CVS Health Corporation

Ladies and gentlemen, good morning and welcome to the CBS Health second quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow CBS Health's prepared remarks, at which point we will review instructions on how to ask your questions. As a reminder, today's conference is being recorded. I would now like to turn the call over to Valerie Hartel, Senior Vice President of Investor Relations for CBS Health. Please go ahead.

Thank you, and good morning, everyone. Welcome to the CVS Health Second Quarter 2020 Earnings Call. I am joined this morning by Larry Merlot, President and CEO, and Eva Barado, Executive Vice President and CFO. Following our prepared remarks, we'll host a question and answer session that will include John Roberts, Executive Vice President and Chief Operating Officer, Karen Lynch, Executive Vice President and President of Aetna, and Alan Lotfin, Executive Vice President and President of Caremark. In order to provide more people with the chance to ask a question during the Q&A, please limit yourself to no more than one question with a quick follow-up. In addition to this call, our press release and Form 10Q, we have posted a slide presentation to our website. Please note that during this call, we will make certain forward-looking statements that reflect our current views, including our financial projections, and statements related to our future financial performance, future events, industry and market conditions, and the future impact of COVID-19 on our enterprise. Our forward-looking statements are based on management's estimates, assumptions, and projections, and are subject to significant uncertainties and other factors, many of which are beyond CVS's health control, including the future impact of COVID-19 on our enterprise. We strongly encourage you to review the information we file with the SEC regarding these risks and uncertainties. In particular, those that are described in the risk factors section of our 2019 annual report on Form 10-K and the cautionary statement concerning forward-looking statements and risk factor disclosures in our quarterly report on Form 10-Q. You should also review the section entitled Cautionary Statement Concerning Forward-Looking Statements in this morning's earnings press release. During this call, we will use non-GAAP financial measures when talking about the company's performance and financial condition. In accordance with SEC regulations, you can find a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in this morning's earnings release and the reconciliation document posted on the investor relations portion of our website. And, as always, today's call is being broadcast on our website at where it will be archived for one year. Now, I'll turn the call over to Larry.

Thanks, Valerie. Good morning, everyone, and thank you for joining our second quarter earnings call. I don't have to tell you that this past quarter is unparalleled and unprecedented as we navigate the health, social, and economic impacts of COVID-19. Having said that, our earnings in this environment demonstrate the strength in our strategy and the power of our diversified business model. The environment surrounding COVID-19 is accelerating our transformation, and it's providing new opportunities to demonstrate the power of our integrated offerings and the ability to deliver care to the consumer in the community, in the home, and in the palm of their hand. The pandemic has made it a necessity to contribute in ways that have called on the capabilities, expertise, and footprint of many of our assets in combination to rapidly deliver solutions at scale that meet client and consumer needs and preferences. Now, those of you who have been following us for some time know that CVS Health is much more than just your corner drugstore. And in this era of COVID, our strategy of diverse assets across healthcare, this triad of care where connections are delivered in the community, at home, and in the palm of your hand could not be more important. We have substantially expanded our community reach, which has proven to demonstrate the value of bringing differentiated assets and delivery mechanisms to bear, meeting consumer needs in delivering lower cost, high value care, and nationwide testing, which we'll talk about in depth in just a moment. increasingly the power of our assets is taking us into areas that provide greater choice as well as new areas for growth, ranging from diagnostic testing to B2B solutions to the potential of clinical trial recruitment and enrollment. The results we share with you today underscore that our strategy is right, that it's working, and that COVID-19 is driving us to bend our innovation curve markedly and accelerate solutions that will have long-term sustainability. There are numerous interdependencies in our three core businesses that the pandemic has made more apparent, driving the strength in our diversification while bringing new solutions to market. So with that, let me summarize our second quarter results and the proactive steps we have taken in light of the pandemic as our team has shown great flexibility and responsiveness adapting quickly to our clients' and consumers' evolving needs. For the second quarter, adjusted earnings per share increased to $2.64, with total revenues of $65.3 billion. Our consolidated enterprise core performance was in line with our expectations, and our results reflect the varying impacts of COVID-19 across our business. The healthcare benefits segment saw a positive impact from significantly lower medical costs, which was partially offset by lower volume and higher COVID-19 related expenses in our retail long-term care segment. The COVID-19 impact in the pharmacy services segment was modest. Now, we are raising our full year 2020 guidance to $7.14 to $7.27 and Eva will provide additional details in her remarks. In response to the pandemic, we accelerated a number of aspects of our strategy, and our strong foundation of clinical expertise, data analytics, and digital capabilities, coupled with our unmatched consumer and community reach, enabled us to rapidly address shifts in the consumer and healthcare landscapes. For example, our ability to quickly expand our diagnostic testing and virtual care services to meet increased customer demand highlights our ability to deliver care wherever our customers want to receive it. And we are investing in areas where we see the greatest demand and opportunity for us to differentiate our offerings across this triad of care. And we are pleased with how our new offerings are resonating with our customers, including commercial and government health plan sponsors, and consumers in the thousands of local communities that we serve. So let me transition to discussing the work we have performed within those communities. We continue to play a key role in addressing the critical need to expand COVID testing. We now operate community testing sites at over 1,800 CVS drive-through locations utilizing swab and send diagnostics. Importantly, over 50% of these locations are in communities with significant need for support, according to the CDC's Social Vulnerability Index. We also recently launched our Return Ready COVID-19 testing solution to our Aetna and Caremark clients. Return Ready is a fully configurable end-to-end program that enables organizations to screen and test their employees or students, and monitor their populations through integrated reporting capabilities. We have over 40 clients currently enrolled, including universities and corporations across a variety of sectors, and a strong pipeline of demand of over 1,000 prospects for the core testing offering, as well as add-on health and safety solutions, such as contact tracing and onsite immunization clinics for the upcoming seasonal flu. We also launched diagnostic testing for seniors in long-term care facilities. Testing and treatment of seniors in nursing homes continues to be critically important in protecting one of our most vulnerable populations. And for both return-ready and long-term care testing, we are using point-of-care rapid test diagnostics. So through the end of July, we administered approximately 2 million COVID-19 tests, with the vast majority scheduled digitally as a result of our highly adaptable, consumer-centric digital health strategy. And finally, we recently launched a new digital platform to assist with registering COVID-19 patients for clinical trials as vaccines and therapeutic treatments are developed. We view this new service as a natural extension of our clinical and data and analytics capabilities. Now these new diagnostic and digital services will provide sustainable value for our enterprise. As an example, 40% of those being tested at a CVS pharmacy were not pharmacy customers previously. We're now connected with them digitally with the objective of making them long-term CVS customers. And as we look ahead, we are well positioned to administer COVID-19 vaccines once they become available. through our community presence, as well as on-site with our return-ready and long-term care solutions. Now, in addition to COVID-19 testing, we continue to evolve our health hub footprint and offerings. We paused health hub conversions in late March, we resumed in mid-June, and now have 205 locations open across 22 states. And we remain on track to open approximately 1,500 hubs by the end of 2021. Our health hubs continue to perform favorably to the control group, and some encouraging metrics include a 15% increase in visits associated with chronic services and Aetna member visits over indexing relative to our membership. This is an important validation point of our ability to impact medical costs through our consumer-facing assets. Now, I would note that the absolute performance in the quarter was impacted as shelter-in-place orders took effect. That said, we continue to work with clients and providers who remain interested as we develop integrated product offerings, including virtual strategies. Our work also continues in developing our next best action programs, including utilizing our pharmacist panel capabilities. As an example, we are launching Health Advisor to Caremark clients as a new service offering in 2021. We are enhancing our experiences from Aetna's Next Best Action program, coupled with our pharmacy panel capabilities to provide chronic disease management services designed to deliver lower medical costs and improve health outcomes. And based on test data, we are confident that significant savings will result for our customers. The pilot results reflect a 12% reduction in unnecessary ER visits, along with an 8% reduction in out-of-network and non-preferred provider utilization. So this can be a real differentiator for Caremark with its clients. This quarter, Q3, we are launching our Next Generation Diabetes Management Program. We're going to start with two large Aetna Group Medicare clients as early adopters, with a broader rollout to Caremark and Aetna self-insured clients in 2021. Now, in addition to the remote monitoring capabilities we currently offer through connected glucometers, this next-generation program features three main enhancements, interventions across more clinical categories, individualized care at the member level, and member-level interventions conducted across our various channels, including our health hubs and CVS pharmacy locations, all for a reduced cost. And finally, Transform Oncology is another new program taking advantage of enterprise assets. Oncology spending is projected to exceed $240 billion by 2023, growing at a CAGR of about 10%. So helping clients address this important area will be a critical market differentiator as we move forward. To date, the program has engaged about 70 provider systems with approximately 20% of Aetna's insured eligible oncology population enrolled. And while enrollment slowed during COVID, we are encouraged by the early adoption, and we will continue to scale as oncologist practices return to normal. The medical cost savings will vary across patient types. And this is clearly an important area of focus given our commitment to lower customer cost trends. Now let me move to providing care at home because we continue to experience high demand for our home health and delivery services. Our retail prescription home delivery volume is up more than 500% in Q2 versus Q1 of this year, and we continue to focus on increasing our front store attachment rate. In addition, our specialty pharmacy capabilities, where we have driven continued growth, include our quorum infusion professionals who have now conducted more than 160,000 home visits year-to-date, collaborating with hospitals and providers to help transition eligible IV therapy patients to home-based care. This frees up important hospital bed capacity while reducing the cost of care. And as an example, we see medical cost savings of more than 50% for patients who are receiving infusions at home versus in an outpatient setting. So by focusing our service delivery on the most cost-effective channel, we are able to make care more affordable for our payers and their members. In moving to delivering care in the hands, as you would expect, we saw continued demand for virtual care and increased digital engagement, and we continue to expand our virtual care offerings. This includes providing access to care for our Aetna-insured members through mini-clinic video visits and through our own newly launched virtual care program called eClinic, which is staffed by mini-clinic providers. Our virtual care offerings target a variety of health care needs, including diagnosis and the treatment of common injuries, behavioral health, and the management of chronic conditions. And our total MinuteClinic virtual care visits are up over 750% compared to Q2 of last year. So in conclusion, we continue to make significant progress on our strategic priorities, including the delivery of our integration synergies. And our diversified, resilient, and innovation-driven business model, combined with our strong cash position, has enabled us to accelerate many aspects of our plan to meet consumer demand. And our integrated model is resonating with clients and consumers, and we are seeing tangible evidence of value creation. And we expect the momentum we've generated to continue to drive value for our clients, consumers, and shareholders. So with that, let me turn the call over to Eva.