CVS
#Thanks, <UNK>.
<UNK>, the year ended up at 97.2% for last year's selling season.
As we mentioned, we have about 75% of the renewals done, so we're in the home stretch there.
I do not know what the retention rate was at this time last year.
It probably wouldn't be that far off with where we are.
Right.
And it's pretty similar to the selling season, right.
The large players have made their decisions and now it's down to the mid-market and the small players.
So I would say it's pretty comparable to where we were last year.
No, <UNK>, I don't see those aspects pressuring front-end comps.
It's important to emphasize that some of what we're experiencing is planned as we think about our front-store business and the segmentation or personalization strategies as we had talked earlier.
I would say, too, <UNK>, we've said all along, we're focused on driving profitable growth, and so when you look at where we're very pleased, in our core health and beauty businesses, that's where we want to win, that's where our most valuable customers expect us to be unique, and that's going very well.
Then we're pulling back in general merchandise and edibles businesses, which tend to be very promotional, and reinvesting those dollars in our best customers, so you'll continue to see us do that.
<UNK>, we have had an extremely high retention rate of those Maintenance Choice clients, so there's really not a good proxy there to answer that question.
In the few cases where that's happened, CVS continues to be in the provider network, and we've retained a large percent of that business.
<UNK>, it's <UNK>.
We haven't broken that out.
Quite honestly, the integration of those businesses are pretty complete now, so actually we haven't even broken out, so a little more difficult than you might imagine.
But they're part of our forecast for this year, and our forecast is very much in line from a quarter perspective.
<UNK>, it's around 75%.
If you look at the mix of business within the PBM excluding Med D, the make-up of that business is now 60% health plan, 40% employer.
Thanks.
We look at it a lot of different ways, but I would say at the most simple level, the top 30% of our customers drive about 75% of our sales and profit.
We are meaningful to them, but we still have significant upside in terms of share of wallet opportunities with them.
So what we've really been focused on is the personalization strategy that <UNK> talked about.
Essentially, investing in those customers because we can see from the data where we have upside with them.
We segment them either from a value perspective sometimes, or we look at them in terms of their shopping behaviors.
So we might look at beauty enthusiasts who, for example, tend to be less promotionally oriented and are very focused on new items and what's hot and relevant for them.
That might be very different than food and family loyalists, who are looking for different kinds of offers and strategies.
So for us, it's all about getting at the very micro level and giving them targeted offers that matter for them.
We can track those customers over time, and we're very focused and pleased with the fact that we continue to grow sales and profitability among those best customers.
<UNK>, it's <UNK>.
If I could emphasize one point, you're hearing a theme emerge and it's not a new theme.
But whether we're talking about your point on the front store or some of the things that have come up earlier with some of the questions about, the pharmacy, there is a tremendous amount of data out there.
It's one thing to collect the data, it's another thing in terms of how do you use the data to create an outcome or a behavioral change.
That's where we've made significant investments in our business, whether it's ExtraCare or whether it's the capabilities back in the pharmacy, that is allowing us to do things in a very differentiated way, that we think that is giving us an advantage in the marketplace.
That's the delicate balance that does not just make this a math exercise.
We certainly know, if you look at our bottom two deciles of customers, where there's potential, and that's what you saw us doing the last couple of quarters, is pulling back our promotional spend ---+ weaning those customers off of it.
We certainly want to continue to keep their business and reinvesting that in other segments where we could see more profit upside.
But that's exactly the balance we're looking at.
And we said before, the role of the front store is different in our Company than other companies.
It represents 11% of our total Enterprise sales, but it also is the front door to how people start to use us as a pharmacy.
So as we look at those customers, we're looking not just at their front-store sales and profitability, but we also note which of those customers are our pharmacy customers and that's an important part of the decision making process, as well.
<UNK>, as we've said many times price has been important.
It will continue to be important.
We've talked about the fact that, price is ticket to the gate.
Listen, when you look across the PBM business, we're talking a lot about retention rates.
We never want to lose a client.
At the same time, we don't forecast or expect to have 100% retention.
You can look across the landscape, and you can see clients who, every contract renewal, they migrate to another PBM.
There are going to be clients out there that have different priorities, and we think that, with our differentiated offering, we can appeal to the broadest set of those clients.
Just to add to that, <UNK>, while we have to continue to be competitive on price, it's really our differentiated model and our ability to interact with a consumer and impact their behavior and lower overall healthcare costs, that's what's resonating in the market and that's why we're continuing to win.
Thanks, <UNK>.
<UNK>, it's <UNK>.
I'll start and then flip it over to <UNK>.
But as you've heard us talk in the past, while biosimilars are just beginning to enter the market and their impact will be nominal or minimal in the near term, we believe that they will grow in importance and they will behave more like brands than generics, which create opportunities within the formulary management area, so that's how we thought about it at a very high level.
I'll flip it over to <UNK> to talk more specifically.
<UNK>, maybe I'll step back and talk about the three dimensions to our formulary strategy for this year, because it's a little bit different than what we've done in years past, and it does include these biosimilars, or in the case of the Basaglar, it's as a follow-on biologic but I would think of it as a biosimilar.
First, we've got our normal therapeutic review that we started back in 2012.
That's all about making sure we have cost-effective medications for our clients and their members.
We've been able to deliver the $9 billion in savings that <UNK> talked about, and over the last several years, we've been able to negotiate price protection into those contracts, so if a manufacturer raises a price over a predetermined threshold, that comes back to our client in the form of a rebate and lowers their price.
What we introduced this year is indication-based formulary.
Think about Hepatitis C that has six different genotypes ---+ the genotypes are different ---+ so we will have different formulary options based on the genotype.
Or in the case of autoimmune, you have the same drugs that treat psoriasis and RA.
We may have a different preferred product for psoriasis than we do for rheumatoid arthritis.
The third dynamic is really hyper-inflation.
We looked at drugs that had a three-year cumulative WAC increase of greater than 200% and we've taken on 10 of those drugs this year.
Our goal is, either we're not going to cover them, or we're going get the economics back to prior to these WAC increases that they took.
For biosimilars, it's just part of that theme: how can we get the lower, most cost- effective drugs for our clients to provide as a benefit to their members, and we think biosimilars will be an opportunity.
When you look at biosimilars, most of the pipeline is filled with the biosimilars under the medical benefit with the exception of Humira, but we'll continue to look to make decisions that are in the best interest of our clients and their members.
<UNK>, it's <UNK>.
I'll start and then <UNK> or <UNK> or both will jump in here.
But <UNK>, I would say it's really the surround sound that is contributing to that.
It's not just about the procurement side of things or the network side of, of things.
I do think that Med D is a great example of competition prevailing in the marketplace to drive down overall costs, and as you look today at the cost of the Med D program against what it was projected a decade ago, it's a fraction of that.
The only thing I would add is, I think that's right.
It's pretty balanced.
We're getting ---+ continue to get value to have a very competitive product in the market really across all those dimensions.
The only thing I would add is that, our expertise and how we've been able to help SilverScript and our clients is really how you design your plan, how the formulary that supports that plan, what's your network strategy, all of those need to work together to provide a synergy that gives you a competitive product in the marketplace.
That's really the expertise that we've built over the years that allows us to continue to be successful.
<UNK>, it does.
In our prepared remarks, I mentioned that less than 7% of the gross wins are made up of the Coventry business.
Yes, <UNK>, it's <UNK>.
As <UNK> mentioned earlier, we have seen the ramp begin in terms of the clients that came online in January 2016.
At our analyst day, we'll provide and quantify exactly where that sits as we're able to ramp-up through the year.
No, <UNK>, we're pleased with where we're at, and recognizing that, as you've heard us talking about, this is a marathon, it's not a sprint.
We're pleased with the progress that we're making.
And again, for the reasons we mentioned earlier, we think about the assets, the capabilities that we bring will grow in importance, recognizing the direction that healthcare is headed.
I do think that obviously the business has performed well in for both segments, both Q1 and Q2.
Obviously, we are driving benefit from ---+ I'll say below the line ---+as we think about refinancing our debt.
But again, you saw us raising operating performance expectations within the PBM for the balance of this year and I continue to think that we're well-positioned, as we think about delivery for Q3 and Q4.
We look at our price ---+ the net price to customers, as you think about all of the promotions, ExtraCare rewards, and targeted offers we give them and we think that's how the consumer views it, and we think we're within striking range, essentially, of those competitors when you look at all those offers for our best customers.
Thanks, <UNK>.
Next question.
<UNK>, I'll start and then flip it over to <UNK>.
I'm sure you know this, so just as a reminder, any acquisition, especially on the retail side, you have to do the things you must do before you can do the things you like to do.
We're all really pleased with the work of the team to be able to convert almost 1,700 pharmacies in what amounted to a six-month period.
It was a terrific job by all.
We got tremendous support from our partners at Target.
We've completed those activities within the last 30 days, so now we get to move to the things that we really like to do.
I'll flip it over to <UNK> to talk about that.
Right.
As you can imagine with all that conversion, there is always ---+ we've done a lot of acquisitions, you do have a fair level of disruption.
As <UNK> said, the Target folks have been great in working with us through all that.
But we're very pleased.
The service scores coming out of those stores are tremendous, the leadership alignment is fantastic, we're on track to achieve our targeted EBIT for those pharmacies.
Now we're focused on ramping up our patient care programs.
As we looked at this opportunity, there were really three big areas where we saw opportunity and those are beginning now.
First, is the core clinical programs that we've always used at CVS, we call them our patient care programs, things like adherence, outreach, and other ways that we can drive clinical outcomes, which drive scripts.
The second is around the all the member engagement efforts that we've got going on.
These are essentially targeted at our members through the PBM who now have opportunities to fill the prescriptions at Target, So we're letting them know about that, inviting them into those Target pharmacies to experience the new offering, as well as some targeted marketing that we've been doing in conjunction with Target.
Most of that's been digital.
It's also been radio.
That is really just kicking off now, as well.
So all those things together give us a high level of confidence that, with all of these unique programs, as well as our brand recognition, our clinical capabilities in these digital tools that we've introduced, that we'll be able to increase script volumes in these locations.
I would say the only thing we would really say is probably noteworthy in terms of performance is those markets where CVS had very little presence, like a Denver or a Portland, Oregon, those Target pharmacies are probably performing the best.
Because as you think about it, that's where our model of allowing Maintenance Choice members to now fill at a CVS pharmacy inside a Target really is unique.
They don't have a CVS nearby.
So that's probably the one difference we've seen so far in terms of performance.
It's <UNK>.
What's important, too, as you think about that combination, is the overlap between the Target pharmacies and the CVS pharmacies was pretty minimal.
So there's not a lot of those situations where we're head to head, number one.
That's why it was a good match from that perspective.
And number two is that we share customers.
Many of our customers shop the Target channel and many of the target customers shop the CVS channel.
Now what we've got is giving those customers options.
So at the end of the day, it's going to be enhancing to our overall market share, not just switching from one box to another.
And <UNK>, I'll just wrap it up by saying it's a hard question to answer at this point for the reasons that <UNK> mentioned.
We're just beginning the broad-based marketing programs.
There is a tremendous opportunity to increase the level of awareness of CVS at Target, and all that work has just begun.
Before we take the next question, we just want to back and add a little color to the question that came up earlier on the Coventry business.
This is <UNK>.
<UNK> <UNK>, you asked a question about Coventry.
Again, for the 1/1/17 selling season, about 7% of our gross wins is related to the migration of the Coventry business onto the Caremark platform.
There is an additional piece of Coventry commercial business that does migrate onto CVS on 1/1 of 2018.
Okay.
So next question.
Steve, this is <UNK>.
I would say, if you go back and look at our long-term targets, probably the best way to think about this, and you look at those targets, you've seen us give expectations that the top line is going to grow faster than the bottom line as we capture share, as specialty continues to grow, as we continue to invest in our business and do [ballpoint] acquisitions.
I would say that, that long-term forecast remains intact today from, as you think about the top line growing more rapidly than the bottom line, and so I would expect that to occur.
Generally speaking, that's essentially how this business typically operates.
As we've always said, is the health plan business, they're a little slower to adopt our programs and to sell those programs in, and to ---+ depending on the complexion of the health plan business, some might be more Med D weighted versus commercial, so the cadence of that ramp does vary but it's typically a bit slower than the employer book of business.
Steve, they had an option to extend the contract and the economics were already built into that deal, and they chose to extend, so it was not a new financial arrangement.
It was an extension of the existing deal we had offered them.
Okay.
We'll take two more questions please.
It's a great question and we're certainly open to that.
As you look at how pharmacy is evolving, and the importance of investments in technology to not just satisfy the regulatory priorities that are associated with pharmacy, but how pharmacy becomes an important of the solution of driving down healthcare costs, and serves as something more than just a dispenser of prescriptions, that is ---+ as that increases in importance, there may more be more opportunities that present themselves, and we're certainly interested in those.
<UNK>, <UNK> <UNK> here.
Obviously, we're very pleased with the progression of Red Oak.
We continue to ---+ both us and Cardinal ---+ continue to see value from that joint venture.
I would say that as we've talked about this in the past, both inflation and deflation across our business has not really been that impactful, so I don't think that the change in those levels of pricing within generics have been a major impact on us.
They certainly have not been material, both this year and in prior years.
So it is progressing very much as planned this year.
We'll probably have more update as far as generic introductions when we get to analyst day in December.
We always update our performance, both from a current period perspective and an ongoing perspective, so we certainly hit on key topics, and the outlook for those key topics over the course of the next several years, in December.
Okay, everyone.
Thanks for your ongoing interest in CVS, and if there are any follow-up questions, you can contact <UNK> <UNK>.
Thanks.
