ask Prem to give you a little bit more detail here.

Prem: Yeah, thanks for the question, Ann. And, you know, what I'd say is we launched the model on Annals Day, and we're really excited about the progress we've made. We've been able, over the course of the last week, deliver the initial terms and conditions to several of the pharmacy benefit managers, and we're engaged in constructive discussions with all of them.

Frank: Yes, Thanks for the question and what I'd say is we launched the model at Analyst day, and really excited about the progress. We've made we've been able to over the course of the last week deliver the initial terms and conditions to several of the pharmacy benefit managers arent weren't engaged in constructive discussions with all of them.

Prem: What really excites me is we're leading the way in providing greater transparency in drug pricing and passing through our leading cost of goods through to payers in our new model. So this is not about, you know, effectively raising prices; it's about continuing to pass through our size and scale and the acquisition costs that we receive back to payers and provide a transparent model that can benefit consumers and payers as we go forward. Remember, one of the biggest challenges as you think about the healthcare ecosystem and the problems we face is the rising cost of generic drugs. And if you think about, you know, what the biggest pain point for our payers is, it's the fact that these brand drugs and specialty drugs now constitute the majority of the cost that, you know, kind of get passed through to payers and plan sponsors. It's not pharmacy reimbursement that's driving that. So, you know, and just some quick data points on that.

Frank: What really excites me is we're leading the way in providing greater transparency and drug pricing and passing through our leading cost of goods through to payers and our new model. So this is not about <unk>.

Frank: We are raising prices about continuing to pass through our size and scale and the acquisition costs that we receive back to payers and provide a transparent model that can benefit consumers and payers as we go forward remember one of the biggest challenges as.

Frank: As you think about the healthcare ecosystem and the problems. We face is the rising cost of brand drugs and if you think about what the biggest pain point for our payers as it is the fact that these brand drugs in specialty drugs now constitute the majority of the trend that kind of get pass through declared payers and plan sponsors it's not the pharmacy reimbursement thats driving that.

Frank: So.

Frank: Some quick data points on that if you think about the impact of <unk> in 2022 to the system. It was about $14 billion.

Prem: If you think about the impact of GLP-1s on the system in 2022, it was about $14 billion, right, and that continues to grow. So from my perspective, we continue to have good discussions with payers. We're driving forward on eliminating some of the key problems in the system, such as cross-subsidization, and creating an easier path and a much more transparent path to allow payers and consumers to receive their pharmacy and pharmaceuticals in the U.S., and more to come as we make progress over the course of the next couple quarters. And, Ann, I would just, you know, remind everyone that the industry has continually talked about the importance of driving And with this model and our true cost model, we are really, you know, kind of leading at the forefront to support those items. And I think, you know, as PrEM has been out in the market, there's a lot of support for this. The next question comes from Josh Raskin from Nephron Research.

Frank: And that continues to grow so from my perspective, we continue to be have good discussions with payers. We are driving forward on eliminating some of the key problems in the system, such as cross subsidization, and creating an easier path in a much more transparent path to allow payers and consumers to receive their pharmacy and pharmaceuticals.

Frank: In the U S and more to come as we make progress over the course of the next couple of quarters and I would just remind everyone that you know the industry has continually talked about the importance of driving cost transparency and affordability and simplicity and with these this model and our true cost model, we are really kind of leading on it before.

Frank: Front to support those items and I think as Prem has been out in the market. There is a lot of support for this.

Frank: The next question comes from Josh Raskin from Nephron Research. Your line is open. Please go ahead.

Karen S. Lynch: Josh, your line is open; please go ahead. Thanks. Good morning here with Eric as well. I'm going to I'm going to hopefully close the loop on the M.A. side.

Joshua Richard Raskin: Thanks, Good morning here with Eric as well.

Joshua Richard Raskin: I'm going to hopefully close the loop on the MA side. So can you speak to just your philosophy overall on MA bids and you consider the benefit of the enterprise from growth or does the ACB segment has to stand on its own when you talk about that 4% to 5% margin and can you speak to the impact of growing your health spire asset.

Josh: So can you speak to just your philosophy overall on M.A. bids? And do you consider the benefit of the enterprise from growth? Or does the H-C-B segment have to stand on its own when you talk about that four to five percent margin? And can you speak to the impact of growing your health buyer assets and how that impacts your M.A. bid strategy? I'm specifically thinking about, you know, growth in Oak Street probably creates a short-term headwind but long-term enterprise value. Thanks.

Joshua Richard Raskin: And how that impacts your MA bid strategy I'm, specifically thinking about <unk>.

Joshua Richard Raskin: And Oak Street, probably creates a short term headwind, but long term enterprise value.

Karen S. Lynch: So, Josh, the way we think about it is that four to five percent margin needs to be at HCV, and then we get the benefit of our growth from all the other assets that we can bring to bear on the company. So that's our philosophical approach to M.A. bids.

Speaker Change: So Josh the way, we think about it at that 4% to 5% margin needs to be at HCV and then we got the benefit of our growth from all the other assets that we can bring to bear for the company. So that's our philosophical approach to <unk> and then relative to how the hellfire assets.

Mike: And then relative to how the health buyer assets can support M.A., I'll ask Mike to give you some comments on that. Yeah, so one of the key parts of the partnership we have with Aetna, but with all of our payers, is we have additional levers we can pull at HCD to positively impact patient care quality, positively impact outcomes, and then lower medical costs, right, and that can be signified delivering in-home assessments to identify patient disease burdens we can treat it appropriately, and that can be on Oak Street Health having more levers as PCP for the lower MLR, so our job is for all of our payer partners to provide substantially better care, and so obviously when our payer partners are growing and taking share, right, a lot of that growth trickles down to us and becomes a tailwind for us, but one of the advantages I think we have as a healthcare delivery organization is the more levers to pull, and one quick example for the group is we bought a company at Oak Street called Rubicon MD a couple years ago, and we leverage e-consults to help provide better access to specialty care and lower costs, and we fully implemented the e-consult program in 2023 at Oak Street, and through that implementation, we were able to lower a trend 1% across our entire book, and that is one reason we were able to hit our expectation to Oak Street on MLR and profitability despite the increase in a lot of utilization categories that Tom discussed that we saw as well, and so I think a lot of our strategy is dependent upon being able to drive higher quality and lower cost through those levers. Hey Josh, maybe let me wrap this up.

Speaker Change: Support MAA I'll ask Mike to give you some comments on that.

Mike: Yes, so one of the key parts of the partnership we have with Aetna, but all of our payers as we have additional levers we can pull at HDD to positively impact patient care quality positively impact outcomes and lower medical costs right and that can be.

Mike: Signify delivering in home assessments to identify patient disease burden. So we can treat it appropriately and that can be on Oak Street health, having more levers in the PCP to further lower MLR. So our job is for all of our payer partners to provide substantially better care and so obviously when our payer partners are growing and taking share right that a lot of that.

Mike: Both trickles down to us and becomes a tailwind for us, but one of the advantage I think we have as a health.

Mike: Health care delivery organization is the more levers to pull in one quick example for the group is.

We bought a company at Oak Street called room to kind of be a couple of years ago, and we leveraged <unk> consoles too.

Mike: I will provide better access to specialty care and lower cost and we fully implemented the console program in 2023 at Oak Street and through that implementation, we were able to lower trend, 1% across our entire book and that is one reason, we were able to hit our expectations at Oak Street.

Mike: On MLR and profitability. Despite the increase in a lot of Univation category is that Tom discussed, we saw as well and so.

Mike: A lot of our strategy is dependent upon being able to drive a higher quality and lower costs through those levers.

Mike: Josh maybe let me wrap this up.

Tom: As we think about this from the enterprise perspective, all of our businesses need to earn their cost of capital, and they need to earn their return on that capital. And so as you think about Medicare, it's a mid-sixties billion dollar revenue business that, you know, we targeted a four to five percent margin on for 2023. But we clearly didn't achieve that.

Speaker Change: As we think about this from the enterprise perspective, all of our businesses need to earn their cost of capital and they need to earn their return on that capital and so as you think about Medicare.

Speaker Change: Mid $61 billion revenue business that we targeted a 4% to 5% margin on for 2023, we clearly didn't achieve that and as we look at our projections for 2024 as I noted, it's only marginally profitable as you think about that business, we're putting a high teens percentage.

Tom: And as we look at our projections for 2024, as I noted, it's only marginally profitable. As you think about that business, we're putting a high teens percentage of dollars in risk-based capital behind every dollar of premium. And so it's imperative that that business earns its margin to earn its cost of capital and returns on capital.

Speaker Change: Of dollars and risk based capital behind every dollar of premium and so it is imperative that that business earn its margin to earn its cost of capital and returns on capital.

Tom: You know, that's just how we think about it from an enterprise perspective. We've spent a lot of money over the course of 2023 to develop capabilities that we believe will be additive, and we have been very specific with investors about what we expect those returns on capital to be over time.

Speaker Change: That's just how we think about it from an enterprise perspective, and we've spent a lot of money over the course of 2023 to develop capabilities, which we believe will be additive and we have very very specific with investors about what we expect those returns on capital to be over time, and we're committed to achieving them, which means we were can.

Tom: And we're committed to achieving them, which means we're committed to achieving target margins in each of those businesses that we acquire. The next question comes from Elizabeth Anderson from Evercore ISI. Elizabeth, please go ahead; your line is open.

Speaker Change: Emitted to achieving target margins in each of those businesses that we acquired.

Speaker Change: Okay.

Speaker Change: The next question comes from Elizabeth Anderson from Evercore ISI.

Elizabeth Anderson: Please go ahead your line is open.

Elizabeth: Hi guys, thanks so much for the question. I wanted to maybe dig into the pharmacy services profit guidance for 2024 in a little bit more detail. Can you just go through sort of what are the key tenets of your assumptions that changed there versus the guidance that you gave at the end of yesterday in December? Elizabeth, did you mean the health services segment?

Elizabeth Anderson: Hi, guys. Thanks, so much for the question I wanted to maybe dig into the pharmacy services profit guidance for 2024, and a little bit more detail can you just go through sort of what are the key tenants.

Elizabeth Anderson: Of your assumptions that change there versus the guidance that you gave at the Investor day in December Thank you.

Elizabeth Anderson: Elizabeth did you mean, the health services segment I presume.

Tom: So really, what's changed there is that... Yep, as you think about that, I noted this a little bit in the prepared remarks, as we think about what the external utilization environment looks like, we felt it was prudent to recognize that as a multi-payer business, there could be impacts outside our ecosystem that might pull through into that business. As Mike said, you know, we've spent a lot of time, he spends a lot of time thinking about what the reserve practices are and what their medical cost trends are inside Oak Street and also our ACO businesses, and we try to supplement that as we can with other insights about what it is that we're seeing across our book. But as we thought about what we're hearing in the marketplace, and what we saw in our own book in the fourth quarter, we thought it was prudent to pull through some of that potential utilization pressure into our outlook, primarily on our healthcare delivery assets. The next question comes from Steven Baxter from Wales, Fargo. Steven, your line is open. Please go ahead.

Elizabeth Anderson: So really whats changed better actually.

Speaker Change: Thank you.

Elizabeth Anderson: Yes, yes, as you think about that I noted this a little bit in the prepared remarks, as we think about what the external utilization environment looks like we felt it was prudent to recognize that as a multi payer business that there could be impacts outside our ecosystem that might pull through into that business as Mike said.

Elizabeth Anderson: We spent a lot of time he has spent a lot of time.

Elizabeth Anderson: Thinking about what the reserving practices are and what their medical cost trends are inside the Oak Street and also our ACO businesses and we try to supplement that as we can with other insights about what it is that we're seeing across our book.

Elizabeth Anderson: But as we thought about what we're hearing in the marketplace. What we saw in our own book in the fourth quarter. We thought it was prudent to pull through some of that potential utilization pressure into our outlook, primarily on our health care delivery assets.

Elizabeth Anderson: The next question comes from Stephen Baxter from Wells Fargo. Stephen Your line is open. Please go ahead.

Tom: Yeah, hey, thank you. I just wanted to follow up on that question specifically. You know, when we look at the guidance reduction for the services business, it does look like it's less than I think the kind of implied 100 basis point guide up on MAMLR that you're talking about for your own book of business. So just hoping you could expand a little more specifically what's included in the increased, you know, loss ratios for the Oak Street business. And then, are you potentially also carrying some of the 2023 outperformance into your 2024 outlook as an offset? Thanks.

Steven Valiquette: Yeah, Hey, Thank you I just wanted to follow up on that question precisely.

Steven Valiquette: When we look at the guidance reduction for the services business. It does look like it.

Steven Valiquette: Less than I think the kind of implied 100 basis point guide up on MA MLR that youre talking about for your own book of business. So just hoping you could expand a little more specifically what's included in the increased loss ratios for the upstream business.

Steven Valiquette: And then are you potentially also carrying some of the 2023 outperformance into your <unk> 'twenty 'twenty four outlook as an offset.

Tom: Yes, Steve, I think that it's important as you think about the guide that you realize two things. Number one, health care delivery is part of a much larger segment, right? And so we believe that we've made appropriate provisions in the segmental guidance there for what the potential pressures might look like. The second thing I would just remind you is that we had a very successful 2023 in those businesses. And so those businesses were able to successfully manage through the pressures that, you know, we and most of our peers saw in Medicare Advantage and still achieve the targets that we were looking for out of those businesses in 2023. And we were very pleased with that performance. And but we took a prudent outlook and a cautious, hopefully, optimistic outlook as we thought about where 2024 might land based on the external environment. www.cbshealth.org. The next question comes from Alan Lutz from Bank of America. Alan, your line is open, please go ahead. Good morning, and thanks for taking the questions. One for Tom or Prem?

Yes, Steve I think that it's important as you think about the guide that you realized two things number one health care delivery as part of a much larger segment right and so we believe that we've made appropriate provisions in the segmental guidance there for what the potential pressures might look like the.

Steven Valiquette: The second thing I would just remind you is that we had a very successful 2023 and those businesses and so those businesses were able to successfully manage through the pressures that we and most of our peers saw in Medicare advantage and still achieve the targets that we were looking for out of those businesses in 2023.

Steven Valiquette: So we were very pleased with that performance and but we took a prudent outlook and cautious hopefully outlook as we thought about where 2024 might land based on the external environment.

Steven Valiquette: The next question comes from Allen Lutz from Bank of America, How long. Your line is open. Please go ahead.

Steven Valiquette: Yeah.

Good morning, and thanks for taking the questions one for Tom or perhaps on the retail pharmacy side pharmacy script volume was really strong. So how should we think about growth there through the end of the year and ex Covid and then are you seeing any noticeable benefits from the bankruptcy of one of your peers. Thanks.

Alan: On the retail pharmacy side, pharmacy script volume was really strong. So how should we think about growth there through the end of the year and post-COVID? And then, are you seeing any noticeable benefits from the bankruptcy of one of your peers?

Prem: Thanks. Thanks for the question. I'll tell you a few things. One, as we entered this year and throughout Q4, we've had extremely strong service in our pharmacy businesses. And, as we mentioned before, pharmacy relationships are sticky, and they really are driven by the great experiences you can provide at the counter. So we feel really good going into this year as it relates to our service. And there have been a few market disruptions, as you mentioned, in the marketplace. From our perspective, we continue to make sure that we invest in our stores in the right way, prioritizing the experiences, as I said, and we'll look at certain markets for opportunistic file buys if they make sense, as we've historically done over time.

Steven Valiquette: Okay.

Speaker Change: Thanks for the question I'd say, a few things one as we've entered this year and throughout Q4, we've had extremely strong service.

Speaker Change: And our pharmacy businesses and as we mentioned before pharmacy relationships are sticky and they really are driven by the great experiences. We can provide at the counter so we feel really good going into this year as it relates to our service.

Speaker Change: And there's been a few market disruptions as you mentioned in the marketplace from our perspective, we continue to make sure that we invest in our stores in the right way prioritizing experiences as I said, we'll look at certain markets for opportunistic file buys if they make sense.

Speaker Change: As we've historically done over time, but we feel really good about our script performance coming into the year.

Prem: But we feel really good about our script performance coming into the year, and it's in line with our expectations as we look at this. Nate, as you think about this business, one of the things that we've said that we've tried to do consistently is to grow share to help to offset reimbursement pressures. And as you look at the fourth quarter, we certainly have. I'm sorry. That was Alan.

Speaker Change: In line with our expectations as we look at this.

Speaker Change: Nate as you think about this business one of the things that we've said that we've tried to do consistently.

Nate: Is to grow share to help to offset reimbursement pressures and as you look at the fourth quarter.

Nate: Certainly had.

Speaker Change: I'm, sorry that was Allen.

Tom: We certainly had, we had same store growth. You've got to really think about what the impact of store closures might be as you think about our overall market share. But we had same store growth in prescriptions that was in the high four percent range versus a market that grew in kind of the mid twos.

We certainly had we had same store growth you've got to really think about what the.

Speaker Change: What the impact of store closures might be as you think about our overall market share.

Speaker Change: But we had same store growth in prescriptions that was in the high 4% range versus a market that grew in kind of a mid twos.

Tom: And so we feel like the teams really continue to execute really well in helping to drive to the results that ultimately get us onto the long-term trajectory that we outlined at Investor Day. And Alan, I'd also note, and we said this in the prepared remarks, that we've been making good progress on our store closures, and we've been retaining scripts and retaining colleagues, which was, you know, critical to the success of those store closures as well. The next question comes from Charles Rhyee from TD Cowan. Charles, your line is open. Please go ahead.

Speaker Change: And so we feel like the teams really continue to execute really well and helping to drive to the results that ultimately get us on to this long term trajectory that we outlined on Investor day.

Speaker Change: And I'd also note we set us in the prepared remarks that we've been making good progress on our store closures and we've been retaining scripts and retaining colleagues, which was critical to the success of those store closures as well.

Speaker Change: The next question comes from Charles Brady from TD Cowen Charles Your line is open. Please go ahead.

Charles Rhyee: Oh yeah, thanks for taking the question. I wanted to go back to cost advantage a little bit here. And, you know, when we think about how you're setting up those acquisition costs, can you tell? We'll talk about sort of the reaction from payers a little bit more in regards to how they're seeing what costs that you're passing through. You know, I think one of the issues or concerns that have been raised is the potential for sort of perverse incentives, right? A pharmacy could prefer a higher acquisition cost drug because the markup is higher.

Charles Rhyee: Yes, thanks for taking the question.

Charles Rhyee: I'd go back to cost Savage, a little bit here.

Charles Rhyee: When we think about how you're setting up those acquisition costs.

Can you talk we'll talk about sort of the reaction from payers a little bit more in regards to how they are seeing what caused such a passing through I think one of the.

Charles Rhyee: Issues or concerns have been raised as the potential for sort of a perverse incentives right a pharmacy could prefer a higher acquisition cost drug because the markup is higher.

Charles Rhyee: And, you know, one of the solutions that we've heard mentioned is the potential for setting up, you know, maybe global caps on reimbursement, you know, for classic drugs, you know, just, you know, making up numbers here, you know, no more than, let's say, AWP minus 990 for generics or something like that. You know, is that something that you are discussing with payers? And, you know, what are the sort of measures that you are contemplating to ensure that the sorts of incentives are aligned? Because I'd imagine payers are really interested in that.

Charles Rhyee: What are the solutions that we've heard mentioned was potential of setting up maybe global caps on reimbursement for classes of drugs.

Charles Rhyee: Making up numbers here no more than let's say AWP minus 90, 90 for generics or something like that.

Charles Rhyee: Is that something that you are discussing with us here as well.

Charles Rhyee: What are sort of the measures that you are.

Charles Rhyee: Contemplating to ensure sort of incentives are aligned us because I'd imagine payers are really interested in that.

Prem: Yeah, I think the first and foremost, I think there are a few parts to your question. For example, last week, we delivered our terms and conditions. So the payers now have the ability to understand how our model will work. As a reminder, our model is based on a simple, transparent formula that's built upon the underlying acquisition costs of the drugs defined by, you know, plus a defined markup and dispensing fee. To your point, there are many different ways in pharmacy pricing.

Speaker Change: Yes, I think first and foremost I think there are a few parts to your question.

Last week, we delivered our terms and conditions. So the players now have the ability to understand how our model will work as a reminder, our models based on a simple transparent formula that's built upon the underlying acquisition cost of the drugs defined by plus a defined markup in dispensing fee to your point on there's many different way.

Speaker Change: As in pharmacy pricing my perspective on this is the way. We've approached this is in a very transparent way so that payers can receive the benefits of someone like Cvs retail pharmacy, where we have the operating scale and the operating discipline to drive further acquisition costs down on generics through our procurement and other strategies and so.

Prem: My perspective on this is the way we've approached this in a very transparent way so that payers can receive the benefits of someone like CVS Retail Pharmacy, where we have the operating scale and the operating discipline to drive, you know, further acquisition costs down on generics through our procurement and other strategies. And so, you know, we will always be held accountable for reducing acquisition costs, leveraging our scale and size to do that, and also performing and delivering services at the lowest price possible. At the same time, payers also need a viable pharmacy marketplace across the community that can provide, you know, provide what I would say is consistent care across all the communities that we serve. So it's critical to meet both of those goals.

Speaker Change: We will always be held accountable for reducing acquisition costs, leveraging our scale and size to do that and also performing and delivering services at the lowest price possible at the same time payers also need a viable.

Speaker Change: Pharmacy marketplace across the community that can provide.

Speaker Change: Provide what I would say is consistent care across all the communities that we serve so it is critical to meet both of those.

Prem: And, you know, look, it's February 7th, so we're still early in this journey, but we're excited about the progress we've made since Annals Day. And we're going to continue these payer negotiations and payer discussions over the course of the coming weeks and months, and we'll provide an update as we go forward. And all the things that you're describing are things that we're contemplating and discussing with payers in a very transparent way to eliminate some of the challenges that this industry has had over the course of the last few decades. The next question comes from John Branson from Raymond James. John, your line is open, please go ahead. Hey, good morning. I got a new name, John Ransom. That's fine. The question I have is just RSV. It's a good guy to your retail franchise. It's a bad guy to HCB.

Speaker Change: Look it's February 7th of are still early in this journey, but we're excited about the progress we've made since analyst day.

Speaker Change: And we're going to continue these payer negotiations and payer discussions over the course of the coming weeks and months and will provide an update as we go forward and all the things that you are describing are things that we're contemplating and discussing with payers in a very transparent way to eliminate some of the challenges that this industry has had over the course of the last few decades.

Speaker Change: Yeah.

Speaker Change: The next question comes from John <unk> from Raymond James Your line is open. Please go ahead.

John: Hey, good morning, I got a new name.

John: John.

John: The question I have is just RSV.

John: Good Guy to your retail franchise, it's a bad guy to HCV, how do we think about the net benefit or a net drag to the enterprise for fourth quarter and what's embedded in your 2000 and for outlook for just for RSV.

John W. Ransom: How do we think about the net benefit or net drag to the enterprise for the fourth quarter? And what's embedded in your 24-week outlook for just RSV? Thanks.

Tom: Hey, John, I don't know that we're going to give specifics on that. As you think about RSV, I would say net because of the relative market share differences between our pharmacy business and the Aetna business. That tends to be a net tailwind for the enterprise. We did see pressure in the fourth quarter in the, you know, particularly in our Medicare business but also a little bit in the commercial business inside Aetna, as you think about those vaccinations. Correspondingly, we saw more of a benefit in the pharmacy and consumer wellness segment. As we think about 2024, given the newness of some of these vaccines, what we've tried to do is take a little bit more cautious outlook as we think about what the pull through might be for that outperformance in the fourth quarter. And that's why the beat doesn't match the increase.

Speaker Change: Hey, John.

John: I don't know that we're going to give a specific on that as you think about RSV I would say net because of the relative market share differences between our pharmacy business and the Aetna business that tends to be a net tailwind for the enterprise.

John: And we did see pressure inside the fourth quarter.

John: <unk>.

John: In particular in our Medicare business, but also a little bit in the commercial business inside of Aetna as you think about those vaccinations correspondingly.

John: Correspondingly, we saw more of a benefit in the pharmacy and consumer wellness segment.

John: As we think about 2024, given the newness of some of these vaccines. What we've tried to do is take a little bit more cautious outlook as we thought about what the pull through might be for that outperformance in the fourth quarter and Thats why the beat doesn't match. The raise as you think about 'twenty four we'd like to see a little bit more of a little bit.

Tom: As you think about 24, we'd like to see a little bit more of a little bit more history here before we lean in on that projection. And John, strategically, I wouldn't just think about one type of, you know, RSV as a vaccine. I want you to think about kind of an immunization franchise that the retail business has really developed and which is really creating strong value for that business. The final question today is from Erin Wright from Morgan Stanley. Erin, please go ahead; your line is open. Great, thanks. On Cordavis, I'm just curious, how meaningful is the contribution to segment profit or how meaningful is that embedded in your guidance? And how is that just generally playing out relative to your expectations?

John: Our history here before we lean in on on that projection.

John: And John I guess strategically I wouldn't just think about one type of.

John: RSV is a vaccine I want you to think about kind of an immunization franchise that the retail business has really developed and which is really creating strong value for that business.

John: Final question today is from Erin Wright from Morgan Stanley. Please go ahead. Your line is open.

Erin Wilson Wright: Great. Thanks.

Erin Wilson Wright: Encore data I'm, just curious how meaningful is the contribution to segment profit or how meaningful is that embedded in your guidance and how is that just generally playing out relative to your expectations and then and then just a quick one on just <unk> and transparency just your latest thoughts on regulatory changes potentially across the TVN what you can.

Tom: And then just a quick one on just PBM and transparency, just your latest thoughts on regulatory changes potentially across the PBM, what we could potentially see this year in terms of what gets passed and ability to manage around that. Thanks, Erin. Maybe I'll start with Cordavas.

Erin Wilson Wright: But we could potentially see this year in terms of what gets passed an ability to manage around that thanks.

Speaker Change: Thanks Erin.

Speaker Change: Maybe I'll start with I'll start with core Davies I'd say, we've been very pleased with the progress to date.

Karen S. Lynch: I'd say we've been very pleased with the progress to date, and we do have a projection for a positive contribution from that business in the health services segment. And we'll continue to give more details on that as we get through the year, but we haven't disclosed that specific contribution at this point. And maybe I'll turn it over to Karen to talk a little bit more about PBM transparency. Yeah, relative to, you know, what's going on in Washington, obviously, this is, you know, continued discussions are going on there. I do think that they'll, you know, they're talking about transparency. You know, if anything does get passed, I think it will be around transparency.

Speaker Change: We do have a projection for a positive contribution from that business inside the health services segment.

Speaker Change: And we will continue to give more details on that as we get through the year, but we haven't disclosed that specific contribution at this point.

And maybe I'll turn it over to Karen talk a little bit more about PBF transparency.

Relative to what's going on in Washington, Obviously. This is continued discussions are going on there I do think that they'll they're talking about transparency.

Karen S. Lynch: If anything does get passed I think it will be around transparency, but I would tell you that given some of the actions that we have taken with both through cost and cost advantage that is resonating with.

Karen S. Lynch: But I would tell you that given some of the actions that we have taken with both true cost and cost advantage, that is resonating with the legislators and is helpful in driving overall cost transparency. And, you know, I can't predict what's going on in D.C., but I know that we're taking action to improve overall outcomes. www.cbshealth.org. That concludes today's Q&A session. We want to thank you for all joining our call. Yep.

Karen S. Lynch: The legislators and it is helpful in driving overall cost transparency and.

Karen S. Lynch: I can't predict what's going on in D C, but I know that we're taking action to improve overall outcome.

Speaker Change: This concludes today's Q&A, so I want to thank you for your.

Coughing remarks, yes.

Speaker Change: Thank you for all joining the call today and I want to thank our colleagues for their continued commitment to delivering on our performance. Thank you.

Karen S. Lynch: Thank you for joining the call today. And I want to thank our colleagues for their continued commitment to delivering on our performance. Thank you. This concludes today's call. Thank you very much for your attendance. You may now disconnect your line.

Speaker Change: This concludes today's call. Thank you very much for your attendance you may now disconnect your lines.

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