Growth in an Evolving Health Care Market

Transcription

1 Driving Enterprise Growth in an Evolving Health Care Market Larry Merlo President & Chief Executive Officer

2 Agenda Our Compelling Value Proposition Evolving Health Care Market Creates Opportunities Strategic Framework for Long-term Enterprise Growth 2

3 The Most Extensive Suite of Leading Assets Retail Clinics Long-term Care Retail Mail Specialty Clinical Programs Infusion Digital Payors Patients Providers Medical Claims Editing enabling us to help deliver superior outcomes at a lower cost 3

4 Continue to Build One-of-a-kind Health Care Company with Unmatched Integrated Assets : Our Competitive Edge Only company with the ability to impact patients, payors and providers with innovative, channel-agnostic solutions Broadest capabilities to holistically manage patients in fast-growing specialty market Unparalleled scale in the U.S. makes us a low-cost provider Largest retail clinic operator in U.S. with 28 million patient visits to date Deep clinical i l expertise and insights i across the enterprise enable us to help deliver superior outcomes at a lower cost Leading gprovider of pharmacy services in long-term care 4

5 Pharmacy Is Our Focus and We ve Captured 39% of Past 5-Year Prescription Growth Total U.S. Rx Industry (Rx dispensed, billions) ~710M new Rx E Note: 1. All prescriptions dispensed on a 30-day equivalent basis. Does not include Omnicare. Source: IMS data, CVS Health Internal Analysis. 5

6 Pharmacy Is Our Focus and We ve Captured 39% of Past 5-Year Prescription Growth Total U.S. Rx Industry (Rx dispensed, billions) 4.8 ~710M new Rx 5.5 CVS Health share of market growth 275M 39% E Gaining share in a growing Rx industry Note: 1. All prescriptions dispensed on a 30-day equivalent basis. Does not include Omnicare. Source: IMS data, CVS Health Internal Analysis. 6

7 Prescription Growth Through Enterprise Channels Demonstrates Power of Unique, Integrated Model CVS/caremark Claims (Rx, millions) 1,080 ~1, Channel agnostic offerings allow us to capture growth in CVS/caremark claims while helping to drive client savings E CVS Health dispensed All other Notes: 1. CVS Health dispensed prescriptions include CVS/pharmacy, mail, CVS/specialty and Omnicare prescriptions across all years. 2. CVS retail and mail prescriptions on a 30-day equivalent basis E is midpoint of guidance range. 7

8 and Has Allowed Us to Capture 700 bps of Revenue Share, Equating to $7 Billion CVS/caremark Revenue ($, billions) ~ % 50% 53% 55% 700 bps increase = $7 Billion E CVS Health share All other Our outperformance in specialty is a key driver of revenue share gains Notes: 1. CVS Health share of CVS/caremark revenue equals CVS/caremark revenue dispensed through Enterprise channels (CVS/pharmacy, mail, CVS/specialty, Omnicare) total CVS/caremark revenue E is midpoint of guidance range. 8

9 Agenda Our Compelling Value Proposition Evolving Health Care Market Creates Opportunities Strategic Framework for Long-term Enterprise Growth 9

10 Evolving Health Care Market Creates Opportunities Demographics and Health Reform Continue 1 to Transform the Market Specialty Growth Will Be Primary Driver of Pharmacy Trend Retailization of Health Care Is Accelerating Increasing Focus on Outcomes 5 Consolidation in the Health Plan Market 10

11 Health Reform and Demographics Expanding Insured Population Growth in U.S. Insured Lives (lives, millions) Individuals/Exchanges Medicaid Medicare Employer-sponsored E 2019E Medicare and Exchanges will be primary drivers Source: CVS Health Internal Analysis; Medicare Trustees Report, 2015; Avalere Medicaid Model, September 2015; McKinsey MPACT 6.2, September 2014; CBO Public Exchange Estimates, March 2015; Accenture, 2015; Congressional Budget Office. Model assumes no additional Medicaid expansion in the 20 nonexpansion states, further Medicaid expansion could improve long-term covered lives outlook. Figures may not foot due to rounding. 11

12 Aging U.S. Population Will Drive Prescription Utilization 1 U.S. Population Aged 65+ (lives, millions) Retail Prescription Utilization by Age Group (Rx per member per year) +18M lives E 2020E 2025E Sources: 1. U.S. Census Bureau. 2. Utilization based on CVS/caremark book of business; all prescriptions on a 30-day equivalent basis; excludes Aetna. 12

13 and Fuel Growth in Prescription Expenditures 1 U.S. Prescription Drug Expenditures ($, billions) % CAGR E 2018E 2021E 2024E Source: CMS, Office of the Actuary, Prescription Drug Expenditures (figures as of July 30, 2015). 13

14 Pharmacy Is One of the Most Cost-efficient Ways to Manage Overall Health Care Costs 1 Healthcare Savings from Improved Adherence (PMPY) Hyperlipidemia Diabetes Hypertension ROI 9X $5,883 ROI $5,676 9X ROI 5.5X $3,311 ($601) ($656) ($629) Added Rx spend Medical and productivity savings Source: Roebuck MC, Liberman JN, Gemmill-Toyama M, Brennan TA. Medication adherence leads to lower health care use and costs despite increased drug spending. Health Affairs. 2011;30(1): Carls GS, Roebuck MC, Brennan TA, Slezak JA, Matlin OS, Gibson TB. Impact of medication adherence on worker productivity: an instrumental variables analysis in five chronic diseases. JOEM, Cholesterol savings from generic medications only. 14

15 CVS Health Can More Broadly Reach Patients Across the Continuum of Care 1 CVS Health Standalone Retailer Standalone PBM Retail pharmacy Mail Order Specialty/Infusion LTC pharmacy Retail clinics Clinical programs Channel connectivity 15

16 Growth in U.S. Population Over 85 Underscores Need for Long-term Care 1 U.S. Population Aged 85+ (lives, millions) Omnicare is a leading pharmacy services provider to LTC facilities ~2X 11.9 Nationwide footprint with leading positions in Assisted Living and Skilled Nursing facilities Ability to leverage clinical insights to improve care for patients CVS Health brings capabilities to better serve patients across the continuum of care 2015E 2025E 2035E Source: U.S. Census Bureau. 16

17 Evolving Health Care Market Creates Opportunities Demographics and Health Reform Continue 1 to Transform the Market Specialty Growth Will Be Primary Driver of Pharmacy Trend Retailization of Health Care Is Accelerating Increasing Focus on Outcomes 5 Consolidation in the Health Plan Market 17

18 Specialty Growth Will Be Primary Driver of Pharmacy Trend 2 Addressable Specialty Industry ($, billions) 14% CAGR E 2020E Note: 1. Addressable specialty industry currently excludes infused oncology. Source: NHE, Artemetrx, CVS Health Internal Analysis,

19 We Are Well-positioned as the Largest and Fastest-growing Specialty Pharmacy in the U.S. 2 CVS Health Specialty Revenue ($, billions) 27% CAGR E 2016E Dispensed Managed ACS (Omnicare). Source: CVS Health Internal Analysis. Does not include specialty revenue from Target pharmacies. 19

20 with the Broadest Capabilities to Manage Trend and Improve Care 2 Formulary Solutions Network Design Utilization Management Formulary strategies offer drug exclusions, step therapy and new-to-market control Exclusive Choice network can help reduce trend and drive incremental savings Cost-effective, clinically-appropriate therapy solutions for each patient Site-of-care Home or alternate-site infusion services can Management dramatically lower costs Medical Claims Editing Care Coordination Novologix platform enables editing and re-pricing for medical pharmacy claims Certified nurse case managers provide clinical support 20

21 Evolving Health Care Market Creates Opportunities Demographics and Health Reform Continue 1 to Transform the Market Specialty Growth Will Be Primary Driver of Pharmacy Trend Retailization of Health Care Is Accelerating Increasing Focus on Outcomes 5 Consolidation in the Health Plan Market 21

22 Retailization of Health Care Continues with Growth in Consumer-directed Health Plans 3 CDHP Enrollment (lives, millions) Drivers of Trend % CAGR Employers looking to CDHPs to help control mounting health care costs Employees have accountability in their health care decision-making Growth in CDHPs also driven by health insurance choosers on the exchanges Sources: AIS s Inside Consumer Directed Care; Kaiser; AHIP surveys. 22

23 Promoting Healthy Behavior Is Critical in Avoiding Unintended Consequences with CDHPs 3 As Patient Cost Share Rises CVS Health Advantages sustaining adherence becomes more challenging patients may choose to cut corners on their health and wellness needs to avoid costs Cost Adherence More than 9,500 convenient locations CVS/minuteclinic Innovative plan design options Unique programs: Pharmacy Advisor Trusted brand CVS Health is best-positioned to meet consumer needs Note: 1. Retail pharmacy locations include more than 1,660 Target locations. 23

24 Example: Reduced Co-pay for Key Maintenance Medications Improves Adherence in CDHPs 3 Member Adherence to Prescribed Hyperlipidemia Medication Initiators +560 bps 80% Continuers +130 bps 82% 57% 63% Without preventative drug list With preventative drug list Notes: 1. Initiators defined as patients starting therapy during study period. Continuers defined as patients on therapy before study period. 2. Member adherence defined as average monthly proportion of days covered (PDC). Source: CVS/caremark Enterprise Analytics: Study of CDHP Design Impact on Utilization and Medication Adherence, Study based on subset of CVS/caremark book of business. 24

25 Evolving Health Care Market Creates Opportunities Demographics and Health Reform Continue 1 to Transform the Market Specialty Growth Will Be Primary Driver of Pharmacy Trend Retailization of Health Care Is Accelerating Increasing Focus on Outcomes 5 Consolidation in the Health Plan Market 25

26 Payment Models Continue to Evolve Away from 4 Fee-for-service and Towards Value-based Payments Medicare Reimbursement by Payment Model 52% 33% 18% 34% 30% 33% Two-thirds in alternative models 2015E 2018E Medicare Advantage Value-based FFS Volume-based FFS By 2018, two-thirds of Medicare payments in alternative models Source: Burwell S. Setting Value-Based Payment Goals HHS Efforts to Improve U.S. Health Care. The New England Journal of Medicine. 2015; 372:

27 Public and Private Payors Taking Steps to Managing Outcomes and Total Cost of Care 4 Medicare mandatory bundles for hips/knees Largest health systems pledge to move 75% of business into value-based arrangements Medicare Part D Enhanced MTM model Sources: 1. HHS, CMS finalizes bundled payment initiative for hip and knee replacements, November CMS, CMS announces Part D Enhanced Medication Therapy Management Model, September Health Care Transformation Task Force, Major Health Care Players Unite to Accelerate Transformation of US Health Care System, January

28 CVS Health Can Support Health Systems Across the Payment Continuum 4 Birmingham, AL Evolving Contracting Arrangements Sacramento, CA Fee for Service (FFS) FFS with Pay for Performance Bundled Payments Shared Savings Shared Risk Global Capitation 28

29 Full Range of Tools and Services to Support Differentiated Needs of Providers 4 CVS/minuteclinic Epic EMR Health Engagement Engine Hospital Transitions Complementary health Enhanced connectivity Powerful analytics Assisting patients to care services to the health care capabilities avoid adherence system lapses Wellness and chronic care support >60% of Americans have Epic record Essential in helping manage population health Enhanced care coordination Well-positioned to excel regardless of how market evolves 29

30 CVS Health Best-in-class Tools to Drive Adherence 4 Medication Possession Ratio Diabetes Cholesterol l Hypertension Therapy Therapy Therapy +700 bps bps bps Top 3 Retail CVS/ pharmacy Top 3 Retail CVS/ pharmacy Top 3 Retail CVS/ pharmacy Adherence for these common conditions can drive Star ratings Note: 1. Adherence measured by Medication Possession Ratio, calculated as total days supply divided by total days in evaluation period. Source: CVS Health Internal Analysis, based on rolling 12 month period: November 2014 to October

31 CVS Largest Health Med Can D PDP Directly to Achieve Impact a a 4-Star Significant Rating Portion for the 2016 of Star Plan Metrics, Year Driving Outperformance 4 Largest PDPs by Enrollment (lives, millions) Star Rating 5.4 OptumRx 3.0 CVS Health Humana Express Scripts CIGNA Aetna WellCare Note: 1. Star Rating based on weighted average enrollment by parent organization. Only plans that were CVS/caremark managed for the 2016 measurement period and received a Star rating were included. Source: CMS (membership figures as of October 9, 2015), CVS Health Internal Analysis. 31

32 CVS Health Can Directly Impact a Significant Portion of Star Metrics, Driving Outperformance 4 Largest PDPs by Enrollment (lives, millions) Star Rating 5.4 OptumRx 3.0 CVS Health Humana Express Scripts CIGNA Aetna WellCare SilverScript is excelling Only PDP with >50% lowincome-subsidy lives to achieve 4 Star rating And we re helping clients achieve their goals Ability to directly impact more than 80% of Med D and 55% of MAPD Star metrics Client lives in high performing plans: 73% vs. 49% for the overall market Note: 1. Star Rating based on weighted average enrollment by parent organization. Only plans that were CVS/caremark managed for the 2016 measurement period and received a Star rating were included. Source: CMS (membership figures as of October 9, 2015), CVS Health Internal Analysis. 32

33 Evolving Health Care Market Creates Opportunities Demographics and Health Reform Continue 1 to Transform the Market Specialty Growth Will Be Primary Driver of Pharmacy Trend Retailization of Health Care Is Accelerating Increasing Focus on Outcomes 5 Consolidation in the Health Plan Market 33

34 We Can Partner with Health Plans in a Multitude of Ways to Drive Value 5 Strong procurement capabilities and claims scale makes us a low-cost provider Broad service Pharmacy is Unique ability portfolio to our focus and a to leverage support plan key lever for consumer needs whether managing insights or not we are overall health to improve the PBM costs care 34

35 After Consolidation, Regional and Blues Plans Will Still Manage More Than Half of Total Lives 5 Humana Aetna Cigna Anthem Aetna Anthem Nationals 46% United United Regionals 54% Blues Market Today Future Market 35

36 We Dispense 8X to 11X the Prescription Volume of the Proposed Combinations Estimated Rx Volume (Rx dispensed, millions) 1,350 ~8X ~11X CVS Health Advantages Generic purchasing scale makes us a low-cost provider Scale is further enhanced by Red Oak sourcing CVS Aetna Anthem Health Humana Cigna Notes: 1. Estimated dispensed Rx include prescriptions filled at CVS/pharmacy and mail order and specialty prescriptions filled at CVS/caremark. 2. Estimated dispensed Rx also displayed on a pro forma basis to include full year 2015 Dispensed Rx volume from Omnicare and Target. Source: CVS Health Internal Analysis, Company disclosures. All prescriptions dispensed on a 30-day equivalent basis. 36

37 and We Manage 2X to 3X the Claims Volume of the Proposed Combinations 5 CVS Health Advantages Substantial managed claims volume supports negotiations for rebates / formulary placement Creates value as majority of rebates are passed to clients 2015 Estimated Claims Volume (Rx managed, millions) 1,165 ~2X 600 ~3X 480 CVS / Aetna Anthem caremark Humana Cigna Note: 1. Estimated managed claims include all CVS/caremark network claims plus specialty and adjusted mail claims. Source: CVS Health Internal Analysis, Company disclosures. CVS/caremark claims represent midpoint of guidance range. 37

38 We Dispense 8X to 11X and Manage 2X to 3X the Volumes of the Proposed Combinations Estimated Rx Volume (Rx dispensed, millions) 2015 Estimated Claims Volume (Rx managed, millions) 1,350 1,165 ~2X ~8X ~11X 600 ~3X CVS Aetna Anthem CVS / Aetna Anthem Health Humana Cigna caremark Humana Cigna Scale is critical to being a low-cost provider Note: Estimated dispensed Rx include prescriptions filled at CVS/pharmacy and mail order and specialty prescriptions filled at CVS/caremark. Dispensed Rx also displayed on a pro forma basis to include full year 2015 Dispensed Rx volume from Omnicare and Target. Estimated dispensed prescriptions on a 30-day equivalent basis. Estimated managed claims include all CVS/caremark network claims plus specialty and adjusted mail claims. Source: CVS Health Internal Analysis, Company disclosures. CVS claims represent midpoint of guidance range. 38

39 Agenda Our Compelling Value Proposition Evolving Health Care Market Creates Opportunities Strategic Framework for Long-term Enterprise Growth 39

40 Our Strategic Business Imperatives Aggregate Lives Grow Share Execute with Excellence Drive Innovation Enterprise Focus Grow the core, Broaden the base 40

41 Our Strategy for Long-term Enterprise Growth Opportunistic bolt-on acquisitions Continued innovation in drug procurement and supply chain efficiencies 1 2 Enhance patient engagement Deepen relationships with payors and providers to help reduce cost and improve outcomes Add capabilities to enhance core business 41

42 Today s Key Takeaways The Right Strategy for an Evolving Health Care Market Demonstrating Value to People, Payors and Providers Leadership in multiple competencies to drive superior value for health care partners Growing the Core, p g p y g Broadening the Base Expanding core pharmacy business while broadening reach into new health care channels Always Looking Ahead Introducing innovative products and making long-term, value-enhancing investments Driving Sustainable Enterprise Growth Driving shareholder value with strong earnings and cash flow as well as disciplined capital allocation Driving Enterprise Growth in an Evolving Health Care Market

43 Endnote 1., Omnicare, CVS/caremark, CVS/pharmacy, CVS Health, CVS/specialty, CVS/minuteclinic, and Health Engagement Engine are trademarks or registered trademarks of CVS Pharmacy, Inc. 43