CVS Health Corporation (NYSE:CVS) Q3 2023 Earnings Call Transcript

And we continue to think about ways in which we can make the consumer experience easier. One of the things that we did during COVID was we did group scheduling as well as multi vaccine scheduling this year that had very good results for our consumers in the marketplace. Lastly, we continue to look at our operating model. We have to continue to invest in our colleagues and working to really scale, scale innovative technology solutions can make the pharmacy easier for our colleagues in our stores, and we continue to do that with some of the things that we’re doing around sharing work across stores as well as some of the other model changes that we’re doing in 2024. And lastly, it’s incredibly important for us to continue to deliver payer value in terms of our clinical and value-based programs for consumers focused on things like our Stars rating.

So we work very closely with our MA partners, including Aetna, on that to drive adherence and patient outcomes and be the number one national chain really across those measures. And really, what’s really important is also leveraging our engagement in these stores to connect into our other businesses whether that’s into our payer businesses or into Oak Street or into Signify to really streamline and make those consumer experiences better. As it relates to front store, we continue to grow share and help consumers what I would say is navigate the challenging market conditions through convenience and value in health and wellness products, and we’ve continued to see that business perform really well. If you exclude COVID OTC test kits, our front store same-store sales are about — are flat, and we continue to grow drug share about 41 basis points even despite the softening traffic we’ve ever seen.

Karen Lynch: Yeah. I just want to take this opportunity, Kevin, you talked about the competitive dynamics, and there’s a lot of discussion around the labor market. And what I would say is that as a company, we are committed to providing the best place to work for all of our colleagues, including our pharmacists and our pharmacy techs. Over the last year or so, we’ve made a number of investments for our labor. By the end of the year, we’ll have wage investments of over $1 billion. We continue to invest in our technology to support our teams in the field so that they can have streamlined workflows and smoother operations. We are committed and continue to hire. It’s a tight labor market, but we’ve been having very good success in hiring.

Our attrition numbers are stable. And we are actively developing new training programs as well for the ongoing development of our colleagues. But as I said at the top of — the top here, we are committed to making sure that this is a powerful and — we are an employer of choice.

Kevin Caliendo: Thank you so much.

Operator: The next question comes from Eric Percher from Nephron Research. Eric, your line is open. Please go ahead.

Eric Percher: Thank you. I want to come back to the headwinds and tailwinds for Health Services in 2024. For ’23 after we’ve seen pretty significant outperformance after that 340B headwind early in the year, and you’ve attributed this to sourcing specialty and drug mix, and I’m reading the letter as rebate outperformance on GLP-1 and biosimilar. The question one is, were sourcing benefits outside ’23 versus ’22 or the outlook for ’24? And then question two is, do you expect that drug mix or rebates will be on par or better in ’24 versus ’23, given what we saw on biosimilar induction this year? And is Cordavis really a tailwind in ’24 itself or is it as share shifts over time?

Tom Cowhey: A couple of things in there, Eric. So let me start, and David can add any color commentary. Sourcing benefits, our trade teams are exceptional. They continue to execute every year. Some of the strength that we saw in the vaccine franchise as part of their efforts and some of — planning some of their strategies to what we do more broadly. So I wouldn’t say that there’s anything exceptional or except for the fact that, that team is exceptional every day. Your point on drug mix and rebates, I think is spot on. GLP-1s are a category that particularly with enhanced competition is going to present an excellent opportunity for us to continue to drive lowest net cost. But the way that, that’s developed this year has made some of our guarantees less onerous to hit. And as we think about Cordavis in 2024, we absolutely believe that there will be a benefit as we drive volume through that organization.

Operator: Final question we have time for today is from Elizabeth Anderson from Evercore ISI. Elizabeth, please go ahead. Your line is open.

Elizabeth Anderson: Hi, guys. Thanks so much for the question. I also wanted to return to some of the headwinds and tailwinds you talked about. I think previously for the HSS segment, I think you talked about sort of the poor AOI growth being like mid-single digits for 2024 and the assumptions that you put through. So I was wondering, if you still — like given all those headwinds to tell that you’re saying that would be sort of how you would still that business? And then secondarily, I hear what you’re saying about some of the labor investment. How do we think about that on more of a like quantitative level in terms of ’24 versus obviously some of the cost savings that you mentioned on the more corporate level? Thank you.

Tom Cowhey: Yeah. There’s — Elizabeth. So, I think that as you think about core growth, I think that’s probably the best way to start to think about this. So we do think that you should see mid-single-digit core growth out of the business. But then you’ve got some very specific items that kind of are pluses and minuses against that. So the first would be the loss of the Centene contract and that we’ve sized that for folks in the past or implicitly. But I think as you think about how well that business has performed this year, that number has become a little bit larger. We also, as we talked about, we have the annualization of 340B. And so both of those will help the pressure that — and offset some of that core growth. Offsetting that, you are going to see incremental value from Cordavis and you’ll also see some of our overall cost savings that will be in the Pharmacy Services segment that will help to offset that.