CVS Health Corporation (NYSE:CVS) Q4 2022 Earnings Call Transcript

CVS Health Corporation (NYSE:CVS) Q4 2022 Earnings Call Transcript February 8, 2023

Operator: Ladies and gentlemen, good morning and welcome to the CVS Health Fourth Quarter and Full Year 2022 Earnings Conference Call. As a reminder, today’s conference is being recorded. I would now like to turn the call over to Tom Cowhey, Senior Vice President of Capital Markets for CVS Health. Please go ahead.

Tom Cowhey: Good morning and welcome to the CVS Health fourth quarter and full year 2022 earnings call and webcast. I am Tom Cowhey, Senior Vice President of Capital Markets for CVS Health. I am joined this morning by Karen Lynch, President and Chief Executive Officer of CVS; Shawn Guertin, Executive Vice President and Chief Financial Officer of CVS; and Mike Pykosz, Chairman, CEO and Co-Founder of Oak Street Health. Following our prepared remarks, we will host a question-and-answer session that will include additional members of the CVS management team: Daniel Finke, President, Healthcare Benefits; Michelle Peluso, Chief Customer Officer and Retail Co-President; Prem Shah, Chief Pharmacy Officer and Retail Co-President; David Joiner, new President, Pharmacy Services; and Dr. Alan Lotvin, outgoing President Pharmacy Services.

Our earnings and Oak Street acquisition press releases and slide presentations have been posted to our website along with our Form 10-K and our Form 8-K that we filed this morning with the SEC. Today’s call is also being broadcast on our website where it will be archived for 1 year. During this call, we will make certain forward-looking statements reflecting current views related to our future financial performance, future events, industry and market conditions, including impacts related to the ongoing COVID-19 pandemic as well as the expected consumer benefits of our products and services and our financial projections and the benefits of the pending acquisitions of Signify Health and Oak Street Health and the associated integration plans, expected synergies and revenue opportunities.

All forward-looking statements are subject to significant risks and uncertainties that could cause actual results to differ materially from currently projected results, including with respect to the ongoing COVID-19 pandemic and the pending acquisition and integration of Signify Health. We strongly encourage you to review the reports we file with the SEC regarding these risks and uncertainties, in particular, those that are described in the cautionary statement concerning forward-looking statements and the Risk Factors section in this morning’s earnings press release, Oak Street Health acquisition press release and included in our Form 10-K and the Form 8-K we filed this morning. During this call, we will use non-GAAP measures when talking about the company’s performance and financial condition and you can find a reconciliation of these non-GAAP measures in this morning’s press release and the reconciliation document posted to the Investor Relations portion of our website.

With that, I’d like to turn the call over to Karen. Karen?

Karen Lynch: Thank you, Tom and good morning, everyone and thanks for joining our call today. This morning, we are going to discuss our 2022 results, our 2023 guidance and our announcement that we entered into a definitive agreement to acquire Oak Street Health. Mike Pykosz, Chairman, CEO and Co-Founder of Oak Street Health will join Shawn and me during the call to discuss this important transaction. But first, 2022 was a year of progress for CVS Health. We delivered strong financial results, we made meaningful progress on our strategy and we brought a greater value to the people that we serve. This morning, we announced that we exceeded our adjusted EPS expectations for the fourth quarter in a row, delivering fourth quarter 2022 adjusted EPS of $1.99 and full year 2022 adjusted EPS of $8.69.

This result represents nearly 10% growth over our 2021 baseline. For 2023, we continue to expect adjusted EPS in the range of $8.70 to $8.90, which at the midpoint represents high single-digit growth off of our 2022 baseline of approximately $8.25. In 2022, CVS Health surpassed the $300 billion mark in total revenue, growing full year revenues by more than 10% to $322 billion. We delivered adjusted operating income of $17.5 billion and generated adjusted EPS of $8.69. Our ability to generate cash flow from operations was robust at nearly $16.2 million for the full year. Each of our foundational businesses generated excellent results. Starting with the Health Care Benefits segment, we grew revenues by more than 11% for the year and delivered adjusted operating income of $6 billion.

Our medical benefit ratio of 84% improved by 100 basis points versus the prior year and was consistent with our full year expectations after adjusting for the impact of elevated flow in the fourth quarter. I want to highlight a few areas within the HCB segment. Although our individual Medicare Advantage growth was below our expectations, Medicare Advantage remains a key strategic growth area for CVS Health. We remain focused on delivering superior service to our Medicare Advantage members while advancing our efforts to improve our Star ratings. We are executing on the actions we identified to address our CAP survey scores and are making the necessary investments to drive our Stars Improvement initiatives. We also made progress in the last 90 days in advancing our efforts to diversify our national PPO contract and have obtained the necessary regulatory approvals to move forward.

This will enable us to more effectively manage our Medicare business in the future. As we will discuss shortly, adding both Signify Health and Oak Street Health to our value-based care delivery platform will deepen our focus on this important business. In our individual exchange business, we now expect to end 2023 with between 900,000 and 1 million individual members. This significant growth in membership is driven by our provider network, market growth, marketplace disruptions and our co-branded integrated benefit offerings. We anticipate a positive, sustainable contribution from this membership in future years. Our Pharmacy Services segment grew full year revenues by 11% with adjusted operating income of $7.4 billion. Performance in our specialty pharmacy was again outstanding.

Revenue grew more than 19% year-over-year, driven by our industry-leading digital and specialty pharmacy capabilities. As we enter 2023, the first wave of new biosimilars will be coming to market, starting with competitors for HUMIRA. We recently announced that Amjevita will be added to coverage within our commercial formularies alongside HUMIRA and other branded products. Our approach to biosimilars reflects our commitment to drive the lowest net cost for our clients while providing members coverage of clinically safe, effective medications and ensuring continuity of care. Retail delivered another strong year, outperforming our initial guidance and long-term targets. Revenues for the year grew by more than 6% versus the prior year and we generated $6.7 billion of adjusted operating income.

We finished 2022 with another quarter of strong performance in both the pharmacy and the front store. Pharmacy revenue increased by nearly 8% versus the prior year and delivered another quarter of year-over-year market share gains. Front store revenues grew by nearly 7% driven by demand for consumer health and cough, cold and flu products. We are making significant progress advancing our strategy, which includes expanding our care delivery and health services capabilities in primary care, home health and provider enablement. Last year, we announced the pending acquisition of Signify Health, which represented an important step forward in our value-based care strategy. Signify will strengthen our presence in the home and enhance our provider enablement capabilities.

We now project that this transaction will close in the second quarter of 2023. At our Investor Day in 2021, we shared our vision to deliver a superior health experience for consumers. Central to our strategy is advancing our value-based care platform of capabilities that drive consumer engagement. This morning, we announced that we have entered into a definitive agreement to acquire Oak Street Health outstanding shares for $39 per share in cash, representing a total transaction value of approximately $10.6 billion. The acquisition of Oak Street Health will broaden our value-based care platform into primary care and accelerate our long-term growth. Primary care drives patient engagement and positive clinical outcomes. Although it is a very small proportion of total health spend, just about 10% nationally, it will significant influence over healthcare utilization.

Individuals who seek routine primary care services report fewer serious medical diagnoses, lower mortality rates and a 33% lower annual healthcare expense. Oak Street Health has a proven senior-focused primary care model that is scalable at a national level. Their innovative care model goes beyond typical primary care to provide patients with comprehensive preventative care to support overall health and well-being. With 169 medical centers across 21 states today, we see a significant opportunity to expand in the next 2 years and provide superior care to many more patients. Oak Street has a committed and experienced leadership team with extensive care delivery expertise and a best-in-class fully integrated technology solution. Oak Street’s model focuses on providing more coordinated, holistic and connected care.

Oak Street physicians spend 3x longer on average with their 159,000 at-risk patients and drive markedly better outcomes. Their approximately 600 providers and 6,000 team members have a proven ability to improve patient outcomes and experiences. At a time when consumers are increasingly frustrated with their experience in the healthcare system, Oak Street’s approach delivers a truly specialized care experience that drives a net promoter score of 90. The quality of this experience is evidenced by the fact that Oak Street was selected to be the trusted primary care partner of AARP and is the only primary care provider to carry the AARP name across all their sites. As part of CVS Health, we believe Oak Street’s value-based care model will have a far greater impact on patients.

Our unparalleled consumer touch points will expand Oak Street’s reach and will allow them to engage with more consumers more frequently and more conveniently. The combination of CVS Health’s foundational businesses with Oak Street and Signify Health creates one of the premier multi-payer Medicare value-based care platforms in the marketplace today. But our ambition does not stop there. These Medicare-focused assets complement our established care delivery assets, including our over 1,100 retail health MinuteClinics in a number of ways: creating convenient access and additional clinical capacity for Oak Street with preventive care and chronic care services for seniors; enhancing access to our broad nurse practitioner workforce; and providing wraparound services tailored to seniors and those with complex conditions such as medication reconciliation and post-discharge follow-ups.

The potential across CVS Health’s base of assets is powerful. Together, we will transform the experience for consumers across the country. The Oak Street transaction is financially attractive and enhances our ability to accelerate our sustainable long-term growth. Shawn will provide more details on the financials of the transaction and will discuss the growth and profitability prospects of the Oak Street assets. At the close of the transaction, Mike Pykosz will continue to lead Oak Street within CVS Health. Mike, we are so excited to welcome you and your team to CVS Health at the close of this transaction. Mike, would you like to say a few words?

Mike Pykosz: Thank you, Karen and good morning everyone. Our mission at Oak Street Health is to rebuild healthcare as it should be. When we started Oak Street, we set out to address the root causes of high-cost, low-quality care and poor experiences for Medicare patients. 10 years in that journey, as we continue to drive our national expansion and look to impact more patients and communities, we could not have found a partner more aligned to our mission than CVS Health. At Oak Street Health, we operated a network of primary care centers to specialize in care for older adults. We focus on areas with large concentrations with Medicare-eligible patients with incomes below 300% of the federal poverty line, areas where we can make the biggest impact.

We create our innovative models from the ground up and focus on ensuring our patients receive the right care upfront, improving their experiences and keeping them healthy and out of the hospital. This proven and naturally scalable model benefit patients, providers, and payers, while improving health outcomes, lowering medical costs and delivering a better patient experience. This focus has generated meaningful results for our patients, including reducing hospital admissions by over 50% and lowering 30-day readmissions by 42%. By providing coordinated holistic care, we can close care gaps and address social terms of health, delivering 5-star performance. Our track record shows that we have been able to deliver consistent performance across different populations and geographies.

And while our primary focus is Medicare managed at-risk patients, we have also demonstrated our care model can work outside of Med. For example, in 2021, we participated in the Medicare direct contracting program, where we took on full risk on traditional Medicare patients. Among all the participants in the program, we generated savings that were 2x higher than any other multistage direct contract candidate and we were ranked number one in . These results show that even amongst the most innovative groups of this new program, our capabilities and results stood out. By joining CVS Health’s ecosystem, we will accelerate our journey to improve patient outcomes and experiences while continuing to invest in both our innovative care model and invest in what we believe is the best team in healthcare.

The expansive consumer touch points of CVS Health virtually and in the community, including the trusted CVS pharmacists, will broaden and deepen our connections with the patients under our care. At Oak Street, we have talked about the massive market opportunity for companies that can address the huge challenges in healthcare. CVS Health is in a unique position to deliver market-leading health solutions. The breadth of their offerings and proven ability to scale assets will significantly enhance our ability to tackle these challenges. We believe this transaction is a great outcome for all of our stakeholders, including our patients, all of our payer partners, our team of Oakees and our shareholders. With that, let me turn it back to Karen.

Karen Lynch: Thank you, Mike. CVS Health delivered strong financial results in 2022 and we are entering 2023 with tremendous momentum. We continue to make progress on our strategy and will enhance the capabilities of our value-based care platform through the Oak Street Health and Signify Health acquisition. We are excited about the opportunities ahead of us. I will now turn it over to Shawn for a deeper look into our results, our 2023 outlook and the Oak Street transaction. Shawn?

Shawn Guertin: Thank you, Karen and good morning everyone. I will first take some time to detail our results and 2023 guidance before discussing this morning’s announcement of the Oak Street transaction. Our fourth quarter results reflect the continuation of our excellent performance from each of our core business segments as we exceeded our expectations for revenue, cash flow generation and adjusted earnings per share. A few highlights regarding total company performance. Total fourth quarter revenues of $83.8 billion increased by 9.5% year-over-year, reflecting growth at or above internal expectations for each of our foundational businesses. We reported fourth quarter adjusted operating income of $4 billion and adjusted EPS of $1.99.

For full year 2022, we reported total revenue of $322.5 billion, an increase of 10.4%, with solid growth across each of our foundational businesses. This led to a full year adjusted EPS of $8.69, representing an increase of 9.7% off our 2021 adjusted EPS baseline of $7.92. And importantly, CVS Health’s ability to generate cash remains strong. For full year 2022, we generated $16.2 billion in cash flow from operations. Looking at performance by business segment, Health Care Benefits delivered strong revenue and adjusted operating income growth versus the prior year. Fourth quarter revenue of $23 billion increased by 11.3% year-over-year. We grew membership by 548,000 lives in 2022, driven by strong growth in our commercial and Medicare businesses, offsetting the divestiture of a portion of our Aetna International business earlier this year and a decline in Medicaid membership due to a previously disclosed contract loss.

Our medical benefit ratio of 86% improved 100 basis points year-over-year. Adjusted operating income of $858 million grew 68.2% year-over-year. Both of these measures were driven by the net favorable impact of COVID-19 compared to the prior year and strong underlying performance, partially offset by the unfavorable impact of the flu. Outside of an elevated flu season, medical costs remain in line with expectations as has been the case throughout 2022. Consolidated days claims payable at the end of the quarter was 52.5, up 3.4 days versus the prior year. Overall, we remain confident in the adequacy of our reserves. In the Pharmacy Services business, our ability to deliver industry leading drug trend for our clients, our specialty management capabilities and excellent customer service levels continue to drive growth.

During the fourth quarter, revenue of $43.7 billion increased by 11.2% year-over-year, driven by increased pharmacy claims volume, growth in specialty pharmacy and brand inflation, partially offset by continued client price improvements. Total pharmacy claims processed increased by 3.1% above the prior year and 4.6% when excluding COVID-19 vaccinations, primarily attributable to net new business, increased utilization and the impact of an elevated cough, cold and flu season. Adjusted operating income of $2 billion grew 9% year-over-year driven by improved purchasing economics, including increased contributions from the products and services of the company’s group purchasing organization, partially offset by continued client price improvements.

In our Retail/Long-Term Care segment, we delivered strong revenue growth despite mixed COVID-related trends and continued economic uncertainty. Specifically, during the fourth quarter, revenue of $28.2 billion grew 4%, reflecting increased prescription and front store volume, including the impact of an elevated cough, cold and flu season, pharmacy drug mix and brand inflation. These items were partially offset by decreased COVID-19 vaccinations and diagnostic testing, the impact of recent generic introductions and continued pharmacy reimbursement pressure. Adjusted operating income of $1.8 billion declined 25.1% versus prior year, but was largely in line with internal expectations, driven by decreased COVID-19 vaccinations and diagnostic testing, continued pharmacy reimbursement pressure and increased investments in the segment’s operations and capabilities, including the vast majority of a discretionary bonus payment to frontline colleagues.

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These decreases were partially offset by increased prescription volume and improved generic drug purchasing. Pharmacy prescription volume grew 0.8% year-over-year, reflecting increased utilization and the impact of an elevated cough, cold and flu season, partially offset by decreases in COVID-19 vaccinations. Excluding the impact of COVID-19 vaccinations, pharmacy prescription volume increased by 4% year-over-year. Turning to the balance sheet. Our liquidity and capital position remained excellent. We ended the year with approximately $5.4 billion of cash at the parent or unrestricted subsidiaries and an adjusted net debt to EBITDA of about 2.9x. Excluding the adjustment for cash at the parent or unrestricted subsidiaries, our adjusted debt-to-EBITDA is approximately 3.1x.

Through our quarterly dividend, we returned $719 million to shareholders and repurchased $1.5 billion of our common stock in the fourth quarter. We also entered into a $2 billion fixed-dollar accelerated share repurchase transaction, which became effective on January 3, 2023. A few other items worth highlighting for investors. We continue to experience the impact of market volatility on our investment portfolio and recorded net realized capital losses of approximately $37 million in the quarter. We recorded $117 million of office real estate optimization charges in the quarter related to the reduction of corporate office real estate space in response to our new flexible work arrangement. We also recognized a $250 million gain related to the sale of our bswift business in November.

And we recorded $99 million of incremental charges related to opioid litigation to address the final terms and other implications of the global settlement executed in December. Shifting to our outlook for 2023. We expect revenue growth of 3% to 5%, and we are reaffirming our full year adjusted earnings per share guidance range of $8.70 to $8.90. We believe this range is prudent at this stage in the year and reflects approximately 5% to 8% growth versus our 2022 adjusted EPS baseline of $8.25. We detailed the adjustments reflected in our 2022 baseline in the earnings materials posted on our IR website. I want to point out three things on our 2023 adjusted EPS guidance. First, consistent with past practice, our projections do not assume the recurrence of prior year reserve development.

Second, these projections do not include a specific provision for our pending Signify transaction, which is expected to close in the second quarter of this year, but which we project will have a small impact on 2023 adjusted EPS. And third, I want to remind everyone that beginning this year, we are shifting to our reporting convention that excludes net realized capital gains and losses from adjusted operating income. Now let’s turn to some of the segment details. In our Health Care Benefits segment, we expect to see membership growth of 2% to 4% with increased membership in both Medicare and Commercial, partially offset by declines in Medicaid due to the impact of redeterminations in 2023. Overall, we expect to generate revenue growth of 11% to 13%.

Our projected medical benefit ratio for 2023 is 84.7%, plus or minus 50 basis points. As I just noted, we do not assume prior year reserve development in our projections. We are providing a cautious outlook for HCB adjusted operating income, expecting growth in a range of about 2% to 4% and reflecting a prudent assumption regarding the performance of our individual exchange business, lower individual MA enrollment and investments in our Stars Improvement initiatives. Moving to our Pharmacy Services segment. We expect revenue in a range from 1% to 2% growth, driven by a successful 2023 selling season and strong retention, partially offset by lower Medicaid volume. For the full year 2023, we expect pharmacy claims to range from flat to growth of 1%.

Overall, we expect these results to generate adjusted operating income growth of 4% to 5%. Finally, shifting to our Retail/LTC segment. As we discussed previously, this segment will be burdened by the lower contribution from COVID as we transition into the endemic stage as well as continued reimbursement pressure in the pharmacy. We expect revenue growth of 1% to 3% and prescription growth of 2% to 4% despite continuing decreases of COVID-19 vaccines. Overall, for the Retail/LTC segment, we expect 2023 adjusted operating income to decline from 2022 to between $5.95 billion and $6.05 billion. For items below adjusted operating income, we expect our interest expense for 2023 to be approximately $2.23 billion. Our tax rate is expected to be approximately 25.5%.

I want to make a few comments as you think about the cadence of our earnings throughout the year as Retail returns to earnings seasonality more aligned to pre-pandemic patterns. We are currently projecting the lowest contribution to earnings in the first quarter of the year. The remaining three quarters will be relatively consistent with slightly more than half of our earnings coming in the second half of the year. Shifting to shares. We expect our diluted weighted average share count to be approximately $1.298 billion, reflecting the impact of both our fourth quarter 2022 repurchase activity as well as the accelerated share repurchase that is currently underway. We anticipate another strong year of cash generation. We expect cash flow from operations of $12.5 billion to $13.5 billion.

Capital expenditures are expected to be in the range of $2.8 billion to $3 billion. Turning to the Oak Street transaction. We committed to investors that we would be diligent when deploying our capital, seeking assets with the best technology, capabilities and cultural alignment to our vision. After a thorough and robust review of the market, Oak Street was the primary care asset that proved to be the most strategically and financially compelling. Oak Street will operate as a payer-agnostic business within CVS Health, focused on improving outcomes and experiences for the Medicare population it serves. CVS Health has a strong and proven track record of helping its payer clients succeed, and we will continue to prioritize that success after this transaction.

What we saw when we looked into Oak Street’s portfolio of clinics was a remarkably consistent path to clinic profitability. This trend was true across diverse geographies, populations and payers. As Oak Street drives strong patient experiences and engagement, their patient panels grow. And as Oak Street’s providers engage with those patients, they improve outcomes and increase patient contributions over time. These two factors combine to drive clinics to maturity, achieving profitability within the first 3 years and unlocking annual adjusted EBITDA potential of approximately $7 million per clinic using Oak Street’s definition of adjusted EBITDA. Within the 169 clinics Oak Street has today, we have high visibility into embedded adjusted EBITDA of over $1 billion.

We also recognize the tremendous opportunity to scale Oak Street’s clinics to reach more seniors across the nation. At their current rate of expansion, we expect Oak Street to have over 300 clinics by 2026, at which point we project they will have more than $2 billion of embedded Oak Street adjusted EBITDA. Shifting to synergies. We envisioned five main opportunities to realize more than $500 million of value over time: one, accelerating Oak Street patient growth through CVS Health channels; two, improving Oak Street’s economics through integration with our broad portfolio of assets; three, improving the retention of our Aetna MA members through the improved outcomes and experience provided at Oak Street clinics; four, driving greater utilization of CVS Pharmacy and Caremark capabilities; and five, capturing modest savings from external public company and lease costs.

We project that our investment in Oak Street will drive double-digit returns on invested capital over time as clinics mature and synergies are realized. We are committed to exploring additional avenues to further accelerate growth, synergy realization and returns from this transaction while balancing further near-term dilution to our EPS trajectory. As stated in our press release, this transaction will be funded with available resources and existing financing capacity, and we remain committed to maintaining our current investment-grade rating. The transaction is subject to approval by Oak Street’s shareholders, regulatory approvals and other customary closing conditions. We expect this transaction to close in 2023. We are now targeting 2024 adjusted EPS of approximately $9, growing to approximately $10 in 2025 with the potential for upside in 2025 based on the successful resolution of our Medicare Star Ratings mitigation efforts.

The 2024 and 2025 adjusted EPS trajectories reflect the impact of the previously disclosed 2024 Medicare Star Ratings headwinds in Centene contract loss, closing of the Oak Street Health transaction in 2023 as well as projected contributions from the Signify Health transaction in 2024 and beyond. Consistent with past practice, CVS Health expects to exclude integration and transaction costs from its adjusted EPS presentation. With the close of these transactions, we expect that our adjusted debt-to-EBITDA will peak in the mid-3x level in 2024, well within leverage ranges aligned to our current investment grade rating. Our current projections assume modest discretionary repurchase activity in 2024. This is consistent with our 2021 Investor Day projections, which contemplated 1% to 2% adjusted EPS growth from repurchases in addition to offsetting dilution.

As leverage begins to subside in 2025, we will have potential for additional repurchases. In summary, we are excited to announce the acquisition of Oak Street and to incorporate them into our expanding portfolio of capabilities. Oak Street’s best-in-class clinics will serve as the focal point of high-quality care for seniors across America. The strategic rationale for this combination is sound and the growth opportunity is vast. Together, CVS Health’s foundational businesses signifies home assessment and provider enablement capabilities and Oak Street’s clinics and care model create the premier multi-payer Medicare value-based care platform. We could not be more pleased to join with Oak Street as we take the next step in our journey to build a differentiated health services organization and transform how care is delivered.

To conclude, we delivered excellent performance in 2022, creating strong momentum as we continue to execute our strategy in 2023. We are building on our achievements, expanding our portfolio of capabilities and continuing on our path to become the leading health care solution company. With that, we will now open the line for your questions. Operator?

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Q&A Session

Operator: Thank you. We will take our first question from Lisa Gill with JPMorgan. Your line is open.

Lisa Gill: Thanks very much and congratulations on the transaction, and congratulations on the strategy overall. I know every quarter I’ve asked about this strategy around value-based care and what you’re going to do in this area. So I’m happy that you finally have done this. So really just two things I want to better understand. One, following Oak Street, they did slow the growth of the number of centers they were opening last year due to cash constraints. Shawn, it sounds like you’re laying out that you’re going to keep that strategy the same at roughly 35 centers per year. One, is there a reason why you wouldn’t reaccelerate that growth when we think about Oak Street? And then secondly, as we think about some of the changes that have come with RADV, the MA rates that have come out, can you maybe just talk about the impact, not just on the MA side but also on the provider side?

And did you take that into account when you were thinking about buying a primary care asset?

Karen Lynch: Lisa, I’ll turn it to Shawn in a second, but I just wanted to acknowledge your point about we did lay out a variable vision at December 2021 to really expand into health services. And I really believe this transaction is a clear win for both patients and provides, and as we said in our prepared remarks this really does create the premier multi-payer Medicare value-based platform and I talked lot about value-based care and not just being a contract but being platform where we really drive engagement and connect patients to care. And this transaction, combined with Signify Health, really does demonstrate that we are executing on our long-term strategy to drive long-term growth for the company. Let me turn it over to Shawn to answer your specific questions.

Shawn Guertin: Hi, Lisa. So on the first one about kind of clinic expansion. To be clear, the numbers we cited today in our model are premised on maintaining a trajectory of 35 to 40 clinics a year expansion. As I mentioned in my prepared remarks, one of the things that we will be doing over the coming months is exploring alternative avenues of accelerating synergy realization but potentially looking at the growth aspect of that, and in particular, avenues that would help us manage sort of greater clinic growth but also sort of manage kind of inside the dilution framework that we’ve talked about with this transaction. And we will be looking at those avenues because it’s a very important point because when you look at the long-term returns of this model, that accelerated growth has some real long-term kind of return benefits to doing that.

So again, that will be something that we continue to work on and explore the best way to do that within the framework that we’ve discussed with you today. On your second question, it was important to us to both understand the positioning on RADV and at least be able to see the MA advance rate notice for €˜24 and frankly, work in conjunction with Oak on what we thought that meant to them. And we’ve had the ability to do that, and obviously, as you all know, much of that still leaves many questions to be answered in the future. It does provide a little bit more clarity than we had in the past. But I think we do understand the dynamics and some of the mitigation efforts that we could put in place if certain things stand or certain things get modified.

In many ways, though, what I would say is what we saw come out of those notices, I think, is exactly why you want high-quality Medicare Advantage value-based care assets. In its most €“ simplest sense, when you have a year, for example, when reimbursements get squeezed, what’s one of the things you want to do, you want to look at your cost control levers. And certainly, Oak is a demonstrable asset that has proven to improve outcomes and reduce costs. And so I think as we think about navigating the future of Medicare Advantage and maybe even a broader opportunity in Medicare value-based care in the fee-for-service population, I think both Signify and Oak are exactly the kind of assets that you would like to have at your side as you do that.

Karen Lynch: And Lisa, just adding to that point, I think we all recognize the importance of Medicare Advantage and the popularity, and we are very encouraged by the political statements that were made last night to support Medicare. And this fits really nicely into that picture as well.

Lisa Gill: Great. Thanks so much.

Operator: Thank you. Our next question will come from Michael Cherny with Bank of America. Your line is open.

Michael Cherny: Good morning. Thanks for taking the question. Congratulations on the deal. I’m sure there are going to be a number of other questions there, so I want to hone in on Health Care Benefits and particularly the work you’re doing around Stars. I know last month, Karen, you outlined the waiver and the requirements to push forward on the €˜24 mitigation plans. Can you just give us a sense of where you stand on the various different work streams tied to achieving the €˜25 mitigation and the planned throughput you have in order to get there and reestablish your Stars presence?

Karen Lynch: Yes, Mike, thanks for the question. And you’re right. We did make progress on our regulatory approvals to move our contracts forward. And we are continuing to make investments in Stars so that we can mitigate the risk. As you might remember, we narrowly missed in our CAPS scores, and the team has been working very diligently over the course of the last couple of months to make sure that we are improving our results. I’m going to ask Dan to talk about the specifics

Daniel Finke: Yes. Thanks, Karen. So in 2022, we really took a look at the opportunity around CAPS and member experience, and we launched some additional campaigns related to that, that frankly are still ongoing, things like assisting our members to understand their benefits, expanding our concierge services to really maximize the member experience overall. We also have the opportunity to impact other domains as well, our patient safety domain that worked really hard with our retail colleagues on in the fourth quarter related to patient medication adherence. And then, of course, on the HEDIS front, closing as many gaps and care as possible in the fourth quarter and now currently focused on really optimizing our record collection during the hybrid season. So we’re committed to improve our Stars ratings. We believe we are the right actions and the right team to really improve the ratings overall.

Michael Cherny: Great. Thank you.

Operator: Thank you. Our next question will come from A.J. Rice with Credit Suisse. Your line is open.