Michael Cherny: Good morning and thanks for all the details so far. Maybe if I can just dive in a little bit more on Medicare Advantage and the exchange business relative to the long term outlook. Shawn, obviously not looking for anything beyond what you gave on the color, but the build includes clearly your work and your investments in STARs, your work and your investments in the exchange business. Can you just give us a broad-based update on those two sides, on where things are progressing, and especially as we head into the fall, how you think about that push and pull dynamic relative to positioning for STARs for fiscal ’25?
Karen Lynch: Yes Michael, let me start on STARs and Shawn can fill in the details on the numbers. As you know, we had made significant efforts and had made significant investments in making progress in our STARs performance. We’ve been very focused on our remediation efforts, our contract diversification strategy is well underway, and all of our internal indicators are positive and show progress. But having said that, having this by such a narrow margin last year, I think we all recognize that it all comes down to the CMS coupling, so we’ll know better in October but our internal measures are positive from how we measure it.
Shawn Guertin: Michael, on exchanges, we’re another quarter in and things are still looking positive, and as I mentioned, we continue to be cautious in our outlook in terms of what we’re planning on that from this year. But both the revenue and the utilization side have been in line with our expectations, and so I think that that really is something to think about as an opportunity for the future. We have a million member book now, probably something like $5 billion in revenue potentially this year, and it’s not making a meaningful contribution. One of the benefits of getting to scale so quickly is, I think, we can now turn towards at least getting some contribution of profitability from that business, and that would be our plan for 2024 and beyond, that that would begin to be a profit contributor for us, so I do think it’s one of the growth levers that we have.
Michael Cherny: Thanks so much.
Operator: Our next question comes from Justin Lake from Wolfe Research. Justin, your line is now open. Please proceed.
Justin Lake: Thanks, good morning. A couple questions. First, just on the MLR, Shawn, maybe you could give us a little more color in terms of, at least relative to our estimates and consensus, it looked like you missed the quarter by 150, 175 basis points, yet you’re raising guidance by 50. There might have been some intra-year development, I know the quarter had some prior year in it as well, so just trying to kind of isolate what’s going on there, if you can help us with some of that bridge, I’d appreciate it. Then on the guidance change, by my math, your $500, $800 million of OI, can you give us some increase clarity on where you’re seeing that, for instance how much of that is tied to MA assumption versus where you would typically be, etc. If you can break that apart for us as well, that’d be helpful. Thanks.
Shawn Guertin: Yes, there’s a few pieces going on in the quarter that are worth calling out. I did mention one – obviously, we had Medicaid pass-throughs, that sort of has pushed on the MBR a bit in the quarter. We actually did have unfavorable PYD this quarter, so we recognized that in the quarter – that’s sort of pushing the number. But the biggest–you know, the biggest thing that’s driving our guidance increase for the year is the change in outlook on our Medicare MBR, and that, like I said, for the quarter is probably off a little more than 200 basis points and I think it’s more instructive, as I mentioned, to look at that for the first half, and that’s largely what we’ve assumed. If you look at HCB going down about $400 million of adjusted operating income, obviously there’s other moving parts under the surface, but most of that’s the 50 basis points on the overall HCB MBR.
Again, the other lines of business are largely in line, if not even a little better, than our expectations on HCB. Offsetting that, obviously, was our increase in the health services segment driven by pharmacy services – that is about $500 million better, and again that is driven by sound fundamental performance that Karen and David discussed. You’ll recall that we did talk about the underlying pharmacy services performance in Q1 was strong, and we’ve now carried that strong first half performance for the full year. As was mentioned earlier in response to the question, we have decreased our outlook on PCW by about $100 million, considering the impacts we observed towards the end of the second quarter – you know, softening consumer demand in particular we talked about, so those are the moving pieces.
Inside overall AOI is pretty much flat to where we were, but those are the moving pieces under the covers.
Operator: Our next question comes from Kevin Caliendo from UBS. Kevin, your line is now open. Please go ahead.
Kevin Caliendo: Thanks. Shawn, I think you mentioned that you planned on opening more Oak Street clinics than originally planned, but I got a sense that that was also an incremental headwind. Does that mean that you’ll be using less off-balance sheet, or you had talked about potentially if you increase using off-balance sheet metrics to do so, is that still the case or has that changed?
Shawn Guertin: Yes, so I do want to talk about that. You’re correct in your assessment. Obviously this is a very important and strategic investment in our future that we’re making, and we continue to believe that there’s high demand for more access to the differentiated Oak Street care model. Our analysis has consistently shown that accelerated clinic growth is the right thing to do in terms of optimizing the long term returns on this investment and expanding access for at-risk populations, and as Karen mentioned, we’re going to do so in 2024, targeting 50 to 60 clinics, and Oak Street will and already is working closely with their payor partners in identifying the key geographies. As you mentioned, our updated outlook for 2024 includes the full impact of this accelerated expansion without the benefit of any structured transaction.
We are still evaluating the details and the merits of such a transaction and we’ll update you if anything definitive and material develops on that front.
Karen Lynch: Kevin, I just want to make a couple comments on Oak Street. We’ve made significant progress already, having closed not that long ago, on driving patient growth and really leveraging the overall assets of the entire enterprise. We’re using Signify to use the–recommend if people don’t have a primary care to Oak Street, we’re helping Aetna Medicare members that don’t have a primary care and recommending them to Oak Street. We’re using connections in our pharmacy as well, so I’m really encouraged by the opportunity and the growth, and really excited about what we’ve seen. We have more conviction now that the meaningful value that we thought we could unlock will surface over the course of the next couple years.
Kevin Caliendo: Great, thank you.
Operator: Our next question is from Nathan Rich from Goldman Sachs. Nathan, your line is now open. Please go ahead.
