Nathan Rich: Great, good morning, and thanks for the question. Shawn, on the restructuring program, could you maybe talk about how much of the savings are in the ’23 guidance, and do you see the full run rate for 2024? Then on the new 2024 guidance, you mentioned a number of buckets that drove the guidance revision – the higher utilization, reduced outlook for retail given the macro environment, I think COVID and Oak Street were the other two. Could you maybe just help us think about the magnitude across each of those major buckets in terms of what drove the guidance revision?
Shawn Guertin: Yes, sure. On the restructuring charge, there’s the timing of all of this that will have minimal impact the actions we take on 2023, to the extent there is any impact. We’ve thought that through in our reaffirmation of guidance. But really, this was a major step forward in delivering the $700 million to $800 million of G&A savings that we talked about in May, and the job OMs alone, as we mentioned, contributed probably close to $600 million of that benefit, but there’s other things we’ve done in terms of shutting down projects. Obviously there’s been open positions we’re not going to hire for as well, and so we have a high degree of visibility into getting the effect that we committed to for 2024. On 2024 guidance, you’re correct – there are really, I would say, three kind of performance items, some of which have a lot to do with the external environment, and then obviously the one decision.
The positive item, obviously, is we do expect some of the outperformance in pharmacy services that we’re experiencing in 2023 will pull through favorably into our 2024 performance. I would note that not all this favorability will pull through as it will naturally work its way into client pricing as contracts reset in 2024, so you can see the magnitude of our increase for this year, it’s obviously not that much because we’re not going to pull all that through, but it’s a meaningful positive item for next year. Similarly, I think on the headwind side, the largest provision we’ve made in our guidance has to do with the Medicare Advantage performance. We’ve sort of sized the impact of that for this year and have made provision for potential headwind on that, so I think you can kind of get in the neighborhood there, that would be the biggest other one.
Then the other one is in PCW, we’ve made some provision for the softening consumer demand to persist into next year, as well as potentially more decline in COVID for next year – we have factored that into our guidance, and as I was mentioning on the previous question, we’ve built in the full effect of the Oak Street acceleration as well. Obviously that’s a choice we’re making in an investment in the future.
Karen Lynch: Nathan, just to comment, I want to be very clear that we took a very thoughtful and careful approach to this restructuring. We were very deliberate in making sure that we had non-customer facing roles and that we weren’t taking any action that would risk the execution of our long term strategy.
Shawn Guertin: Yes, and just one housekeeping thing in that, again as always, we’re removed the PYD that’s close to a nickel, probably, where we are on a year-to-date basis, and so we’ve taken that out as well for 2024.
Operator: Our next question comes from Josh Raskin from Nephron Research. Josh, your line is now open. Please proceed.
Josh Raskin: Great, thanks for squeezing me in here, and good morning. How are you thinking about the operating income contributions from Oak Street and Signify – I assume those are different directions in 2024, and specifically in light of the risk change–risk model changes, I would assume there could be some benefit in Signify, some headwind for Oak Street. If you could also maybe size the impact to the risk model changes on the MA segment in the Aetna business in reimbursement, that would be helpful too.
Shawn Guertin: Yes, I can talk a little bit about the segment, and then I can have Mike talk a little bit and Dan talk a little bit about the changes for 2024. It’s an important question because as part of our strategy that we’ve talked about, the growth in the earnings from these two assets is an important part of increasing our long term earnings growth rate, and we do expect to have a meaningful contribution of earnings improvement from these two assets from their base in 2023 into 2024, and everything we’ve seen in our first quarter of ownership, I think has been consistent with that, and I think we’re even more–have stronger conviction about the value that we can bring, so they will be a positive contributor in our estimation of earnings growth in 2024. I’ll turn it to Mike and Dan to talk a little bit about the risk model and the changes for 2024.
Dan Finke: Yes, on the HCB side, I would think about it in this way. First of all, the model’s being phased in over time. We were pleased with that decision. Our modeling overall was very similar in the aggregate to the modeling of CMS, and frankly with our size of book, it allows us to really manage the impact over time, so minimal impact to HCB.
Mike Pykosz: From Oak Street’s perspective, I think the thing to remember is a lot of the changes in the risk model changes were driven by less specific codes being replaced by more specific codes, so you’ll have less documentation codes with a lower coefficient on a high number of patients and higher coefficient codes on a lower number of patients. The impact is going to be net of those changes, right, not the gross impact of that, and one of the advantages of Oak Street is we have the same operating model and the same technology in all of our centers, so it allows us to react faster to those types of changes and we are already implementing new protocols, new clinical guidelines, etc. to be aware of that I’d really like to point out, Oak Street has been very successful across programs with different risk-adjusted methodologies.
We were part of the Medicare shared savings program and we were a top 1% performer in that. We are the top performer in the ACO REACH program, and those have different risk-adjusted methodologies, CAF, etc., so this just goes to the fact that if you’re doing a great job taking care of people and keeping them out of the hospital and lowering medical costs, that will be durable across any risk-adjusted methodologies, so we’re pretty confident in our ability to keep generating great results going forward.
Dan Finke: Yes, and just from a Signify standpoint, it’s absolutely been a tailwind for us. Our clients and partners team up with us because we help manage this industry change for them. We stay ahead of the risk model changes, we help build new things into the Signify in-home business. We’ve seen a surge in demand for additional diagnostic and preventative testing work. It’s an opportunity for us to expand into more follow-on care, so we’re actually very excited about it. It’s also been a nice touch point for us as we’ve integrated into the retail and pharmacy businesses at CVS. Managing medication inside the home is a huge unlock for us, and so we’ve been bringing in a deeper consumer engagement model with our partners inside the retail space and in pharmacy, and we’ve seen really great results with the kickoff there with that Aetna membership.
Shawn Guertin: I would just quickly re-emphasize one thing Mike said in his. The ability to have a common care model on a common technology platform and the ability to operationalize this should not be underestimated, and in our view, that was a differentiating characteristic about their model. But that is a very important point in my opinion that Mike made there.
Josh Raskin: Makes sense, thanks.
Operator: Our next question comes from Elizabeth Anderson from Evercore. Elizabeth, your line is now open. Please proceed. Elizabeth, your line is now open. Please proceed. You might want to check if your microphone is muted.
Karen Lynch: Bruno, she might have dropped. Let me just wrap it up here by thanking our colleagues for their commitment and dedication that they show every single day, supporting our customers, our clients and our patients. As we demonstrated today, we continue to execute on our bold goals and deliver outstanding performance despite the challenging environment that we’re in, and I really believe and I know the team believes that this is a testament to our consistently strong execution and our resilient business model and gives us the confidence that we can continue our momentum throughout 2023 and 2024. Thanks for joining the call today.
Operator: Ladies and gentlemen, this concludes today’s call. Thank you for joining. You may now disconnect your lines. Thank you.
