RBC Capital Markets Healthcare Conference. I'm Ben Hendrix, RBC's Healthcare Services and Managed Care analyst. We're pleased to kick off day two of the conference with Elevance Health, specifically management from the company's healthcare services and pharmacy benefit business, Carelon. With us this morning from management are Peter Haytaian, Executive Vice President and President of Carelon and CarelonRx. Amy Mulderry, Chief Development Officer and CFO of Carelon. Paul Marchetti, President of CarelonRx, and Stephen Tanal, Vice President Investor Relations of Elevance Health. With that, just we'll kick off with a question about about the Carelon's management. You noted early success in reaching your goal of Carelon managing at least 20% of Elevance's consolidated benefit expense with clear room for continued growth. Can you give us an updated outlook for integration of Carelon into the benefit segment? Yeah, sure. Thanks, thanks a lot, Ben. Thank you for having us. We appreciate it. Great to have you here. ... and talk about Carelon. Yeah, in terms of growth, we're really, you know, very pleased that we actually achieved that goal of 20% of, you know, overall medical expenses. You know, we see a really strong trajectory going forward. We actually did exceed the goal, you know, before we earlier than we anticipated. That was in large part because of our strategy. Really accelerated, you know, driving more risk, you know, through the Elevance Health benefits business. I would say that the opportunity going forward is very, very vast in terms of penetrating more. That's what's really so exciting about, you know, the story. As we talked about from a strategic perspective, our first focus is Elevance Health and the benefits of our health plans within Elevance. With, you know, 47, 48 million Americans that we cover today, 21 million fully insured, we have a tremendous opportunity to further penetrate. When you look across each one of our assets, it really varies in terms of the opportunity and the degree to which we can penetrate the business. So, for example, you know, we have assets like what was formerly known as AIM, you know, now called Medical Benefits Management in Carelon. We started really penetrating the commercial, you know, business from that perspective. We have a tremendous opportunity now to continue to grow that business in the Medicaid and Medicare, you know, businesses, for example, where, you know, in contrast with assets like myNEXUS, we now call that Carelon Post-Acute Care Services. We started our engagement really on the Medicare side around home care as well as post-acute care services. Now we're expanding that portfolio, and we're also growing it into the commercial, and the Medicaid businesses. The white space opportunity that exists internally is still very, very significant. We see a wonderful opportunity to grow within, and then also it's a wonderful springboard to grow externally as well. How does that look from a geographic perspective? Are there states or regions where integration happens particularly in an accelerated or delayed phase? No, not really. I mean, I wouldn't think about it from a geographic perspective. I'd really think about it from an asset perspective and then a line of business perspective. You know, like I noted, I'll use the myNEXUS example again. Largely, that asset before we acquired it was focused largely on the Medicare business. When we brought it, you know, inside, we penetrated all of our business across home care, mostly on the Medicare side. Have an opportunity to expand in commercial and Medicaid in that regard. I also think about it in the context of new product opportunities and launches. In that sort of first year of having it inside the company, we developed what we called a post-acute care product offering. Within, you know, literally a period of about 14, 15 months, ideated it and then actually launched it, and did that across the entire Medicare, you know, portfolio. It was across all the geographies, you know, for Medicare. When you think about Carelon Services growth, I think about the asset and whether or not we've penetrated all the lines of business and then the new opportunities to roll out new offerings versus thinking about it geographically. Elevance has often cited the significant opportunity to scale services across the nationwide Blue System, over 110 million members. In your Investor Day, you noted continued growth in Carelon revenue from external Blues last year. We've heard from your peers the importance of the carrier agnostic growth component of care delivery strategies. How penetrated is Carelon into the external Blues opportunity currently, and where does that go over the next five years? Yeah, no, I appreciate that question. The Blues opportunity is a tremendous opportunity for us when you think about our external growth. I would say that, you know, our focus is first on Elevance, and what's so great about that is that, you know, we obviously can learn a lot internally, and our ability to scale across our portfolio is very important. Once we do that, it's a really strong proof point and springboard to work with the Blues, as you'd expect. I mean, we have a lot in common with the Blues. We understand the system. You know, we have a lot of the same values and focus on quality and cost of care. So we've penetrated a lot of the Blues, 26 plus Blues. We've got, you know, 12, 13 plus, you know, with multiple offerings. I wouldn't really think about it from that perspective. If I was, you know, thinking about the Blues and the opportunity within the Blues, I would think about it as, I am very confident we will probably penetrate most of the Blues. There may be a couple that we don't. It's not about that, it's about the degree to which we can penetrate the Blues. Can we package offerings? Can we offer an integrated package at risk? That's where I see a tremendous opportunity. Again, you know, what we offer internally in Elevance Health is predictability and stability in the cost structure. We do that at risk. If we can prove it, you know, at scale in our organization, there are Blues that are gonna look at that and say, "You know, I'd be very interested." The other thing I'd say about the Blues world that's so exciting for us is, you know, we're not necessarily competing for their bread and butter. You know, we're not competing in their individual, their small group, and their local large group business, for example. Some of our competitors in the services space are. If we can offer something, you know, with differentiated value, they're gonna embrace that. Are there any unique needs that Blues have a hard time filling that you guys are uniquely positioned to to address? I don't know if I'd say you know, unique. I would say very consistent with what we're concerned about. As I said, I think when you look at, you know, the health benefits business, that's their core offering, right? Is on the insurance side for the most part. We're going into an environment where predictability and stability and cost is very meaningful, where quality is very meaningful. If we can insert ourselves and we can do that in a differentiated way at much greater efficiency for them, that has meaningful value. I mean, for example, when you think about the post-acute care solution that I talked about, you know, that creates a dynamic with providers in which we have a differentiated technology that's being utilized. It's good in terms of the provider community in post-acute care. In addition to that, we are actually offloading a lot of the responsibility in terms of management of UM and coordination, you know, for those services on behalf of that Blue. We're doing it at risk. You think about, you know, that equation. I mean, we're creating greater efficiency, greater quality, we're having a better relationship with the provider community. We're creating predictability and stability in the cost structure because we're doing it at risk. It's those are the types of things that I think are really appealing to the Blues and that they're opening their eyes to in terms of the kind of success we're having. If I can even add on, I think what is unique is our access to capital and the scale, that we are serving 14, soon to be 15 Blues markets, and we have access to capital to be able to deploy on acquisitions like a myNEXUS. That is unique compared to a single state Blue. Giving them access to the affordability tech, tools and capabilities we're providing to our own health plan, I think sets us apart. Yep. No, great point. That's a great lead into my next question, too. As Carelon has grown over the last 18 months, it seems like the development strategy has evolved. With M&A, more prevalent part of the story. At the risk of getting too specific, where do you see the most significant gaps in Carelon's capabilities currently and plans to fill that? Well, we have the privilege of having Amy here with us, she both has responsibility being CFO of Carelon as well as leading business development. I'll let Amy. I don't know that it's gaps as much as opportunity, really. What I would say is M&A is obviously a really important tool and an important growth driver for Carelon Services. As we said at Investor Day, we included a modest amount of M&A in our long-term targets for growth for Carelon. Without getting too specific, I'd say, you know, the strategy that we are using for our M&A, I think myNEXUS is a great example. We're looking for assets, capabilities that our health plans find value in. Our government business used myNEXUS as a way to improve affordability for their members. We acquire that asset, and we drive synergies, that creates financial value through further penetrating the existing book of business, new lines of business with Elevance Health, and then, deploying a roadmap of adding products and services to that asset, like DME and like the post-acute solutions. That is sort of the roadmap, that is the playbook that we're using, and then we're validating the proof point within our own book of business to commercialize that externally. Without giving a roadmap for specific areas where we're gonna be looking for M&A, I will say the criteria is first and foremost, what is gonna drive affordability access to the health plan? What drives value to the health plan? How do we build a business model within Carelon Services? How do we create synergies through further penetration of our book of business and then selling externally? A lot of opportunity. Great. You've noted that Elevance's recent acquisition of Blue Cross and Blue Shield of Louisiana as a growth and value creation opportunity for Carelon. I was wondering if you could lay out the roadmap for integrating Carelon into a newly acquired regional health plan, and what needs to happen from a provider network perspective for Carelon to really start taking risk in Louisiana. Yeah, we are really excited about the opportunity with Louisiana. I mean, Amy can tell you when, you know, that deal was done, part of the thesis of it, and to her point about, you know, us having access to capital, us having a service business that's comprehensive, the ability of putting the companies together and offering those services to residents of Louisiana to drive better cost and quality was a major component of the deal and something that I think both teams, you know, are super excited about. I would say that, you know, it's very similar, so I wouldn't really think about Louisiana any differently than you would the 14 Blue that we have or what I described, you know, earlier in terms of penetrating, you know, the Elevance Health business. What's so beneficial about being a Blue, number one is, you know, they have 90 years in that marketplace. They have deep relationships with the providers. They have deep density with the provider community. When you think about us launching products and new offerings, having that connectivity with the provider base is really critical. We would follow a cadence just like we would internally. I mean, we are going to deploy the entire portfolio, you know, within Louisiana. Obviously, you know, the barriers that people face is just really time and building the pipes. In terms of connecting with the provider community, it's really about effective communications, making sure that they understand the new offerings, how it's gonna benefit them, and then implementing, creating that value within the health plan. Again, I'll, you know, I'll give you because it just happened, and Amy mentioned our post-acute care offering, you know, via myNEXUS. What was so great about that was we have deep density even with the long-term care providers. We were able to, unlike, you know, some of our competitors in service business that could be a mile wide and an inch deep in terms of these relationships, we could engage with the post-acute care providers and say, "We are launching a new technology. You're going to be interfacing, you know, with this technology, and here's how it works, and you go through those training sessions." You know, you hold their hand through that process. Because of the relationship we have with them and the density and the volume that's going through, it's not that they're, quote, "forced to work with us," they wanna work with us. They really wanna understand it, and that enables scale and speed. Think of it that way as it relates to Louisiana. We see a wonderful opportunity to penetrate their entire book of business with our portfolio, and we're gonna do that over the next, you know, once the deal closes, over a year and a half period. Stepping back, you've noted that, Carelon Services revenue per consumer served was $117 in 2022, which you expect to grow 50% by 2027. As we think about the existing Carelon Services buckets, insights, behavioral and care delivery, what is represented in that $117 currently, and where are the most immediate expansion areas? It's not that dissimilar from the way I've talked about growth, but I'll let Amy sort of, talk about the opportunity. Sure. Yeah, Peter addressed this as well. I think the $117 PMPY, we see an organic opportunity to grow that by 50% over the next five years, and that's gonna come from increasing or expanding our medical benefit management business to take on other high-cost areas of utilization management that drives, you know, greater affordability back to our health plan member. Also increasingly, we're moving toward taking on whole person risk. One example of that is through Beacon or Carelon Behavioral, taking on full physical risk on seriously mentally ill population through, you know, using the behavioral tool. We see a tremendous opportunity just organically, and it's really expanding the suite of capabilities and services we have, looking at new high-cost areas, having focused technology-enabled solutions to be able to drive greater affordability, and that's how we're gonna do it. Then the inorganic growth component of capabilities and services will come on top of that. You know, the one thing I'd say too, I think there's been some confusion. The 117 is really just the services business. It does not include the pharmacy business, just so, people know as it relates to that metric. Great. You know, we've heard commentary from some of your peers, from Humana, from United about how more margin, much more margin they can get on a Medicare Advantage member with full integration. Kind of where do you think that goes for Carelon, and how, what's the roadmap for greater margin from an MA member who's fully at risk? Yeah, I mean, when you think about our portfolio and the opportunity, think about, again, our strategic framework and what we're trying to do. We're driving whole health. We're driving that, you know, through risk. One of the things we talked about is really penetrating, you know, more complex and acute populations. You know, one, because there's a lot of dollars there to impact, but also because of the quality opportunities. Again, it does vary across our portfolio, but Medicare is definitely a point of entry for us where we can have a lot of success, and again, consistent with our strategy. You know, when you think about the profitability of a Medicare member historically at Elevance Health, you would think about it really through the lens of our Medicare Advantage business and the, you know, 3%-5% margin that that business is driving. When you think about it now in the context of the services portfolio we have, you know, without throwing out an exact, you know, number for you all, I mean, we do wanna penetrate, you know, the, the total value of that Medicare member to a much greater degree. We see a clear, you know, roadmap for that across our entire portfolio. Be it, you know, with our myNEXUS asset, be it with what we've just done on the pharmacy side and, you know, our expansion into specialty pharmacy, et cetera. We have a tremendous opportunity to capture a much greater portion of the dollar in the Medicare Advantage member. That's a great opportunity for us. Yeah. I will say, you know, we're not reliant just on that. We see an opportunity across all the lines of business, which I think is unique. Great. I wanna make sure we get Paul into the conversation. We've heard a lot lately from Cigna and CVS on the way that their PBMs bring value to the health plan clients, you know, ahead of some or legislation coming to bear. Can you talk about CarelonRx and where it fits in the value chain, unique capabilities and differentiated approaches? Yeah. Thanks, Ben Hendrix. You know, as we think about CarelonRx, we built the CarelonRx model not to be a traditional PBM model. As we go to the market, we have a focus on our strategy, which is whole person health and the value of integration. Really, you know, what is resonating in the market right now is when we bring that value proposition out, we bring proof points as well. At Investor Day, I shared a study that we came out with a white paper recently that showed that members who are on specialty pharmacy medications, for those members that are in our medical benefit as well as our pharmacy benefit, they cost $105 per member per month less. That's a function of inside the workings between our clinical programs, the data analytics, the predictive analytics of targeting, as well as externally an extension into our value-based relationships that help manage those populations more effectively. That is resonating in the marketplace. Year-over-year, we're again gonna see new net membership growth. We have a lot of activity for 2024, right now actively. We feel really good about being able to compete at all levels. Now with new capabilities like specialty pharmacy that we just added to the mix, as well as home delivery, which we'll be rolling out later on this year, it broadens our portfolio to, you know, continue to enhance that value proposition. Yeah. Any early observations you can offer from the movement, especially dispensing and With how BioPlus is trending in the three months it's been on the platform. Yeah. We couldn't be more excited. When we looked at our strategy and said, you know, specialty pharmacy has to be a key lever of differentiation for us, we looked at the market, looked at all the assets, and it was pretty clear to us fast that BioPlus was the right asset because they bring a differentiated service model for physicians. That, for example, there's a two-hour guarantee for physicians in terms of, you know, getting authorization as well as a specialty pharmacy to fill a prescription. There's a 24-hour guarantee for patients, for oncology patients to ensure that that medication is shipped within 24 hours of that prescription coming in. Lastly, in terms of the technology, BioPlus has created a two-click method which enables for refills, a push out to the patient to say, "Hey, do you want your prescription refilled?" There's an automatic connection into the portal that they can auto, you know, refill. There's a convenience element. We're just really excited about scaling that service model that we think is better than what exists in the marketplace for all of our membership. Got you. You touched on home delivery earlier. Can you talk about the CarelonRx pharmacy launch? I believe that's expected later this year. Yeah. Kinda how that timing of that and the contribution to earnings we're expecting. Another aspect of, you know, basically what we're becoming is the pharmacy license of record for home delivery and mail order. That's exciting to us because we're building a digital front end, which is going to enable the member to track their medications when they'll arrive, as well as a 24/7 chat with a pharmacist capability. That pharmacist will have access to that member's record, which makes it a very personalized experience for them. We'll start to roll this out at the end of this year. And we feel like we've got a great opportunity over the next few years in terms of expanding our mail order penetration, creating a better experience, as well as there's such an overlap between specialty pharmacy and home delivery that we think we can integrate experiences there. Last thing I would say, as you think about Carelon Services with not only home delivery, but specialty medications, members that are on them, roughly 20% of them also have a behavioral condition. We see a great opportunity to integrate Beacon, our behavioral health company, and Beacon services into that mix with a really focused and personalized, you know, experience for that member across behavioral as well as medical and pharmacy. We heard from on your earnings call from John and some commentary about the GLP-1, the diabetes, obesity drug. We've heard recently from one of your peers that some employers are embracing GLP-1 as a general wellness offering. Is that something that could be an opportunity kinda wrapped with a more comprehensive program? You know, first off, we fully support the GLP-1 drugs for diabetes and certainly weight loss, for members that actually need the drug. There's clinical, especially for diabetes, clinical data that proves that those drugs are starting to be effective. I would say we've got the right clinical protocols in place to make sure that those members who actually need the drugs are getting them. As it relates to your question about wellness, we do see opportunities to you know, explore for ASO customers. You know, for weight loss, we only cover it in two of our markets, right? It's only a covered benefit in two of our markets. For ASO customers, if they wanna include that drug in terms of formulary, we can package that as well as condition management programs and wellness programs to have that be part of their offering. I would say in general, we're finding customers a little hesitant until they truly see the long-term sustainability of the drugs and its proven effectiveness on the weight loss side. A lot of debate post earnings about utilization. From both hospitals, managed care, it seems like utilization is tracking in line with expectations. Hospitals are expecting utilization to follow normal seasonal patterns. Maybe you can offer us from a unique Carelon perspective or a broader perspective kinda how you guys are thinking about it this far in the Q2. Sure. Thanks, Ben. Yeah, I'm happy to address that for the enterprise. If you guys want to pile on for Carelon, feel free. As we said on the call, you know, the year's off to a strong start in this regard. We feel really good about how we priced our products, you know, relative to trend. To be clear, there is trend, right? It's alive and well, but we predicted that and priced for it. I think that's probably the most important point. When you look at the pieces of it, I think we've been pretty clear, right? There's offsets and to the one area where we were probably a little bit light in terms of the trend we projected on the RX side, but inpatient coming in a little bit better as well, offsetting that. Net overall, we feel really good about, frankly, where we priced and what we're seeing. I think one of the things that's getting missed a little bit in the street, though, you know, you're starting to hear more about it, is the shift from inpatient to outpatient that's played out over the last few years, especially for procedures like hips and knees. There's been a dramatic shift into the outpatient setting from inpatient. I think that's underlying some of the commentary that's out there. Lastly, I think, you know, if you look at year-over-year in the quarter, a little bit of a unique quarter. Remember, we were lapping Omicron, right? COVID or non-COVID, when you start to say, well, ex-COVID or, you know, including COVID, you get very different reads when you look at this year-over-year. Net-net, we feel really good about how we started the year. We're off to a strong start. Yep. No, I would agree with what Stephen said. Think about it in the context of Carelon very similarly. You know, did we get pricing right? Were we observing trend right? I think the answer is yes. I mean, as it relates to a lot of the things that Stephen talked about, we have to make sure we're building that into our capitation year-over-year. Right now, we feel comfortable that we have, but we're obviously observing the same things as Stephen is. Well, that's great, guys. That brings us to time. Thank you so much for being with us today. Thanks, Ben.