CVS Health Corporation — 2024 Q1

Justin, it's Tom. So the largest impact within that -- within the quarter is the seasonality adjustment on inpatient. 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 million. But as you look at where that occurred, that was really in some of our inpatient categories where the trends restated negatively.

Justin, great question. So as you think about Medicare Advantage, as I said, it's a $65 billion 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.

Sure. Thanks, Justin. So I would talk about 2025 in terms of headwinds and tailwinds. 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 miss on trend.

Yes. Justin, I'm just going to reiterate what I said in my prepared remarks. We are committed to improving margin in 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.

Sure. And thanks for the question, Lisa. So I would say there are 2 elements here. There's the what's going to happen from an industry perspective in growth and then what we at Aetna are going to do.

Lisa, from a very high level, as you think about what the potential -- List, just as you -- from a very high level, as you think about what the impact of membership loss is, just when you think about the comments that we made about margin restoration relative to the implied losses in the book, and so losing additional members doesn't necessarily contribute to lost profit in 2025.

Yes. 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 some timing and mix-related impacts in our other Health Services segment businesses.

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. But also, as we think about those seniors that are currently 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 an attractive option in 2025.

Sure. I mean, first, with respect to Part D, I think Tom articulated it well. There's just incremental benefits that are being offered and significant increase in plan liability. And while there'll be an increase in direct subsidy, and we're expecting that, it really isn't sufficient to cover that increased liability that the plans have.

And if I just think about stepping back from your question, Nate, 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 on Part D.

Yes, 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 I think we've made it clear that everything is on the table. So there are TBC benefits that will probably get adjusted. There are non-TBC benefits that will get adjusted. We'll look at all -- like 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 try to improve profits for next year and maintain some level of stability inside the book.

Yes. Nate, I would just add that we continue to evaluate our overall cost structure with respect to operations, process, productivity. And 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 size those efforts, we'll update you throughout the year.

Yes. 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've analyzed it every which way we can. And when you look at basic results such as their emissions per thousand or their pharmacy spend or their 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 a pressure on our entire book that we are having to take action against ultimately.

There is a contribution from Cordavis that's embedded in our Health Services guidance. We haven't disclosed the date, Michael, what that impact is, other than to say versus our initial projection because we delayed the formulary change to 4/01, we had hoped to do it a little earlier in the year. That did have a little bit of a timing impact inside the quarter, but the adoption there has been fabulous. The client reception has been fabulous.

Sure. Thanks, Tom. And 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 around control and kind of our confidence on the ability to continue to have purchasing advantages in the market.

Yes. Mike, I would just say on the biosimilars, obviously, it represents one of the biggest opportunities to reduce overall pharmacy cost for the U.S. 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 in the future of the biosimilar market.

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, and we took it down by about $400 million, the majority of that reduction is the Health Care 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 Medicare utilization, and that includes an out-of-period charge that was taken in the first quarter that's embedded in there.

Yes, Tom, 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 med cost trend and drive MLR improvement, how do we leverage that more broadly across Aetna with Oak Street.

And I would just add to Mike that, as you said, we are working very closely together. And for example, while obviously, we're not going to provide color today on specific counties and the extent which counties will exit, 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.

Well, clearly, care management is an important tool that we use to engage our members. And 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 are we best able to engage with them or 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.

Yes, I would just add to that, and this is where the partnership between Health Care Delivery and Aetna comes in. 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.

It's not a diabetes issue. Think of it as 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 in-sourcing of another client's business and some of the disruptions in the marketplace in terms of volumes, specifically GLP-1s was part of that, we were -- we missed our guarantees by a little bit.

No, I think that's consistent with the way we see it. I will just add one thing on GLP-1. Obviously, it's -- 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 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 broader care management wrappers on this.

And 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 you updates throughout the year. Thank you for joining the call today.