Q1 2025 CVS Health Corp Earnings Call
Speaker Change: Good morning, and thank you all for attending the CVS Health Q1 2025 Adding Conference School.
Brika: My name is Breaker and I will be your moderator for today.
Brika: All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Larry McGrath, Chief Strategy Officer. Thank you, you may proceed, Larry.
Brika: Good morning and welcome to the CVS Health First Quarter 2025 earnings call on webcast I'm Larry McGrath, Chief Strategy Officer. I'm joined this morning by David Joyner, President and Chief Executive Officer, I'm Tom Cowhey, Chief Financial Officer.
Brika: All in your prepared remarks will host a question and answer session that will include additional members of the leadership team.
Brika: Our press release and slide presentation have been posted to our website, along with our form 10Q, while this morning with the SEC.
During this call, we'll make certain forward-looking statements.
Brika: Our forward-looking statements are subject to significant risks and uncertainties that could cause actual results to differ materially from currently projected results.
Brika: We strongly encourage you to review the reports we filed with the SEC regarding these risks and uncertainties.
Brika: In particular, those that are described in the fishery statement concerning forward-looking statement and risk factors in our most recent annual report on form 10K, our quarterly reports on form 10Q,
David Joyner: With us, I'd like to turn the call over to David. David?
Thank you, Larry, and good morning, everyone.
David Joyner: We continue to build momentum across CVS Health and are progressing on our aspiration to be America's most trusted healthcare company.
David Joyner: This morning we are pleased to report solid results and will continue to be a challenging and volatile environment.
David Joyner: We delivered 1st quarter adjusted earnings per share of $2.25 and adjusted operating income of $4.6 billion.
David Joyner: In addition, we increased our full year 2025 adjusted EPS guidance to arrange a $6 to $6.20 [inaudible]
David Joyner: Up from our previous range of $5.75 to $6.
David Joyner: Our strong start to the year and our increased guidance reflect solid performance and execution across each of our businesses as we maintain a prudent outlook with opportunities for our performance. Thank you very much.
and Deliver Honor Promise to you our shareholders.
David Joyner: One of my top and most urgent priorities coming into this role was ensuring I had a leadership team with diverse experiences that can help me execute against my strategic priorities.
David Joyner: Last month we announced the appointments to Brian Newman as Chief Financial Officer, Effective May 12th, and Amy Compton Phillips as a Chief Medical Officer, Effective May 19th.
David Joyner: I am confident that Brian and Amy will help us continue building upon the momentum we've created over the past several months as we execute on our strategy to deliver better health care to those we are privileged to serve.
David Joyner: I believe I now have completed my management team, and that Brian and Amy's collective and individual experience and expertise are well suited to position CVS Health for the teacher. Brian is succeeding Tom Cowhey, who will continue to serve as a strategic advisor to me effective May 12.
Health for sure, a successful transition.
David Joyner: I want to express my personal appreciation for all Tom has done in his 11 years of that and three years of CVS Health.
David Joyner: Thomas has been instrumental in advancing our talent, advocating for the finance function and engaging with our shareholders. Thomas has also played a critical role in our efforts to stabilize the etme business and position us on the path to improve results.
David Joyner: I'm grateful for my time with Tom and wish him all the best in the future.
David Joyner: We are driving towards becoming America's most trusted healthcare company. Every day, we are on the trust of customers we serve by improving outcomes.
David Joyner: Expanding access and improving affordability to address one of the largest problems faced by our country.
Rising and Unsustainable Health Care Costs.
David Joyner: We hold a unique position and help care what their scaled assets.
Is this combination that differentiates CVS Health?
David Joyner: and provides us with a competitive advantage, allowing us to drive change and bring solutions to market at scale.
David Joyner: Addressing the fragmented and broken healthcare system of today is not easy [inaudible]
But we are facing this challenge head-on.
David Joyner: This is personal for me, my leadership team, and the more than 300,000 CVS health colleagues that work tirelessly every day to earn the trust of the customers we serve.
David Joyner: Our solutions are driven by insights from the millions of consumer touch points we have across CVS Health. We are purposely using these insights through our digital capabilities to improve transparency.
and Penelrar members and drive better outcomes.
David Joyner: and our CVS Health app. Customers now have greater visibility into their healthcare journey and how to address potential barriers to care.
David Joyner: This core digital asset is helping to drive a more trusted and integrated health care experience for our customers.
David Joyner: We are also directly supporting our members with real-time AI-powered recommendations to help them better manage their health and achieve better outcomes.
David Joyner: Our capabilities allow us to precisely engage the members where we can have the most impact on their health and experience.
David Joyner: We have the best run pharmacy businesses in the country. We have been investing in our colleagues, strengthening our technology, and we continue to build on our market leading cost to good sold. Our focus in these areas has allowed us to deliver superior experiences to our customers.
while dropping significant operational improvements across our nationwide footprint.
David Joyner: Between our community, especially Ann Mallorca pharmacies, we process and dispense over 1.7 billion scripts each year, generating unique insights that create opportunities to improve processes and healthcare experiences at scale.
David Joyner: We have been focused on simplifying and approving the prior authorization process for many years.
David Joyner: with the goal of getting patients their critical medications as quickly as possible.
We eliminate the requirements, accelerated decisions, [inaudible]
David Joyner: Create a transparency, as well as provide a proactive support to improve their experience.
David Joyner: We took what we know matters most to our customers and applied it to what we do every day across each of our businesses.
David Joyner: In the last several months, our team is taking meaningful steps to address points of friction, including simplifying and streamlining the prior authorization process of that now.
David Joyner: Today, Etna maintains one of the shortest list of treatments and procedures that require prior authorization. The eligible prior authorization request we receive, over 95% are approved within 24 hours. With some approved and as little as just a few hours.
David Joyner: However, we know patients still feel friction in the system and we are not satisfied with the status quo. We will continue leading the industry and driving change and improving member and provider experiences.
He recently announced a Nobel approach. [inaudible]
David Joyner: which bundles multiple prior authorization requests into one. We have begun to deploy this solution in some common areas of cancer care where we can have a meaningful impact supporting our members.
David Joyner: By bundling the prior authorization for multiple high-tech imaging scans, like MRIs that are used for restaging cancer care, we are reducing the administrative load on providers, expediting treatment and reducing uncertainty for our members.
David Joyner: Our goal is to launch additional bundles later this year and to expand the program more broadly to other conditions such as musculoskeletal and select cardiology services.
David Joyner: We are excited about rolling out this new approach, particularly after the positive response we've received from plan sponsors.
David Joyner: Another critical component of earning the trust of our customers is enhancing access and making the cost of life changing medications more affordable.
David Joyner: We have a proven history of leading the market that the use of preferred formularies more than a decade ago.
David Joyner: A year after we revitalized the biosimilar market, with our launch of court office, our low-cost Humaira biosimilar has the largest market share in the U.S.
Today we're leading the way forward on GLP once.
David Joyner: To address this, we are pleased to announce that we are partnering with Novo Nordic to significantly increase access to a Govy for our members at a more affordable price.
David Joyner: We can increase the power of GLP-1s by combining them with additional lifestyle clinical support as part of our CVS Weight Management Program offer to our clients through care work.
David Joyner: Discombination allows members to achieve better outcomes and even greater weight loss than the pre-programmed results.
David Joyner: Additionally, we are the first retail pharmacy in the Novo Care Pharmacy Network.
David Joyner: This will enable us to provide convenient, safe and affordable access to Wagovi for eligible patients at our 9,000 community health locations across the country.
David Joyner: Taken together, this demonstrates the value of our integrated model and what CVS Health does day in and day out.
David Joyner: Our clients and the patients we serve continue to choose us because we innovate, create competition, increase access, and deliver savings while leveraging our leading clinical capabilities to improve health outcomes.
David Joyner: Our industry leading pharmacy capabilities built across our national footprint and powered by our efficient operations and our innovative and transparent pricing models have allowed us greater flexibility to focus on improving health outcomes.
David Joyner: Patient Experience, and Trust have a meaningful impact on medication adherence.
David Joyner: Our success in this area has enabled us to be the top-ranked national retail chain for medication adherence.
David Joyner: and our at-and-a business, Medicare Advantage members who utilize CVS pharmacy are more adherent to the therapy.
David Joyner: This results in fewer acute medical events, such as emergency room visits, and on average, these members have 3% lower medical costs.
David Joyner: Our Unrivaled Reach to Consumer and our Integrated Business Model allow us to establish deeper connections in the community and drive better outcomes.
David Joyner: The combination of our capabilities across each of our businesses are what allow us to deliver on these promises.
David Joyner: This is why the ongoing rhetoric and misguided actions by some aimed at integrated healthcare companies like CVS Health are so flawed.
David Joyner: In April , the Arkansas government took unjustified action that will leave hundreds of thousands of patients without their community pharmacy
Suburly Lamenting Access to Critical Drugs
and increasing costs for employers and consumers.
David Joyner: The actions will also affect more than 10,000 people in Arkansas. We have complex conditions like cancer and multiple sclerosis.
David Joyner: These vulnerable patients require specialized care and close coordination with your specialty pharmacists.
David Joyner: and dependent pharmacies will not be able to fill the void. This legislation creates an Arkansas.
David Joyner: As they often do not stop specialty medications and elect the capabilities to manage complex conditions.
David Joyner: We saw an overwhelming response against this proposal from patients and customers who will now see a rise in the cost of medications and a decrease in their accessibility.
David Joyner: We've also seen several direct letters from trade groups like the American Benefits Council and the Arissa Industry Committee, who are also concerned about the negative impact resulting from this bill.
David Joyner: Our Health Plan partners have also raised issues, and they will now have trouble satisfying network adequacy requirements, including for the Medicare program.
David Joyner: We will continue to serve patients in the state for as long as we can, and we'll work to educate stakeholders on all the ramifications of this plot legislation.
We're already seeing other states rejecting the Arkansas approach.
our position remains that we believe in common sense.
David Joyner: Meeting full actions to help lower the cost of medications in the U.S., which is why we were pleased to see that the president's executive order on drug pricing focuses on the entire supply chain.
David Joyner: As you've seen over the last six months, we actively manage our portfolio of businesses to ensure a pathway to sustainable earnings and competitive viability.
David Joyner: We took action at the end of last year with their infusion business at Corm.
David Joyner: and we've announced earlier this year our exit from the ACO Reach program and the sale of our MSSP business.
David Joyner: We are disappointed by the continued underperformance from our individual exchange products.
David Joyner: and if we're recently determined there was not a near or long-term pathway for Etna to materially improve its position in this product. As a result, we've decided that effective 2026, we will exit the states in which Etna independently operates the ACA plans.
David Joyner: Despite our multi-year efforts, we must recognize what is and what is not working and we'll focus on the areas where we have a clear right to when.
David Joyner: This was not a decision we made lightly, as we recognize the importance of this product to millions of members.
David Joyner: The section will allow us to focus on areas where we will have the strongest capabilities, including Medicare, commercial, and Medicaid.
David Joyner: where we continue to build on our ability to serve members and customers in a differentiated way. We are committed to supporting our individual exchange members, for as long as we have the privilege to serve them, and we'll also work closely with our partners to ensure a smooth transition.
David Joyner: and that these members continue to have access to a quality, affordable care.
David Joyner: We are dedicated to transforming the healthcare experience in this country and believe we have the right set of assets, the right strategy and the right team to deliver the most affordable and highest quality healthcare solutions to our customers.
David Joyner: We are focused on executing against the strategic priorities I laid out when I spoke to you last quarter and delivering strong results
David Joyner: We continue to lead the industry in driving innovation and better experiences for our members, patients and consumers.
David Joyner: and are working hard to ensure we deliver best-in-class performance from each of our businesses.
David Joyner: As we continue to build trust and look to the future, we are setting expectations that are appropriate and achievable and continue to focus on areas where we can drive outperformance.
Tom Cowhey: With that, I'd like to hand the call over to Tom. Tom? Tom?
Tom Cowhey: Thank you, David, and thanks to everyone for joining us this morning. I'll start with a few highlights on total company performance.
Tom Cowhey: First quarter revenues of nearly 95 billion dollars increase 7% over the prior year quarter driven by revenue growth across all sectors.
Tom Cowhey: We delivered first quarter adjusted operating income for approximately $4.6 billion, and adjusted EPS of $2.25, driven by strong performance across all segments, including meaningful improvement in our healthcare benefits segment.
Tom Cowhey: Finally, we generated cash flows from operations of approximately $4.6 billion during the quarter, an excellent start to the year that allowed us to increase our full year cash flow guidance this morning.
Tom Cowhey: Turning now to our segments, health care benefits generated nearly 35 billion dollars of revenue in the quarter, an increase of 8% over the prior year, driven by increases in our Medicare care business, including the impact of improved Medicare-adventage star ratings for payment
Tom Cowhey: Medical membership of approximately 27.1 million was flat sequentially as declines in our individual exchange in Medicare businesses were largely offset by growth in our commercial fee-based business.
Tom Cowhey: Shortly after quarter end, the premium grace period for individual exchange members expired, and we obtained additional clarity on our effectuated membership.
Tom Cowhey: As a result of this subsequent attrition, our membership declined by approximately 300,000 members, which will be reflected in our second quarter membership.
Tom Cowhey: During the quarter, the segment generator adjusted operating income of approximately $2 billion, an increase of over $1.2 billion from the prior year quarter.
Tom Cowhey: Our Medical Benefit Ratio of 87.3%, decreased 310 basis points when the prior year.
Tom Cowhey: We also benefited from better underlying performance in Medicare, including the impact of improved Medicare Advantage star ratings for the 2025 payment year, and seasonally strong performance in our Medicare Part D products.
Tom Cowhey: Partially upsetting the strong performance were a number of estimate changes related to prior period revenue, all together prior year reserve development, net of changes in revenue estimates,
Tom Cowhey: As David mentioned earlier, we plan to exit our individual change business in 2026.
Tom Cowhey: They are currently projecting that variable losses in this business will be between $350 and $400 million for the full year 2025.
Tom Cowhey: As a result of these losses, as well as updates to reflect the seasonality of this business, this quarter we established a premium deficiency reserve of approximately $450 million related solely to the 2025 coverage here.
Tom Cowhey: This PDR reflects updated seasonality projections based on our current membership mix as well as higher membership than previously anticipated.
Tom Cowhey: The premium deficiency reserves increased our first quarter medical benefit ratio by approximately 130 basis points.
Tom Cowhey: Medical cost trends during the quarter remained elevated, but appeared to show early signs of stabilization, and were broadly in line with our expectations for most of our business.
Tom Cowhey: While our group commercial business delivered a strong quarter, our individual exchange business did experience higher than expected trends as reflected in our PDR.
Tom Cowhey: Trenton Medicare, while elevated, were modestly better than our expectations . . .
Tom Cowhey: In Medicare broadly, we continue to see higher trends in inpatient, outpatient and medical pharmacy, three categories which were elevated in 24, in which we will continue to monitor closely.
Tom Cowhey: That said, performance in Part D during the quarter was better than our projections, but may simply reflect updated seasonality given program changes and our current mix of members. [inaudible]
In particular, we are watching specialty utilization in this product.
Tom Cowhey: We also saw strong improvements in the performance of our supplemental benefit offerings.
Tom Cowhey: or remain cautious on the outlook for these products until we have more experience with the substantial changes we made for 2025.
Tom Cowhey: They're also closely watching trends in our group Medicare Advantage business, which remain pressure.
Tom Cowhey: When we compare sequential premium growth against reserve growth, those metrics were more consistent when normalized for the Part D premium changes.
We are being competent in the adequacy of our reserves.
Tom Cowhey: Our Health Services segment generated revenues of over $43 billion during the fall.
Tom Cowhey: and an increase of nearly 8% year over year. Primarily driven by pharmacy drug mix, growth and specialty, and brand inflation, partially offset by continued pharmacy client price improvement.
Tom Cowhey: First quarter, adjusted offering income of over $1.6 billion, increased nearly 18% from the prior year quarter, primarily driven by improved purchasing economics and pharmacy drug mix, partially offset by continued pharmacy client price improvement.
Tom Cowhey: Total Pharmacy claims process in the quarter were over 464 million and total pharmacy services membership as of the end of the quarter was approximately 88 months.
Tom Cowhey: We started the year with another strong quarter of top line growth in our healthcare delivery business.
Tom Cowhey: Total revenues for 27% compared to the same quarter last year, excluding the impact of our exit from the ACO Reach program and the sale of our MSSP business.
Tom Cowhey: This increase was primarily driven by strong patient growth at Oak Street and increased volumes of sickness.
Tom Cowhey: Total at-risk members at Oak Street increased approximately 37% in the same period last year.
Tom Cowhey: While very immature, we have seen some signs of pressure in first-quarter medical cost trends at Oak Street Health, which we will continue to monitor closely over the next several months as they continue to develop.
Tom Cowhey: A pharmacy and consumer wellness segment also delivered another strong quarter.
Tom Cowhey: We generate revenues of nearly $32 billion, an increase of over 11% versus the prior year quarter, and over 14% on the same store basis.
Tom Cowhey: Adjusted operating income of over $1.3 billion, increased over 11% from the prior year quarter, primarily driven by increased prescription volume and improved drug purchases.
Tom Cowhey: First quarter results also benefited from stronger seasonal factors, including the impact of increased demand for certain vaccines in the extended flu season.
Tom Cowhey: Partly offsetting these items were continued pharmacy reimbursement pressure and the impact of softening consumer demand in the front store.
Tom Cowhey: Same-store pharmacy sales in the quarter grew nearly 18% versus the prior year and same-store prescription
Tom Cowhey: Same store front store sales were roughly flat versus the prior year quarter, but were up nearly 1% after adjusting to the impact of lead day from the first quarter of 2024.
Retail Pharmacy, Scripture on the Quarter. [inaudible]
Dr, Greedo Approximately 27.6%
Speaker Change: An increase of approximately 70 basis points from the same period last year.
Drim, by continued strong execution, .
Speaker Change: Our ability to deliver superior customer experiences and our commitment to pharmacy access across the communities we serve.
Schiffing now to cashflow on the balance sheet. [inaudible]
Speaker Change: We generated cash flows from operations of approximately $4.6 billion in the first quarter.
Speaker Change: During the quarter, we returned $840 million to our shareholders through our quarterly dividend. We ended the quarter with approximately $1.5 billion of cash of the parent and unrestricted city areas.
Speaker Change: Our leverage ratio at the end of the quarter improved meaningfully from your end.
Speaker Change: While our ratio remains above our long-term targets, we are pleased by the progress we made in lowering our leverage this quarter. We continue to expect our leverage ratio to return to more normalized levels as we maintain our discipline financial policies to make progress on margin recovery in the atmosphere.
Speaker Change: Chifting now to our Outlook for 2025. As David mentioned, we're increasing our full-year 2025 guidance for adjusted EPS to a range of $6 to $6.26.
Speaker Change: This update incorporates our first photo performance while maintaining a respectful view on medical cost trend and a prudent outlook on various macro factors for the remainder of the year.
Speaker Change: We now expect total revenue of $382.6 billion, down approximately $3.3 billion, largely due to our exit from the ACO REACH program in the sale or MSSP business.
Speaker Change: and our Health Care Benefit segment. We now expected Justin operating in color approximately $1.91 billion at the low end of our guidance reach.
Speaker Change: This reflects an increase of approximately $400 million, primarily driven by the previously mentioned prior year reserve development.
Speaker Change: Net of Change is an estimate related to prior period revenue that we experience in the first quarter.
We project our full-year 2025 medical benefit free show.
Speaker Change: At the low end of our healthcare benefits adjusted operating income guidance range to be approximately 91.3 percent.
Speaker Change: Our guidance maintains a respectful view of medical cost trends for the remainder of the year.
Speaker Change: In particular, we continue to keep a close eye on performance of our group and have a cured vantage business.
Speaker Change: As we discussed last quarter, contracts in this book are typically multi-year and must take longer to reprise.
Speaker Change: While we are encouraged by the favorable development of our 2024 medical cost estimates.
Speaker Change: Our claims experience for 2025 remains immature, particularly in light of changing membership mix in our Medicare advantage and individual exchange products.
Speaker Change: That said, our performance on the medical benefit ratio remains one of the largest potential factors that could drive us higher in our adjusted ETS guidance range.
Speaker Change: We expect to end the year with approximately 26.4 million members of approximately 600,000 members from our previous guidance, primarily driven by higher membership in our individual exchange and Medicare business.
Speaker Change: We continue to expect our Medicare Advantage membership to end the year consistent with our previously
Speaker Change: We are encouraged by the performance of each of these segments in the first quarter and are maintaining a cautious outlook for the remainder of the year.
Speaker Change: In PCW, we are closely monitoring the potential for softening consumer environment and the implications of parents.
Speaker Change: as well as potential changes in consumer sentiment towards vaccines that may impact market demand.
Speaker Change: We are also closely watching the persistently elevated trends in Medicare advantage and the potential impact they could have on our healthcare delivery business, particularly at Oak Street Health.
Speaker Change: In aggregate, we expect our consolidated adjusted operating income to be in a range of $13.31 billion to $13.65 billion.
Speaker Change: We continue to believe these expectations represent an appropriately achievable baseline with opportunities for outperformance.
Speaker Change: Based on these changes, we are also updating our expectation for full-year cash flow from operations to approximately $7 billion
Speaker Change: Additionally, we now expect our interest expense to be approximately $3.15 billion, and our adjusted effective tax rate to be approximately 25.9%.
Speaker Change: As you think about the cadence of earnings for the remainder of the year, we now expect approximately 60% of full year consolidated earnings to occur in the first half of the year. This reflects a change for our previous estimate, largely driven by strong first quarter performance. [inaudible]
Speaker Change: For Health Services, while we were pleased with the strength of the quarter in our reiteration of full-year guidance.
Speaker Change: You can find additional details on the components of our 2025 guidance on our Investor Relations website.
Speaker Change: We are encouraged by our performance in the first quarter as our results demonstrate execution of initial steps to restore at another target margin. While we still have a significant amount of work to do, this quarter was an important first step in our multi-year journey to unlock the embedded earnings power of CVS Health.
Speaker Change: With that, we'll now open the call to your questions. Operator?
Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question please press the staff vote by one on your telephone keypad.
Speaker Change: If any reason you would like to remove that question, please press the star fuller by 2.
Speaker Change: We do ask that you please limit yourself to one question and one follow-up. We will put it briefly.
Speaker Change: We have the first question from Justin Lake with Wolf Research. Your line is open.
Justin Lake: Thanks. Good morning. Wanted to focus on your comments around Medicare Advantage, specifically
Justin Lake: It sounds like you're seeing early trends better in individual and party, maybe some pressure, incrementally in group of A so hopefully you can give us some more color there across those three segments and also maybe give us your early impression of trends versus that high single digit.
medical trade you put in guidance for MA.
Justin Lake: handed off to the team to talk more specifically about the drivers and how we're thinking about the end of or the rest of this year. I want to just take a moment talking about what we've done in the last six months and we've talked a lot about creating operating stability. Thank you very much.
Justin Lake: Improving the way in which we're forecasting and pricing our products and then we had to have a good open enrollment so I think we've executed against all three of those priorities and I feel really good about the team the focus and the execution that's this in front of us and so I think that
Justin Lake: is allowed us again to, I think, drive the kind of performance that we've seen in this first quarter. I will also say that we will continue to hold a respect for Trent, and I think that will be the theme you'll hear today as we look at about the performance in Q1.
Justin Lake: and also with the elevated trends as we expect for the rest of this year. So with that I'll let Steve Nelson give a broader framework on Medicare and the other businesses within that time and I'll let Tom speak to the specific trends.
Steve Nelson: Great. Well, thanks, David. Good morning, Justin. David used the word this morning momentum. I think that's the right word, as you think about madness specifically.
and the objectives that we've laid out are clear.
Steve Nelson: We have a multi-year path to return that to its target margins.
and while it's very early in that journey...
Steve Nelson: The progress is very encouraging. So, maybe I'll just highlight four or five points that I think point to some of the drivers of that progress. I'll start with Medicare Advantage in the individual business.
Steve Nelson: Through the AEP process, I think did a really good job of rationalizing both geographies and product mix.
Steve Nelson: combined with really strong execution around the total cost of care.
and just the overall-
Speaker Change: Operational Rigger and Management Process Focus, Discipline, it's really producing a result. And as Dave and Tumble said,
Speaker Change: Early innings here, but the elevated trends that we've seen, we are starting to see early signs of stabilization. So it's really producing results and very pleased with the progress in that business overall. All right.
Speaker Change: Let's touch on the other businesses quickly to kind of round out just the overall perspective on Edna.
Armedicate Business
Speaker Change: continuing to perform well. We really like the progress we're making around rate advocacy, very much tracking in line with our full year of expectations.
Speaker Change: and we're very competitive in this space. We had a couple of really good wins with Texas and Georgia. They're obviously pending.
Speaker Change: Protests were confident that we'll prevail there, I'm hopeful, but really strong performance in the early innings that Medicaid as well. And our commercial business has been performing slightly ahead of our expectations.
Speaker Change: mainly driven by a return to more competitiveness in our fully insured book.
Speaker Change: That's due to really nice discipline pricing and great work on our trend as well as better than expected retention and then when you think about our our [inaudible]
Speaker Change: self-insured, our maritime business, and our national public and labor accounts.
Speaker Change: Business, we've seen some really nice ones there in incredibly competitive markets. The Pennsylvania Employee Benefits Trust Fund, the Advocate Health System, these are examples of full replacement opportunities that we were able to achieve incredibly proud to be able to serve.
David Joyner: Those customers. We, you know, David mentioned his prepared marks.
David Joyner: that will be exiting the IFP business, the exchange business, and we've now met with all of our independent market and states, including CMS.
David Joyner: and they're appreciative of the transparency and the thoughtful approach that we're taking here and we are committed.
David Joyner: to serve in these members through the rest of the year, and that's our focus. So we will continue to update you on that process.
David Joyner: and then last point, we're continuing to make progress in our culture and the way that...
David Joyner: folks think are colleagues in moving to an advocacy mindset, focusing on innovation around member experience and our provider experience. David made an announcement about how we're going to be streamlining the prior authorization process for
David Joyner: Certain conditions, and we're just going to build on this. This is going to be a focus of our company.
Speaker Change: A watch item just finished up here is the Medicare group, Medicare Advantage group business, Justin Yask about that specifically, and that business, we have a strong market position there and we've had success.
Speaker Change: It has not been immune from the elevated trends, so you've seen that definitely in the group business due to the multi-year contract nature of the business.
Speaker Change: There's not as many levers to pull there but we are getting after the clinical.
Speaker Change: clinical opportunities aggressively, and we're also going to be introducing some rate actions as well, so we think that'll mitigate some of the pressure.
Speaker Change: But overall, again, multi-year journey, it's early, but incredibly encouraged about the progress and the pride of the team for what they've done.
Speaker Change: So, Tom, I'll turn it over to you in more detail on the trend part.
Tom Cowhey: Great, Lauren Justin. So as you look at the quarter, if you strip out the premium deficiency reserve, the underlying at the business beat by about a billion dollars. [inaudible]
Tom Cowhey: So we had strong prior period reserve development of the 1231 reserves, which as I noted in the prepared remarks was partially offset by some outer period revenue changes. And so net those two are worth about 400 million, which was the driver of the increased guidance this morning.
Tom Cowhey: As you look at the current period, the upside is almost entirely driven by Medicare, so the other businesses are largely going to offset.
Tom Cowhey: First, there was about 100 million of expense favorability, which is primarily timing and will come back over the remainder of the year.
Speaker Change: As you look at the core Medicare trends, they're running consistent with to slightly better than our outlook and as Steve said, they're showing early side of stabilization. First quarter inpatient trends are generally consistent with the full year 24.
Speaker Change: We've also seen some modest favorability and outpatient but medical pharmacy trends remain stubbornly high.
Speaker Change: Outside of the core trends, as I noted, we saw strong, seasonal performance at a part D, and we also saw strong, year-over-year improvement in our supplemental benefit trends, but we haven't pulled through this favorability until we've seen more data.
Speaker Change: And then turning last just to close out your specific question on group, that is a place where we continue to watch specifically inpatient trends on that block have remained quite high. And we've also seen a little bit of acceleration and outpatient. And so we're watching that very closely, but net net very pleased with the performance in the quarter, obviously pleased enough that we were able to raise the guidance this morning. And we think that the outlook that we've taken here is quite critical.
Dr. Smith, Dr. Smith, Dr. Smith,
Speaker Change: Hi, thanks very much and good morning. I want to shift over to the relationship that you announced today with No Gover with Govy. David, can you help me understand a few things? One, when we think about your preferred formulary, can you talk about the number of lives that are on there?
Speaker Change: Do when we think about coverage, I know we've been talking the last few years around how expensive this is for employers to cover where we are on coverage today for weight loss and will this increase the number of potential lives that that could be covered with this program and then just wrapping that around you talked about clinical services and this will come through care mark. Thank you very much.
Speaker Change: Do you mean to just talk about, you know, the economic value of this for both Care Mark as well as the member? And then just lastly, and then I think about the pricing, should I assume what you've been able to negotiate through Care Mark is going to be better than the $4.99 that you also announced at retail? No, no.
Speaker Change: Yeah, Lisa, thank you and really a really good question, a couple of questions on on on the new relationship and and I'm going to turn it over to Prem, but before I do I just
I want to say, we continue to be a leader. [inaudible]
Speaker Change: and innovate in the areas that our customers care most about. And we've known that we've had cost pressures in this category. They've been asking for solutions.
Speaker Change: and I couldn't be happier about what we announced today. So I'll have Prem walk through the relationship and then answer specifically the questions that you asked. Prem
Prem: Thanks David and Lisa, thanks for the question. As you know, our company in Kermark has a long-
Prem: Improvement History of Creating Competition and Driving Affordability and Increasing Access for All Patients. With this relationship we'll do that for our insured and covered lives as well as for uninsured lives that choose to use our 9000 community health destinations.
Prem: Our announcement today also demonstrates the value of our integrated model and what we can do every single day and you know we're really excited about this example and how we're going to continue to create competition and affordability for the clients and members that we serve. Just as a little bit of a history lesson, if you look back over the last couple decades.
The main pain point for our customers and clients.
was the rising cost of specialty drugs. [inaudible]
Prem: You saw our organization take action last year with the launch of Kordavis.
Prem: It generated over $1 billion of net savings for our clients and we led the market in terms of conversion to biosimilars and are continuing to create a competitive marketplace.
over there.
Speaker Change: If you kind of fast forward to today, and over the course of last year, exactly as you mentioned, our client's biggest pain point today has kind of moved from these specialty drugs that were rising and the utilization increasing to GLP ones and the trend on these are now rising faster than the specialty drugs. And so as you think about GLP ones, there are biggest pharmacy trend driver for our clients. Thank you very much.
Speaker Change: and we continue to, you know, what I would say is leverage all of the PBM cost management strategies to enable and deliver maximize savings for our customers.
Speaker Change: and the facts are to your question because of the high cost of these medications, about one-third of our clients.
have elected not to cover GLP ones. [inaudible]
Speaker Change: as part of their benefits and, you know, due to affordability concern. And so, today, we're pleased to announce—
Speaker Change: This partnership with Nova Nordic to significantly increase the access to Wigovie, for our members at a more affordable price.
Speaker Change: by taking a formulae action, you know, on 7-1 to prefer Wigowy. And it's for our largest commercial template that has tens of millions of lives on it.
Speaker Change: and later today we're going to be providing this detail to our clients and the benefit consultant community around this important formulary change and however, continuing to...
Speaker Change: What I would say is drive the market to make medications more affordable and drive long-term value for our clients.
Speaker Change: and Create Competition with Pharma. And so, you know, as you think about that, and then you wrap that into what I would say is the enhanced value bring as part of Chermark in our CVS Weight Management program. This results in better outcomes.
Speaker Change: Results. So it's the medication plus the wraparound support that we give to members in our channel that really delivers the results for our customers.
Speaker Change: And as you know, our pharmacy benefit manager, customers rely on us and depend on us in our expertise to deliver these types of solutions to make medications more affordable, which allow our clients to expand access to their members.
Speaker Change: And then lastly, the news on the, what we're launching in our 9,000 community health.
Speaker Change: Pharmacy Locations are excited to be part of the no care pharmacy network. This will enable us to provide convenient, safe and affordable access to Wigovie for eligible patients. And again, we reiterate our excitement of this partnership and the value we're going to deliver for our clients and customers as we go forward.
Thanks for having me, baby, please.
Thank you.
Speaker Change: Hi, thanks. Just a follow-up on the, you know, the healthcare benefits guidance. It looks like you had...
Speaker Change: in a close to $1.6 billion worth of prior development and understanding it. [inaudible]
Speaker Change: It seems like the individual losses are also increasing inside the PNL, but just trying to understand better what are these prior period revenue adjustments that you're talking about. I guess what business is actually...
Speaker Change: We're late too, and how do we think about, you know, there's an impact with prior years or an impact to 25 to consider? And then as we just think about, you know, your expectations around the kind of earnings you can generate from
Speaker Change: Exiting the individual business. I know you gave us the variable loss figure for the years. That's the right way to think about, you know, the potential for year-over-year earnings contribution from accident in the exchanges or other other considerations we should be keeping in mind. Thank you.
Speaker Change: Hey, Stephen. So as you think about the development, you know, here's what I can say. The, you know,
Speaker Change: Development occurred across all business lines. The majority of the development was off the fourth quarter dates service.
Speaker Change: and the largest single source of favorability was Medicare, which is also our largest block of business.
Speaker Change: As you look at Medicare in particular, the largest driver of favorability in the fourth quarter was inpatient, but we also saw some favorability in our specialist categories.
Speaker Change: As you think about the offsets there and you're 1.6 billion dollars that you're getting out of the roll forward that's gross that does not incorporate all the earnings that we took into earnings and so a lot of that is put back into the reserve and so you can't translate the billion six into the bottom line impact.
Speaker Change: So the bottom line impact net of the revenue items is specifically the $400 million that we called out which is the increase in the guidance this morning and most of those changes are out of period and they relate specifically to both Medicare and to the individual business.
and the individual exchange business. [inaudible]
Speaker Change: As you think about the losses then on the individual business, that's why we gave you the $350 to $400, this is a $7.5 billion block of business at this point, and so it carries with it a fair amount of fixed costs.
Speaker Change: It's unclear whether or not we'll be able to reallocate those fixed costs or whether we'll be able to take them out for the 2026 calendar year. So you should think about the year over year improvement as being the elimination of the variable loss, which will be in that 350 to 400 range.
Thank you, we have Elizabeth Anderson with Evochor ISI. [inaudible]
Elizabeth Anderson: Hi guys, thanks so much for the question. I was wondering if two questions about your sort of guidance expectations.
Elizabeth Anderson: One, are you having any change in your guidance expectation on the back of the Wigovian announcement? It doesn't look like it, but I just wanted to check on that. And two, could you comment on how you see the potential tariff impact? I know some of the pieces are still very much moving, but maybe you could at least...
Yeah, thanks, I think it was, but so the-
Elizabeth Anderson: First answer on the Wigovian announcement is, it is not impacting our guidance and it's not factored in, so this will be obviously saving that we will deliver for our customers, the customers will get the benefit of
Elizabeth Anderson: Our negotiated savings. And I think as we look at, it's unknown at this point how the migration from the compound pharmacies into other pharmacy settings are going to occur, but we do expect that there will be obviously some benefit by opening up 9,000 stores. [inaudible]
Elizabeth Anderson: 9,000 opportunities for patients to be able to get the medication.
Elizabeth Anderson: As it relates to Terrace, it's obviously a very fluid environment. There's many variables in play at the moment and we look at it really in three different ways. The first is...
The front door
Elizabeth Anderson: in which we currently source the vast majority of our front-store items in American-based companies today, so we do not see a significant impact as it relates to the tariffs, and where we are looking at impacts, we're looking at alternative sourcing and diversifying the suppliers.
I'm interrelated to the farmer supply chain. There's a lot of a lot of
Elizabeth Anderson: What I would say, a lot of variables that will go into how this will be impacted depending on
Elizabeth Anderson: We're looking at brands versus generics. And if I look at even the NOVO announcement for GOP-1s, they manufacture that product here in the US. So that will obviously get the benefit of a US-based manufacturing and be able to do not be impacted by the tariffs.
Elizabeth Anderson: So, we're obviously watching closely the announcements that will be made over the course of the next week or so as it relates to how we're going to be dealing with tariffs with the pharmaceutical supply chain.
and as it relates to Etna, [inaudible]
Elizabeth Anderson: because we're in the midst of preparing for our 26 Medicare bid for both part D and the MA, we are obviously
Elizabeth Anderson: Washington closely, the impact both of the pharmaceutical supply chains as well as the other medical devices and supplies that will impact the broader healthcare system. So we are currently monitoring it and really more planning today for our for our 26 bids as is that is is contemplating the impacts for Paris. Thank you very much.
Thank you.
We have Andrew Mok with Barclays now
Elizabeth Anderson: Hi, good morning. I wanted to follow up on your comments at Oak Street, where you noted some early signs of pressure. Can you elaborate on the nature and timing of what you're seeing there? And, relatedly, is there anything that changed from year one to year two of B-28 that was either unanticipated or more challenging from an operational perspective? Thanks.
Prem, I'll let you take this question.
Prem: Thanks, and Andrew, thanks for the question. The healthcare delivery business has performed in line with our expectations. As we said, some signs of pressure in the first quarter is related to medical cost trends at Oak Street. That is offset by some of the favorability we're seeing in other parts of healthcare delivery. You know, Oak Street, it's still very immature or early in the year. We see that pressure over watching how claims will develop over the course of the next several months.
Prem: and we'll report back on that piece. On the signify business as a strong start to the year with our IHE volume, our customers are really valuing the service that we provide.
Prem: and the operational excellence that we have there as well. So more to come as we go, but right now we feel good overall about health care delivery with a little bit of pressure and upstreet.
Speaker Change: We now have Michael Cherny with Learing Partners on the 9th [inaudible]
Michael Churney: Good morning, and thanks for taking the question. Maybe just a follow-up on PCW, obviously this is the first quarter that you've had the cost vantage impact. Anything you can say about the market impact, how it's trended based to your expectations, and then going forward, you've talked about the potential to roll this into government. Any update thoughts there? Thanks.
Michael Churney: So maybe before I turn it over to Prem, I think this is another example where you've heard consistently today the innovation that we're driving in the business whether it be the prior authorization work that Steve Nelson's working on it at Etna.
Michael Churney: or the Biles Summars that we announced last year, or now the NOVO. I think this is another example where Prem and the PCW team has led.
Michael Churney: on the front in terms of reshaping how pharmacy pricing is delivered in this country, so Prem want you to speak more broadly to Michael's question. Yeah, so Mike, thanks for the question. And you know, from my perspective, the PCW business continues to perform really strong, you know, in the. [inaudible]
Michael Churney: Simple Statement for the Best Run National Pharmacy Period. If you think about how we're achieving our results, one, it's...
Michael Churney: Extremely strong execution in our 9,000 local community health destinations that are powered by our 200 plus thousand colleagues every single day that we're enabling and we continue to make labor investments and technology investments to continue to improve.
Michael Churney: The workforce environment, we continue to see our MPS of our colleagues improve in our stores, and we've transformed the technology and the operating model in our stores to better serve our customers. And lastly, we've really focused on our omnichannel capabilities.
Michael Churney: inside of our stores to really connect care and make those experiences better and more convenient for our customers. If you look at the quarter, there's probably three things that impact at PCW first.
Michael Churney: Front Store. If you think about this challenging macro environment, we're pleased with our performance. We saw a shift in seasonal illness.
NTQ-1 and we had a double peak.
from that seasonal interest, double peak of that seasonal illness.
Michael Churney: that contributed to our outperformance. We also grew our customer base in the front store and grew, increased our frequency of trips.
Michael Churney: The second piece is in our pharmacy business, you know, our script comp growth.
Michael Churney: Q1 of the transformation into a much more transparent model that allows our payer customers to get the value that we receive from our industry leading cost of goods in a much more transparent way. As you recall from November 23, when we first announced this, the goal of this is to
One, the cross-subsidization that exists in the marketplace.
Across Brands and Generics
Michael Churney: and to create stable, more predictable margins and pass the value back to payers in a much more predictable way when we receive that.
Michael Churney: Where we are today, we've moved 100% of our commercial scripts as we said on 1125, into cost-manage.
We move the cash discount card space [inaudible]
Michael Churney: Intercost Manage as well. We're working very hard for 1-1-26 to move the rest of our scripts.
Michael Churney: into this model, and we'll provide more updates on the outcomes of this, but we're really pleased.
Michael Churney: Michael, one thing to add, as we look in the back half of the year, obviously, P-T-W is running as...
Michael Churney: as well as we would expect. With the one caution or watch out is the vaccines and immunizations as we anticipate volume impacts depending on the government action for the end of this year.
We now have [inaudible]
Charles Rhee, with TD Cowan, please go ahead [inaudible]
Speaker Change: Yeah, thanks for giving the question. David, want to come back to your comments earlier about...
The Little All Pass in Arkansas, and obviously, I think it's been reported that, you know, you prevent potentially closing sort of your retail locations.
in the state
Speaker Change: Obviously some other states are concerned similar legislation and certainly maybe Arkansas's an easy state to exit from if you had to.
Uh, um, [inaudible]
Speaker Change: So, you know, if we think this gives a doctor more broadly and, you know, and I think back to the...
Speaker Change: The Blue Shiller, California contract where they split that contract up and you guys ended up retaining the specialty pharmacy part of the business and I think at the time you guys had said that was obviously the most profitable part of the business.
Speaker Change: If that's a case, and we see a future where, you know, sort of splitting these business and I understand the argument why having a vertically integrated business makes more sense.
Speaker Change: maybe the PVM part of the business and retain specialty pharmacy and if that's case is that a difficult kind of process to enact if you had to and just a quick follow up to Lisa's question earlier, will go be being on the national formulary I assume that comes with a better rebate structure? Thanks.
All right, Charles, thanks for the, thanks for the, the question. Let me be.
Speaker Change: We first talk about Arkansas because I think it's important in terms of just stating how we see, at least laying out the facts as we see them. One is we believe this is really bad policy and it's putting a lot of patients at risk.
Speaker Change: So, I think when you take a step back and look at this, this is going to be impactful both in terms of cost and disruption in access. There's over 300,000 people that we currently serve with more than 4 million prescriptions.
Speaker Change: So it's going to create what we know will be the headline of the day, which is pharmacy deserts and access problems.
So when you look at-
Speaker Change: The most vulnerable population, which is the specialty population, as I mentioned on the opening comments, there's 10,000...
Speaker Change: Patients that will be disrupted and, or potentially have access to care issues and
Speaker Change: Not to mention the savings that we've delivered for biosimilaires and other things that we've taken cost out of our plan sponsors pockets and actually save the consumers' money.
Speaker Change: This is what I believe that most other states are looking at and saying whether or not this is going to be picked up across the country. I recognize that there are other states that are looking at this. We've had some really positive developments over the last couple of weeks for states.
Speaker Change: that have rejected this notion. I think they've done this in large part because
As um, as we...
Speaker Change: Looking presenting the facts, I do believe that common sense will prevail and that we won't have to make the decisions that you're asking us, whether what businesses we are are not going to be in, because I do believe in the power of and the ability for us to be able to serve customers through the integrated assets that we currently operate.
Speaker Change: So as it relates to Govy, the obvious answer is this is what a PBM does when there's enough supply in the marketplace.
Speaker Change: We create competition and we ultimately lower costs for the customers and wish we serve and that isn't and also now going to be delivered to the pharmacies that we run and operate so if you go back to the Arkansas example.
Speaker Change: You know, we are now opening up with govy access to 9,000 pharmacies and potentially not being have you know they will not be an affordable retail access and I'm in their state if this continues so. [inaudible]
Speaker Change: I think when you look more broadly at the role that we play, I think that we clearly have, I think the fact base and I think the proof points to be able to demonstrate the value that we're bringing. But thanks for the question, Charles.
All right, one more question. Operator.
We have the last question from Ann Hynes. We can see her
Aaron Hines: Yes, great thank you. Can you just provide a little bit more commentary on your commentary on the flow and your prepare remarks? I guess what makes you a little bit more concerned is it just less support from the CDC?
Speaker Change: Thank you, Remind us of how many flu vaccines you do a year and what you have embedded in guidance for a potential change in behavior.
Aaron Hines: and additionally, are you just worried about the flu or is it your entire vaccine portfolio that you might be a little bit more worried about given the Washington environment?
Aaron Hines: Thanks. Yeah. Yeah. Thank you, Ann. And I'll let Prem answer this, but this is more broadly the the immunization and vaccination program that we're talking about. So Prem, you want to address the question?
Aaron Hines: Yeah, so, you know, as Tom and David Tedden have prepared remarks, you know, remodeling a few things, want us to consume our sentiment and, you know, what I would say is around vaccines and potential potential changes in
The Protocols required to deliver these [inaudible]
The pressure that we're contemplating is primarily run COVID.
vaccines, and if there's some changes in terms of
Those requirements. And so there's a committee called ACIP. [inaudible]
Aaron Hines: that meets in the middle of the year that will kind of help drive and make sure that we understand what the National Standards are for delivery of this.
Aaron Hines: What I'll say is our stores are prepared and ready to deliver vaccinations for our nation.
Aaron Hines: View, continue to create a really good consumer experience. To deliver that, we continue to see really good progress in terms of our ability to gain share of the total addressable market of patients and these vaccines. So, you know, it's really around the size of the entire market as it relates to COVID.
Speaker Change: Alright, thank you, Prem. So, before I end the call, I want to thank over 300,000 dedicated colleagues for their work you do every day. You're commitment to serving our consumers, patients, and members are important drivers of the strong results we deliver this quarter, and key contributors in our journey to become America's most trusted healthcare company.
Speaker Change: Thank you for joining our call today and we look forward to providing updates as we progress throughout the year.
Speaker Change: Thank you all for joining today's conference call and see CVS Health, a tank of land today who has now concluded. Human others can act. Thank you for your participation and please enjoy the rest of your day.