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May 1, 2013 8:30 a.m. ET

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John Roberts – Executive Vice President, President of CVS Caremark Pharmacy Services

Lisa Gill – JPMorgan Chase & Co.

Ladies and gentlemen, acknowledge you for continuing by. Welcome to the CVS Caremark aboriginal division 2013 antithesis appointment call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this appointment is actuality recorded, Wednesday, May 1, 2013. I would now like to about-face the appointment over to Nancy Christal, Senior Vice President, Investor Relations. Amuse go ahead, ma’am.

Thanks, Suzy. Acceptable morning everyone, and acknowledgment for aing us. I’m actuality with our President and CEO Larry Merlo, who will accommodate an amend on the business. Afterwards Larry, our Executive Vice President and CFO, Dave Denton, will analysis our financials and guidance. John Roberts, President of PBM, and Mark Cosby, President of our retail business, are additionally with us today and will participate in the question-and-answer affair afterward our able remarks.

During the Q&A, amuse absolute yourself to no added than two questions so we can accommodate added callers with the adventitious to ask their questions. Aloof afore this call, we acquaint a accelerate presentation on our website that summarizes the advice you will apprehend today, as able-bodied as key facts and abstracts apropos our operating achievement and guidance. I animate you to booty a attending at that. Additionally, we plan to book our annual address on Anatomy 10-Q by the aing of business today and it will be attainable through our website at that time.

During this call, we’ll use some non-GAAP banking measures aback talking about our company’s performance, mainly chargeless banknote flow, EBITDA and adapted EPS. In accordance with SEC regulations, you can accretion the definitions of these non-GAAP items as able-bodied as reconciliations to commensurable GAAP measures on the Investor Relations allocation of our website. And, as always, today’s alarm is actuality advertisement on our website and it will be archived there afterward the alarm for one year.

Now afore we continue, our attorneys acquire asked me to apprehend the Safe Harbor statement. During this presentation we’ll accomplish assertive avant-garde statements that are accountable to risks and uncertainties that could annual absolute after-effects to alter materially. Accordingly, for these avant-garde statements, we affirmation the aegis of the Safe Harbor for avant-garde statements independent in the Clandestine Securities Litigation Ameliorate Act of 1995. We acerb acclaim that you become accustomed with the specific risks and uncertainties that are declared in the Accident Factors breadth of our best afresh filed Annual Address on Anatomy 10-K and in our attainable annual address on Anatomy 10-Q.

And now I’ll about-face this over to Larry Merlo.

Well, acknowledgment Nancy. Acceptable morning anybody and acknowledgment for aing us today. Let me activate by adage that we are actual admiring with the able aboriginal division results. As expected, the arrival of new all-encompassing drugs was a key disciplinarian of our year-over-year accumulation advance beyond the enterprise. And that said, both our retail and PBM segments delivered operating accumulation advance able-bodied aloft our expectations for the quarter. And this out achievement was apprenticed by stronger than accepted calligraphy volumes due in ample allotment to the able flu season, able specialty advance and favorable purchasing and abatement economics.

Adjusted antithesis per allotment from continuing operations for the division came in $0.83, that $0.03 aloft the aerial end of our guidance. And we additionally generated $1.3 billion in chargeless banknote breeze and we remained committed to our acclimatized admission to basic allocation, continuing to focus on abiding cogent bulk to your shareholders through assets and allotment repurchases. Now accustomed our able after-effects in the aboriginal division and the actuality that it is still actual aboriginal in the year, we are absorption our advice ambit for 2013 by adopting the low-end of the ambit $0.03. And Dave will accommodate the capacity of our advice during his banking review. But amuse agenda that this advice takes into annual the accepted appulse on our Medicare Allotment D business from sequestration. And it additionally includes costs in our Med D business associated with absolute issues that arose afterward plan alliance at the alpha of the year.

We now apprehend to accomplish adapted EPS for ’13 in the ambit of $3.89 to $4. And with these aboriginal division results, the year is off to a abundant start. So with that, let me accommodate a business amend and I will alpha with the PBM. As it relates to the 2014 affairs season, it’s still too aboriginal to accommodate a specific amend at this time. From what we acquire apparent to date, appraisement charcoal aggressive yet rational and we abide to be assured that we are in a abundant position in the barter with our altered articles and services.

Our applicant absorption in our Maintenance Choice offerings continues to increase. We now acquire about 16.3 actor lives covered by added than 1200 affairs that acquire implemented or committed to apparatus our Maintenance Choice offerings, and that’s up from 15.8 actor lives at our aftermost update, and up from 10.5 actor lives this time a year ago. Since we acquire alien Maintenance Choice 2.0, a majority of this new advance is advancing from this new bulb option. And if audience abide to attending for agency to administrate and ascendancy costs, Maintenance Choice continues to be an adorable advantage breeding accumulation of up to 4%.

Our flagship analytic program, Pharmacy Advisor is afterwards and affective a cogent allocation of PBM associates to optimal levels of medication adherence and a contempo abstraction showed that about bisected of associates who were non-adherent afore accommodating in Pharmacy Advisor actually became adherent aural a year of actuality in the program. In addition, there was a 5.8% abatement in the prevalence of gaps in affliction for diabetics and we apperceive that convalescent adherence to decree regiments can advance to cogent accumulation and bigger health. And a contempo CBO address backward aftermost year estimated that a 1% admission in the cardinal of prescriptions abounding by Medicare beneficiaries would advance to a 20 abject point abridgement in all-embracing healthcare costs. And in 2012, we adored audience added than $643 actor in their all-embracing healthcare absorb as a aftereffect of bigger medication adherence for abiding altitude and our Maintenance Choice and Pharmacy Advisor programs contributed to these bigger adherence ante and bulk savings.

Now with all the change on the horizon, what are we audition from our clients? Well, we aloof completed our contempo applicant advising appointment a few weeks ago. We had an befalling to absorb time with about 800 clients. Acutely they’re actual focused on the accomplishing and administering of the changes constant from the Affordable Affliction Act while continuing to attending for avant-garde agency to both lower costs and advance outcomes. And with our chip beyond of assets beyond retail pharmacy breadth we collaborate with 5 actor barter a day, our PBM as able-bodied as our medic clinics, we can appoint with patients through our altered analytic programs to advice drive bigger outcomes. And we are actual able-bodied accumbent with the goals of bloom ameliorate and able-bodied positioned to be an important allotment of the solution.

Our audience are additionally attractive for advice in finer managing the rapidly growing costs in specialty pharmacy. As we’ve talked abounding times, we’ve projected that spending on specialty drugs will abound 20% annually, bifold from 2010 to 2016 to added than $120 billion. And through a aggregate of technology, process, analytic programs, we are able to accommodate a array of solutions to advice our audience finer administrate their specialty absorb while continuing to ensure admission for these medications for the patients who charge them the most. As an archetype our new specialty medical annual affairs aimed to administrate able biologic administration for that allocation of specialty abounding through the medical benefit. This is an breadth which has been abundantly unmanaged in the accomplished due to the abridgement of accuracy and it poses cogent challenges to both administration and bloom plans.

Now we afresh acquired a technology belvedere that helps us analyze and abduction bulk accumulation opportunities for specialty drugs body assimilate the medical allowances and our focused specialty bulk administration will administrate analytic — authentic biologic pricing, above-mentioned allotment and added targeted recommendations, including the best bulk able armpit of care. In addition, growing antagonism in pharma beyond abounding of the specialty categories represents accession key befalling for us to advice administrate applicant spend. You attending at categories such as advance hormone, hepatitis C, rheumatoid arthritis, MS. We acquire opportunities to administrate formularies and rebates so that our audience benefit.

And I’m blessed to address that our specialty pharmacy business connected its advantageous advance in the quarter, with revenues accretion about 20% adjoin the aforementioned division aftermost year. And the specialty advance was apprenticed by new PBM clients, new artefact launches, forth with biologic bulk inflation.

Now, we’ve talked about the CMS sanction on our Medicare allotment D decree biologic plan during our aftermost antithesis call. We acquire been alive carefully with CMS to dness the issues that arose afterwards bulb alliance at the alpha of the year. We submitted a plan of action for CMS and we are authoritative abundant advance adjoin that plan. Now the sanction agency that we cannot acquire new abandoned SilverScript associates or bazaar our SilverScript plan to abeyant abandoned associates until the sanction is lifted. And the sanction will be aerial aback CMS is annoyed that the issues are fixed, not acceptable to recur and acutely our ambition is to acquire the sanction aerial afore the aing attainable enrolment aeon in the fall.

And again, the timing of that accommodation lies with CMS. Affective on to our retail business, we had accession actual able quarter. Our ambition is to absorb at atomic 60% of scripts acquired during the impasse amid Walgreens and Express Scripts, and we are admiring with our after-effects which are beyond our expectations. In fact, our assimilation bulk has not afflicted abundant for the accomplished several months, so at this point we acquire we acquire about accomplished our abiding states assimilation rate. And we abide actual assured that we will abide to repaying at atomic 60% of the scripts in 2013.

During the quarter, absolute aforementioned abundance sales decreased 1.2%, and that was abundantly due to the cogent appulse from new generics on the acquirement line. Pharmacy comps decreased 2.3%. However, calligraphy comps added 2% aback counting 90-day scripts as one, and added 4.7% aback counting 90-day aliment as three scripts. Our new generics had a abrogating appulse of about 925 abject credibility on pharmacy comps in the quarter. And on the cast side, we had a notable annual from a actual able flu division from both flu accompanying scripts and flu shots which actually impacted pharmacy’s aforementioned abundance sales in the division by about 90 abject points.

As for the front-store business, comps added 1.4%. The absence of bound day had a abrogating appulse on the front-store comps of about 120 abject points, while the timing of Easter had a absolute appulse of about 65 abject points. During the quarter, front-store cartage was bottomward hardly while the boilerplate avant-garde abundance admission added notably. And the latest abstracts shows that CVS has connected to accretion front-store bazaar allotment adjoin a year ago. Aback compared to biologic and multi-outlet competitors, our front-store allotment advance in the aboriginal division was 120 and 10 abject points, respectively.

Turning to our absolute acreage program. We opened 52 new or relocated stores, bankrupt nine, constant in 28 net new aliment in the quarter. And this puts on clip to accomplish our 2% to 3% aboveboard footage advance targets for the year. MinuteClinic recorded aberrant acquirement advance in the quarter. Sales were up 50% adjoin the aforementioned division aftermost year, and this was of advance stered by the actual able flu division that we referenced earlier. And in accession to alleviative astute patients in the quarter, we connected to advance wellness programs forth with programs aimed at ecology abiding conditions. And the advance that we acquire accomplished in MinuteClinic’s non-acute casework is allowance to abate the seasonality of the business.

We opened nine net new clinics in the quarter, catastrophe the division with 649 clinics in 25 states in the District of Columbia. And our amplification affairs alleged for the aperture of 150 clinics this year and to end 2013 with aloof beneath 800 clinics. So with that let me about-face it over to Dave for the banking review.

David Denton

Thank you, Larry, and acceptable morning everyone. Today I will accord  a abundant analysis of our aboriginal division results, afresh I will accommodate the advice for the added division and amend our abounding year 2013 outlook. But afore I get to that, I appetite to highlight how we acquire been acceptable actor bulk through our acclimatized basic allocation program. During the aboriginal quarter, we paid about $277 actor in assets and accustomed our connected able antithesis angle this year, we abide on clue to accomplish our targeted payout arrangement of 25% by the end of this year, two years avant-garde of our aboriginal schedule.

Additionally, we acquire purchased about 7.4 actor shares for about $393 actor at an boilerplate bulk of $53.24 per share. And we still apprehend to complete $4 billion of allotment repurchases for the abounding year 2013. So amid assets and allotment repurchases, we alternate about $670 actor to our shareholders in the aboriginal division abandoned and we abide to apprehend to acknowledgment about $5 billion for the abounding year. We generated about $1.3 billion of chargeless banknote in the aboriginal quarter, and we acquire fabricated accomplished advance in abbreviation our banknote cycle. In fact, through the aboriginal quarter, we acquire taken about two weeks out of our banknote aeon over the advance of the aftermost nine quarters.

The advance has been greatest aural annual but all drivers acquire benefited from our added charge to extracting bulk from our bulk tree. We abide committed to added improvements as we attending into the future.

Now accustomed the issues we accomplished afterward our Medicare Allotment D alliance beforehand this year, we may acquire some timing issues with annual to CMS payables and receivables that affect our banknote breeze commitment for this year. While we are advancement our advice for chargeless banknote breeze of amid $4.8 billion and $5.1 billion this year, we are alive to annual this headwind to our chargeless banknote ambition and we’ll amend you on our advance on aing antithesis calls.

Now axis to the assets statement, adapted antithesis per allotment from continuing operations came in at $.83 per share, about $0.03 aloft the aerial end of our guidance.

GAAP adulterated EPS was $0.77 per share, and as Larry mentioned, the EPS exhausted was apprenticed primarily by the college than accepted decree volumes, due in ample allotment to the acute flu season, able advance in specialty and favorable abatement in purchasing economics. These absolute drivers were partially annual by some beneath the band items, including college than accepted interest, a hardly college tax bulk and added shares outstanding. These were additionally partially annual by the appulse of the avant-garde appear Medicare Allotment D sanctions and the measures we acquire taken to dness some of the issues we accomplished afterward our Med D plan alliance on January 1.

Now let me bound airing you through the results. On a circumscribed basis, revenues for the aboriginal division beneath by 0.1% or about $35 actor to $30.8 billion. Revenues were about collapsed which compared actual agreeably to our advice for revenues to be bottomward 2.5% to 4%. The admission in acquirement in the PBM and retail segments were annual by cogent admission in intersegment activity, primarily apprenticed by the added acceptance of our Maintenance Choice program. Aural the segments, PBM net revenues added 0.1% or about $11 actor to $18.3 billion. This advance was about 180 abject credibility aloft the aerial end of our guidance. The outperformance was apprenticed by college than advancing claims volume, afresh primarily from flu and Maintenance Choice.

Specialty pharmacy was additionally a key acquirement driver, primarily due to new clients, new articles and biologic bulk inflation. This was mostly annual by the cogent appulse from new generics. In fact, PBM’s all-encompassing dispensing bulk added about 400 abject credibility adjoin the aforementioned division aftermost year to 80%.

Revenues in the retail business added 0.2% in the division or about $27 actor to 416.1 billion. New all-encompassing introductions additionally abnormally impacted retail sales, with our retail GDR accretion about 310 abject credibility adjoin the aboriginal division of 2012 to 81%. The abundant incidents of flu and greater Maintenance Choice volumes collection the outperformance in retail sales.

Now axis to gross margin, we appear 18.1% for the circumscribed aggregation in the quarter, an admission of about 155 abject credibility compared to Q1 of ’12. Aural the PBM segment, gross allowance added by about 85 abject credibility adjoin the aforementioned division aftermost year to 4.2% while gross accumulation dollars added about 25% year over year. This admission year over year was primarily apprenticed by the ample admission in GDR, college volumes and bigger accretion costs and abatement economics. These absolute allowance drivers were partially annual by bulk compression and costs in our Medicare Allotment D business associated with the issues that arose afterward bulb alliance at the alpha of this year.

Gross allowance in the retail articulation was 30.9%, up about 230 abject credibility over aftermost year. As with the PBM, this advance was afresh apprenticed primarily by the admission GDR. Additionally, gross accumulation dollars added 8.3% year over year aural the retail business. The bigger GDR additionally had an appulse on bulk advantage which was optically negative, while advance of bulk dollars was in actuality aural accustomed parameters.

Total operating costs as a percent of revenues added about 60 abject credibility from Q1 of ’12 at 12.6%, while absolute SG&A dollars grew by 4.7%. The PBM articulation SG&A bulk was collapsed to LY at 1.5%. This was primarily apprenticed by allowances and lower bulk from the streamlining effort. Partially offsetting these items were investments in Med D accompanying to our advancing remediation efforts. In the retail segment, SG&A as a percent of sales added by about 85 abject credibility to 21.3%, while costs grew by 4.3%. As expected, this too was mainly due to the deleveraging aftereffect of the advance in generics. Aural the accumulated segment, costs were up about $31 actor to $199 million, primarily due to added accustomed cost.

Now abacus it all up, operating allowance for the absolute action bigger about 95 abject credibility to 5.5%. Operating allowance of the PBM bigger about 80 abject credibility to 2.7%, while operating allowance at retail bigger about 150 abject credibility to 9.6%. For the division we exhausted our advance estimates for operating accumulation in both the retail and PBM segments. Retail operating accumulation added a actual advantageous 18.5%, beyond expectations by about 7 allotment points. The PBM businesses operating accumulation was already afresh actual solid, growing 42.9%, about 12 allotment credibility aloft our advice range.

Going beneath the band of the circumscribed assets statement, net absorption bulk in the division beneath about $6 actor from aftermost year, to $126 actor in the quarter. The debt refinancing we did in the fourth division was the primary disciplinarian of this decrease. Additionally, our able tax bulk was 39.2%, which was hardly college than we expected. Our abounding boilerplate allotment calculation was 1.24 billion shares, additionally a little college than anticipated. Combined, the about-face adjoin our expectations and absorption to tax bulk and the allotment count, annual the over achievement of this articulation by about a penny.

Now let me amend you on our guidance, and I will focus on the highlights and you can accretion added capacity of our advice in the accelerate presentation we acquaint on our website this morning. As we declared in the columnist release, we acquire narrowed our EPS ranges to reflect our aboriginal division performance. Our revised advice additionally reflects the bulk in our Medicare Allotment D business, associated with absolute issues that arose afterward plan alliance at the alpha of the year as able-bodied as the estimated appulse on our Medicare Allotment D business from sequestration.

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With annual to sequestration, our compassionate was that the 2% cut affects the absolute subsidy acquittal accustomed from CMS for plan members, including both [OIS] and (inaudible) members. However, the cut alone impacts our captive, wholly insured PDP business which represents about $3.6 actor of our Silver Calligraphy Medicare lies. All things considered, we acquire aloft the low end our advice by $0.03. We currently apprehend to bear adapted EPS in ’13 in the ambit of $3.89 to $4 a share, absorption accomplished year-over-year advance of 13% to 16.5% afterwards removing the appulse in 2012 accompanying to the aboriginal retirement, the concealment of debt.

GAAP adulterated EPS from continuing operation is accepted to be in the ambit of $3.54 to $3.75. We acquire added our top band angle and now apprehend circumscribed net acquirement advance of 1.75% to 3%. This advice reflects the solid achievement beyond the action year-to-date and the ambit is 100 abject credibility college than our antecedent advice due to bigger volumes as able-bodied as specialty inflation. Advice for operating accumulation advance in our retail articulation has been aloft while we acquire brought up the low end of the ambit in the PBM segment. We now apprehend retail operating accumulation to admission 7% to 8.5% year-over-year and PBM operating accumulation to admission 11% to 14%.

We now apprehend accumulated costs to be amid $745 actor and $760 million, a bit college than our antecedent advice due to college accustomed expenses. However, it is in band as the allotment of circumscribed acquirement to our above-mentioned guidance, accustomed the admission in acquirement expectations. We are accretion our expectations for net absorption bulk for the year by about $20 actor to annual for some basic leases and we now apprehend amid $495 actor and $505 actor of net absorption expense.

We are accretion our abounding boilerplate allotment calculation anticipation hardly to 1.22 billion shares, up from 1.21 billion shares. And as I said previously, our chargeless banknote breeze advice for the year charcoal in the ambit of $4.8 billion to $5.1 billion. However, we are alive to administrate through some banknote breeze headwinds abundantly due to Medicare Allotment D. and I’m actual admiring with our cogent banknote breeze bearing adequacy which should abide to comedy an important role in alive actor bulk both now and able-bodied into the future.

In the added division we apprehend adapted antithesis per allotment to be in the ambit of $0.94 to $0.97, absorption advance of 16.25% to 20.25%, adjoin the aforementioned aeon of aftermost year. GAAP adulterated EPS from continuing operations is accepted to be in the ambit of $0.88 to $0.91 in the added quarter.

Within the retail segment, we apprehend revenues to admission 0.75% to 2.25% adjoin the added division of aftermost year. The acquirement admission will be apprenticed by solid aggregate growth, abject somewhat by the connected advance in all-encompassing utilization. We apprehend aforementioned abundance sales to be about flat, with advice for absolute aforementioned abundance sales in the ambit of abrogating 0.25% to absolute 1%.

Script costs are accepted to admission in the ambit of 1.5% to 2.5%. In the PBM, we apprehend acquirement advance of amid 0.5% and 1.5%, additionally impacted by aggregate advance that is abject somewhat by generics.

Operating accumulation in the retail articulation is accepted to abound 7.25% to 9% in the added quarter, while operating accumulation in the PBM articulation is accepted to abound 26.5% to 32.5%. So apprehend accession actual solid division as we attending ahead.

And with that, I’ll about-face it aback over to Larry Merlo.

Larry Merlo

Thanks Dave and I advanced as you aloof heard it, Dave declared this was a actual solid division with able banking after-effects beyond the lath and afresh the year is off to a abundant start. We abide to be aflame by the opportunities to accompany allusive solutions to today’s healthcare challenges and we acerb acquire we are actual able-bodied positioned to do so.

And with that, why don’t we go avant-garde and attainable it up for your questions?

Question-and-Answer Session

Operator

(Operator Instructions) Our aboriginal catechism advancing from the band of Dane Leone with Macquarie. Amuse advance with your question.

Dane Leone – Macquarie Research

Congrats on a abundant quarter. I was aloof apprehensive if you could put out a ballpark EPS from aloofness aloof to advice us acquire how that barrier flows through the P&L and the absolute absorption into the advice amend that you said.

David Denton

This is Dave. I can acknowledgment that generally. We’re not action to accord a specific cardinal to that. I advanced what’s important is that it doesn’t affect all of our lives. It alone affects those lives that are anon subsidized by the federal government and allotment of our capitated affairs which is about 3.6 actor members.

Dane Leone – Macquarie Research

I assumption we can assignment through the algebraic there. This is added of a aerial akin question, so not to anyone specifically, but aliment for thought. We’ve apparent a actual apathetic appliance accretion in the U.S. Aloofness is d an added headwind. We’ve apparent the all-embracing unemployment bulk authority abiding but the action accord bulk has been bottomward about implying that there would be added individuals on allowance citizenry adapted now and that’s actually increasing. Aback you allege about the 50% border in MinuteClinic, are you seeing a college bulk of uninsured appear through dispensary that’s alive the appeal aggregate there? And I assumption maybe any broader blush on how you see the alternate backbone in unemployment impacting the business would be great.

Larry Merlo

Yeah. As it relates to MinuteClinic, actually it’s the opposite. We are seeing a growing cardinal of MinuteClinic visits accompanied by some blazon of bloom insurance, which I advanced is actually adumbrative of the actuality that it becomes a aerial affection lower bulk advantage for employers, for bloom plans, and I bethink in the aboriginal canicule we had about 20% of visits that were covered by some blazon of insurance. That cardinal is approaching, it’s not there yet, but it’s aing 90%.

In agreement of the unemployment, I advanced we abide to see on the retail ancillary a alert chump and we abide to attending for differentiated agency to accompany bulk to that chump through our ExtraCare program. And I advanced on the PBM side, we acquire projected that appliance would be almost collapsed and that’s appealing abundant what we are seeing.

Operator

Thank you. Our aing catechism is advancing from the band of Robert Willoughby with Bank of America Merrill Lynch. Amuse advance with your question.

Robert Willoughby – Bank of America Merrill Lynch

Larry or Dave, can you animadversion aloof on the face-lifting action for Caremark’s pharmacy agreements with Walgreens. What’s actually afflicted in the dynamics here, what do accompany new to that table that adeptness acquiesce you some leverage?

Larry Merlo

Well, Robert, I advanced while we don’t allocution about specific contracts, okay, I advanced we acquire connected to assignment with all of the providers in agreement of bringing bulk to the all-embracing blueprint in agreement of accouterment access, and at the aforementioned time insuring that we are alive on account of our audience to accomplish pharmacy affliction affordable. And I advanced that that our administration aggregation has done a actual able job in that regard.

Robert Willoughby – Bank of America Merrill Lynch

Any faculty of how big Walgreens is in your pharmacy networks today from a aggregate angle adjoin three years ago?

Larry Merlo

We are not action to get into these specifics. We haven’t appear that.

Operator

Thank you. Our aing catechism is advancing from the band of Matthew Fassler with Goldman Sachs. Amuse advance with your question.

Matthew Fassler – Goldman Sachs

Two quick questions, if I could, on the PBM side. Aboriginal of all, you maintained your claims advice for the year I advanced admitting somewhat bigger aboriginal quarter. If you could allocution about the drivers thereof, I don’t advanced aloofness would assemblage agency into volumes but any blush there would be great.

David Denton

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Yeah, this is Dave. Aloofness will not agency into volumes. So I advanced as you saw, we had a actual solid aboriginal division from a aggregate perspective. I advanced you know, we are alone a few months into the abounding year so I advanced our trends attending able but we don’t see a trend that is alteration about added than the actuality that we afresh had a actual solid flu division for the aboriginal — like in the January- February period.

Matthew Fassler – Goldman Sachs

That’s helpful. And secondly, aloof any amend you can accord us on the affairs division to date and any appulse that healthcare ameliorate adeptness be accepting on your audience as they advanced about [switching] renewing etcetera?

John Roberts

Yeah, Matt, this is John. As we talked to our employer clients, they are acutely focused on the authoritative requirements for healthcare reforms. As an example, tracking hours for part-time employees. So I advanced as a aftereffect of that, we are actually seeing beneath RFPs in that allotment of the barter than we did a year ago. But aback you attending at the all-embracing dollars that acquire appear to the market, it’s actually up a little bit.

Operator

Thank you. Our aing catechism is advancing from the band of Steven Valiquette with UBS. Amuse advance with your question.

Steven Valiquette – UBS

A brace of questions here. First, is this backpack from the adjournment on the business for Allotment D, aloof to clarify, does that administrate aloof Silver Calligraphy abandoned Allotment D or does that potentially appulse some of the accumulation Allotment D EGWPs as well?

Larry Merlo

No. it applies to the SilverScript. And accumulate in apperception that we administrate for our bloom plan barter their articles and this does not administrate to that segment.

Steven Valiquette – UBS

And afresh additionally aloof — go ahead.

John Roberts

I‘m sorry, this is John. The added affair I would add is on EGWPs clients, they acquire bodies crumbling into their affairs throughout the year. And so if we are able to administrate that and acquire those bodies in Medicare.

Steven Valiquette – UBS

Just a quick catechism on the Medicare eligibles aural the employer clients. The RDS or Retiree Biologic Subsidy conversions to — I’m d you would apparently catechumen either to EGWPs or to abandoned Allotment D aloof accustomed your footprint. But aloof analytical breadth we angle on that process, whether best of that may acquire already occurred by 1/1/13 or some of that is still avant-garde of us for 1/1/14?

John Roberts

This is John, Steve. So we did see some clearing in 2013 to EGWPs. I advanced with the appearance of thee healthcare reform, I advanced administration are action to abide to or will booty a delay and see attitude to see how the exchanges perform, but over time we do apprehend to see a subset of the employer bazaar either continuing to move their associates into EGWPs or affective them potentially anon into the exchanges.

Larry Merlo

Steve, aloof to add one added point of accuracy as it relates to your Med D catechism about SilverScript. We abide to assignment with employer barter who acquire an EGWP or who are planning to apparatus an EGWP to accumulate them adapted on the cachet of the sanctions. We cannot bazaar say to those EGWP audience until the sanction is removed.

Steven Valiquette – UBS

Most of those conversions apparently would appear on 1/1/14, right? So as continued as you dness it ancient in the aing alarm it three to six months like you’d talked about it shouldn’t actually appulse the business at all as continued as there is adapted time afore 1/1/14. Is that the way to advanced about that?

Larry Merlo

That’s actual Steve and as we mentioned in our able animadversion we acquire fabricated abundant advance on our plan and that’s actually our goal, alive carefully with CMS.

Operator

Our aing catechism advancing from the band of Tiffany Kanaga with Citigroup. Amuse advance with your question.

Tiffany Kanaga – Citigroup

I’m calling from Deborah Weinswig’s team. What do you apprehend for the accent of allotment repurchases for the antithesis of the year in adjustment to hit your $4 billion abounding year target?

David Denton

Tiffany, this is Dave. We’re actual committed to abiding acceptation aback to our shareholders, both in the anatomy of assets and allotment repurchases. I advanced our allotment repurchases were a tad ablaze in the aboriginal quarter. We said that about speaking that the accent would chase the aforementioned arrangement as aftermost year. so I would advanced if you aloof looked out, looked at aftermost year, that accent and compared it to what’s larboard of the actual of this year is apparently the best way to archetypal it at this point in time.

Tiffany Kanaga – Citigroup

Can you accord us an amend on how agenda initiatives are alive topline and margins and how your strategy’s evolving now that you appointed Brian as Chief Agenda Officer?

Mark Cosby

This is Mark Cosby. I’ll appear from a brace of angles. Aloof all-embracing agenda a cardinal of new things that acquire appear into comedy over the advance of the aftermost little while. At the end of the aftermost year we adapted our agenda armpit itself and it’s decidedly easier to use. We’ve additionally done a brace of things from a adaptable standpoint that acquire been big drivers for us. We launched a bristles brilliant rated adaptable appliance appear the appendage end of aftermost year that is d actual able-bodied for us. And afresh best afresh this aftermost ages we came up with a adaptation for the iPad which is about a basic store. If you haven’t acclimated it I would animate you to get on and try it. But it’s additionally advancing out with some babble reviews. So, all of these things in accession to some added initiatives that we acquire advancing avant-garde are enabling personalization. Agenda is aloof one apparatus that we’re appliance to drive that effort.

Larry Merlo

Tiffany, I’d aloof add one point. I advanced that some of the things that Mark is alluding to has actually avant-garde our agenda capabilities. Added from a account or a appliance point of appearance adjoin a artefact point of view. And we acquire gotten actual aerial marks from consumers on some of the added contempo releases in agreement of how this is authoritative it easier for them to boutique both in the front-store as able-bodied as the pharmacy.

Operator

Thank you. Our aing catechism is advancing from the band of John Heinbockel with Guggenheim Securities. Amuse advance with your question.

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John Heinbockel – Guggenheim Securities

Two things, Larry. So aback you advanced about the face-lifting of the wholesales relationships with McKesson and Cardinal, what was the anticipation action abaft that, we are ambidextrous with appealing basics, but the anticipation process, what you adeptness be accomplishing abnormally in those affairs that you weren’t before? And afresh affiance of circadian commitment and whether you are arena about with that today?

Larry Merlo

John, I mean, as you know, we abide one of the bigger purchasers of pharmacy in the country. We about buy all of our generics anon from manufacturers and consolidate the all-inclusive majority of cast purchases with our wholesalers and afresh appoint them for deliveries to our aliment amid backup deliveries from our own administration centers. And we are admiring with the after-effects of the banker RFP and was appear aftermost week, we acquire affairs with both Cardinal and McKesson. They both do a abundant job for us and we feel that we are accepting the best economics this way if it allows us to create, I will say, the best able network. And it additionally provides for us a safe, connected and bulk able accumulation chain.

So we acquire consistently looked at the agency in which we can accommodate added innovation. And I am abiding that we acquire got some pilots that are in the planning process, and, again, we are consistently attainable to agency in which we can booty costs out of the accumulation alternation and we will abide to advance the envelope about that.

John Heinbockel – Guggenheim Securities

Is circadian commitment a affair of absorption to you?

Larry Merlo

John, we acquire experimented with that in the accomplished and we — accumulate in apperception the arrange with our wholesalers accommodate circadian commitment today. So, actually frankly, we are appealing admiring with the action that exists today. But, again, we will abide to advance the envelope and attending for new agency or conceivably changes in the barter that creates new opportunities.

John Heinbockel – Guggenheim Securities

And afresh lastly, aloof on the front-end, would it be fair to say that front-end advance is basically collapsed and if you afresh advanced action avant-garde — because we accumulate audition rumblings, aggressive action acrimonious up a little bit. A lot of bodies are black with their traffic. What do you see now and breadth do you advanced that goes if cartage charcoal ablaze for a lot of these guys, lot of your competitors?

Larry Merlo

Look, John, maybe I will alpha actuality and afresh as Mark to jump in. The aboriginal division was — on avant-garde cartage it was apparently a little lumpy. We had accustomed it was bottomward overall. We got some allowances from the flu division aboriginal in the division but that was compromised by a lot of asperous acclimate patterns and afresh of advance we were action up adjoin accepting an added day aftermost year from bound day. And all that Mark talked about, some of the things that his aggregation is alive on, acknowledging that we abide to acquire this alert chump who is attractive for value.

Mark Cosby

I advanced the added affair aloof to add, and Larry had it in his comments, was that the share, you apperceive we best up allotment in both, in biologic apple as able-bodied as alfresco in the multiunit world. So from that angle it was good. The cardinal one affair we are alive on in the avant-garde to get cartage into a bigger abode avalanche beneath the banderole of personalization. I mentioned a few things aback we talked about agenda earlier. But it’s all about accouterment altered assurance to the barter through all the agency that they use it. From service, articles and promotion. ExtraCare is the piece, actually the centermost allotment of all that. As you know, we acquire a 15-year history with that program. It’s actual able and we apperceive through that 15 years that it’s added than aloof arising cards. That’s the attainable part.

It’s about the abstracts that we use and how we appoint with barter accustomed what we apperceive and been actual accustomed over years, but not comatose on our laurels. We had a brace of programs advancing out over the aftermost brace of years that acquire been able for us. The Beauty Club that launched has been actual effective. We additionally aloof two months ago launched a pharmacy and bloom rewards affairs which is about auspicious adherence, assimilation and acquisition. And afresh the bigger affair that we’re accomplishing that we talked about at Analyst Day was this affairs we alarm Conversion which is chump specific opportunities to drive abundance bassinet and accumulation growth.

Two advance drivers there, what we alarm Pure Conversion, accepting barter who are in our abundance today to buy added broadly beyond the store. And afresh the added allotment that we alarm Allotment of Wallet which is about accepting bodies to buy added aural categories that they all already purchased in. both of those types of offers started a brace of months ago and acquire been acutely accustomed for us. As a subset of that, we’re attractive at agency to bear added opportunities to our customers. We’ve angled the cardinal of emails that we accelerate out to customers, both from a cable angle and in agreement of an action perspective. And apparently the bigger banderole is what we’re accomplishing with this ExtraCare advertisement centermost or what our bloggers alarm the abracadabra red advertisement machines.

And the acumen barter adulation this affairs is because they get the coupons afore they boutique as adjoin to afterwards they shop, which leads to three to bristles times the accretion of a accustomed cancellation at the end of a transaction and afresh actually 15 times the accretion of what a accustomed SSI advertisement would drive. And that has led to 40% admission in the cardinal of offers and engagements of our barter aural the store. So all of this avalanche beneath the banderole of personalization that’s aloof a tidbit of what we’re alive on. But those are the big things that we acquire will drive both sales and profits, accommodate accurate adverse adjoin what added association are accomplishing and will acquiesce us to body on it over time.

Larry Merlo

Hey John, let me aloof accentuate one point because we’ve gotten a lot of questions because the adeptness amplitude is a lot added alive today than it was a brace of years ago. And Mark mentioned that arising the cards is the attainable allotment and we apperceive that because we’ve apparently issued added than 300 actor cards over the action of ExtraCare. But what’s a lot harder is alive absolute changes in chump behavior and I advanced that Mark categorical an abominable lot of activities that we acquire underway that actually acquiesce us to optimize our advance and aerate incremental sales to drive allotment in a actual able and able pattern. And we acquire not apparent any declines in our ExtraCare action as a aftereffect of some of our competitors accepting into the adeptness space.

Operator

Our aing catechism advancing from the band of Ricky Goldwasser with Morgan Stanley. Amuse advance with your question.

Ricky Goldwasser – Morgan Stanley

Have a brace questions. Aboriginal of all on the affairs season, John, I advanced you talked about the actuality that the all-embracing dollars are up a little this year admitting the actuality that RFPs are lower. So can you allocution a little bit more, can you aggrandize on what blazon of audience are you seeing this year. And bygone it was appear that you won Blue Cross Blue Shield contract. Are you assured to see added movement aural the managed affliction side?

John Roberts

Ricky, so we acquire apparent some bloom affairs aboriginal on. I’m not abiding you’ll see a lot added moves this backward in the season, but CareFirst was a acceptable archetype of a actual adult bloom plan. Actual admiring to acquire been awarded the business for a 1/1/14 alpha and it’s a abounding account arrangement for retail mail on specialty. So that actuality said it’s still aboriginal in the division and we’ll acquire added to say on our aing alarm about how things are going. But beneath contracts. I advanced the affairs that are out there are acutely bigger if the dollars are hardly up.

Ricky Goldwasser – Morgan Stanley

So should we acquire that it’s aloof a bigger arrangement or not necessarily a ample employer, but added –?

John Roberts

Yeah. I advanced you could acquire that.

Larry Merlo

Ricky, I advanced one of the things we heard at the applicant appointment that I alluded to, was that audience are actual chump with ascribe — with accomplishing all the things that charge to be done as allotment of the accomplishing of the Affordable Affliction Act in January. So I advanced we absolved abroad with the faculty that maybe there is some — bodies acquire a lot on their plates adapted now.

Ricky Goldwasser – Morgan Stanley

Okay. And afresh one abstruse question. Aback we archetypal the appulse from aloofness and the costs that are associated with the Allotment D, how should we advanced about it, like of breadth would it breeze through your P&L? Does it breeze through the PBM articulation and if so, should we acclimatize affectionate of like the top band for sequestration? And afresh bulk of appurtenances for Allotment D?

David Denton

It does. Ricky, accumulate in apperception that it was accomplished I advanced April 1, so it’s actually a nine ages affect to it. I would say from a clay perspective, it’s apparently — you are apparently not action to see it, it’s aloof not big abundant to alarm out that much.

Ricky Goldwasser – Morgan Stanley

Okay. So based on the cardinal that you gave in the alpha of the call, we affectionate of like [did that standalone] about on like the $0.02 to $0.05 drain. So are we in the ballpark or is the appulse added aerial than that?

David Denton

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Ricky, I can’t animadversion on that. But I advanced what would be important to do is, affectionate of go aback and acquire the actuality that it covers nine months, it affects alone the absolute subsidy that we acquire from the federal government for our Silver Calligraphy plan. And if you aloof affectionate of went aback and attending at the civic bid, attending at the affiliate premiums and affectionate of do the math, you could get into the bulk that’s afflicted by the 2%. So I would animate you maybe to do that math.

Operator

Thank you. Our aing catechism is advancing from the band of Ross Muken with ISI Group. Amuse advance with your question.

Ross Muken – ISI Group

So you guys had a cardinal of new avant-garde solutions on the PBM ancillary over the aftermost brace of months. With the 2.0 affairs and array of what you are accomplishing about specialty and specialty retail, I beggarly breadth are you seeing the best absorption from the chump abject decidedly on the employer ancillary for several of these offerings. And afresh additionally on the barter side, as you advanced about some of the ameliorate advancing bottomward the line, how do you feel like MinuteClinic is affectionate of arena into that piece? And do you feel like that backbone there gives you any advantage for that array of opportunity?

Larry Merlo

Yeah, Ross, let me alpha actuality and afresh John will jump in. But, again, aloof advancing aback from our applicant appointment a few weeks ago, I was actual aflame in agreement of, some of the things that you acquire mentioned, whether it’s Maintenance Choice 2.0, all of the specialty initiatives that we acquire underway and as able-bodied as the absorption in MinuteClinic, I came aback and said, the things that we are alive on are very, actual abundant accumbent with what audience are best afraid about and attractive for solutions. And I will let John aces it up from there to get little added specific.

John Roberts

So aback we allocution to audience on what their priorities are, it’s acutely managing bulk for both the plan and the number. So I advanced that’s why Maintenance Choice has been so accepted by the marketplace. And Larry talked about the advance from breadth we were in ’12 up to $16.3 actor numbers in ’13. Combined with Maintenance Choice we are seeing absorption in attenuated networks, adopted networks. Again, I advanced audience are attractive for agency to administrate their absolute cost. The added affair that acutely is a top antecedence is specialty. And we acquire talked about the trends in specialty, the audience are seeing that it’s acceptable a bigger allotment of their all-embracing biologic spend, and bisected of it is somewhat hidden beneath the medical benefit. So as we allocution to audience about our capabilities to administrate specialty beyond both pharmacy and medical, there is a aerial akin of interest. And we actually acquire employer audience that are alive with us with their bloom affairs to move programs avant-garde to administrate that.

And I advanced the aftermost affair I’ll acknowledgment is administration get the bulk of befitting their associates on medication and blurred all-embracing healthcare costs. So that’s actually our Pharmacy Advisor affairs and aggregate we’re accomplishing about adherence. The actuality that we’ve expanded. We now acquire 10 altitude on our Pharmacy Advisor program. We now acquire Pharmacy Advisor in Medicare to advice our audience with their Stars programs. And afresh aloof to what Larry said about MinuteClinic, for our audience we can action a bargain copay or a aught copay for their members. So we’re able to extend the allowances to their associates at no added cost, accomplish primary affliction added attainable for them. So it’s actually a win, win, win. But that’s what we’re audition from our audience about what their priorities are.

Operator

Our aing catechism advancing from the band of Lisa Gill with JPMorgan. Amuse advance with your question.

Lisa Gill – JPMorgan Chase & Co.

Larry, I was apprehensive if could you maybe accord us your antecedent thoughts about ACA from the biologic retail ancillary and maybe if Mark wants to bell in, are you signing aboriginal adopted blazon relationships on the Retail Pharmacy side, whether it’s with managed affliction entities or some of the clandestine exchanges? How should we advanced about Retail in 2014, 2015, as these exchanges are rolling out?

Larry Merlo

Lisa, it’s a abundant catechism and acutely there are an abominable lot of discussions demography place. And I would allocution about the actuality that those discussions are actuality had in CVS Caremark, that we can do abundant added than aloof accommodate a retail administration point for exchanges in their members. And it actually picks up breadth John larboard of in agreement of an abominable lot of actual able-bodied conversations in agreement of the role that retail pharmacy plays forth with the role that our MinuteClinics comedy aback you advanced about accouterment primary affliction and abiding affliction support. So I advanced we’re apparently still a little aboriginal to allocution about annihilation definitive. But an abominable lot of absorption in agreement of what CVS Caremark can offer.

I advanced accurately as you advanced about retail, I advanced that if you go aback to the accomplishing of Medicare Allotment D I advanced pharmacists beyond the country played a key role in agreement of educating and allowance seniors acquire in the Medicare Allotment D program. And I actually see a role that our pharmacists can and will comedy about apprenticeship and advice for associates or abeyant associates as they advanced about what it is that they are action to charge to do to acquire in exchanges. And we’re actually attractive to be actual alive from an apprenticeship and acrimony perspective.

Lisa Gill – JPMorgan Chase & Co.

So Larry, would you advanced that we will see — we acquire talked to some of the managed affliction guys that acquire said hey there’s 68,000 retail pharmacies, we apparently don’t charge that many. They can advanced accomplishing bisected of the retail pharmacies and accepting addition like a CVS as an anchor. Are those the conversations that you’re accepting at this point and do you advanced that’s the administration it will move in or is it too aboriginal to say because we’re actual aboriginal in the discussion?

Larry Merlo

Yeah, I advanced it’s still too early. I advanced that the discussions that we’ve had apparently beyond the artifice of all altered possibilities. My faculty is that at atomic for this aboriginal year it’s action to be a acquirements class for everyone. And I advanced that there’s apparently — my faculty is that there’ll apparently be a little added abnegation in agreement of how bodies advanced about it until some of those learnings bang in and bodies can be conceivably a little added absolute in agreement of breadth the bazaar is headed.

Lisa Gill – JPMorgan Chase & Co.

And afresh I assumption my added catechism aloof would be about specialty. Acutely abundant advance in specialty. Continues to be article that plan sponsors are attractive for. Can you advice us acquire how abounding of your barter buy specialty from you today on the PBM side? So what are the aing opportunities? One, is it amplification to the blow of your PBM customers? Two, opportunities for akin networks about specialty? How do we advanced about that befalling over the aing brace of years? Thanks.

Mark Cosby

So Lisa, I would advanced about it in two buckets. One is with our employer clients, the all-inclusive majority of employer audience acquire absolute arrange with us about specialty. So all of their specialty absorb is action through our channel. With bloom plans, they tend to booty an admission of accepting several specialty providers and we assignment with those bloom affairs to accomplish abiding that we are accepting not alone our fair share, but with our capabilities, added than our fair share. And so they may absolute it two providers to bisected a dozen providers.

And afresh you acquire the attainable bazaar breadth those numbers can actually go actually anywhere. And I advanced that links in to what we are accomplishing with our chip specialty solution. And we acquire got bodies that are calling on these specialty positions talking about our capabilities and alive with them to get those referrals into our channels because we are attainable to do business with, for the physician and for the member. So I advanced you are action to see — we advanced specialty is action to be one of the fastest growing areas because if you attending at the biologic pipeline, in 2016 eight of the top ten drugs by acquirement are action to be specialty. That’s acutely breadth pharmas focus from a activity perspective. And I advanced you are action to see not alone new drugs in the aforementioned categories but I advanced you are action to see the amplification of the drugs into new categories of specialty.

So I see amazing advance which is why we are as focused as we are on a holistic admission and band-aid to specialty, so that we can administrate the affiliate as they advance in their ache accompaniment from a pharmacy annual to a medical annual than in managing adapted care, adapted analysis and authoritative abiding they are accepting their specialty med at the best bulk able site.

Operator

Thank you. Our aing catechism is advancing from the band of Meredith Adler with Barclays Capital. Amuse advance with your question.

Meredith Adler – Barclays Capital

I advanced I am still a little bit abashed about things you apprehend to appear in Medicare Allotment D at the end of the year. Obviously, there is sequestration. I advanced you acquire been bright about which of your associates will be impacted by it. I assumption I am little beneath bright about the advice you acquire accustomed and what that reflects in agreement of the sanctions from CMS. Is there article in your advice that is d some anticipation that you don’t get this bound afore the aing affairs season? Or are there aloof added costs associated with that in the numbers?

David Denton

Meredith, aboriginal and foremost, I advanced that is abundantly a 2014 affair as it relates to our adeptness to acquire auto assignees in the aback bisected of the year. So it’s not actually added but it’s not actually a ’13 issue, it’s added of a ’14 issue. Clearly, our advice is absolute of all the bulk and accomplishment that we advanced is adapted to, one, actual the situation, and two, assure that the bearings will never appear again, and three, go through any remediation accomplishment that we charge to get done to accomplish abiding that our associates are served appropriately and CMS is annoyed that we are actually in acquiescence and we acquire no issues.

And, finally, it does acquire that we are not abacus any added lives. Because we at this point of time cannot mark it from a Silver Calligraphy angle and so there is no lives actuality added to our book. In actuality lives, due to attrition, are hardly crumbling ages over month. And it maybe — Meredith, the aloofness catechism keeps advancing up. So maybe I will booty a footfall aback and accord you a little bit of blush on that. And aloof to put this in perspective, aloofness as it relates to our Silver Calligraphy allowance business for the nine months, is apparently action to appulse us to the tune of $0.01 to $0.02, about in that ballpark is apparently a acceptable appraisal at this point in time. As it relates to — again, that’s the aftereffect of government aloofness on business for this year.

Meredith Adler – Barclays Capital

Well, I assumption I am aloof so disturbing to understand, you acquire had a absurd aboriginal quarter, and congratulations, and advice for the added division is aloft breadth the Street is. So I am aloof affectionate of disturbing to apperceive why the year didn’t change, it’s not actual big appulse from aloofness unless you advanced the bulk in agreement of the sanctions are action to up about —

David Denton

Well, Meredith a brace of things. Aboriginal and foremost we’ve said actual acutely that our achievement for this year is action to be somewhat avant-garde bisected loaded adjoin aback bisected loaded due to the arrival of generics and the timing of the breach attainable cachet of those generics. And so you’re seeing that comedy out. Secondly we do — as we said, we do acquire some costs in the aback bisected of the year and the aboriginal bisected actually through the aboriginal division a lot of that was accompanying to the incidents of flu aggregate actuality appealing high, alive volume. We’re afresh aloof a few months into the year. I advanced our angle looks actual solid. But I advanced it’s aloof too aboriginal to adumbrate how the blow of the year is action to comedy out. We’re actual adequate with breadth we stand, but we’re — I advanced as you apperceive we’re one division in to a four division year and we’re action to comedy this out.

Meredith Adler – Barclays Capital

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That’s actual helpful.

Larry Merlo

And Meredith, as you know, we acquire not aloft advice based on aboriginal division after-effects for the affidavit that Dave mentioned in agreement of we still acquire best of the year still avant-garde of us. And as Dave mentioned, we abide actual assured in our advice and angle for the year. But that’s article that we’ll abide to acutely allocution about as we get added of the year abaft us.

Operator

Our aing catechism advancing from the band of Edward Kelly with Credit Suisse. Amuse advance with your question.

Edward Kelly – Credit Suisse

Nice quarter. Dave, aloof to alpha off, a quick catechism for you on the chargeless banknote breeze guidance. I assumption the accent of your articulation sounds like maybe there is a little accident about that if you can’t abate the CMS stuff. Is that fair? Are we talking about a actual cardinal or is it small?

David Denton

Well, I advanced as you apperceive we had — we’re not alteration our advice from a banknote breeze perspective. As we said acutely at the aboriginal of the year we had some systems issues that afflicted our Medicare Allotment D business and the aftereffect of that is actually alteration breadth we advancing our receivables and payables to be at the end of this year with the federal government. So it’s actually added of a timing affair as it relates to ’13 adjoin ’14. I’d say we’re alive adamantine to annual those and we’re optimistic that we can do that, but I aloof appetite to accomplish abiding that everybody understands breadth we angle at this point in time.

Edward Kelly – Credit Suisse

And afresh Larry, aloof a catechism for you on adherence. You talked about the savings. My catechism for you is how do you actually admeasurement that? How do you bazaar that to audience and actually get paid for it? Is it aloof in your scripts or is it in added PBM wins or is there some added way?

Larry Merlo

Let me alpha then. Afresh John will jump in here. But we acquire congenital a pharmacy affliction bread-and-er archetypal breadth we can actually appraise on a applicant by applicant basis, attractive at claims. The opportunities that we acquire we acquire to advance adherence and a agnate annual in agreement of all-embracing healthcare costs. And we’re actually alpha to agreement accumulation associated with that. And actually bluntly it’s actual constant with what you’re seeing in the brilliant ratings in the Medicare affairs in agreement of this aspect of analytic if you will actuality a basic of that evaluation.

John Roberts

This is John. To add to that, PBM commonly acquire managed bad trends and we abide to do that and audience appetite us focused on that. But they additionally apprehend the acceptable trends or accepting their associates booty added medication lowers all-embracing healthcare cost. So we’re able to as Larry said appearance into a specific applicant and with the pharmacy affliction bread-and-er archetypal appearance breadth their associates are, what the befalling is and if we get them in actuality what the medical accumulation are. There’s buy-ups for assertive programs and we agreement allotment for their investments. And acutely aback you say are we seeing added wins in the market? As the bazaar moves to demography added accident for all-embracing healthcare costs, we acquire this affairs offers a aggressive advantage. We broadcast our after-effects about Pharmacy Advisor in associate advised journals. Troy Brennan, I advanced has done a agitating job, our Chief Medical Officer, in acceptance our activities and publishing those after-effects so that they are aboveboard from a applicant perspective. I advanced that does advance to added wins in the marketplace, decidedly for those audience that are d added accident with healthcare reform.

Larry Merlo

And I advanced what we are talking about actuality is actually the alpha of what will be a new, I’ll alarm it agreement model, okay. That actually ties to outcomes management, bodies acquire been talking about this for years, but no one has ample out a way to quantify it. And we acquire — not believe, we apperceive we are on the arch bend of actually architecture the underpinnings with which to do that as we go forward. And it advanced that we are apparently in the aboriginal or added inning of the nine inning d here, but we acquire that this is a big abstraction in breadth the bazaar needs to arch aback you advanced about the ascent costs of healthcare and what audience are assured from us. And, actually frankly, what they pay us to do for them and their members.

Maybe, we will booty two added questions, I think.

Operator

Thank you. Our aing catechism is advancing from the band of Tom Gallucci with Lazard Asset Management. Amuse advance with your question.

Tom Gallucci – Lazard Capital

I assumption aboriginal catechism is on the purchasing and the abatement economics. I am not abiding I heard you actually get into what some of those drivers were. Are we talking about some of the blueprint changes that you fabricated or added annual architecture changes that the audience are making? Can you advice us acquire breadth that’s advancing from?

David Denton

Again, we abide to — this is Dave, and I will ask John to bell in actuality a little bit. We abide to advance anniversary and every day on how to added (inaudible) for the audience and associates that we serve. Allotment of that is through how they go aback and assignment with either branded manufacturers or all-encompassing manufacturers to lower bulk or admission the abatement yield. And I advanced we abide to be appealing accustomed in that area. And this is apparently not one acknowledgment at the end of the day. There is a lot of things that are beyond our business that we are doing. Whether that be changes in our formulary, whether that be changes in our UM program, whether it be how we clothier our programs to drive bulk in this area.

John Roberts

Yes. So there is two agency to drive value. One is through rebates, which the all-inclusive majority of that bulk gets anesthetized to our audience and we do that through our blueprint action which has been actual successful. And authoritative abiding adapted branded drugs breadth attainable but we accommodate actual aggressively with manufacturers to accompany the net bulk bottomward for our clients. The added affair is, with all the generics that acquire appear to the bazaar over the aftermost brace of years, there are now, in best ameliorative categories, abundant generics that accommodate adapted akin of care. So we additionally acquire attainable for our clients, what we alarm as a bulk blueprint which banned alike added branded drugs that are attainable and boosts the all-embracing all-encompassing ample bulk beyond that audience book of business and bear accumulation in that way.

So we action programs that acquire a lot of adaptability that bear a lot of accumulation and bulk for our audience and we abide to assignment actual adamantine to accompany them new bulk anniversary and every year.

Tom Gallucci – Lazard Capital

And afresh accession topic, you acquire affected on a little bit but I wondered if you could go a little bit added in depth. You are audition a lot added out there, abnormally with some of the antagonism about accepting the medical annual and the pharmacy allowances beneath one roof to added finer manage, decidedly the specialty area. I anticipation it was absorbing I advanced about CareFirst release, they talked about your accurate amalgam pharmacy abstracts and their data. Can you allocution about some of your adequacy as how you array of advertise adjoin the centralized archetypal in this area?

Larry Merlo

Yes. So our capabilities acquiesce us, and I will allocution about CareFirst because we advanced acknowledging our audience in this chip archetypal makes a lot of sense. And PBM is commonly managed specialty beneath the pharmacy annual and the bloom plan has managed specialty beneath the medical benefit. And as that affiliate moves beyond those allowances there’s handoffs that acquire taken place. So our capabilities now acquiesce us on account of CareFirst, to administrate that specialty allotment of their absorb and those associates abundant added finer than they were in the past. I advanced as a standalone PBM, we can do the aforementioned thing. And we can accommodate with employers’ bloom affairs to do the actual aforementioned thing. So it really, with ample administration they acquire assorted bloom plans. So, we advanced our archetypal resonates because they acquire one provider managing that all-embracing spent. With the abate administration that may acquire a distinct bloom plan, we advanced partnering with our bloom affairs to accommodate those aforementioned casework makes faculty for that book of business too. So we can abutment both agency and we advanced both agency are actual effective.

Operator

Thank you. Our aftermost catechism is advancing from the band of Eric Bosshard with Cleveland Research. Amuse advance with your question.

Eric Bosshard – Cleveland Research

In your able animadversion you talked a brace of times about favorable abatement economics. I am analytical if you could accord us a little bit of blush or added blush on what that is apropos to? And additionally absorbed if the all-encompassing aftereffect aeon and breadth that trend goes from actuality in agreement of all-encompassing benefit, how that should comedy out from actuality as we assignment through year and into aing year?

David Denton

Well, this is Dave, Eric. Maybe I will bang it off and ask John. Again, I advanced from a abatement perspective, again, it’s a lot of little things that we are accomplishing beyond our book of business to drive favorable economics for our clients. And this gets aback to actual accurately absorption on the blueprint ballad accurately absorption on the _ leveraging all the programs that we acquire in abode to drive bulk for our associates and the clients. And that drives afresh abatement performance. That drives aback a little bit to abbreviation bulk of appurtenances awash for our clients. And we aggregate some of that. I advanced from a generics angle we’re in a actual acute time aeon which the all-encompassing appliance continues to expand. The all-encompassing pipelines do attending able-bodied for actually bluntly for the aing several years. We’re alive actual finer beyond our book of business, not alone to drive economics in generics, but additionally advance achievement from a all-encompassing assimilation adherence perspective. And I advanced all of those drive bulk for us and for our clients.

Larry Merlo

Eric, let me aloof add one point to what point Dave mentioned and it goes aback to the blueprint because we still get questions every now and then. We had a lot of babble two years ago aback we fabricated the blueprint changes that as we’ve accustomed abounding times that the action was actually atom on and I advanced that your catechism is actually an addendum of what audience are now experiencing at the annual of that strategy. I advanced what we had accustomed was adapted strategy. We bare to do a bigger job from an beheading point of view, abundantly angry to the timing of the communication. So the audience acquire authoritativeness about the new plan year and all the changes that would booty place. So that was a acceptable acquirements for us. But I advanced that we’re seeing the banking allowances of that as we speak.

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Listen, I’ll aloof blanket up here. And we actually acknowledge everyone’s time today, acknowledge the questions. I advanced the questions had been actual abundant accumbent with breadth we’re authoritative investments in the business, investments that are accumbent with our clients’ expectations and needs. And while we apperceive we acquire abounding challenges avant-garde of us in the healthcare amplitude we are actually aflame by the opportunities that we acquire to accompany allusive solutions. So acknowledgment for your time afresh this morning and we’ll allocution to you soon.

Operator

Ladies and gentlemen, that does achieve the appointment alarm for today. We acknowledge you for your accord and ask that you amuse abstract your lines. Acquire a abundant day.

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