ESRX
#Well, unfortunately, the situation has evolved into a lawsuit.
And, like I said in my prepared comments, that's really, we did not want to see it get here.
We believe we've lived up to our contractual obligations.
We offered the best levels of service to the patients.
And we do everything we can to help drive their economics in the right direction.
At the end of the day, a lawsuit was filed.
We countered.
And now it's in that process.
So this is probably going to be quite a long, drawn out situation.
The reality is, at any point, we're always open to conversations.
If they want to come in and have a conversation that's reasonable in nature, nothing to do with $3 billion, that's pretty ludicrous.
You've heard me say that before.
We're open to that.
Going forward, obviously this isn't just ---+ this really has the totally undivided attention of our entire Board.
I will continue on as Chairman of the Board.
And so all of us on the Board will continue to be involved.
This will really be up to <UNK> and his team to position the Company, while the pledge is to continue to service the members, to continue to service the client with information, and the data they need to do their job.
We'll continue to bring them cost-saving opportunities to them.
And as they look forward to the future, hopefully they'll continue to implement those ideas, and we'll try to come to a resolution.
But at the end of the day, we're in a legal process now.
Sure it does.
I wouldn't say it comes up in the majority of the cases.
It probably comes up in what I'll call a small to medium minority of the cases, and we have taken great pains to make sure that our account teams understand why we're here.
Because, our core is around aligning around clients and patients.
So this is the sort of thing that really, as you can imagine, as a leader, helping our folks understand that we're going to service the heck out of Anthem.
We have nothing but intention to continue to do a great job for them, to position ourselves well to be a choice that they want to make at some period of time in the future, when we get this behind us.
So what we've done is made it very, very clear to our team how to keep this isolated.
How to focus on things that actually our clients need is to focus on.
At the bottom line is, while it has been a minority of conversations, it's been a very short conversation, and folks pretty quickly move on.
But there's also a difference.
When you're dealing with ---+ our account teams are dealing with the pharmacy management teams at our clients, this may come up.
But it's really one of questions and trying to understand, it gets press, there's a lot written about it, and what have you.
So there's always going to be conversation.
I don't think it's really a distraction, though.
Because it's what we deliver.
It's what we do.
But if you go to the other side of that, I've been CEO here for quite some time.
CFO before that.
I have been in this business for a long time.
I was in other businesses before this one.
What you don't typically see is public airing of a situation, and I think that's what really strikes most of you all.
I still have a lot of conversations with CEOs.
<UNK> has taken over those relationships, and he's building on it.
<UNK> and I have been out to a lot of clients over the last several months.
When you do that, obviously when you're sitting with another CEO, that often has disputes with their partners and vendors, it never gets to this level.
And so I think there's an inquisitive mind at the other end of the table, that says, what is going on.
And unfortunately for us, we scratch our heads with that, because we would have liked to have all of this done in the back room and figured out how to solve these things, and how to go forward on a mutually agreeable basis.
Unfortunately, it didn't come out that way.
So at the CEO level, those conversations are ---+ do take place.
But not from a, it hurt the business or puts us at risk, or hurts our ability to sell.
But, instead, it's really just a little bit of head-scratching going on in the conversation.
Sure.
Thanks for the question.
I'll take it.
So let me be really clear.
We've said this, I know, are very actively and will continue to be very active in looking at all sorts of things.
As you can appreciate, given our size and where we sit in the marketplace, we have an awful lot of stuff that we get to take a look at.
But let me be clear.
Anything that we think can help our clients or help our patients can drive better outcomes, can expand or extend our model, or otherwise be complementary, we're interested in, if it adds shareholder value.
If it makes sense from both a financial standpoint and a strategic standpoint.
It also has to compete against what could we do without the asset.
And so we've looked at any number of things.
I'm not going to go into any specific examples.
I'm familiar with obviously some of what has traded, and some what will, and I understand why those who bought it, bought it.
But let me be clear, we will be aggressive where we can draw a line to those three things.
Shareholder value, helping our clients and helping our patients.
We'll not be aggressive where it doesn't make sense, where we see other ways to achieve a similar result, using our capital more efficiently.
So the last thing I'd say is I wouldn't want you to think it's either/or.
I would not want you to think that because we are buying stock back, we therefore were not strongly and deeply looking at any number of opportunities that are in the marketplace.
We are big enough and hopefully disciplined enough, I believe disciplined enough, we certainly have had a history of it, and I intend to carry that forward, to be able to do both of those things really, really well.
Sure.
As you can imagine, you would love to, at one level, think everybody loves you and would never leave you.
The flip side is, if we price to keep 100% of everything, we've always said we don't want 100% retention, because there's sometimes you're just not going to get it exactly right, and somebody is going to come in and be a little more aggressive than us, and that level of sensitivity at the client level would be something that causes them to move.
What I'd say is, our book of business, and I've looked at this over about five, six years ago, the Express Scripts book of business in particular has a nice middle market element to it.
There's a more natural churn there with brokers and so forth.
So some of that, when you look at the churn, it's not any one reason.
You've got a couple different market segments.
Typically the other thing that happens is, if we drop the ball on service, it goes into play.
And now we really have to chase our tail, and thankfully we're strong on service right now.
We saw two or three years ago, what it looks like when, in fact, we're trying to catch up on service.
And so what I would tell you is there is no one thing that drives it.
95% to 98% is something we feel good about.
We target the high end of that range, as you can appreciate.
I've told people, I won't be very satisfied with the low end of that range.
And that suggests to me that it's a pretty minor amount of churn in the grand scheme of things.
Thank you.
Yes.
So, <UNK>, this is <UNK>.
More specifically, we're very focused on our fulfillment process, constantly looking at ways to improve that, and bring costs down in that process.
And no different than past years.
We have some initiatives we're putting in place to improve and reduce those costs, that are more oriented to the second half of this year.
The other thing, we're looking at call volumes and with our digital transformation, we're seeing reductions in those call volumes.
And so we're going to continue to invest in that.
And as a result, bring down the costs we incur around call volumes.
Again, a lot of those initiatives are in process, and will have an impact now, but a much greater impact as we significantly take those down in the last half of the year.
And then no different than we've had SG&A reduction initiatives going on throughout our business.
It's something we have focused on in past years.
I've been heavily focused on it, since I got here.
So every day we're looking at how we are more efficient across this whole business.
Those just happen to be two of the bigger initiatives that are going to drive the second half.
No.
We're not going to get into that specific of details.
It's so hard to pick one example and extrapolate from it, <UNK>.
As you can appreciate, because the dynamics in the therapeutic class, the number of additional manufacturers already there, the number of things in the pipeline in front of it, the inflation over the last two years in that class.
All of these things come to bear as the manufacturers make their decision.
What I would say is we've been very pleased to see an increasing number of manufacturers looking to be what I would call creative and responsible on pricing.
And you've heard several of them say that the missing piece for them has been what we can bring to the table, which is the capture of data, and the use of data, in such a way to help them be confident that the way that they're pricing the product is actually finding its way into the hands of patients, and into the support of clients.
So we've been encouraged by it.
I don't know that any one drug is a harbinger of things to come.
I think it's a harbinger, though, at a macro level, that we have changed the dialogue with pharma over the last two to three years.
And we will continue to work very hard to create access for their products at fair prices, for the patients who should be on them.
And the pharma companies that want to work with us on that basis are coming to the table and making great choices, and we hope that continues.
Sure.
Well, all I'd say at this point is, there is nothing more important than retention in any year.
And that includes this year.
Obviously, we love to win new cases.
We love the fact we've got a large number of prospects this week joining us in Orlando.
But I will tell you that at the end of the day, we hold ourselves to a high standard.
We have a lot of work to do this year.
But it starts with retention, <UNK>.
I'll start, and then <UNK> can certainly chime in.
Having a lot of years of experience, first of all, pharma typically raised prices.
And so the question is how much worse would that be if you didn't have an independent PBM.
And I think what actually ---+ our mission is not to be constrained by any other ideas, except to work in the best interests of our patients and our clients to control costs while improving health outcomes.
And without the tools we bring to the market, I'm not ---+ in my opinion, you would see much higher costs, much higher run rates.
And it goes back to the conversation we had earlier about net and gross.
And the reason those spreads continue to open and widen is because of the tools we have put in place to help our clients control costs.
<UNK>.
I completely agree.
The thing I love about this business, and why I'm so excited about it when I go forward is, one, we have got really robust competitors.
It forces us to stay innovative and smart.
In our case, I believe that our differentiating story resonates strongly.
It lets us focus 100% of our resources on solving the challenges that patients and clients face today.
And I cannot imagine a better place to be.
Yes.
We're not going to quantify.
We quantified at the beginning of the year the impacts from, overall, from the loss of Catamaran and Coventry.
But I don't want to get into any further specific impacts around Catamaran.
We typically don't talk about client specifics.
We only did in this instance because it was such a large impact from those two, which were a result of acquisitions.
Not as a result of losing a client, per se.
But beyond that, we just don't want to get into any further specifics around that.
But when you look at the data, you have to always remember that every year, if you take out our two biggest clients roughly, just speaking in generalities, roughly a third of the business comes due every year.
A third of that book reprices every year.
So what you're facing is the challenge of that.
When you look at this year in particular, we had our second largest client reprice in May.
We said that in our prepared comments.
So when you're lapping the year, you're facing the impact of your second largest client having repriced, plus you're looking at the impact of the normal trends that occur, and you build up a lot of cost.
Think about all of the plan designs.
Which plans don't change, co-pays don't change, formulary management don't change.
Every plan we have has numerous changes, plus the impact of Medicare changes that come in.
Medicaid changes that occur.
You've got millions of changes that come into ---+ that all get initiated on January 1.
Our call center people have to be prepared for that, our account management teams have to work with our clients on it.
The ramp up in costs attributable to January 1 is always a big factor for us.
So the first quarter run rate is a lot higher in both DPC and SG&A, and through the course of the year we get those monies back as we ---+ things become normalized again.
That's a cycle that we visit every year.
And if you look at our trends over the last years, you'll see that the profitability ramps up in the back half of the year, and that's not going to change.
We've never disclosed that.
And we feel comfortable that should still run its course.
There's always a little bit of an issue.
We hedge a little because it could fall back to the third quarter.
And so that's the only softness.
If it doesn't occur in the second quarter, would it occur in the third quarter.
But historically, it's happened in the second quarter.
And we don't get into specifics around it.
I appreciate your comments as well.
Thank you very much.
Boy, I tell you, that's the magic question of the day, isn't it.
We believe, there was a lot of conversation for some period, and you've heard them all, about $500 million to $700 million.
And we feel like we need them to grow as well, and be competitive.
And we stepped up and met that.
Now, we also know there was a lot they were leaving on the table, just purely by plan design and opportunities.
We also believe that it wasn't that if we do it right, if we could, in fact, better help them manage their formularies and their networks and plan designs, and go into market, helping them grow their business, our economies of scale grows, their economies of scale grow, and we're willing to share that.
So it wasn't just the money we're putting on the table, some of which we're hopeful we get back with scale and size.
But in addition, it's really aligning their products with the marketplace.
And that could have been worth billions of dollars.
So when you put those two together, we think we've been more than fair in offering a very good offering.
And, again, we'll see how this all plays out.
But it is a head scratcher.
Why don't we just take one more.
I believe it's the last question in the queue.
Well, thanks for calling it out.
We obviously ---+ it's another explanation as it relates to how our EBITDA sequentially grows, because these core set of businesses which aren't small, but which aren't huge, but they are mighty in terms of it, and they don't create any scripts for all practical purposes, have continued to grow at very, very nice rates, and solve problems for other sorts of clients that they serve.
We've had some new client growth.
We've had some new products come to market.
And so all of those fuel both our specialty distribution business, as well as our UBC business, as it relates to that.
I will also call out our Canadian business is really doing a great job, and continues to grow clients as well, and has moved into new product lines, including specialty.
And so when you take a look at that collection of businesses, again, with the exception of Canada that doesn't produce scripts, we like a lot.
That becomes an area of us for focus to potentially do M&A, as well as just organically right now, the leadership of those businesses are doing a terrific job addressing their client's challenges.
As it relates to Part B, I think it's a little early to call.
And so I really don't have a lot of great depth of commentary for you there, other than to say obviously for us, we see a lot of opportunity on the medical side generally across a number of ways to get at that spend and manage it, as well as supplying some of the folks that are actually delivering care.
And so end-to-end, it's something we're deeply looking at and thinking through.
But in the short-term, our assets are really, really good.
I want to take this time to thank all of you for joining us on this call today.
We appreciate your investment in Express Scripts.
I think we are better positioned than ever.
The marketplace continues to evolve.
Our challenges are mighty, and our solutions are great, and I think we've got a great leadership team to take us to that whole next level of performance, and meeting your needs as investors.
So thank you very much.
We look forward to talking to you in a future date.
Thank you.
Bye bye.
