Q1 2024 CVS Health Corp Earnings Call

Hello, and welcome to today's Cvs Health Q1, 'twenty 'twenty four earnings Conference call. My name is Jordan and I'll be cool new cool today as a reminder, if you'd like to register any audio questions. You may do so by pressing star followed by one on your.

Jordan: Hello and welcome to today's CVS Health Q1 2024 earnings conference call. My name is Jordan, and I'll be coordinating your call today. As a reminder, if you'd like to register any audio questions, you may do so by pressing star followed by one on your telephone keypad. I'm now going to hand over to Larry McGrath to begin. Larry, please go ahead.

Your telephone keypad.

Laurence F. McGrath: I'm now going to hand over to Laurie Mcgrath to begin Larry. Please go ahead, good morning, and welcome to the Cvs Health first quarter 2024 earnings call and webcast.

Laurence F. McGrath: Good morning, and welcome to the CVS Health First Quarter 2024 Earnings Call and Webinar. 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 Cowhey, 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-Q, filed this morning with the FCC.

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

Laurence F. McGrath: I'm joined this morning by Karen Lynch, President and Chief Executive Officer, and Tom Kelly Chief Financial Officer.

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

Laurence F. McGrath: Our press release and slide presentation have been posted to our web site along with our Form 10-Q filed this morning with the SEC.

Laurence F. McGrath: Today's call is also being broadcast on our website, where it will be archived for one year. 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 currently projected results. 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 most recent annual report, filed in Form 10-K, our quarterly report on Form 10-Q, filed this morning, and our recent filings on Form 8-K, including this morning's earnings spreadsheet.

Laurence F. McGrath: Today's call is also being broadcast on our website, where do we archived for one year.

Laurence F. McGrath: During this call we'll make certain forward looking statements are forward looking statements are subject to significant risks and uncertainties that could cause actual results to differ materially from currently projected results.

Laurence F. McGrath: We strongly encourage you to review the reports we filed with the SEC regarding these risks and uncertainties and particularly those that are described in the cautionary statement concerning forward looking statements and risk factors in our most recent annual report filed on Form 10-K, our quarterly reports on Form 10-Q filed this morning and our reach.

Laurence F. McGrath: <unk> filings on form 8-K, including this morning's earnings press release.

Laurence F. McGrath: During this call we'll use non-GAAP measures when talking about the company's financial performance and financial condition.

Laurence F. McGrath: 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 the investor relations portion of our website. With that, I'd like to turn the call over to Karen.

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

Laurence F. McGrath: With that I'd like to turn the call over to Karen Karen.

Karen Lynch: Thank you, Larry. Good morning, everyone.

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

Karen Lynch: And thanks for joining our call today. This morning, we announced first quarter results that were burdened by utilization pressures in Medicare Advantage, which materially impacted our health care benefits segment. We generated adjusted EPS of $1.31, which fell short of our expectations.

Karen Lynch: This morning, we announced first quarter results that were burdened by utilization pressures in Medicare advantage, which materially impacted our health care benefits segment, we generated adjusted EPS of $1 31, which fell short of our expectation.

Karen Lynch: As a result of this performance, as well as our updated expectations for the rest of 2024, we are lowering our full year 2024 guidance for adjusted EPS to at least $7. Tom will go through these results and our revised guidance in more detail. I want to start our discussion this morning by focusing on the challenges we are seeing in our Medicare Advantage business and what we are doing to address these pressures.

Karen Lynch: As a result of this performance as well as our updated expectations for the rest of 2024, we are lowering our full year 2024 guidance for adjusted EPS to at least $7 Tom.

Tom will go through these results and our revised guidance in more detail.

Tom Kelly: I wanted to start our discussion this morning by focusing on the challenges we are seeing in our Medicare advantage business and what we are doing to address these pressures when.

Karen Lynch: When we last gave 2024 guidance, our outlook assumed normalized Medicare Advantage trends on top of the elevated baseline we experienced in the fourth quarter of 2023. However, it is now clear that the first quarter 2024 Medicare Advantage trends are notably above this level. Like others in the industry, our visibility in the quarter was impaired by the cyber attack on Changed Health Care. At the close of the quarter, we established a reserve of nearly $500 million for claims that we estimated we had not received.

Tom Kelly: When we last gave 2024 guidance our outlook assumed.

Tom Kelly: Normalized Medicare advantage trends on top of the elevated baseline we experienced in the fourth quarter of 2023.

Tom Kelly: It is now clear that the first quarter 2020 for Medicare advantage trends are notably above this level.

Tom Kelly: Like others in the industry, our visibility in the quarter was impaired by the cyber attack on change healthcare.

Tom Kelly: At the close of the quarter, we established a reserve of nearly 500 million dollar for claims that we estimated we had not received.

Karen Lynch: This represents our best estimate of missing claims, with approximately half of the reserve attributed to our Medicare business. As we closed the quarter, it became apparent that we were experiencing broad-based utilization pressure in our Medicare Advantage business in a few areas. Outpatient services and supplemental benefits continued to be elevated in the first quarter and exceeded our projections. We also saw new pressures in the inpatient and pharmacy categories, some of which were seasonal or one-time in nature.

Tom Kelly: This represents our best estimate of missing claim with approximately half of the reserve attributed to our Medicare business.

Tom Kelly: As we closed the quarter. It became apparent we were experiencing broad based utilization pressure and our Medicare advantage business and a few area.

Tom Kelly: Outpatient services and supplemental benefits continued to be elevated in the first quarter and exceeded our projections.

Tom Kelly: Also saw new pressures in the in patient and pharmacy category.

Tom Kelly: Some of which were seasonal or onetime in nature.

Karen Lynch: April inpatient authorizations and admissions appear to have moderated. In response to these pressures, at a time when we have seen very strong enrollment growth, we implemented a series of actions to ensure our clinical operations are performing at levels consistent with our expectations. We formed multidisciplinary teams to do a retrospective review of our claims data, searching for condition-specific, geographic, or facility-based outliers, as well as to uncover any selection bias in our new and existing membership base.

Tom Kelly: April inpatient authorizations at admission appear to have moderated.

Tom Kelly: In response to these pressures at a time when we have seen very strong enrollment growth. We implemented a series of actions to ensure our clinical operations are performing at levels consistent with our expectation.

Tom Kelly: We formed multi disciplinary teams do a retrospective review of our claims data searching for condition specific geographic or facility based outliers as well to uncover any selection bias.

Tom Kelly: Our new and existing membership base.

Tom Kelly: We ensured clinical teams our staff for current volumes by redeploying nurses from across Cvs health, and increasing hiring where necessary.

Karen Lynch: We ensured clinical teams are staffed for current volumes by redeploying nurses from across CVS Health and increasing hiring where necessary. And we evaluated opportunities and implemented actions to optimize our pharmacy benefit spend. In addition to those efforts, we are accelerating enterprise productivity initiatives to streamline and optimize our operations, ensuring our costs are aligned to business operations, environment, and conditions.

Tom Kelly: And we evaluated opportunities and implemented actions to optimize our pharmacy benefits then.

Tom Kelly: In addition to those efforts, we are accelerating enterprise productivity initiatives to streamline and optimize our operations, ensuring our costs are aligned to the business operation environment and conditions.

Karen Lynch: We are implementing these actions with speed and urgency, utilizing the broad resources and experience across CVS Health. We have a track record of successfully navigating complex industry pressures and will continue to demonstrate our resilience. We will provide updates throughout the year on these efforts. I also feel it is important to discuss our long-term outlook for Medicare Advantage. We recently received the final 2025 rate notice, and when combined with the Part D changes prescribed by the Inflation Reduction Act, we believe the rate is insufficient.

Tom Kelly: We are implementing these actions with speed and urgency utilizing the broad resources and experience across Cvs health, we have a track record of successfully navigating complex industry pressure and will continue to demonstrate our resilience we will provide updates throughout the year on these efforts.

Tom Kelly: I also feel it is important to discuss our long term outlook for Medicare advantage.

Tom Kelly: We recently received the final 2025 rate notice and when combined with the part D changes prescribed by the inflation reduction Act, we believe the rate is insufficient.

Karen Lynch: This update will result in significant added disruption to benefit levels and choice for seniors across the country. While we strive to deliver benefit stability to seniors, we will be adjusting plan-level benefits and exiting counties as we construct our bid for 2025. We are committed to improving large, Despite the recent challenges in Medicare Advantage, we firmly believe the program can remain a compelling offering for seniors and a very attractive business for Aetna and CVS Health over time.

Tom Kelly: Update will result in significant added disruption to benefit levels and choice for seniors across the country.

Tom Kelly: While we strive to deliver benefits stability to seniors, we will be adjusting plan level benefit and exiting counties as we construct our bid for 2025.

Tom Kelly: We are committed to improving margins.

Tom Kelly: Despite the recent challenges in Medicare advantage, we firmly believe the program can remain a compelling offering for seniors.

Tom Kelly: A very attractive business for Aetna and Cvs health over time.

Karen Lynch: Medicare Advantage will continue to deliver significant value to members as well as better outcomes and patient experience. Over the next few years, we are determined to improve our positioning in Medicare Advantage. The combination of our internal efforts and the multi-year repricing opportunity gives us confidence in our ability to return to our target margin of 4 to 5 percent in 3 to 4 years. Our top priority in the near term is addressing the pressures faced by our Medicare Advantage business. However, I urge you not to lose sight of the power of our enterprise.

Tom Kelly: Medicare advantage will continue to deliver significant value to members as well as better outcome and patient experiences.

Tom Kelly: Over the next few years, we are determined to improve our positioning in Medicare advantage. The combination of our internal efforts and the multiyear repricing opportunity gives us confidence in our ability to return to our target margin of 4% to 5% and three to four years.

Tom Kelly: Our top priority in the near term is addressing the pressures faced by our Medicare advantage business.

Tom Kelly: However.

I urge you not to lose sight of the power of our enterprise.

Karen Lynch: The strength and diversity of our business positions us for growth in 2025 as we deliver value to our patients, customers, and shareholders. We are ensuring a viable biosimilars market in the U.S. with our Cordavis business, which will drive lower costs for our customers, savings for consumers, and will lead to higher retention and growth. On April 1st, we implemented our unique and meaningful formulary change related to Hemira.

Tom Kelly: Strength and diversity of our business positions us for growth in 2025, as we deliver value to our patients customers and shareholders.

Tom Kelly: We are ensuring a viable biosimilar market in the U S with our Codell that business, which will drive lower cost for our customers savings for consumers.

Tom Kelly: And will lead to higher retention and growth on.

Tom Kelly: On April 1st we implemented our unique and meaningful formulary change related to her IRA we.

Karen Lynch: We have already made a significant impact in the first month since the formulary change, dispensing more biosimilar Hemira prescriptions than the entire U.S. market in 2023. This accomplishment truly highlights the combined strength of our CVS Caremark, CVS Specialty, and Cordavis businesses to accelerate biosimilar adoption and our commitment to customers to lower pharmacy costs. Our Pharmacy and Consumer Wellness business delivered strong performance this quarter, highlighted by our ability to grow pharmacy share despite softening consumer demand and an uncertain macroeconomic environment.

Tom Kelly: We have already made a significant impact in the first month since the formulary change dispensing more biosimilar humira prescription than the entire U S market in 2023. This accomplishment truly highlights the combined strength of our Cvs Caremark, Cvs specialty and core Davis businesses too.

Tom Kelly: Accelerate biosimilar adoption and our commitment to customers to lower pharmacy costs.

Tom Kelly: Our pharmacy and consumer wellness business delivered strong performance this quarter highlighted by our ability to grow pharmacy share despite softening consumer demand and an uncertain macroeconomic environment.

Karen Lynch: Our CVS pharmacy locations continue to serve an important and expanding role in communities across the country. Since we unveiled CVS Cost Vantage and TrueCost, we have seen tremendous interest in these more simple and transparent pharmacy models. We are engaged in active discussions with PBMs to roll out CVS Cost Vantage for commercial contracts on January 1st, 2025. Additionally, we signed CVS Cost Vantage agreements with multiple third-party discount card administrators that were effective on April 1st and represent more than 50% of all CVS discount card volumes.

Tom Kelly: Our Cvs pharmacy locations continue to serve an important expanding role in communities across the country.

Tom Kelly: Since we unveiled Cvs cost advantage and Truecar, we have seen a tremendous interest in these more simple and transparent pharmacy model.

Tom Kelly: We are engaged in active discussion with pbms to rollout Cvs cost advantage for commercial contracts on January 1st 2025.

Tom Kelly: Additionally, we signed Cvs cocks vantage agreements with multiple third party discount card administrators that were effective on April 1st and represent more than 50% of all Cvs discount card volume.

Karen Lynch: We continue to have constructive dialogue with our partners and look forward to updating you later this year. In our healthcare delivery business, we are seeing meaningful progress in our integration effort. This quarter, Signify had the highest volume of in-home evaluations in its history.

Tom Kelly: We continue to have constructive dialogue with our partners and look forward to updating you later this year.

Tom Kelly: In our health care delivery business, we are seeing meaningful progress in our integration efforts. This.

Tom Kelly: This quarter sickness I had the highest volume of in home evaluations and their history.

Karen Lynch: Oak Street at-risk patients grew nearly 20% over the same quarter last year, supported by our ability to utilize touchpoints across CVS Health. In Aetna, our commercial business had several wins with large group clients with 2025 effective dates, demonstrating our ability to deliver integrated benefit solutions with our diversified portfolio of offerings. In our Medicaid business, we have been successful in several RFPs, including Virginia, Michigan, and Texas, where our CVS Health assets were highlighted as differentiators.

Street at risk patients grew nearly 20% over the same quarter last year supported by our ability to utilize touch points across Cvs health.

Tom Kelly: And Anna our commercial business had several wins with large group clients with 2025 effective date, demonstrating our ability to deliver integrated benefit solution with our diversified portfolio of offering.

Tom Kelly: In our Medicaid business, we have been successful in several rfps, including Virginia, Michigan, and Texas, where our Cvs health assets were highlighted as Differentiators.

Karen Lynch: These represent a few recent highlights from across our businesses and demonstrate the value and positive momentum across our broad-based portfolio of assets. The current environment does not diminish our opportunities, our enthusiasm, or the long-term earnings power of our company. We are confident that we have a pathway to address our near-term Medicare Advantage challenges. While recent results have been pressured, our actions will return our earnings to their appropriate levels and will result in a stronger CVS Health.

Tom Kelly: These represent a few recent highlights from across our businesses and demonstrate the value and positive momentum across our broad based portfolio of assets.

Tom Kelly: The current environment does not diminish our opportunities our enthusiasm for the long term earnings power of our company.

We are confident that we have a pathway to address our near term Medicare advantage challenges.

Tom Kelly: While recent results have been pressured our actions will return our earnings to their appropriate level and will result in a stronger Cvs health.

Karen Lynch: We remain as committed as ever to our strategy and believe that we have the right assets in place to deliver value to our customers, members, patients, and our shareholders. Tom will provide details on the results of each of our businesses and the components of our updated guidance.

We remain as committed as ever to our strategy and believe that we have the right assets in place to deliver value to our customers members patients and our shareholders.

Tom Kelly: Tom will provide details on the results of each of our businesses and the components of our updated guidance Tom.

Thomas F. Cowhey: Thank you, Karen, and thanks to everyone for joining us this morning. In the first quarter, our revenues were approximately $88 billion, an increase of approximately 4% over the prior year quarter. We delivered adjusted operating income of approximately $3 billion and adjusted EPS of $1.31 billion. We also generated cash flow from operations of $4.9 billion, a lower result compared to the same quarter last year, primarily due to the timing of Medicaid. Each of our segments and the enterprise as a whole are focused on executing against their goals and delivering on their financial targets. However, our health care benefits and enterprise results are being materially pressured by the level of Medicare Advantage utilization that we are experiencing. Clearly, this is a disappointing result for us.

Tom Kelly: Thank you Karen and thanks to everyone for joining us this morning.

Tom Kelly: In the first quarter, our revenues were approximately 88 billion an increase of approximately 4% over the prior year quarter.

Tom Kelly: We delivered adjusted operating income of approximately $3 billion and adjusted EPS of $1.31.

Tom Kelly: We also generated cash flow from operations of $4 9 billion, our lower results compared to the same quarter last year, primarily due to the timing of Medicare payments.

Tom Kelly: Each of our segments in the enterprise as a whole are focused on executing against their goals and delivering on their financial targets.

However, our health care benefits and enterprise results are being materially pressured by the level of Medicare advantage utilization that we're experiencing.

Speaker Change: Clearly this is a disappointing result for US let me walk you through some of the drivers and help you understand how we expect them to impact the remainder of the year.

Thomas F. Cowhey: Let me walk you through some of the drivers and help you understand how we expect them to impact the remainder of the year. In our healthcare benefits segment, we delivered revenues of approximately $32 billion, an increase of approximately 25% year-over-year. Medical membership was 26.8 million of 1.1 million members sequentially, reflecting growth in Medicare, individual exchange, and commercial group products, partially offset by the impact of Medicaid redetermination. Adjusted operating income for the first quarter was $732 million.

Speaker Change: And our health care benefits segment, we delivered revenues of approximately $32 billion, an increase of approximately 25% year over year.

Speaker Change: Medical membership was $26 8 million up $1 1 million members sequentially, reflecting growth in the Medicare individual exchange and commercial group products, partially offset by the impact of Medicaid Redetermination.

Speaker Change: Adjusted operating income for the first quarter was $732 million.

Thomas F. Cowhey: This result reflects a higher medical benefit ratio, partially offset by higher net investment income and the impact of favorable fixed cost leverage due to membership. Our medical benefit ratio of 90.4% increased 580 basis points from the prior year quarter, primarily reflecting higher Medicare Advantage utilization. Premium Impact of Lower STARS Ratings for Payment Year 2024 and Unfavorable Prior Year Development as compared to the prior year. Digging into the drivers of Medicare Advantage cost trends, we saw meaningful increases in utilization.

This result reflects a higher medical benefit ratio, partially offset by higher net investment income and the impact of favorable fixed cost leverage due to membership group.

Speaker Change: Our medical benefit ratio of 94% increased 580 basis points from the prior year quarter, primarily reflecting higher Medicare advantage utilization.

Speaker Change: Premium impact of lower stars ratings for payment year, 2024, and unfavorable prior year development as compared to the prior year.

Speaker Change: Digging into the drivers of Medicare advantage cost trends, we saw meaningful increases in utilization.

Thomas F. Cowhey: We continue to see elevated trends in the same categories we discussed at the end of 2023, including outpatient and supplemental benefits, categories that appeared to be moderating earlier in the quarter but which completed at levels that in some cases exceeded expectations. Adding to the outpatient and supplemental benefits pressure, we saw new pressures emerge from inpatient.

Speaker Change: We continue to see elevated trends in the same category as we discussed at the end of 2023, including outpatient and supplemental benefits.

Speaker Change: Glories that appeared to be moderating earlier in the quarter for which completed at levels and in some cases exceeded expectations.

Speaker Change: Adding to the outpatient and supplemental benefits pressure, we saw on new pressures emerged from inpatient categories RSV vaccines and other pharmacy benefit.

Thomas F. Cowhey: RSV vaccines and other pharmacy products. Inpatient admits per thousand in the first quarter were up high single digits versus the first quarter of 2020. While a portion of this increase was anticipated because of the implementation of the two midnight, This result meaningfully exceeded our expectations for the quarter, as inpatient seasonality returned to patterns we have not seen since the start of the pandemic.

Speaker Change: Inpatient admits per thousand in the first quarter were up high single digits versus the first quarter of 2023.

While a portion of this increase was anticipated because of the implementation of the two midnight rule.

Speaker Change: This result meaningfully exceeded our expectations for the quarter as inpatient seasonality returned to patterns, we have not seen since the start of the pandemic.

Speaker Change: In our Medicaid business, we experienced medical cost pressures largely driven by higher acuity from member Redetermination.

Thomas F. Cowhey: In our Medicaid business, we experience medical cost pressures, largely driven by higher acuity from member redetermination. We are working closely with our state partners to ensure the underlying trends are reflected in our rates going forward. Medical cost trends in our commercial business have not shown the same pressures we are experiencing in Medicare. Inpatient bed days are favorable to expectations, although higher than prior years. Mental health and pharmacy trends remain elevated, but overall performance of the commercial block is consistent with our projection; individual exchange medical costs are elevated, but are consistent with projected membership mix and lower revenue payables in 2024.

Speaker Change: We are working closely with our state partners to ensure the underlying trends are reflected in our rates going forward.

Speaker Change: Medical cost trends in our commercial business have not shown the same pressures we are experiencing in Medicare.

Inpatient bed days are favorable to expectations, although higher than prior years.

Mental health and pharmacy trends remain elevated but overall performance of the commercial block is consistent with our projections.

Speaker Change: Individual exchange medical costs are elevated but are consistent with projected membership mix and lower revenue payables in 2024.

Thomas F. Cowhey: Our individual exchange business remains on target to achieve its profit goals. We will continue to monitor both of these blocks closely, but their performance to date is consistent with our prior projection. Days claims payable at the end of the quarter were 44.5 days, down 1.4 days sequentially.

Speaker Change: Our individual exchange business remains on target to achieve its profit goals this year.

Speaker Change: We will continue to monitor both of these blocks closely with their performance to date is consistent with our prior projections.

Speaker Change: Days claims payable at the end of the quarter were $44 five days down one four days sequentially.

Thomas F. Cowhey: This decrease is primarily driven by the impact of membership and Higher Pharmacy, which tend to complete quicker and reduce DCP, as well as other typical seasonal increases. As a reminder, DCP is an output of our reserving process, and overall, we remain confident in the adequacy of our. In early April, we saw multiple days of high paid claim activity, which is consistent with the restoration of change health care and the associated backlog from that disruption. Well, the final impact of the change in health care disruption will not be known for several months.

Speaker Change: This decrease was primarily driven by the impact of membership growth and higher pharmacy trends, which tend to complete quicker and reduce DCP as well as other typical seasonal items.

Premiums and reserves both grew sequentially approximately 20%.

Speaker Change: As a reminder, DCP is an output of our reserving process and overall, we remain confident in the adequacy of our reserves.

Speaker Change: In early April we saw multiple days of high paid claim activity.

Speaker Change: Which is consistent with the restoration of change healthcare and the associated backlog from that disruption.

Speaker Change: While the final impact of the change healthcare disruption will not be known for several months. Our most recent interim reporting suggest that our March 31 reserve balances are stable and could show modest levels of positive development, which was not incorporated into our current outlook.

Thomas F. Cowhey: Our most recent interim reporting suggests that our March 31st reserve balances are stable and could show modest levels of positive development, which is not incorporated into our current outlook. Our health services segment generated revenue of approximately $40 billion, a decrease of nearly 10% year over year, primarily driven by the previously announced loss of a large client and continued pharmacy client price improvement. This decrease was partially offset by pharmacy drug mix, growth in specialty pharmacy, and the acquisitions of Oak Street Health and Tick. However, adjusted operating income of approximately $1.4 billion declined nearly 19% year-over-year, primarily driven by continued pharmacy client price improvements, lower contributions from 340B, and a previously announced loss of a large client. This decrease was partially offset by improved purchasing. Total pharmacy claims processed in the quarter were nearly 463 million, and total pharmacy membership as of the end of the quarter was approximately 90 million members.

Speaker Change: Our health services segment generated revenue of approximately $40 billion.

Speaker Change: A decrease of nearly 10% year over year, primarily driven by the previously announced loss of a large client and continued pharmacy client price improvements.

This decrease was partially offset by pharmacy drug mix growth in specialty pharmacy, and the acquisitions of Oak Street health and signify Hill.

Speaker Change: Adjusted operating income of approximately $1 4 billion declined nearly 19% year over year, primarily driven by continued pharmacy client price improvements lower contributions from 340, B and the previously announced loss of a large clients.

This decrease was partially offset by improved purchasing economics.

Speaker Change: Total pharmacy claims processed in the quarter were nearly 463 million and total pharmacy membership as of the end of the quarter was approximately 19 million members.

Speaker Change: We continue to drive growth in our health care delivery assets signify generated revenue growth of 24% compared to the same quarter last year.

Thomas F. Cowhey: We continue to drive growth in our health care delivery app. Signify generated revenue growth of 24% compared to the same quarter last year. Oak Street ended the quarter with 205 centers, an increase of 33 centers year over year. We continue to expect to add 50 to 60 centers in 2024. At-risk members at Oak Street ended the quarter at 211,000, an increase of 34,000 year-over-year.

Speaker Change: <unk> ended the quarter with 205 centers and increase of 33 centers year over year.

Speaker Change: We continue to expect to add 50 to 60 centers in 2024.

Speaker Change: At risk members at Oak Street ended the quarter at 211000, an increase of 34000 year over year.

Thomas F. Cowhey: Oak Street also significantly increased revenue in the quarter, growing over 25% compared to the same quarter last year. In our Pharmacy and Consumer Wellness segment, we generated revenue of approximately $29 billion, reflecting an increase of nearly 3% versus the prior year and over 5% on a same-store basis. Drivers of this revenue growth in the PCW segment included increased prescription volume with increased contributions from vaccinations, as well as pharmacy drug sales. However, these revenue increases were partially offset by the impact of recent generic introductions, continued reimbursement pressure, a decrease in store count, and lower contributions from OTC testing.

Speaker Change: <unk> Street also significantly increased revenue in the quarter growing over 25% compared to the same quarter last year.

Speaker Change: In our pharmacy and consumer wellness segment, we generated revenue of approximately $29 billion.

Speaker Change: Reflecting an increase of nearly 3% versus the prior year and over 5% on a same store basis.

Speaker Change: Drivers of this revenue growth in the <unk> segment included increased prescription volume with increased contributions from vaccinations as well as pharmacy drug.

Speaker Change: These revenue increases were partially offset by the impact of recent generic introductions continued reimbursement pressure a decrease in store count and lower contributions from OTC test kits.

Thomas F. Cowhey: Adjusted operating income was approximately $1.2 billion, an increase of approximately 4% versus the prior year, driven by increased prescription volume, improved drug purchasing, and lower operating expenses, including the impact of store closures. These increases were partially offset by continued pharmacy reimbursement. SaneStore pharmacy sales were up over 7% versus the prior year, and SaneStore prescription volumes increased by nearly six. However, theme store front store sales were down by about 2% versus the same quarter last year, but up 1% when excluding OTC. As a reminder, the public health emergency was still active during the first quarter of last year.

Speaker Change: Adjusted operating income was approximately $1 2 billion.

Speaker Change: An increase of approximately 4% versus the prior year driven by increased prescription volume improved drug purchasing and lower operating expenses, including the impact of store closures.

Speaker Change: These increases were partially offset by continued pharmacy reimbursement pressure.

Speaker Change: Same store pharmacy sales were up over 7% versus the prior year and same store prescription volumes increased by nearly 6%.

Speaker Change: Same store front store sales were down by about 2% versus the same quarter last year, but up 1% when excluding OTC test kits.

Speaker Change: As a reminder, the public health emergency was still active during the first quarter of last year.

Shifting to liquidity and our capital position first quarter cash flow from operations was $4 9 billion.

Thomas F. Cowhey: Shifting to liquidity in our capital position, our first quarter cash flow from operations was $4.9 billion. We ended the quarter with approximately $1.9 billion of cash in the parent and unrestricted subsidiary. In the first quarter, we returned $840 million to shareholders through our quarterly dividend. We also completed our $3 billion Accelerated Share Repurchase Transfer, retiring approximately 40 million shares in the quarter. We do not expect to repurchase any additional shares for the remainder of 2020. Our leverage ratio at the end of the quarter was approximately four times.

Speaker Change: We ended the quarter with approximately $1 9 billion of cash at the parent in unrestricted subsidiaries.

Speaker Change: In the first quarter, we returned $840 million to shareholders through our quarterly dividend. We also completed our $3 billion accelerated share repurchase transaction retiring approximately 40 million shares in the quarter.

Speaker Change: We do not expect to repurchase any additional shares for the remainder of 2024.

Speaker Change: Our leverage ratio at the end of the quarter was approximately four times. This leverage ratio was higher than we would expect to maintain on a normalized basis.

Thomas F. Cowhey: This leverage ratio is higher than we expect to maintain on a normalized basis, but we remain committed to maintaining our current investment grade rating. Turning now to our full year outlook for 2020. As Karen mentioned, we revised our 2024 adjusted EPS guidance to at least $7 to reflect our first quarter results, as well as our updated expectations for the remainder of 2020. In our health care benefits segment, we now expect adjusted operating income of at least $3.6 billion, down from our previous guidance of at least $5.4 billion.

Speaker Change: We remain committed to maintaining our current investment grade ratings.

Speaker Change: Turning now to our full year outlook for 2024.

Speaker Change: As Karen mentioned, we revised our 2024 adjusted EPS guidance to at least $7 to reflect our first quarter results as well as our updated expectations for the remainder of 2024.

Speaker Change: And our health care benefits segment, we now expect adjusted operating income of at least $3 6 billion.

Speaker Change: Down from our previous guidance of at least $5 4 billion.

Thomas F. Cowhey: We now expect our 2024 medical benefit ratio to be approximately 89.8 percent, an increase of 210 basis points from our previous estimate. In the first quarter, health care benefits medical costs, primarily attributable to Medicare Advantage, came in approximately $900 million above our estimates. If we break that down further, we estimate that roughly $500 million of that variance is specific to the quarter or season, including the larger than expected impact of seasonal respiratory and RSV costs and a return to inpatient seasonality patterns that look much more like those in the pre-pandemic period. As Karen mentioned, early indicators for April inpatient authorization support our current seasonality projections and their return to their pre-COVID past.

Speaker Change: We now expect our 2020 for medical benefit ratio to be approximately 89, 8% an increase of 210 basis points from our previous guidance.

Speaker Change: In the first quarter health care benefits medical costs, primarily attributable to Medicare advantage came in approximately $900 million above our expectations.

Speaker Change: If we break that down further we estimate that roughly $500 million of that variance is specific to the quarter or seasonal includes.

Speaker Change: Including the larger than expected impact of seasonal respiratory and RSV costs and a return to inpatient seasonality patterns that look much more like pre pandemic periods.

Speaker Change: As Karen mentioned early indicators for April in patient authorization support our current seasonality projections and their return to pre Covid patents.

Speaker Change: We have also raised our expectations for RSV related costs in the second half based on our experience in the first quarter.

Thomas F. Cowhey: We've also raised our expectations for RSV-related costs in the second half based on our experience in the first. The remaining approximately $400 million of medical cost pressure in the first quarter is driven by elevated utilization trends that our guidance now assumes will persist for the remainder of 2020. The primary drivers of this projected variance include outpatient service categories such as mental health and medical pharmacy, as well as supplemental benefits such as dental. Partially offsetting some of this pressure is better-than-expected volumes, expense management, and increased net investment income, which together are expected to contribute approximately $500 million more than we assumed in our previous full-year guidance, with roughly half of this offset occurring in the first.

Speaker Change: The remaining approximately $400 million of medical cost pressure in the first quarter is driven by elevated utilization trends and our guidance now assumes will persist for the remainder of 2024.

Speaker Change: The primary drivers of this projected variance include outpatient service categories, such as mental health and medical pharmacy, as well as supplemental benefits such as dental.

Speaker Change: Partially offsetting some of this pressure is better than expected volumes expense management and increased net investment income, which together are expected to contribute approximately $500 million more than we assumed in our previous full year guidance with roughly half of this offsets occurring in the first quarter.

Speaker Change: And our health services segment, we are updating our estimate for 2024 adjusted operating income to at least 7 billion.

Thomas F. Cowhey: In our health services segment, we are updating our estimate for 2024 adjusted operating income to at least $7 billion, a decrease of approximately $400 million. The majority of this adjustment is attributable to health care delivery, predominantly in our CVS accountable care, driven by Medicare utilization and some out-of-period pressure. We also saw some modest utilization pressure at Oak Street during the quarter and are including a provision for higher trends for the remainder of the year in our updated guide.

Speaker Change: A decrease of approximately $400 million.

The majority of this adjustment is attributable to healthcare delivery predominantly in our Cvs accountable care business, driven by Medicare utilization and some out of period pressure.

Speaker Change: We also saw some modest utilization pressure on Oak Street during the quarter and are including a provision for higher trends for the remainder of the year in our updated guidance.

Thomas F. Cowhey: The remainder of the pressure is in our other businesses in the health services segment, primarily driven by volume and mixed trends and the associated impact on our ability to deliver on network and client guarantees. Our expectations for the pharmacy and consumer wellness segment remain the same, with adjusted operating income of at least $5.6 billion. This outlook incorporates a cautious stance on consumer activity over the remainder of the year due to slowing front store activity in the first quarter.

Speaker Change: The remainder of the pressure is in our other businesses and help in the health services segment, primarily driven by volume and mix trends and the associated impact on our ability to deliver on network and client guarantees.

Speaker Change: Our expectations for the pharmacy and consumer Wellness segment remained the same with adjusted operating income of at least $5 6 billion.

Speaker Change: This outlook incorporates a cautious stance on consumer activity or the remainder of the year due to slowing in front store activity in the first quarter.

Speaker Change: We now expect 2024 share count to be approximately $1 $2 65 billion of shares and our adjusted tax rate to be approximately 25, 6%.

Thomas F. Cowhey: We now expect the 2024 share count to be approximately 1.265 billion shares and our adjusted tax rate to be approximately 25.6%. Finally, we updated our expectation for cash flow from operations to at least $10.5 billion in 2020. You can find additional details on the components of our updated 2024 guidance on our Investor Relations website. We plan to share more detailed 2025 guidance later this year, but in an effort to help investors build reasonable expectations for next year, we wanted to share some preliminary thoughts on our outlook. Within health care benefits, our Medicare Advantage business is projected to generate between $65 and $70 billion in revenues in 2024 but will experience significant losses.

Speaker Change: Finally, we updated our expectation for cash flow from operations to at least $10 5 billion in 2024.

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

Speaker Change: We plan to share more detailed 2025 guidance later this year, but in an effort to help investors build reasonable expectations for next year, we wanted to share some preliminary thoughts on our outlook.

Speaker Change: Within health care benefits, our Medicare advantage business is projected to generate between $65 $70 billion in revenues in 2024, but will experience significant losses.

Thomas F. Cowhey: We are committed to driving meaningful improvements in our Medicare Advantage margins in 2024. Given our projected baseline performance, 2025 will be the first step in a three to four-year journey to get back to our target margins of four to five. Improved star ratings in 2025 could represent a $700 million tailwind, depending on membership retention, but also reduces our ability to adjust certain benefits.

Speaker Change: We are committed to driving meaningful improvements in our Medicare advantage margins in 2025.

Speaker Change: Given our projected baseline performance 2025 will be the first step in a three to four year journey to get back to our target margins of 4% to 5%.

Speaker Change: Improved star ratings in 2025 could represent a $700 million tailwind depending on membership retention levels, but also reduces our ability to adjust certain benefits.

Thomas F. Cowhey: The remainder of our margin improvement in 2025 will be a function of price, in an environment where we are facing headwinds from an insufficient rate notice and prescription drug coverage changes that substantially increase plan liability. We will take material pricing and benefit design actions for 2025, and the impact of those changes will depend on how cost trends develop in both 2024 and 2025 and how the market responds to those changes. And, in Healthcare Benefits' other business lines, we are building strong momentum.

Speaker Change: The remainder of our margin improvement in 2025 will be a function of pricing actions in an environment, where we are facing headwinds from an insufficient rate notice and prescription drug coverage changes that substantially increase plan liability.

Speaker Change: We will take material pricing and benefit design actions for 2025, and the impact of those changes will depend on how cost trends develop in both 2024, and 2025 and how the market responds to those trends.

Speaker Change: And health care benefits other business lines, we are building strong momentum.

Thomas F. Cowhey: We're planning for another year of margin progression in our individual exchange. We've seen success in the group commercial selling season this year, and we've recently been awarded several key Medicaid RFPs. In our health services segment, early progress with our Cordavis business is encouraging and supports our innovative approach to the biosimilar opportunity, driving differential savings for our PBM customers. In our healthcare delivery business, we are committed to improving margins in CVS Accountable. Oak Street's margin trajectory will be supported by meaningful patient enrollment and a realignment of Medicare Advantage benefits as the market adjusts to elevated utilization.

Speaker Change: We're planning for another year of margin progression in our individual exchange business. We have seen success in the group commercial selling season. This year and were recently awarded several key Medicaid Rfps.

Speaker Change: And our health services segment early progress of our core <unk> business is encouraging and supports our innovative approach to the biosimilar opportunity driving differential savings for our <unk> customers.

Speaker Change: And our health care delivery business, we are committed to improving margins and Cvs accountable care.

Speaker Change: Oak streets margin trajectory will be supported by meaningful patient enrollment and a realignment of Medicare advantage benefits as the market adjusts to elevated utilization.

Thomas F. Cowhey: Signify continues to show impressive growth and is building momentum into 2025. We have received a strong early reception for our new pharmacy, which creates potential for outperformance in our PCW. Karen mentioned that we are accelerating multi-year enterprise productivity initiatives to streamline and optimize our operation. Finally, our framework contemplates a stable share count in 2025. While many uncertainties remain, that could drive a wide range of outcomes, including our 2024 baseline performance and the potential that medical cost trends subside as compared to our current outlook. At this, our goal remains to deliver low double-digit adjusted EPS growth in 2025. Our team remains committed to executing against opportunities to outperform. With that, we will now open the call to your questions. Operator.

Speaker Change: Signify continues to show impressive growth and is building momentum into 2025.

Speaker Change: We have received a strong early reception to our new pharmacy model.

Speaker Change: Which creates potential for outperformance in our <unk> segment.

Speaker Change: As Karen mentioned, we are accelerating multi year enterprise productivity initiatives to streamline and optimize our operations.

Speaker Change: Finally, our framework contemplates a stable share count in 2025.

Speaker Change: While many uncertainties remain that could drive a wide range of outcomes, including our 2024 baseline performance and the potential that medical cost trend subside as compared to our current outlook.

Speaker Change: At this distance our goal remains to deliver low double digit adjusted EPS growth in 2025 or.

Speaker Change: Our team remains committed to executing against opportunities.

Speaker Change: Outperform this guidance.

Speaker Change: With that we will now open the call to your questions operator.

Speaker Change: Thank you as a reminder, if you'd like to register any audio questions. Please press star followed by one on your telephone keypad. If you change your mind. Please press star followed by two of them. Please ensure you're on muted when speaking.

Jordan: Thank you. As a reminder, if you'd like to register any audio questions, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two, and please ensure you're unmuted when speaking. Our first question comes from Justin Lake of Wolf Research. Justin, please go ahead.

Speaker Change: Our first question comes from Justin Lake of Wolfe Research Justin. Please go ahead.

Justin Lake: Thanks, Good morning.

Justin Lake: Thanks. Good morning.

Justin Lake: Couple of questions here first on.

Justin Lake: The cost trend in the first quarter.

Justin Lake: A couple questions here. First, on the cost trend in the first quarter. We'd like to get some more detail on the $500 million that you said was in Q1 that's not going to reoccur, right? I think everyone would like to get comfort that this $7 is a baseline that we can be comfortable with.

We'd like to get some more detail on the $500 million that you said is in Q1, that's not going to reoccur right I think everyone would like to get comfort that this $7 is up as a baseline that we can be comfortable with so if that's not reoccurring could you just walk us through what the.

Justin Lake: So if that's not reoccurring, can you just walk us through what the moving parts are there? For instance, it looks to me like your PYD was $200 million below the last couple years. Maybe that's a big part of it. It's definitely a big part of it. How much was the RSV? Any other moving parts? Anything you could do to get us comfortable that $500 million is seasonal would be a good start.

Justin Lake: With the moving parts are there for instance, it looks to me like there <unk> was 201 billion below the last couple of years, maybe that's a big part of that is clearly a big part of it how much was RSV any other moving parts anything you could do to get us comfortable that that 500 million is seasonal would be would be a good start.

Tom Kelly: Hey, Justin it's Tom.

Thomas F. Cowhey: Hey Justin, it's Tom. So the largest impact within the quarter is the seasonality adjustment on inpatient care. And as I noted in the prepared remarks, our April authorization data supports our updated seasonality projection, as we did experience some negative prior year development in the quarter, and that is clearly part of the 500. But as you look at where that occurred, it was really in some of our inpatient categories where the trends restated negatively.

The largest impact within that within the quarter is the seasonality adjustment on in patient.

Tom Kelly: And as I noted in the prepared remarks, our April authorization data supports our updated seasonality projection.

Tom Kelly: We did experience some negative prior year development in the quarter and that is clearly part of the 500, but as you look at where that occurred.

Tom Kelly: That was really in some of our in patient categories, where the trends restated negatively and so you saw at the beginning of that uptick you saw an uptick again January admits were higher than our expectations February was improved versus January March was improved versus February.

Thomas F. Cowhey: And so you saw the beginning of that uptick. You saw an uptick again. January admits were higher than our expectations.

Thomas F. Cowhey: February was improved versus January, and March was improved versus February. And so we've seen really a spike earlier in the quarter, which and, you know, which really started, you know, in hindsight, in the fourth quarter. And as you look at that pattern, it very closely resembles what we would have seen in a 2018, 2019 period trended forward. And so that gives us a lot of comfort as we look at what we're seeing now versus what the historic patterns pre-COVID look like, that a lot of this was actually seasonal.

Tom Kelly: So we've seen really a we saw a spike early or in the quarter.

Tom Kelly: And which really started in hindsight in the fourth quarter.

Tom Kelly: And as you look at that pattern very closely resembles what we would've seen in 2018 2019 period trended forward.

Tom Kelly: And so that gives us a lot of comfort as we look at but what we're seeing now versus what the historic patterns pre COVID-19 looked like that a lot of this was actually seasonal. So if you take out the prior period development. You also had some provider liabilities that were settled inside the quarter.

Thomas F. Cowhey: So if you take out the prior period development, you also had some provider liabilities that were settled inside the quarter. As we did have some policy liberalizations that took place inside the quarter, and they've been reinstated since the quarter ends. So that should not be an ongoing impact. And then there were some other one-time impacts, including the initial reserve build for some of our new membership growth that would be incorporated inside that 500 million.

As we did have some policy liberalization that took place inside the quarter I mean, they've been reinstated since quarter end, so that should not be an ongoing impact and then there were some other onetime impacts including the initial reserve builds for some of our new membership growth that.

Tom Kelly: Would be incorporated inside that $500 million.

Thomas F. Cowhey: We also, as you noted, did see some RSV in the quarter. We did make a revision for some of those costs of the 500 to recur in the back half of the year. But we're not projecting that the vast majority of those costs are going to be part of the run rate, unlike the 400 billion that we're pulling.

Tom Kelly: We also as you noted we did see some RSV in the quarter, we did make a provision for some of those costs of the 500 to occur in the back half of the year, but we're not projecting that the vast majority of those costs are going to be part of the run rate. Unlike the 400 billion that we're pulling through.

Speaker Change: Got it and then just some color on the Medicare advantage margin improvement and any offset so right now it looks like if I.

Justin Lake: Got it. And then just some color on the Medicare Advantage margin and improvement in any offset. So right now, if I estimate your MA margins, I'm thinking minus three, minus four percent negative. Is that the right ballpark? How much of an improvement, you said material improvement, you know, that would seem, you know, if you got a couple hundred basis points there, by my estimate, that's, you know, 70, 80 cents alone.

I estimate your EMEA margins on speaking minus three minus 4% negative.

Speaker Change: Is that the right ballpark, how much of an improvement you said material improvement that we'd see if you've got a couple of hundred basis points. There by my estimate that 70 to 80 <unk> alone.

Speaker Change: Can you talk us through how much improvement you think is material to get back on that trajectory.

Justin Lake: So can you talk us through how much improvement would you think is material to get back on track to the, you know, over three to four years? And anything that would be an offset there, any kind of one-time benefits this year, like, you know, bonuses, things like that, that would work against it would be helpful. And I'll jump out of the queue. Thanks.

Speaker Change: Yes over three to four years and anything that would be an offset there any kind of one time benefits. This year like bonuses things like that that would work against that would be helpful and I'll jump out of the queue. Thanks.

Speaker Change: Adjusted and Great question.

Thomas F. Cowhey: Justin, great question. So as you think about Medicare Advantage, you know, as I said, it's a 65 to $70 billion revenue portfolio today. And our goal for next year is that we would get about 200 basis points of margin improvement in that business, or up to that amount. And we obviously haven't finalized our bids yet.

Speaker Change: So as you think about Medicare advantage.

Adjusted: It's a $65 to $70 billion revenue portfolio today and our goal for next year is that we would get about 200 basis points of margin improvement in that business or up to that amount and we obviously havent finalized our bids yet.

Adjusted: You are you are in the probably the right ZIP code as you think about what the what the margin is on the implied margin is on the Medicare business. As you think about that business, we talked last quarter about the fact that it was going to be breakeven in our current projections.

Thomas F. Cowhey: You know, you're probably in the right zip code as you think about what the margin is on the medical or implied margin is on the Medicare business. As you think about that business, we talked last quarter about the fact that it was going to be break even in our current projections. And we, you know, we lower the guidance and healthcare benefits by 1.8 billion. And so the majority of that is related to Medicare.

Adjusted: We lowered the guidance on health care benefits by $1 8 billion and so the majority of that is related to some Medicare. So we've given you all the pieces to kind of understand why we think it will lose a significant amount of money this year.

Adjusted: But as you think about improvement there, obviously theres a lot of work that we still need to do to understand what benefits, we're going to adjust them.

What ones, we can and can't our stars is a tailwind, but also impacts our ability to adjust because it lowers our TBC.

Thomas F. Cowhey: So, you know, we've given you all the pieces to kind of understand why we think it'll lose a significant amount of money this year. But as you think about improvement there, obviously, there's a lot of work that we still need to do to understand what benefits we're going to adjust and, you know, what ones we can and can't. Our stars are a tailwind, but it also impacts our ability to adjust because it lowers our TBC availability on that national PPO contract. And maybe Brian, do you want to give a little bit of color on how you're thinking about bid margin improvement?

Adjusted: Availability on that National PPO contract.

Adjusted: And maybe Brian do you want to give a little bit of color of how youre thinking about bids margin improvement sure.

Brian: Thanks, Justin. So I would talk about 2025 in terms of headwinds and tailwinds. And let me just walk through those.

Brian: Thanks, Justin So I would talk about 2025 in terms of headwinds and tailwind. So let me just walk through those so obviously, we have a very significant high trend that we are absolutely going to incorporate into our pricing and so the trends that Tom talked about for 2024, we will reflect again in 2025, so that's clearly a headwind, but we're not going to.

Brian: Miss on trend, we've talked in the past about the part D changes, which is a really important element here and theres really two elements of that one is that the benefit has been enriched pretty significantly by the IRA.

Brian: So obviously, we have a very significant high trend that we are absolutely going to incorporate into our pricing. And so the trends that Tom talked about for 2024, we will reflect again in 2025. So that's clearly a headwind, but we're not going to miss on trend. We've talked in the past about the Part D changes, which is a really important element here. And there are really two elements to that.

Brian: And then secondly, the plan is on the hook for greater liability in the catastrophic layer and that we get less reinsurance than we used to and so we intend to price for that and be very thoughtful around that.

Speaker Change: Third as Karen.

Speaker Change: Karen mentioned in her remarks, the rates that we received were clearly disappointing and not sufficient to make up the trend pressures and IRA pressures that we're seeing and then finally as Tom mentioned around TBC. That's clearly a limitation that we need to be focused on it's focused on the general enrollment block. It does not apply to D SNP and.

Brian: One is that the benefit has been enriched pretty significantly by the IRA. And then, secondly, the plan is on the hook for a greater liability in the catastrophic layer, and we get less reinsurance than we used to. And so we intend to price for that and be very thoughtful around that. It does not apply to DSNIP, and it does not apply to certain supplemental benefits as well, which we'll be very focused on to make sure we right-size for 2025 pricing. As we think about tailwinds, though, Tom mentioned the STARS tailwind, which is about $700 million, assuming a stabilized membership, and I'll come back and talk about that a little bit.

Speaker Change: It does not apply to certain supplemental benefits as well, which will be very focused on to make sure.

Speaker Change: We right sized for for 2025 pricing as we think about tailwind. So Tom mentioned the stars tailwind, which is about $700 million.

Speaker Change: Assuming a stabilized membership and I'll come back and talk about that a little bit with.

Brian: With respect to the pricing actions, we're going to be very focused on taking those pricing actions, as I mentioned, to incorporate the trends but also be mindful of how we think about TBC. STARS does impact TBC in that it reduces the amount of allowance we have under the regulations. But, as I mentioned, there are opportunities we have to trim benefits around TBC, and we'll be very focused on doing that. On the D-STEP product, our intention is to reduce our supplemental benefits in certain areas, including some of the flex cards that we put in the market this year. And so you'll see us reduce those benefits, and that allows us to capture margin without impacting TBC. And so that's important.

Speaker Change: With respect to the pricing actions, we are going to be very focused on taking those pricing actions as I mentioned to incorporate the trends, but also be mindful of how we think about TBC starz does impact TBC and that it reduces the amount of allowance we have under the regs, but as I mentioned there are opportunities we have to trim benefits around TBC.

Speaker Change: And we'll be very focused on doing that.

Speaker Change: On the distillate product our intention is to reduce our supplemental benefits in certain areas, including some of the flex cards.

Speaker Change: We put in the market this year and so youll see us reduce those benefits and that allows us to capture margin without impacting CBC and so that's important.

Brian: The other point I make, and Karen and Tom alluded to it, is that we will be taking actions around certain service areas. So to the extent that we don't believe we can credibly recapture margin in a reasonable period of time, we will exit those counties. We will also be looking at areas where we believe that it makes sense to actually discontinue a specific product, then reintroduce a new product where TBC won't apply, and we'll be looking at those opportunities as well, being mindful of the member disruption and some of the churn that you might see. And so as we step back, we are very focused on margin, margin over membership. Obviously, we're trying to create a stable book with respect to our membership.

The other point, I'd make and Karen and Tom alluded to it we will be taking actions around certain service areas. So to the extent that we don't believe we can credibly recapture margin in a reasonable period of time, we will exit those counties. We will also be looking at areas, where we believe that it makes sense to actually discontinue a specific product.

Speaker Change: <unk>, then reintroduce a new product, where TBC won't apply and we'll be looking at those opportunities as well being mindful of the member disruption in some of the churn that that you might see and so as we step back we are very focused on margin margin over membership. Obviously, we're trying to create a stable book with respect to our members.

Brian: As we think about the membership impacts, I think there are several things that go into that calculation. One is that we believe there will be significant disruption in the PDP market and the MedSupp market. We're going to see prices go up. We're going to see people exit certain plans, and we know prices are increasing on MedSupp. And so that will be a tailwind to our membership projections, offset by the fact, as I mentioned, as we've all mentioned, that we're going to be taking significant pricing actions, and really, it's going to depend on what our competitors do. We believe that they're rational.

Speaker Change: <unk> as we think about the membership impacts I think there are several things that go into that that calculation. One as we believe there will be significant disruption in the PDP market and the mid sub market, we're going to see prices go up we're going to see people exit certain plans and we know prices are increasing on med sup and so that'll be a tailwind.

Speaker Change: And to our membership projections offset by the fact as I mentioned.

Speaker Change: We've all mentioned that we're going to be taking significant pricing actions and really it's going to depend on what our competitors do we believe that the rational we believe theyre seeing a similar type trends and so theyre going to price as well for some of these pressures, but thats something that we will have to calibrate as we get into pricing and as I mentioned, there will be some service area reductions.

Brian: We believe they're seeing similar trends, and so they're going to price as well for some of these pressures. But that's something that we'll have to calibrate as we get into pricing, and as I mentioned, there will be some service area reductions. But again, the focus is on margin over membership. If there's a membership reduction, it has relatively small impacts on margin, and we're focused on making sure we price this product appropriately for 2025 and beyond. Yeah, Justin. I'm just going to reiterate what I said.

Speaker Change: But again the focus is on margin over membership if theres a membership reduction it's relatively small impacts on margin and we're focused on making sure. We priced this product appropriately for 2025 and beyond yes.

Karen Lynch: Yeah, Justin, I'm just going to reiterate what I said in my prepared remarks. We are committed to improving margin and Medicare Advantage, and we will do so by pricing for the expected trends. We will do so by adjusting benefits and exiting service counties. And we are committed to doing that.

Speaker Change: And I'm just going to reiterate what I said in my prepared remarks, we are committed to improving margin in Medicare advantage and we want to sell <unk>.

Speaker Change: Pricing for the expected trends and we will do so by adjusting benefits and exiting service counties.

Speaker Change: We are committed to doing that.

Speaker Change: Yes.

Our next question comes from Lisa Gill of J P. Morgan Lisa. Please go ahead.

Lisa Christine Gill: Our next question comes from Lisa Gill of J.P. Morgan. Lisa, please go ahead.

Speaker Change: Okay.

Lisa Christine Gill: Thanks very much. I just want to follow up on a few things that you said. Brian, I want to go back to your comment about membership and your expectation that the decline in Medicare Advantage membership could be small. Is that based on the assumption that the pressure we're feeling is for everybody in Medicare Advantage and that therefore everyone will readjust? And again, to Karen's point, you'll look at certain counties and adjust certain plan levels so you could lose some membership, but you're not expecting a large membership decline as you think about 2025, just with the increased cost and changing benefits, et cetera. I just want to make sure that I understand that.

Lisa Christine Gill: Alright, thanks, very much I just wanted to follow up on a few things that you said.

Lisa Christine Gill: Brian I wanted to go back to your comment around membership and your expectation that the decline in Medicare advantage membership could be small is that based on the assumption that the pressure. We're feeling it's for everybody in Medicare advantage and that therefore, everyone will readjust and again to Karen's point, they will look at certain counties and it does thing Sir.

Lisa Christine Gill: Same level, so you could lose some membership, but youre not expecting a large membership decline as you think about 2025, just just with the increased cost and.

Lisa Christine Gill: Changing benefits et cetera, I, just want to make sure that I understand that to start.

Brian: Sure and thanks for the question Lisa So I would say there are two elements here there is what's going to happen from an industry perspective and growth and then what we have.

Brian: Sure. And thanks for the question, Lisa. So I would say there are two elements.

Speaker Change: Are going to do so on the <unk> side as I mentioned I think there are some clear tailwind from the perspective of what's going to happen in the traditional fee for service market Ie, PDP and med sup and so it was members potential members are evaluating their choices, they're going to have to take a look at what are the price increases and some of the disruption that's going to happen in the traditional.

Speaker Change: For service market.

Speaker Change: That would be a tailwind I do think though that the industry broadly is going to be trimming benefits in some cases significantly and <unk>.

Speaker Change: Exceeding from certain from certain counties that arent profitable I think that's an industry issue and I think it's clearly an aetna focus as well and so how that Calibrates, where we ultimately end up on membership is something that again, we got to work through work through bids and pricing to sort of estimate what we think our competitors are going to do so it's hard to say right.

Speaker Change: Now that we won't have a meaningful decrease in membership it's certainly possible what the message. We're trying to communicate is we're focused on margin over membership and to the extent that we do have a larger than desired membership.

Speaker Change: Reduction then that will that will occur and we will focus on the margin side, but again I think our competitors here are rational I think they are facing a number of similar pressures. Obviously, we have our own unique elements that we need to address as well and so I think that calibration as well as what happens to the broader industry will really dictate where members.

<unk> goes next year.

Brian: What's going to happen from an industry perspective and growth, and then what we at Aetna are going to do. So on the industry side, as I mentioned, I think there are some clear tailwinds from the perspective of what's going to happen in the traditional fee-for-service market, i.e., PDP and MedSupp.

Speaker Change: But from a very high level way to think about what the potential.

Brian: And so as members and potential members are evaluating their choices, they're going to have to take a look at the price increases and some of the disruption that's going to happen in the traditional fee-for-service market. So that would be a tailwind. I do think, though, that the industry broadly is going to be trimming benefits, in some cases significantly, and exiting from certain counties that aren't profitable. I think that's an industry issue, and I think it's clearly an Aetna focus as well.

Brian: And so how that calibrates where we ultimately end up on membership is something that, again, we've got to work through bids and pricing to sort of estimate what we think our competitors are going to do. So it's hard to say right now that we won't have a meaningful decrease in membership. It's certainly possible. What the message we're trying to communicate is that we're focused on margin over membership, and to the extent that we do have a larger than desired membership reduction, then that will occur, and we'll focus on the margin side. But again, I think our competitors here are rational. I think they are facing a number of similar problems.

Lisa: Hey, Lisa just from.

Lisa: From a very high level as you think about what the impact of membership loss is just think about the comments that we made about margin restoration relative to the implied.

Lisa: Losses in the books and so losing additional members doesn't necessarily contribute to lost profit in 2025.

Speaker Change: And then Tom if I could just understand the cadence of 2024.

Tom Kelly: Obviously, you talked about low double digit growth in 2025, how do we think about that cadence as were continuing on throughout 2024 anything you would specifically call out as we think about the rest of 'twenty four.

Tom Kelly: Yes.

Speaker Change: One of the things that I think.

Tom Kelly: Is worth talking a little bit about as you think about the health services segment. We do have some pressures in there that we think are Medicare market related in the health care delivery business.

Tom Kelly: We also saw some timing and mix related impacts in our health and our other health services segment businesses.

And we've taken a cautious stance right now on in year recovery on those.

Tom Kelly: And Thats, because we lost a large client there we had some in sourcing activity at another large client we've had some supply shortages in some other categories. We also delayed the initial launch of a biosimilar product to April 1st from our initial plans accordingly.

Tom Kelly: Accordingly, as we look at the seasonality of earnings. We think we currently expect that Youll see probably more like 55% to 60% of our earnings in the second half of 2024 to adjust for some of that slipping.

Speaker Change: Okay, Great I'll stop there thanks.

Speaker Change: Okay.

Our next question comes from Nathan Rich of Goldman Sachs. Please go ahead.

Nathan Allen Rich: Great. Good morning, Thanks for the questions.

Nathan Allen Rich: I just wanted to follow up on some of the drivers for 2025.

Nathan Allen Rich: I guess from from this.

Nathan Allen Rich: Point in the year I mean can you talk about how big of a shortfall of the final way rate was relative to what your current view of kind of cost trend will be for 2025, and then how are you thinking about the change in profitability for the par business in part D business next year in light of the benefit design changes that you've talked about.

Nathan Allen Rich: The.

Speaker Change: Leave it to <unk>.

Speaker Change: Brian to talk about the part D changes and their impact on profitability.

Brian: There is a very substantial change in plan liability, there, which will result in much higher premiums, which.

Brian: Which we think is going to impact both overall benefits within the bids but also as we think about those seniors that are currently.

Brian: In the market to purchase a bundle that the cost of that bundle is going to rise pretty dramatically for them, which may even with a less robust set of benefits make Medicare advantage a attractive option in 2025.

Brian: The the bid itself for 2025, what we received from CMS the pricing was just disappointing.

Brian: It's.

Brian: Clearly as we look at our trends as we look at the market trends, we don't think that the rate sufficiently reflects that.

Brian: We have another year of the phase in of the risk adjustment model.

Brian: No flexibility that's been given to date on an TBC. Despite the material changes that we are experiencing because of the inflation reduction act on part D.

Brian: And so the combination of those things just makes a tough year for 2025 pricing harder.

Brian: When we don't see the pull through of what most of the market participants are experiencing into the into the bad baseline.

Brian: Brian maybe you can talk a little bit more about that.

Brian: Sure I mean first with respect to part D. I think Tom articulated it well there is incremental benefits that are being offered.

A significant increase in plan liability and while there will be an increase in direct subsidy and we're expecting that it really isn't sufficient to cover that increase liability that the plants have and so there's going to be a lot of discussion I imagine in the industry certainly.

Brian: About what product is ultimately viable for us as we think about the potential risks and volatility that could result from putting out a product and the impact of potential adverse selection in terms of who you attract the types of members who use brand utilize our specialty utilizes etc creates additional uncertainty, particularly.

<unk> because of that enhanced liability and the fact that the benefits are so rich that typical.

Brian: Traditional views of insurance and Youre getting a low price and those sorts of things may or may not apply in the same way as it did and so those are the types of things, we're thinking through and obviously as we come back on the next quarter call. We'll give you more color about our perspective on the part D market. We do think theres going to be disruption. We do think it is going to necessitate premium increases and Thats why there is this.

Brian: Some uncertainty about where the ultimate industry goes from an M&A perspective in terms of membership with respect to your first question on the trend Delta look it's obviously very significant.

Brian: Been very clear that the trends we're seeing.

Brian: In 2024, which are really consistent with 2023, we expected some measure of break to a more normalized trend as Kieran and Tom said and frankly, I think we were conservative on what a normalized trend would be if you go back historically, even before the pandemic for many many years trends were in the 3% to 5% range we saw.

Brian: Trends in 2023 approaching 10%, we're seeing trends in 2024 mirror those levels exacerbated even more so by some of the seasonal factors that Tom mentioned in the first quarter and so we're going to continue those trends into 2025 now we have really not seen two years, let alone three years of those levels of elevated.

Brian: Trends without break, but it's imperative that we include that in our pricing and we intend to do that and our expectation is our competitors will be thinking about it in a similar fashion and so we need to think hard about how are we going to make up that delta between what we got in the pricing and what we got in.

Brian: And trend, where we havent trend and there are a number of levers we're going to pull benefits is one that clearly we're going to be focused on.

Brian: Great.

Lisa Christine Gill: Lisa, from a very high level, if you think about what...

Speaker Change: Stepping back from your question.

Speaker Change: As I, just think about stepping back from your question Nate.

Speaker Change: <unk>.

Speaker Change: Revenue in that product per member is clearly going to go up it's just not clear exactly what's going to happen to the overall membership base, but we're going to price for a profitable product and what's ultimately going to be a higher premium product.

Speaker Change: On part D.

Speaker Change: Okay.

Speaker Change: Okay, great and sort of where I wanted to go with a follow up you talked Tom about the 200 basis points of margin improvement in the MA business next year. So that's around 131 4 billion, depending on where membership shakes out and half of that is the stars tailwind I think if we just look at the other $700 million.

Thomas F. Cowhey: And then, Tom, if I can just understand the cadence of 2024 and, you know, you talked about low double-digit growth in 2025. How do we think about that cadence as we're continuing throughout 2024? Anything you would specifically call out as we think about the rest of 2024?

Speaker Change: On a <unk> basis is 10 to $15 <unk>, but it sounds like there may be some cost headwinds that are maybe offsetting the change in benefits and so I guess I wanted to see if you could give us a rough sense of maybe the type of reduction that you are talking about.

Speaker Change: In terms of the benefit design as we think about next year and then what the opportunity would be as we think three or four years down the road.

Speaker Change: Yes, I think for competitive reasons, I don't want to get into any more than we've already given relative to the improvement or any more granularity there other than to say.

Speaker Change: I think we've made it clear that everything's on the table.

Speaker Change: There are TBC benefits that will probably get adjusted their non TBC benefits that will get adjusted we will look at.

Speaker Change: This is this is not an acceptable result, where we're going to be for this year in terms of profitability on this block of business and so we're going to look at everything that we can do to.

Speaker Change: To try to improve profits for next year.

Speaker Change: And maintain some level of stability inside the book.

Speaker Change: Youre doing the bridge between 24 and 25 there are some variable expense items that are clearly going to come back in 2025 Thats part of the reason that we've talked about how we're going to accelerate some of our expense efforts.

Speaker Change: To try to offset any restoration of expense that would come back in 2025.

Little early days to try to talk about what that will.

Speaker Change: That will yield in 2025, but we're committed to taking actions to help offset any headwinds there.

Speaker Change: And we'll give you more updates on that as we get to next quarter.

Speaker Change: I would just add that we continue to evaluate our overall cost structure with respect to operations process.

Speaker Change: Productivity and we began a comprehensive review of that last year, we took actions theyre showing up this year and now are going to accelerate.

Speaker Change: Other initiatives over the next few months and as we continue to size those efforts, we will update you throughout the year.

Speaker Change: Our next question comes from Stephen Baxter of Wells Fargo. Please go ahead.

Stephen C. Baxter: Yes, another follow up on the Medicare advantage. Thank you you mentioned in prepared remarks that I think you spent time looking for potential selection bias either with new members or inside of your existing book I'm not sure. If you talked about what you actually found when you did that but just trying to understand whether you saw greater than expected switching from your own members.

Stephen C. Baxter: Or if the step down in profitability across the broader book with mirrored in your new membership or maybe that was something in excess of that to consider thank you.

Stephen C. Baxter: Okay.

Speaker Change: Yeah. So we've looked at it very closely as you can imagine trying to understand whether the new members are creating disproportionate impact on our results and we analyze it every which way we can and when you look at basic results such as their admissions per thousand or their pharmacy spend or their risk or other categories of care where.

Speaker Change: Really not seeing a material difference between the new members in the old members and so what we're really seeing is a pressure on our in our entire book that.

Speaker Change: We are having to take action against ultimately.

Speaker Change: We looked at things of course, and I know, there's been a lot of discussion around the fitness benefit for example that was clearly something that was appealing to our members on the general enrollment block. It's just some of the general enrollment block in terms of selecting that benefit when we look at the financial impact of that actually it's pretty modest it's actually running in line with our pricing expectation somewhat.

Speaker Change: Dental benefit enrichment that we did we are seeing some pressures as Tom mentioned on that supplemental benefit we are seeing more members use that benefit and use more of it and so but that's really across the book and so again I don't see a selection bias between old and new members, but rather pressures throughout that.

Speaker Change: We need to address for 2025.

Speaker Change: Our next question comes from Michael Cherny of Leerink Partners. Michael. Please go ahead.

Thomas F. Cowhey: Yeah, you know, one of the things that I think is worth talking a little bit about, as you think about the health services segment, we do have some pressures in there that we think are Medicare market related in the health care delivery business. We also saw, you know, some timing and mix related impacts in our health, in our other health services businesses. And we've taken a cautious stance right now on in-year recovery on those, you know, and that's because we lost a large client there, we had some insourcing activity at another large client, we've had some supply shortages, and some other categories.

Michael Cherny: Good morning, Thanks for taking the question, maybe I'll step to health services for a second I'm sure others. They come back another M&A question.

Michael Cherny: But as you think about the performance in the quarter and the dynamics Youre seeing about prepping both for.

Michael Cherny: Changes in members changes in the customer losses.

Speaker Change: In terms of the locks us a rollout how do you think about the scaling dynamics.

Speaker Change: Purchasing capabilities have us ramping into court Abbas <unk>.

Speaker Change: <unk> and I guess, you gave us an early look there but are there any additional sides you can give us on how you think about the financial contribution of <unk>.

Speaker Change: Baked into either this year's guidance or in terms of the targets for next year.

Speaker Change: Yeah.

Speaker Change: There is a contribution from core Davis, that's embedded in our health services guidance.

Thomas F. Cowhey: We also delayed the initial launch of our biosimilar product to April 1st from our initial plans, you know. So accordingly, as we look at the seasonality of earnings, we think, you know, we currently expect that you'll see probably more like 55 to 60% of our earnings in the second half of 2024 to adjust for some of that sloping.

Speaker Change: We haven't disclosed to date, Michael what that what that impact is other than to say versus our initial projections because we delayed the formulary change to four one we would hope to do it a little earlier in the year and that did have a little bit of a timing impact inside the quarter, but.

Speaker Change: The adoption there has been fabulous the client reception has been Fabulous and maybe David you could talk a little bit more about what youre seeing there sure. Thanks. Thanks Tom.

Lisa Christine Gill: Okay, great. I'll stop there. Thanks.

Nathan Allen Rich: Our next question comes from Nathan Rich of Goldman Sachs. Nathan, please go ahead.

David: Before I get into the actual results for the Biosimilar change, maybe I'll just spend a second talking more broadly about.

Nathan Allen Rich: Great. Good morning, and thanks for the questions. I just wanted to follow up on some of the drivers for 2025. You know, I guess from this point in the year, can you talk about how big of a shortfall the final rate was relative to what your current view of what kind of cost trend will be for 2025? And then, how are you thinking about the change in profitability for the Part D business next year in light of the benefit design changes that you've talked about?

David: The question you asked around control and kind of our confidence on the ability to continue to have purchasing advantages in the market and so I go back to the.

Thomas F. Cowhey: I might leave it to Brian to talk about the Part D changes and their impact on profitability. There is a very substantial change in plan liability there, which will result in much higher premiums, which we think is going to impact both overall benefits within the bids and also, as we think about those seniors that are currently in the market to purchase a bundle, the cost of that bundle is going to rise pretty dramatically for them, which may, even with a less robust set of benefits, make Medicare Advantage an attractive option in 2025.

Thomas F. Cowhey: The bid itself for 2025, what we received from CMS, the pricing, was just disappointing. Clearly, as we look at our trends, as we look at the market trends, we don't think that the rate sufficiently reflects that. We have another year of the phase-in of the risk adjustment model. There's no flexibility that's been given to date on TBC despite the material changes that we are experiencing because of the Inflation Reduction Act on Part D. And so the combination of those things just makes a tough year for 2025 pricing even harder when we don't see the pull-through of what most of the market participants are experiencing into the bid baseline. Brian, maybe you could talk a little bit more about that.

Brian: Sure. I mean, first, with respect to Part D, I think Tom articulated it well. There's just, you know, incremental benefits that are being offered and, you know, a significant increase in plan liability. And while there'll be an increase in direct subsidies, and we're expecting that, it really isn't sufficient to cover that increased liability that the plans have. And so there's going to be a lot of discussion, I imagine, in the industry, certainly here at Aetna, about what product is ultimately viable for us as we think about the potential risks and volatility that could result from putting out a product and the impact of potential adverse selection in terms of who you attract, the types of members you use, brand utilizers, specialty utilizers, etc., creates additional uncertainty, particularly because of that And so those are the types of things we're thinking through.

Brian: And obviously, as we come back on the next quarterly call, we'll give you more color about our perspective on the Part D market. We do think there's going to be disruption. We do think it's going to necessitate premium increases. And that's why there's just some uncertainty about where the ultimate industry goes from an MA perspective in terms of membership.

David: The strength that we have in specialty so most of all the success. We've delivered is because of our leadership position specifically in the specialty marketplace. So we have unmatched access.

David: Both across male retail and in the home infusion space.

David: We have broad set of products, both in the pharmacy and the medical benefits side.

David: Continue to be a leader in the limited distribution category continue to be a leader in the new developing cell and gene therapy marketplace. So that combined with the technology that we've invested it's allowed us to be kind of a leading provider in this space. So that is the foundation.

David: Allowed us to have the confidence to make the change for the formulary position on April one. So if you look and what was mentioned in the.

Brian: With respect to your first question on the trend delta, look, it's obviously very significant. We've been very clear that the trends that we're seeing in 2024, which are really consistent with 2023, we expected some measure of break from a more normalized trend, as Karen and Tom said. And frankly, I think we were conservative on what a normalized trend would be. If you go back historically, even before the pandemic, for many, many years, trends were in the 3% to 5% range.

David: And then in the prepared remarks, we've actually had a a change as a 401, removing humira from the formulary.

Brian: We saw trends in 2023 approaching 10%. We're seeing trends in 2024 mirror those levels, exacerbated even more so by some of the seasonal factors that Tom mentioned in the first quarter. And so we're going to continue those trends into 2025. Now, we have really not seen two years, let alone three years, of those levels of elevated trends without a break.

Brian: But it's imperative that we include that in our pricing, and we intend to do that. And our expectation is that our competitors will be thinking about it in a similar fashion. And so we need to think hard about how we're going to make up that delta between what we got in pricing and what we got in trend. What we have in trend. And there are a number of levers we're going to pull. Benefits is one that clearly...

Nathan Allen Rich: Great. As I just think about stepping back from your question, as I just think about stepping back from your question, Nate, you know, revenue from that product per member is clearly going to go up. It's just not clear exactly what's going to happen to the overall membership base, but we're going to price for a profitable product and what's ultimately going to be a higher-end product on Part D. Okay, great. And sort of where I wanted to go with the follow-up, you know, you talked about the 200 basis points of margin improvement in the MA business next year.

Nathan Allen Rich: So, you know, that's around 1.3, 1.4 billion, depending on where membership shakes out, and half of that's the stars' tailwind. I think if, you know, we just look at the other 700 million on a PMPM basis, it's $10 to $15 PMPM, but sounds like there may be some cost headwinds that are maybe offsetting the, you know, change in benefits. And so, I guess I wanted to see if you could give us a rough sense of maybe the type of reduction that you're talking about in terms of the benefit design as we think about next year and then what the opportunity would be, you know, as we think three or four years down the road.

Unknown Speaker: Unknown Speaker

David: And replacing it with a low list price Biosimilar and as we said earlier in just three weeks time, we've actually surpassed all of the Biosimilar volume in all of 2023. So that's we've been able to hit what is important in terms of control inventory and towards the purchasing which is that we've been able to migrate more than 90% of the <unk>.

David: <unk> in the first month and then when you look specifically inside the Cvs specialty pharmacy, where we had a set of new services around technology access to the prescribers in the members. We've been we've actually had a 94% conversion rate. So it's a really powerful outcome and I think it speaks to obviously the strength of our business and is that <unk>.

David: Translates into safe.

David: Savings for our customers. We had mentioned that we are delivering a 50% savings on the 'twenty two run rate for this for this drug.

David: And then as you translate that into the member benefits because we've actually moved to the lowest priced product and we've actually got clients adopt what we would call an intelligent benefit design, we've been able to have 80% of the members with the $0 out of pocket. So again I think if you look at what we've done is a clear win for our clients our patients and we have also.

David: Made.

David: Considerable investment and the durability of the Biosimilar market. So I think all of that then contributes to the question of the originally asked wishes.

David: Scale really is generally driven.

David: And what I would believe the strengthen our purchasing economics is the ability to control and move market share and again. This is another evidence under a marker that we hope to continue down that path and.

Thomas F. Cowhey: Yeah, Nate, I would just add that, you know, we can continue to evaluate our overall cost structure with respect to operations, process, and productivity. And, you know, we began a comprehensive review of that last year, we took actions, they're showing up this year, and now we're going to accelerate other initiatives over the next few months. And as we continue to scale those efforts, we'll update you throughout the year. The next question comes from Stephen Baxter of Wells Fargo. Stephen, please go ahead. Yeah, hey, another follow-up on Medicare Advantage. Thank you. You mentioned in your prepared remarks that I

Thomas F. Cowhey: Yeah, Nate, I think for competitive reasons, I don't want to get into any more than we've already given relative to the improvement or any more granularity there, other than to say, you know, I think we've made it clear that everything's on the table, you know, so there are TBC benefits that will probably get adjusted, there are non-TBC benefits that will get adjusted, we'll look at, you know, And so, you know, we're going to look at everything that we can do to try to improve profits for next year and maintain some level of stability inside the book.

Speaker Change: Mike I would just say on the Biosimilar.

Thomas F. Cowhey: As you're doing the bridge between 24 and 25, there are some variable expense items that are clearly going to come back in 2025. That's part of the reason that we've talked about how we're going to accelerate some of our expense efforts to try to offset any restoration of expense that would come back in 2025. It's a little early days to try to talk about what that will yield in 2025, but we're committed to taking action to help offset any headwinds there. And we'll give you more updates on that as we get to next. Yeah, Nate, I would just add.

David: It represents the Vegas opportunities to reduce overall pharmacy costs for the U S health care system. As you know it is a 100 billion dollar market by 2030 and as you can see in the very first few weeks of our launch we've had incredible adoption and we continue to evaluate the pipeline of <unk>.

David: We're excited about the potential and the CHL biosimilar market.

David: Our next question comes from Josh Raskin of Nephron Research Your line is yours.

Stephen C. Baxter: The next question comes from Stephen Baxter of Wells Fargo. Stephen, please go ahead.

Unknown Speaker: Yeah, so we've looked at it very closely, as you can imagine, trying to understand whether the new members are creating a disproportionate impact on our results. And we've analyzed it every way we can.

David: Okay.

Joshua Richard Raskin: Hi, Thanks, Good morning here with Eric as well. So my question is that well first just a numbers question the $400 million in health care services guidance reduction how much of that is specifically Oak Street and then on the MAA I hear still committed to four to five that journey starts in 'twenty five that's very very clear how much of your membership is in counties that a year.

Unknown Speaker: And when you look at basic results, such as emissions per thousand, or pharmacy spend, or risk, or other categories of care, we're really not seeing a material difference between the new members and the old members. And so what we're really seeing is pressure on our entire book that we are having to take action on. Ultimately, we looked at things, of course, and I know there's been a lot of discussion around the fitness benefit, for example. That was clearly something that was appealing to our members on the general enrollment block.

Joshua Richard Raskin: Contemplating exiting just.

Joshua Richard Raskin: Wholesale, leaving the market and then also how does the repricing of MAA fit into your overall enterprise strategy as obviously lots of your asset sell into that channel as well.

Speaker Change: Let me, let me start with the HFF question, Josh and then we can we can try to get to the other ones. So as you think about HSI. So we took it down by about 400. The majority of that reduction is the health care delivery business.

Unknown Speaker: It's just on the general enrollment block in terms of selecting that benefit. When we look at the financial impact of that, actually, it's pretty modest. It's actually running in line with our pricing expectation. Some of the dental benefit enrichment that we did, we are seeing some pressure, as Tom mentioned, on that supplemental benefit. We are seeing more members use that benefit and use more of it, but that's really across the board. And so, again, I don't see a selection bias between old and new members, but rather pressures throughout that we need to address for 2025.

Michael Cherny: Our next question comes from Michael Cherny of Learink Partners. Michael, please go ahead.

Unknown Executive: Good morning and thanks for taking the question. Maybe I'll step to health services for a second. I'm sure others may come back with other MA questions. But as you think about the performance in the quarter and the dynamics you're seeing about prepping both for Unknown Executive, Charles Rhyee, Kevin Caliendo, Justin Lake, Laurence McGrath, David Joyner,

Thomas F. Cowhey: There is a contribution from Cordavis that's embedded in our health services guidance. We haven't disclosed to date, Michael, what that impact is, other than to say, you know, versus our initial projections because we delayed the formulary change to 4.1. We had hoped to do it a little earlier in the year, but that did have a little bit of a timing impact on the quarter, but, you know, the adoption there has been fabulous. The client reception has been fabulous, and maybe, David, you could talk a little bit more about what you're seeing there.

David: Before I get into the actual results for the biosimilar change, maybe I'll just spend a second talking more broadly about the question you asked about control and kind of our confidence in the ability to continue to have purchasing advantages in the market. And so I go back to the strength that we have in specialty.

David: Sure. Thanks. Thanks, Tom.

David: So most of all, the success we've delivered is because of our leadership position specifically in the specialty marketplace. So we have unmatched access, both across mail, retail, and in the home infusion space. We have a broad set of products both in the pharmacy and the medical benefit side, continue to be a leader in the limited distribution category, and continue to be a leader in the new, developing cell and gene therapy marketplace. So that, combined with the technology that we've invested in, it's allowed us to be kind of a leading provider in this space. So that is the foundation that allowed us to have the confidence to make the change to the formulary position on April 1st. So if you look at what was mentioned in the...

David: In the prepared remarks, we've actually had a change as of 4-1, removing Humira from the formulary and replacing it with a low list priced biosimilar. And as we said earlier, in just three weeks, we've actually surpassed all the biosimilar volume in all of 2023. So that we've been able to hit what is important in terms of control and procurement, which is that we've been able to migrate more than 90% of the volume in the first month.

David: And then when you look specifically inside CVS Specialty Pharmacy, where we have a set of new services around technology, access to prescribers, and members, we've been, we've actually had a 94% conversion rate. So it's a really powerful outcome. And I think it speaks to the strength of our business, and as that translates into savings for our customers. We had mentioned that we're delivering a 50% savings on the 22 run rate for this drug.

Speaker Change: The largest driver in there is unfavorable <unk> on CBS accountable care that came through in terms of the savings rate.

David: And then as you translate that into the member benefits, because we've actually moved to a low list price product, and we've actually had clients adopt what we would call an intelligent benefit design, we've been able to have 80% of the members with $0 out of pocket. So again, I think if you look at what we've done, it's a clear win for our clients, our patients, and we've also made a considerable investment in the sustainability of the biosimilar market.

Speaker Change: As driven by Medicare utilization and that includes an out of period charge that was taken in the first quarter that's embedded in there.

Joshua Richard Raskin: I'd say the remainder of that that piece of a piece is it's really oak Street, but as we think about the first quarter. The performance in that business was reasonably good.

Speaker Change: So as we think about what we've seen in the broader market. We made a provision that perhaps there could be some lag there and our forward outlook well, obviously have to see how that ultimately develops as you think about 2023 the business did an excellent job of navigating some of the broader headwinds.

Speaker Change: In the marketplace and with some of their new clinical programs and how they played out over the course of the year, we're hopeful that we could see some.

Speaker Change: Some favorability to that number over time, but we have to see how that all manifests itself in the results Mike I don't know anything else you would add.

David: So I think all of that then contributes to the question you originally asked, which is size and scale really are generally driven by, and what I would believe the strength in our purchasing economics is the ability to control and move market share. And again, this is another evidence and or marker that we hope to continue down that path.

Unknown Executive: Yeah, Mike, I would just say on biosimilars. Obviously, they represent one of the biggest opportunities to reduce overall pharmacy costs for the US health care system. As you know, it's a $100 billion market by 2030. And as you can see, in the very first few weeks of our launch, we've had incredible adoption, and we continue to evaluate the pipeline of opportunities. So we are excited about the potential of the future of the biosimilar market.

Unknown Executive: Our next question comes from Josh Raskin of Nethron Research. The line is yours. Hi, thanks. Good morning here with Eric as well. So my question is, well, first, just a numbers question: the $400 million in health care services guidance reduction, how much of that is

Mike: Yeah, Tom I think you summed it up well from a financial perspective, the thing I would add that when I think about health care delivery more broadly. It's typically oak Street is for the rest of 'twenty four and really in 'twenty five and beyond I think there's a huge opportunity that Brian and I are working really closely on.

Joshua Richard Raskin: Our next question comes from Josh Raskin of Nephron Research. The line is yours.

Thomas F. Cowhey: Let me start with the HSS question, Josh, and then we can try to get to the other ones. So as you think about HSS, we took it down by about 400. The majority of that reduction is in the healthcare delivery business, and the largest driver in there is unfavorability on CVS Accountable Care that came through in terms of the savings rate, which is driven by, you know, Medicare utilization, and that includes an out-of-period charge that was taken in the first quarter that's embedded in there.

Speaker Change: How do we leverage the quality of care and the ability to really bend.

Speaker Change: Cost trend and drive MLR improvements, how do we leverage that more broadly across that enough with Oak Street and so there's a lot of things we're doing both from adding membership from Aetna to Oak Street centers, but also leveraging some of the out of center capabilities, we have around transitions programs and care in the home.

Thomas F. Cowhey: You know, I tell you, the remainder of that, you know, that piece of a piece is really Oak Street, but as we think about the first quarter, the performance in that business was reasonably good. And so, as we think about what we've seen in the broader market, we made a provision that, you know, perhaps there could be some lag there in our forward outlook. We'll obviously have to see how that ultimately develops.

Thomas F. Cowhey: As you think about 2023, the business did an excellent job of navigating some of the broader headwinds in the marketplace with some of their new clinical programs and, you know, how they played out over the course of the year. We're hopeful that we could see some, you know, some favorability to that number over time, but we have to see how that all manifests itself in the results. Mike, I don't know anything else that you would add.

Mike: Yes, I think you summed it up well from a financial perspective and the thing I would add when I think about health care delivery more broadly and specifically Oak Street is for the rest of 24 and really in 25 and beyond I think there's a huge opportunity that Brian and I are working really closely on on how do we leverage the quality of care and the ability to really bend health, MedCost trend and drive MLR improvements. How do we leverage that more broadly across Adena with Oak Street and so there's a lot of things we're doing both from adding membership from Adena to Oak Street centers but also leveraging some of the out-of-center capabilities we have around transitions programs and care in the home that we use for Oak Street today let's let's use that for Adena members so there's a lot of opportunity here that we'll see play through in the coming and I would just add the mic.

Speaker Change: That we used rotary today, let's let's use that for Aetna members. So I think a lot of opportunity here that we will see play through in the coming years.

Mike: And I would just add to Mike that, as he said, we are working very closely together. And, for example, while obviously, we're not gonna provide color today on specific counties and the extent to which counties will leave, we wouldn't do that in an Oak Street footprint, as an example, right? So we're going to be very thoughtful about how we trim our book with the goal of, over time, retaining the margins and attaining the margins that Tom articulated.

Speaker Change: And I would just add to Mike as you said, we are working very closely together and for example, while obviously, we're not going provide color today on specific counties and the extent, which counties will exit we wouldnt do that in an Oak Street footprint. As an example, right. So we're going to be very thoughtful about how we trim our book with the goal of over time, retaining the margins in attaining them.

Speaker Change: Is that Tom articulated I'd also remind you that every 100 basis points is worth more than $500 million on a trend basis and so if you think about where historical trends have been if you think about where trends are today. We're in no way baking this into our assumptions, but as you think about recovery here. This has the potential to bounce back and retain those.

Mike: I'd also remind you that every 100 basis points is worth more than $500 million on a trend basis. So if you think about where historical trends have been, think about where trends are today, we're in no way baking this into our assumptions. But as you think about recovery here, this has the potential to bounce back and retain customers, get back to that profitability as well, which I think is important to mention.

Speaker Change: Get back to that profitability as well, which I think is important to mention but we're going to be very thoughtful about how we think about our membership footprint and again the ultimate goal is membership stability, but we're going to favor margin over membership for next year.

Mike: But we're going to be very thoughtful about how we think about our membership footprint. And again, the ultimate goal is membership stability, but we're going to favor margin over membership for next year. Our next question comes from Elizabeth Anderson of Evercore ISI. Elizabeth, please go ahead. Hi guys. Good morning.

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

Elizabeth Hammell Anderson: Our next question comes from Elizabeth Anderson of Evercore ISI. Elizabeth, please go ahead.

Elizabeth Hammell Anderson: Please go ahead.

Elizabeth Hammell Anderson: Hi, guys. Good morning, Thanks for the question.

Elizabeth Hammell Anderson: Wondering can you talk about sort of care management tools and sort of the impact that you are thinking about in terms of their impact on 24, and then any sort of changes you're making in 24 that you think will have an impact as we think about the 2025 results for HCV. Thank you.

Elizabeth Hammell Anderson: Yeah.

Elizabeth Hammell Anderson: Well.

Unknown Speaker: Well, clearly, care management is an important tool that we use to engage our members. And, you know, we spend a lot of time sort of segmenting who our high-risk members are, who are the members who would benefit most from care management. We're actually using a lot of really advanced AI tools to identify those members. We really think we have excellent analytics to be able to pinpoint who those members are and how we are best able to engage with them, what are the types of things that will get them to engage with us, and then also make it easier for our care management nurses at the point of care to be able to provide the level of advice and support that a member needs.

Elizabeth Hammell Anderson: Nearly care management as an important tool that we use to engage our members and we spend a lot of time sort of segmenting, who are high risk members are who are the members who would benefit most from care management, we're actually using a lot of really advanced AI tools to identify those members. We really think we have excellent analytics.

Elizabeth Hammell Anderson: Able to pinpoint who those members are and how we best able to engage with them more of the types of things that will get them to engage with US and then also make it easier for our care management nurses at the point of care to be able to provide the level of advice and support that our member needs and so it's something that we're very focused on I would tell you that.

Unknown Speaker: And so it's something that we're very focused on. I would tell you that we continue to roll out some of these AI capabilities that make these programs much more effective with much better ROIs. And so while there'll be modest impacts in 24, over time, we expect that to be a differentiator for us. And so we're very focused there. Yeah, I just...

Elizabeth Hammell Anderson: We continue to rollout some of these AI capabilities that makes these programs much more effective with much better rois and so while there will be modest impacts in 'twenty four over time, we expect that to be a differentiator for us and so we're very focused there.

Unknown Speaker: Yeah, I would just add to that, this is with a partnership between Healthcare Delivery and Aetna. Between Signify and some of the capabilities we have at Oak Street, there's a lot of boots on the ground in-market capabilities that we have to really change the health trajectory of patients, whether that be readmissions to the hospital or managing your most complex chronic patients. And so this is where I think a lot of that partnership plays out, is in that space of getting a deeper level of impact because we have the resources, we have the programs, we have the know-how, and now we can extend those over a lot more members.

Speaker Change: Yes, I would just add to that is with a partnership between health care delivery and it comes in.

Speaker Change: Tween signify and some of the capabilities, we have at Oak Street, there's a lot of boots on the ground and market capabilities that we have that really changed the whole trajectory patients whether that'd be readmissions to the hospital or managing your most complex chronic patients and so this is where I think a lot of that partnership plays out in that space of getting a deeper level of impact because we have the resources we have the <unk>.

Elizabeth Hammell Anderson: We have the knowhow that we can extend those over a lot more members and so I think both signify Oak Street.

Unknown Speaker: And so I think both Signify and Oak Street will bring a lot to the table over the coming years on how we can really bend that cost trend. Our final question comes from Ann Hynes of Mizzou Securities, and please go ahead.

Elizabeth Hammell Anderson: Bring a lot to the table over the coming years on how we can really been that caution.

Elizabeth Hammell Anderson: Yeah.

Elizabeth Hammell Anderson: Our final question comes from Ann Hynes of Mizuho Securities.

Ann Kathleen Hynes: Please go ahead.

Ann Kathleen Hynes: Great. Thanks, you talked about the pharmacy services there was some pressure on mix and also your inability to make prior guarantees can you just elaborate on both comments as the prior guarantee a diabetes issue.

Speaker Change: The GOP class thanks.

Speaker Change: It's not a diabetes issue think of it as well.

Ann Kathleen Hynes: It's not a diabetes issue. Think of it as, you know, the we have to have projections about what the mix looks like to ensure that we appropriately hit all of our client guarantees. And with the changing mix inside the quarter, given some of the disruptions that we saw, not only with the loss of a large client but with the insourcing of another client's business, and some of the disruptions in the marketplace in terms of volume, specifically GLP, were part of that.

Speaker Change: We have to have projections about what the mix looks like to ensure that we appropriately hit all of our client guarantees and with the changing mix inside the quarter given some of the disruptions that we saw not only with the loss of a large client, but with the in sourcing of another clue.

Speaker Change: <unk> business and some of the disruptions in the marketplace in terms of volumes, specifically <unk> was part of that.

Ann Kathleen Hynes: We missed our guarantees by a little bit. We'll see how we're able to recoup that over the remainder of the year. But at this point, what we've assumed is that the first quarter is permanent and that we can get back to our previous projections for the remainder of the year. David, anything you'd add to that?

Speaker Change: We were we missed our guarantees by a little bit we will see how we're able to recoup that over the remainder of the year, but at this point, what we've assumed is that that first quarter.

Speaker Change: Is permanent and that we can get back to our previous projections for the remainder of the year.

Speaker Change: David anything you'd add to that.

Thomas F. Cowhey: No, I think that's consistent with the way we see it. I will just add one thing about GLP-1s. Obviously, there's been a lot of volatility. One, because of supply constraints that we've experienced, and obviously a lot of work around managing what we would see as unprecedented demand, combined with a very challenging price point, is leading to a lot of energy around how to best manage this category, through whether it be formulary, more aggressive utilization management, and then the broader care management wrappers on this.

David: No I think thats consistent with the way we see it I will just add one thing on <unk> obviously, it's.

David: There's been a lot of volatility one because of the supply.

David: Strengths that we've experienced and obviously a lot of work around managing what what we would see as this unprecedented demand combined with a very challenging price point is leading to a lot of energy around how to best manage this category through whether it be formulary more aggressive utilization management and then the <unk>.

Thomas F. Cowhey: But this category alone is driving, obviously, significant costs for our clients, and it's also driving significant expenses within our organization, just to support what is now one of our highest drivers of call volume around people trying to find access to the product and making sure that we get consistent supply in the market. So we believe we've got a really strong set of programs and services to manage the category, and we believe once there's competition and adequate supply, we'll be able to have more consistency around how we manage this category. I have to be close.

David: Your care management wrappers on this but this category alone is driving obviously, a significant cost for our clients and it's also driving significant expense within our organization just to support what is now one of our highest drivers of call volume around people trying to find access to the product and making sure that we are that we get consistent supply and the <unk>.

David: Market. So we believe we've got a really strong set of programs and services to manage the category and we believe once or if competition and adequate supply.

David: And we will be able to have more consistency around how we manage this this category.

Unknown Executive: As we close this call, I wanted to take this opportunity to thank our colleagues for their many contributions, and we look forward to providing you with updates throughout the year. Thank you for joining us today.

Speaker Change: As we close the call I wanted to take this opportunity to thank our colleagues for their many contributions and we look forward to providing updates throughout the year. Thank you for joining the call today.

Speaker Change: Ladies and gentlemen, this concludes today's call. Thank you for joining you may now disconnect.

Operator: Ladies and gentlemen, this concludes today's call. Thank you for joining us. You may now disconnect.

Speaker Change: [music].

Speaker Change: Yeah.