Great. Good morning, everyone. Welcome to this session of the Lyriant Global Health Care Conference. I'm Mike Cherney, the Healthcare Tech Distribution Analyst. Pleased to have CVS Health with me. Prem Shah, Group President, kind of does everything now. Larry McGrath, Chief of Strategy, also does everything right now. Tom Zoltowski, who runs the IR function, in the back with us. I have a ton of questions. We're just going to start to jump right in. But, Prem, when we first met, I think it was in your CVS store in Milton, Massachusetts, maybe, when you did a tour, you've now taken on a new role, expanded responsibilities as group president, overseeing kind of pharmacy businesses, healthcare delivery. As you think about your role here and taking over more, like, where do you see the enterprise and all these assets coming together, especially what sits under your purview?

Yeah, Mike, thanks for the question. And, you know, I'd say a few things. So in this new role, I have responsibility for our PCW business, which is our 9,000 local community pharmacies. I have responsibility for Caremark, which is our PBM and our healthcare delivery assets. And, you know, when David became CEO, one of his big questions was, how do we think about really being transformative with the consumer? And so we made a lot of progress in PCW along the way. But the real question was, how do you drive consumer experiences that are very, very differentiated inside of our stores that connect across the ecosystem, whether you're Caremark or Aetna or another benefit sponsor? And so with this role, I have a responsibility of kind of improving that access and improving that connection inside of our stores. Secondly, if you think about what we've done with Caremark, how do we drive more affordability? We're the only ones in supply chains that create the competition needed to make benefits more affordable for all of our customers. And so as you do that and you create those benefits, how do you make those experiences better as consumers touch health care, whether that be in a CVS pharmacy or in other pharmacies? And lastly, with our health care delivery acquisitions with Oak Street and with Signify, how do you take those thousand primary care locations and then really connect those together? So that's what I'm tasked with every day. You know, some of the examples of how that comes to life, if you think about our recent announcement a few years ago with Cordavis with biosimilars, we launched the biosimilar for Humira at the time at an 80% lower list price. Over the last couple of years, we've saved our clients over $1.5 billion in savings. We leveraged all of our assets, our specialty pharmacy, our Caremark business, and really drove that competition through. And so by getting that savings, our clients are able to benefit, consumers are happier, and they're going to have a lower premium. So that's really what I'm focused on every day.

And maybe building on that, I mean, there's been a great expansion of your role in the pharmacy market, like CDS's role, even though you've been a market leader for a while. And, you know, Dave Joyner, CEO, has talked about the expansion, expanded opportunity you have to play with the pharmacy side. You've done a whole bunch. You mentioned Cordavis. I think of cost vantage. I think of true cost relative to Caremark. You know, as you think about where you're continuing to expand the total role of pharmacy, like where are you in that expansion, that evolution of the business and bringing together more of those assets into kind of one enterprise strategy?

Yeah. So if you think about three years ago, when I first went over to retail, it was pretty clear to me that we had to do three things. One is we had to improve the experiences in all of our 9000 stores. And so we focused on our operating model. And so as you think about what we did in our stores, we changed the model from a specific store to a decentralized model in which our stores had shared support across multiple stores. And we leveraged a lot of technology to improve those experiences. So that was step one. Second step was it was clear to me when you looked at the consumer experience in those stores that we could be much better than we were. And so we invested a lot in our consumer-facing technology and all of our applications to make them more seamless, whether it be transferring a prescription from one store to the next, whether it be having visibility of your care marker at the benefits inside of our digital applications, all of those things are there. And the last piece is, how do we create capacity for our pharmacists? We have over 30,000 pharmacists, and they're the most trusted healthcare professional in the industry. How do we create capacity to do more with them? And in every conversation we have, whether it's with our customers on the Caremark side, whether it's with regulators, really it's around how do we expand the role of our pharmacists? And we think we have a tremendous opportunity to do that, not just at CVS, but more broadly for all pharmacies by providing more, what I'd say is non-acute or non-chronic care solutions inside of those services where we can provide those services. And then if you think about the Caremark side and how we really bring that to life, Mike, one of the things that we've really done is said, how do we make things like prior authorization more seamless? How do we make it more aware of those kind of interactions as you think about when that member comes to a counter and drive that convenience for the consumer ultimately there? But at the end of the day, it's really focused on the consumer. It's focused on improving those experiences and driving that at the counter. And, you know, I think we've seen tremendous progress in terms of our results as it relates to that.

AOI growth is certainly a definitely good starting point from a scoreboard perspective. I'm going to come back to the PCW side of it, but maybe starting with one of the hot button topics or getting into it is recent PBM legislation. There's been some bills passed. There's obviously been some other headlines, we'll call it that. How do you see the impact to CVS as an organization of some of the recent legislation passed? And how do you see the role of an offering like TruCost in continuing to evolve based on either what legislation has passed or where the tea leaves could be read for potential future market changes?

Yeah, so, you know, first and foremost, we're glad that the legislation has finally passed. We have clarity on what's going to happen. So from our perspective, we were already going down this path with TruCost. We launched it two years ago. Think of it as a hyper transparent model that is a drug level specific unit prices for our clients. Essentially, a lot of the legislation is very similar in that nature in terms of providing the transparency, et cetera. So that's the first bucket. The second part, we're grateful for the fact that there is enough of a timeline or transition period to go to the new model. So that'll give us the time to transition our clients into that new model. So the legislation launches in the back half of 28, early 20, 29, based on what we've seen. So that gives us the opportunity to move into that new model and change our client contracts in the right way. I will just remind everyone, the PBM industry continues to be a very competitive industry that's disciplined and has maintained margins in a range that's been very similar for the last five years or probably the last 10 years if you go back. So from our perspective, as we pivot to this model, we expect the margins to stay durable. And as we've said prior, our expectations at enterprise level is to stay in that mid-teens Kager through 28. So, you know, we're excited about the clarity. We think we can move our clients. And candidly, the last piece I'll say is nothing in legislation prohibits us from creating the competition needed to make brand drugs more affordable in this country. And if you look at drug pricing or drug costs in this country, 90% of drug costs are coming from 10% of the branded prescriptions that are being written. And so our job continues to be focusing on how do you create that affordability? And if you see it in kind of the results, I'll just say we had a really strong selling season. And, you know, for 1-1-26, we onboarded over $6 billion of net new revenue, and we still had a higher than 98% retention. So, you know, all in all, you know, we had to move to the new model, but it's nothing that this industry hasn't seen before in the past with some of the regulatory changes.

And relative to the new model, I mean, TrueCost seems to be a very elegant solution to push in that direction. As you think about the next couple of years, you talked about end of 28, early 29, where legislation has to be met. What type of investments, what type of processes does CVS as an organization need to put in place? Is it specific targeted changes to other pieces of the network arrangements? Is it just a simple matter of driving awareness of true cost so that as your clients, both potential and current, evolve, Like, you can just let them know that true cost is the solution that can help drive that direction. Like, how should we think about your offering on the PBM side within Caremark as you push towards that 29 start date?

So from my perspective, you know, if you think about what's needed, one is we understand what the legislation is, and now you have to move your client contracts and create a pricing model that kind of absorbs that. So, from my perspective, the, you know, the investments have been contemplating our current plan in terms of what we're doing. And, you know, as we said, we expect to be in that mid-teens CAGR for the next, you know, three years through 28. You know, from our perspective, the true cost model, we were already starting to build for two years as we went forward. So, you know, is there, you know, some investment maybe needed? Maybe. but at the end of the day we've contemplated some of these things in the in the way we've thought about this going forward and you know from our perspective we're going to continue to focus on what's really important for our customers which is how do you continue to create the competition and lower the price of these drugs and by creating that competition and driving the cost down this industry has always found a way to get to the the margins that are acceptable and disciplined and kind of in that in that low single digit range or mid single digit range as you think more about the The near term dynamics relative to care, Mark, you guys have been fairly open about some of the different dynamics with some of your rebate arrangements with, um, certain drug classes.

Where are you right now in terms of the re contracting process on some of those headwinds that you're currently absorbing? Obviously, it's all in your guidance, but how do you think about the process to get yourself back to a normalized level on 3 rate arrangements that you have?

Yeah, so as we highlighted on our Q4 call, right, we had about $500 million of rebate guarantee pressure, of which half of it, it was in 2024 and the other half was in, sorry, 2025. The other half was in 2026. So, you know, we continue to make progress on that. We're still early in the year, but we feel good about, you know, kind of our expectations as it relates to kind of writing the model and changing it and evolving. And it boils down to a few things, right? As you think about what our clients expect from us, they expect, you know, a pricing model in which they have some guarantees. And what we saw happen in the industry was that the mix of some of the products changed over time. And so we're working with our clients to ensure that they get the value that they need. And we feel good about where we are as it relates to where we are in that journey as it relates to 2026.

And specifically related to some of the contracts you have in place. I mean, you made a very notable partnership with Novo on preferring Wegovy for weight loss. You've recently seen list price changes across the board there. Actually, some breaking news with them and HIMS making arrangements completely separate. But as you think about your arrangement with them, and I know we're not going to get into specific contracting level dynamics, but any differences on the way that your contract with them on the preference is adjusted based on their list price changes?

So I'd say a few things. One, we don't comment on drug-level specific kind of forecasts in our models, but I'd say a few things. One, with MFP, which is kind of a halo that's existed over the last couple years, we've contemplated list price changes based on the MFP mix. So it's not surprising to us when products that are on that list have some level of whack adjustment or lowering of the list price. As it comes to our new model, if you think about things like true cost, in that new model, none of that matters. All that matters is the net cost of the product. And so those variations in net price go away. So from our perspective, you know, some of the changes that we saw from Novo are things that we were contemplating in terms of our longer term kind of adjustment as you think about the overall model.

So maybe shifting to Aetna now, we'll certainly run out of time with all the business you have there, but you made good progress on the MA margin recovery in 2025. You know, as you think about 2026, how do you feel you sit right now relative to margin progression across the various different books of business within Aetna? Yeah, let's start there.

So from an Aetna perspective, you know, under Steve's leadership, you feel really good about the progress we made in 2025, as you said. uh you know even in a negative rate environment we continue to make good progression on margin improvement and as we look forward we continue to remain very disciplined and focused on margin improvement you know and we feel good about kind of where we set our forecast in our guide in terms of uh admins margins recovery and along those lines they talked about basically assuming flattish trend like with relative developments like what are you looking for in terms of signpost to adjust or see differences in trend?

Clearly, the last couple of years caught the entire market off guard. Are there any pockets where you're seeing structural differences versus potential transitory dynamics as you think through the margin progression specifically?

Yeah. So I'd say a few things. One, we continue to remain very cautious on trend. So we have a disciplined approach and we're not underestimating kind of the trend environment where we're in. So we continue to be really disciplined, I'd say, in terms of just seeing this trend and this utilization kind of exists. There's nothing that we're planning that says that that utilization is going to change in the short term. As you look at what's happening, you continue to see what I'd say hospital trends be at higher levels than we expected. But in forecast, we will be already in line with where we were projecting, but higher than kind of previous years in terms of that. We continue to see some sides of the drug trends be high as well. But all of this is inside of our forecast and we feel good about, you know, kind of where we are as relates to that trend in our 2026 guide. And, you know, as we think about this, we're going to continue to be very cautious and disciplined in terms of our pricing to ensure that we account for this high trend rate environment that we're in.

You probably heard Steve say on the call in the past, it's like, there's a lot of scar tissue in the industry, I think, you know, related to the trend surprise that happened a few years ago, continue to assume very elevated trends. And what's the way Steve has framed it is, And we're going to need to see a durable and persistent break in trend before we would start changing our forecast. And we certainly have not seen that.

It seems like CMS may have seemingly seen something that you didn't relative to the advance rate notice, at least. Like, how are you thinking about the information you've gotten back so far? I think we've all probably read some of the responses from you and peers. But as you think about positioning now for 27, what is the impact of the advance rate notice done to the strategy around MA?

Look, from my perspective, we were disappointed in the rate notice, as we said on the last call. We don't think it actually reflects the trend environment that we're in. We continue to be in active negotiations with CMS in terms of our perspective. But, you know, as you look out to 27, based on whatever the macro conditions are that come through, we're going to be very disciplined in our pricing and continue down the path of margin recovery that we've laid out as an enterprise and for our expectations of our Aetna business.

And maybe wrapping a bit on Aetna, at least for now, you know, we spent a ton of time talking about MA. Obviously, spent a ton of time talking about the Hicks business. Now we don't have to talk about it much anymore. We don't spend a ton of time talking about Medicaid. Not as big a book of business for you versus some of your peers, but still a business that you have. It's been a volatile market. Yeah, it doesn't seem like it's been as much of a pressure point for Aetna for CVS as for some of the others. Can you maybe just level set us on where Medicaid and your book of business sits today?

Yeah, so remember, for Aetna, Medicaid is a mid-teens revenue of a portion of their revenue-sized business, and, you know, we continue to be focused on what I'd say is the foundation of Aetna, or Aetna Medicaid. We're excited about the progress that Steve and that team have made in terms of really driving the results. You know, we're focused with the state regulators on ensuring that the rates match the acuity levels that we're seeing. And, you know, in our guidance for this year, just based on some of the pressures we've seen in Medicaid, we expect a little bit of a downward, when I'd say downward trend in terms of the performance of that business, but that was already in our financial plan and something that we're planning for as it relates to that. But it's it's also an integral part of the business or the special needs plans for so we continue to see the strategy and it's an important part of the patient populations, you know, we serve across all the communities are in.

So we think it's an integral part of of being in a part of the health insurance space, as well as kind of assuring that we have access for all types of members to care and health care in this country. maybe now shifting to the pharmacy consumer wellness business which obviously as you noted had a tremendous 2025 you've been going through multiple years of share gains the market is evolving fast like when you look at your competitive set in the market right now how has that changed versus five years ago and if you were to list your three five largest competitors five years ago versus now what has changed versus that dynamic the obvious this Rite Aid caveat being one.

Yeah. So, so, you know, again, I think what we focused on was one, our colleagues. And, you know, when you think about the problem we had in the PCW business three years ago was one, we had a fundamental reimbursement pressure issue. So we took, we were taking a billion dollars of reimbursement erosion each year. We were offsetting that with volume, productivity, and COGS improvement. And you net it to something that wasn't equal to zero. And that's why we always had a, you know, we had a guide of minus five, we've adjusted that this year to now flat. So the first thing we solved was the reimbursement equation with cost vantage. The second part of it that we had to solve was how do you continue to create capacity and serve our colleagues differently? We made a lot of progress, as I said earlier, in terms of our technology, in terms of how we do that. we think we have a tremendous opportunity to provide more care in our pharmacies and across the country. And then lastly, it's the consumer piece of it. And this feeds well into our announcement last week with Health 100. We think our foundational technology capabilities in our pharmacies can be applicable to other pharmacies as well. And we announced that at our investor day in terms of some of the things that we do. And I view a tremendous opportunity to provide more clinical services, et cetera, in our pharmacies. As it relates to our competitive set, I do think it's slightly changed, right? It's, if you think about it, it's one of our large national chain competitors, independent pharmacies and groceries type stores that are our large sets. And obviously, for those of you who follow, for a long time, we've had a threat of potentially disruptive innovators in this space. And so from our perspective, you know, when I look at the space, I'm incredibly excited about the fact that we have 9,000 local community pharmacies where we can standardize care, their access to care. I think we can do more by standardizing even more of those pharmacies. And I think we're continuing to focus on delivering that care locally and giving patients the option of having their care be where they want it and how they want it, but also have the digital enhancements and capabilities that I think are necessary for a pharmacy in this country in this day and age. So that's kind of how we're focused on it. The last comment on just competitors, I think we're hyper-focused on our recipe, which is enable and expand the access of our pharmacists, continue to have a reliable margin per script that's fair and equitable. And then third, how do we really engage consumers in a different way and how to be the front door of healthcare with our 9,000 local community pharmacies and how do we expand that potentially with some of the other things we're doing to do more.

And so along those lines, you went down from almost 10,000 to 9,000 pharmacies. You obviously did an investment with the Rite Aid file buys, and there's a couple stores that came with it, but it was mostly the files. As you think about your pharmacy base right now with 9,000 locations, what does, if we're going to call it the pharmacy of the future for CVS, what does that actually look like tangibly relative to the business?

So I think the pharmacy of the future is one in which we will provide more clinical care in our stores, first and foremost. I think the footprint we have right now, we feel good about, right? We evaluate our footprint every year, but we feel good about the size of our footprint. As you said, we did a lot of the pruning over the course of the last three or four years in terms of taking the stores that were not productive out. We're opportunistic. So when you look at the Rite Aid acquisition, we were opportunistic. We saw an opportunity to improve and take advantage of in the marketplace. We are able to serve 9 million new customers in the Pacific Northwest and expand our footprint in a way that made sense. But I really think it's going to be founded in the way that consumers want to be served. And I think the reality is, I think that the consumers continue to want a physical pharmacy experience that is much more integrated, that is much more differentiated. And that's what we're aiming to bring to the market.

And you talk about the consumer and what any of us would see walking in. You know, we wouldn't see the role that Cost Vantage has played in your business. So you had a fairly hefty two-year lift. As you think about the midpoint there, getting the commercial book done for last year, now the government book converted over, what have been some of the tangible benefits that you've seen? Has it played out the way that you would have expected it to within the commercial book in terms of your focus on adjusting the reimbursement model?

So, Mike, I remember when we announced this in 2022, you looked at me like I was crazy when we first said it. But what I would say is cost vantage was necessary. It was a bold move that CVS made as a market leader in terms of changing the way we had to do reimbursement. And just as a reminder to folks, the reimbursement erosion was a function of cross-subsidization. So there was a subset of scripts that we actually lost money on. There was a subset of scripts that we probably earned a little too much money on, and it netted out to a margin. And what was happening was that that was creating some of the pressure. So what did we do? We switched the model. We went to payers and worked in a collaborative way to change the model and create a model that's better for both. So we have a model in which they get access to our industry-leading cost of goods in a much more transparent way through CostVantage. We get a fixed margin per script for every script that we dispense, and we were able to provide payers what they want and continue to provide what I'd say is an affordable pharmacy offering in retail. It's a good example of, you know, as you think about how you evolve businesses, this was one in which we saw the opportunity to really take a leadership position and change. And from our perspective, what it's allowed us to do is be much more predictable and not have to guess to explain our business to whether it's investors or shareholders or regulators. It's a very simple equation now. Hey, it's the amount of volume we have times a certain amount of script count. And that's how you can kind of translate that value into results versus before it was tricky because, well, I'd have to explain mix. or other things to you that are very complicated to explain. Now it's a very simple recipe in terms of how we think about our PCW business. And our goal, again, is this is the front of our brand. This is the front. We serve over 90 million people that walk into the doors every day touching this brand. And so how do we continue to make those experiences better? How do we make them more efficient? How do we make consumers happier as we connect the care in those stores? And that's really the framing of what we want to do. And cost advantage was part of that recipe to really drive that forward.

I vividly remember drawing in the back of the manila folder and asking Larry if this is what cost vantage meant. So I still have that folder somewhere. And so as you roll, especially maybe just honing in on this for year two of the commercial scripts, is there any nuanced differences on the contracting as they become more mature?

And is the idea that you're now, because it's just a stable cost plus reimbursement model, that at least for that part of the PCW equation that we should just expect stability going forward? yeah that's the intent right the intent was never to uh you know use this as a lever to expand margins intent was to kind of normalize kind of our reimbursement for script and make it fair and equitable based on our cost structure and and really transfer a model that was cross subsidized into one that's much more transparent and easy to understand um that we worked really closely but that's the intent of it so you're thinking back to the enterprise you talked about the digital experience you rolled out the partnership on health 100 uh last week obviously the demo was I think really informative the investor day like how are you thinking about the expansion of the consumer engagement platform and and how how fast do you think this can be applicable to truly changing the customer experience yeah so we're extremely excited about health 100 you saw our announcement last week with google as our partner in this space and you know if you for all of us who are healthcare utilizers in this country I think we would all acknowledge that healthcare can be better and it can be more integrated and better connected. And that is really the mission of what we're trying to do with Health 100. We think we have a leadership position when you think about the size and set of our assets to really transform this in the marketplace. And so we spend a lot of time talking about our PCW business. We have the ability to kind of further integrate that with Health 100. And by the way, I offer that technology to any pharmacy in the country. When you think about our industry-leading PBM business, We have an infrastructure in which we're already connecting this information. We're willing to offer that to any PBM in the country to make those consumer experiences as they go to any pharmacy much better. You saw the announcement with Google in terms of how we're going to integrate and create AI and other ways in which we're going to drive and change those consumer experiences inside of our stores, but inside of our app as well. So the chat features will kind of roll out throughout the remainder of this year. And as we make more partnership announcements, we'll kind of update you throughout the course of the year, as we said, at Animal State. But fundamentally, from our perspective, we believe this is the way to really kind of deliver care in this country. We have an affordability crisis in health care, and so this will make health care more convenient. But more importantly, we know engaged members in health care are actually lower cost members. And so from our perspective, the more we can leverage our brand and leverage Health 100 to engage consumers, we have a tremendous opportunity to impact their health care expenditures, to connect their experiences and make it much more seamless. And we continue to be very, very excited about our position and our set of assets to really drive that forward and be the leader in terms of creating this type of ecosystem and patient engagement platform for all consumers across the country.

And one of the things that struck me at the Investor Day back in December was that when you did the demos, this felt like the really first time that all three major parts of the business all were kind of encapsulated into one enterprise solution. As you think about the value proposition, I know you talked about offering this as a third-party solution, but is the value proposition first and foremost for the AetnaCare Mark member that also uses your stores? How do you think about the scale of value that someone, a CVS customer, a CVS member, will be able to generate based on how engaged they are with your three main businesses?

So first and foremost, the premise of the open engagement platform is it's not a closed system. So the premise is that, you know, we say CVS Pharmacy today, but other pharmacies can have access to our digital applications in our pharmacy. So think of it as an engagement engine that's there. As it relates to benefit sponsors like Caremark or other PBMs or Aetna or other payers, you know, one of the biggest challenge PBMs and health plans have in this country is how do they appropriately engage with their members? Think about the health engagement platform as a mechanism in which they can engage members. Think about someone who leaves a hospital and you want to engage with that member with maybe an MTM visit at one of their local pharmacies. This platform could drive and deliver that very seamlessly. Think about someone who's just leaving a physician's office and wants to get commented on a formulary or a formulary change potentially. You can start to take action on some of those things across the board. We're absolutely starting with Caremark as the starting points, but we view this as a much more broader approach to really solving the needs that consumers need across all payers and all PBMs. And lastly, you know, the wearable data and the EMR data also come into this platform. So as you start to think about, you know, those things coming in, you know, it just becomes a very valuable consumer experience that coordinates that care across their payer, their PBM, their pharmacy, and allows us to engage with members better. How that translates into value for Caremark and Aetna, that engagement really drives, you know, either better outcomes or better affordability or drives the right, you know, next best next actions for them to drive and drive kind of their businesses forward.

And so is the intention that basically you'll measure it on a kind of segment by segment basis? How are you judging success?

So we view that the three businesses have to be best in class on their own. So they're going to continue to grow and win on their own. I would kind of base the success on a few things. One is how many people can we get into our Health 100 application? How many kind of partners can we get across the many stakeholders that work inside of the ecosystem, whether that be other pharmacies or other PBMs or other payers as it relates to kind of that success? And lastly, the outcomes, like how are we really improving consumer and patient outcomes as we go forward? And look, at the end of the day, I think the premise of what we have is we sit on 90 million patients that we serve every single day that have a choice in where they want to go and they're utilizing us. And we think we can rapidly transform and move the health care engagement in this country up and really make it much more seamless and more powerful to impact the quality of care in this country.

I think we're out of time. Prem Larry, Tom, thank you so much for joining us. Thanks, everyone, for being here. Thanks, Mike.