And obviously, as we come back on the next quarter call, we’ll give you more color about our perspective on the Part D market. We do think there’s going to be disruption. We do think it’s going to necessitate premium increases, and that’s why there’s just some uncertainty about where the ultimate industry goes from an MA perspective in terms of membership. With respect to your first question on the trend Delta, look it’s obviously very significant. We’ve been very clear that the trends we’re seeing in 2024, which are really consistent with 2023, we expected some measure of break to a more normalized trend, as Karen and Tom said. And frankly, I think we were conservative on what a normalized trend would be. If you go back historically, even before the pandemic, for many, many years, trends were in the three to 5% range.
We saw trends in 2023 approaching 10%. We’re seeing trends in 2024 near those levels, exacerbated even more so by some of the seasonal factors that Tom mentioned in the first quarter, and so we’re going to continue those trends in the 2025. Now, we have really not seen two years, let alone three years of those levels of elevated trend without break, but it’s imperative that we include that in our pricing and we intend to do that. Our expectation is our competitors will be thinking about it in a similar fashion. And so we need to think hard about how we’re going to make up that Delta between what we got in the pricing and what we got in trend, what we have in trend, and there are a number of levers we’re going to pull. Benefits is one that clearly we’re going to be focused on.
Nathan Rich : Great. [Cross Talk]
Tom Cowhey: As 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.
Nathan Rich : Okay. Great. And sort of where I wanted to go with the follow-up. You talked Tom about the 200 basis points of margin improvement in the MA business next year. So that’s around 1.3 billion, 1.4 billion, depending on where membership shakes out and half of that is the Stars tailwind. I think if we just look at the other $700 million on a PMPM basis is $10 to $15 PMPM, but it sounds like there may be some cost headwinds that are maybe offsetting the change in benefits. So I guess I wanted to see if you could give us a rough sense of maybe the type of reduction that you are talking about in terms of the benefit design as we think about next year and then what the opportunity would be as we think three or four years down the road.
Tom Cowhey: Yeah 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’s 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. As you’re doing the bridge between ‘24 and ‘25, there are some variable expense items that are clearly going to come back in 2025.
That’s part of the reason that we’ve talked about how we’re going to accelerate some of our expense efforts, to try to offset any restoration of expense that would come back in 2025. It’s a little early days to try to talk about what that will yield in 2025, but we’re committed to taking action to help offset any headwinds there and we’ll give you more updates on that as we get to next quarter.
Karen Lynch: Nate, I would just add that we continually 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 are showing up this year, and now we’re going to accelerate other initiatives over the next few months. As we continue to size those efforts, we’ll update you throughout the year.
Operator: Our next question comes from Stephen Baxter of Wells Fargo. Stephen, please go ahead.
Stephen Baxter: Yeah, hey, another follow-up on Medicare Advantage. Thank you. You mentioned in preparedness marks that I think you spent time looking for potential selection bias, either with new members or inside of your existing book. I’m not sure if you talked about what you actually found when you did that. So just trying to understand whether you saw greater than expected switching from your own members, or if the step down in profitability across the broader book was mirrored your new membership, or maybe that was something in excess of that to consider. Thank you.
Tom Cowhey: Yeah, so we’ve looked at it very closely as you can imagine, trying to understand whether the new members are creating a disproportionate impact on our results and we’ve analyzed it every which way we can. 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. We looked at things, of course, and I know there’s been a lot of discussion around the fitness benefit for example. That was clearly something that was appealing to our members on the general enrollment block.
It’s just on the general enrollment block in terms of selecting that benefit. When we look at the financial impact of that, actually, it’s pretty modest. It’s actually running in line with our pricing expectation. Some of the dental benefit enrichment that we did, we are seeing some pressures as Tom mentioned, on that supplemental benefit. We are seeing more members use that benefit and use more of it and so, but that’s really across the book. And so again, I don’t see a selection bias between old and new members, but rather pressures throughout that we need to address for 2025.
Operator: Our next question comes from Michael Cherny of Leerink Partners. Michael, please go ahead.
Michael Cherny: Good morning. Thanks for taking the question. Maybe I’ll step to health services for a second. I’m sure others may come back with other MA questions. But as you think about the performance in the quarter and the dynamics you are seeing about prepping both for changes in members, changes in the customer losses, in terms of the large customer roll out. How do you think about the scaling dynamics of your purchasing capabilities and how that’s ramping into Cordavis as you’ve launched that? And I guess you gave us an early look there, but are there any additional signs you can give us on how you think about the financial contribution of Cordavis, based into either this year’s guidance or in terms of the targets for next year?
Tom Cowhey: There is a contribution from Cordavis that’s embedded in our health services guidance. We haven’t disclosed to-date Michael, what that impact is, other than say versus our initial projections because we delayed the formulary change to 401. 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 perception has been fabulous and maybe David, you can talk a little bit more about what you are seeing there.
David Falkowski: 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 competence on the ability to continue to have purchasing advantages in the market and so I go back to the strength that we have in specialty. So most of all the success we’ve delivered is because of our leadership position, specifically in the specialty marketplace. So we have unmatched access, both across mail, retail and in the home infusion space. We have broad set of products, both in the pharmacy and the medical benefit side, continue to be a leader in the limited distribution category, continue to be a leader in the new developing cell and gene therapy marketplace.
So that combined with the technology that we’ve invested has allowed us to be kind of a leading provider in this space. So that is the foundation, allowed us to have the confidence to make the change for the formulary position on April 1. So if you look at what was mentioned in the prepared remarks, we’ve actually had a change as a 401, removing Humira from the formulary and replacing it with a low list priced biosimilar. And as we said earlier, in just three weeks’ time, we’ve actually surpassed all the biosimilar volume and all of 2023. So we’ve been able to hit what is important in terms of control and in terms of purchasing, which is that we’ve been able to migrate more than 90% of the volume in the first month. And then when you look specifically inside the CVS specialty pharmacy, where we had a set of new services around technology access to the prescribers and the members, we’ve been, we’ve actually had a 94% conversion rate.
So it’s a really powerful outcome, and I think it speaks to obviously the strength of our business. And as that translates into savings for our customers, we had mentioned that we’re delivering a 50% savings on the ‘22 run rate for this drug. And then as you translate that into the member benefits, because we’ve actually moved to the low list price product, and we’ve actually had clients adopt what we would call an intelligent benefit design, we’ve been able to have 80% of the members with a $0 out of pocket. So again, I think if you look at what we’ve done, it’s a clear win for our clients, our patients, and we’ve also made a considerable investment in the durability of the biosimilar market. So I think all of that then contributes to the question you originally asked, which is size and scale really is generally driven.
And what I would believe the strength in our purchasing economics, is the ability to control and move market share. And again, this is another evidence and remark that we hope to continue down that path.
Karen Lynch: Yeah Mike, I would just say on the biosimilar, obviously it represents one of the biggest opportunities to reduce overall pharmacy costs for the U.S. healthcare 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 opportunity. So we are excited about the potential in the future of the biosimilar market.
Operator: Our next question comes from Josh Raskin from Nephron Research. The line is yours.
Josh Raskin: Hi, thanks. Good morning. Here with Eric as well. So my question is just – well first, just a numbers question. The $400 million in healthcare services guidance reduction, how much of that is specifically Oak Street? And then on the MA, I hear you’re still committed to four to five. The journey starts in ‘25, that’s very, very clear. How much of your membership is in counties that you are contemplating exiting, just sort of wholesale leaving of the market? Then also, how does the repricing of MA fit into your overall enterprise strategy as obviously lots of your assets sell into that channel as well?
Tom Cowhey: 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, so we took it down by about 400. The majority of that reduction is the healthcare delivery business. And the largest driver in there is unfavorability on CBS 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. I’d say the remainder of that piece of a piece is really Oak Street. But as we think about the first quarter, the performance in that business was reasonably good. And so as we think about what we’ve seen in the broader market, we made a provision that perhaps some of – there could be some lag there in our forward outlook.
We’ll obviously have to see how that ultimately develops. As you think about 2023, the business did an excellent job of navigating some of the broader headwinds in the marketplace with some of their new clinical programs and how they played out over the course of the year. We’re hopeful that we could see some favorability to that number over time, but we have to see how that all manifests itself in the results. Mike, I don’t know anything else that you would add.
Mike Pykosz: Yes Tom, I think you summed it up well from a financial perspective. And the thing I would add when I think about healthcare 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, bend health, MedCost trend and drive MLR improvements? How do we leverage that more broadly across the Aetna with Oak Street? And so there’s a lot of things we’re doing, both from adding membership from Aetna to Oak Street centers, but also leveraging some of the out of center capabilities we have around transitions programs and care in the home that we use at Oak Street today. Let’s use that for Aetna members. So there’s a lot of opportunity here that we’ll see play through in the coming years.
Brian Kane: And I would just add too Mike, that as he said, we are working very closely together. 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. I’d also remind you that every hundred basis points is worth more than $500 million on a trend basis. And so if you think about where historical trends have been, think about where trends are today, we’re in no way baking this in to our assumptions. But as you think about recovery here, this has the potential to bounce back and retain those, get back to that profitability as well, which I think is important to mention, but we’re going to be very thoughtful about how we think about our membership footprint.
And again, the ultimate goal is membership stability, but we’re going to favor margin over membership for next year.
Operator: Our next question comes from Elizabeth Anderson of Evercore ISI. Elizabeth, please go ahead.
Elizabeth Anderson: Hi guys. Good morning. Thanks for the question. I was wondering, can you talk about sort of care management tools and sort of the impact that you are thinking about in terms of their impact on ’24. And then any sort of changes you are making in ‘24 that you think will have an impact as we think about the 2025 results for HCB? Thank you.
Brian Kane: Well, clearly care management is an important tool that we use to engage our members. We spend a lot of time 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, more of 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. So it’s something that we’re very focused on. I would tell you that we continue to roll out some of these AI capabilities that makes these programs much more effective with much better ROI’s, and so while there will be modest impacts in ‘24, over time we expect that to be a differentiator for us and so we’re very focused there.
