CVS Health Corp Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Lisa Gill - JPMorgan Chase & Co - Analyst : Great. Thanks very much. And thanks for the detail. Tom, I just wanted to make sure that I understand a couple of things. One, when I think about the MA bids that you put in for 2025, you talked about, and we also on the plan finder, the cuts. Can you maybe just talk about -- I know we're only one month in, but you seeing the disenrollment that you expected? And two, just given the size of the surprise that we've seen here in the back half of the year, the level of confidence that you have around the bids that you did put in for 2025, if I can understand that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2024 / 1:00PM, CVS.N - Q3 2024 CVS Health Corp Earnings Call And then just secondly, you talked about pharmacy. We've heard others talk about pharmacy trends here in the back half of the year, really shifting and changing because of the inflation Reduction Act and changes around catastrophic coverage. Just curious, one, did you see that as well specific to those changes? And is it benefiting perhaps some of the other sides of your business? I know obviously, you have a really big specialty business, and you talked about the strength in the pharmacy business.

Question: Justin Lake - Wolfe Research, LLC - Analyst : Thanks. Good morning. First, just wanted to clarify the 4Q commentary, Tom, that you said is potentially up 700 basis points or I'm getting to about 95.5% [similar]. Does that include the 3Q PDR and the potential Medicare Advantage PDR you mentioned? And then more importantly, how should we think about framing 2024 run rate earnings into 2025. Trying to understand your MLR looks like it's obviously a lot higher in the third quarter and going to be a lot higher in the fourth quarter. do we need to run rate that back into the first half? So let's just say, $0.75 of earnings kind of decline? Just trying to understand the run rate versus -- you're going to report a number for 2024, but what's the real run rate that we jump off of into 2025? Is there a framework to think about that? Thanks.

Question: Stephen Baxter - Wells Fargo Securities, LLC - Analyst : Yeah, hi. Thanks. Just a couple of quick ones. So you did mention that in response to that question, it's important to differentiate the incremental trend that's coming out of benefits that have already been restructured for 2025 versus more potentially core areas of utilization. So maybe could you help us understand better what you saw in the third quarter? And then just on the PDR commentary for 2025, you're citing you potentially need one for group me, but you're not saying you need one for individual MA or potentially the exchanges. Just wondering why or when not that would be the case. Thank you.

Question: Michael Cherny - Leerink Partners LLC - Analyst : Good morning, and thanks for all the color. Maybe I'll try and take this a different direction and talk about pharmacy services. You talked about Tom next year being a bit below long-term plan. Can you break that down within the Health Services segment between core services versus the health delivery assets and specifically tied to pharmacy services how are you thinking about both specialty utilization as well as the continued contribution of [code as always]. As you sit here today, taking through where the jump-off point of fiscal '25 again for the Health Services segment can go.

Question: Josh Raskin - Nephron Research LLC - Analyst : Hi. Thanks. Good morning. Just a clarification on the PDR time. So I want to make sure I understood what you said that no PDRs havebeen contemplated for 2025. So MA and [hicks] lost money in totality in '24 and will be positive in 2025. I just want to make sure we got that right. And then more importantly, can you speak to your updated Medicare, both MA and PDP distribution strategy? And I'm specifically interested in your commission strategy with external brokers and feedback you guys are getting on that.

Question: Elizabeth Anderson - Evercore ISI Institutional Equities - Analyst : Hi, guys. Thank you so much for the question this morning. Maybe just one question about the PDR OpEx mechanics that you guys talked about in the third quarter, people , the third quarter PDR. Does that from an OpEx perspective, does that become a positive to your numbers in the fourth quarter? That would be my first question. And then secondarily, can you just maybe dig in a little bit more on the PCW strength? How do we expect sort of that cadence to change as we think about the pull forward from COVID and then any kind of seasonality you guys are thinking about for the fourth quarter? Thank you.

Question: Andrew Mok - Barclays - Analyst : Hi. Good morning. Wanted to follow up on Medicare Advantage margins. With the lower margin level that you're seeing today, I was hoping you can give us an update on how you're thinking around the pace of MA margin improvement over the next few years. And in your prepared remarks, you noted the journey back to target MA margins of 3% to 5%. That's a slight change from your previous target of 4% to 5%. So just curious what drove that change and why 3% to 5% is the appropriate margin level. Thanks. Unidentified Company Representative Let me answer the second part first because the answer to that question is really primarily mathematical, right? So as you think about the IR at changes to the Part D program, significant dollars that were previously recorded as reinsurance, are now going to get recorded as premium, which increases the denominator of the calculation. So at constant dollars of margin, that change alone is significant to drive a 4% margin down into the [3s]. As you think about the longer term, it's a challenging question to answer. We understand and we made deliberate changes to benefits to be able to drive improvement in margin next year. We anticipate that we'll be able to continue to do that into 2026. And our Star scores will help there, right? We had great [stars] performance. 2/3 of our members will be in 4.5-star plans that will provide a little bit of additional tailwind as well. But we really need to understand what the rate environment looks like to be able to answer that question. But our goal would be to increase margins again in 2026 in that business.

Question: John Ransom - Raymond James & Associates, Inc. - Analyst : Hey, good morning. Signify and Oak are they tracking in line with your expectations and you think that will -- that trend will change in any way next year?

Question: John Ransom - Raymond James & Associates, Inc. - Analyst : Thank you.

Question: Brian Tanquilut - Jefferies LLC - Analyst : Hey, good morning. Thanks for the update on the cost advantage program. So just curious what those discussions have been like? And how did the contracts shake out in terms of what you expected pricing structures to look like versus what the -- that 50% of the book looks like? And -- how are you thinking about the opportunity or the ability to increase that number before we get to January 1? Thanks.