Ladies and gentlemen, thank you for standing by. And welcome to the CVS Health Fourth Quarter 2017 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded today, Thursday, February 8, 2018. And now it's my pleasure to turn the conference over to Mike McGuire, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you, Malian. Good morning, everyone, and thanks for joining us. I'm here this morning with Larry Merlo, President and CEO, and Dave Denton, Executive Vice President and CFO, and Jon Roberts, Chief Operating Officer. Larry and Dave have some prepared remarks to share. After which, we'll open it up for the question-and-answer session. During the Q&A, please keep in mind that the focus of this call is on our earnings report and guidance and we won't be sharing incremental information related to our pending acquisition of Aetna. Also, in order to provide more people with a chance to ask their questions, please limit yourself to no more than one question with a quick follow-up. In addition to this call and our press release, we have posted a slide presentation on our website that summarizes the information in our prepared remarks, as well as some additional facts and figures regarding our operating performance and guidance. Our Form 10-K will be filed later this month, and that, too, will be available on our website once filed. Please note that today's call is neither an offering of securities nor solicitation of a proxy vote in connection with our announced transaction with Aetna. The information discussed today is qualified in its entirety by the registration statement and joint proxy statement that CVS Health and Aetna has filed with the SEC in connection with our proposed transaction. The shareholders of CVS Health and Aetna are urged to read those filings carefully because they contain important information about the proposed transaction between CVS and Aetna. Additionally, during this call, we will make certain forward-looking statements that reflect our current views related to our future financial performance, future events, and industry and market conditions and forward-looking statements related to the acquisition, including the expected consumer benefits, financial projections, synergy, financing and the timing for the completion of the transaction. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from what may be indicated in the forward-looking statements. We strongly encourage you to review the information in the reports we file with the SEC regarding these specific risks and uncertainties, in particular those that are described in the Risk Factors section of our most recently filed Annual Report on Form 10-K and the cautionary statement disclosures and quarterly report on Form 10-Q. You should also review the section entitled Forward-Looking Statements in our earnings press release. During this call, we will use non-GAAP financial measures when talking about our company's performance. In accordance with SEC regulations, you can find a discussion of these non-GAAP measures and the comparable GAAP measures and the associated reconciliation document we posted on the Investor Relations portion of our website. And as always, today's call is being webcast on our website, and it will be archived there following the call for one year. Now, I'll turn this over to Larry Merlo.

Okay. Thanks, Mike. Good morning, everyone, and thanks for joining us today. We finished 2017 with strong results and the progress we've made against our 4-point plan provides a solid foundation for healthy growth as we begin 2018. In the fourth quarter, consolidated net revenues grew 5.3%, adjusted operating profit grew 5.7% and adjusted earnings per share grew 12% to $1.92. For the full year, consolidated net revenues increased 4.1%, with adjusted operating profit declining 5.8% and adjusted earnings per share increasing 1% to $5.90. Now in the quarter, operating profit in the Retail/Long-Term Care segment was better-than-expected, while operating profit in the PBM segment was in line with the expectations that we laid out on our January call. Additionally, we generated approximately $6.4 billion of free cash during the year. Now turning to the business update, and I'll start with the PBM and the 2018 selling season. Our gross-to-net client wins are slightly higher than on our third quarter call, and we currently have gross wins of approximately $6.2 billion, and net new business of $2.4 billion with a client retention rate of about 96.5%. Now keep in mind that these new business numbers exclude enrollment results from our SilverScript PDP, and I'll touch on that shortly. In addition, I'm pleased to say that during this year's welcome season, we continued our record of exceptional implementation. Client satisfaction continues to improve across all areas, with service levels reaching record performance. Beyond our core service elements, our support capabilities are aligned with the unique approaches of all of our customers across their pharmacy benefit, member and provider strategies. And we believe the investments we've made in quality, automation and client focus, are delivering measurable value to our clients year-after-year. Looking ahead, we have about $39 billion up for renewal in…

Thank you, Larry, and good morning, everyone. This morning, I'll provide a detailed review of our 2017 fourth quarter results and briefly touch on our 2018 guidance with a few updates from our call in January. First as I typically do, I'll begin with a review of last year's capital allocation program. For the full year of 2017, we generated $6.4 billion in free cash, delivering all of this cash back to shareholders through both dividends and share repurchases despite the suspension of share buybacks during Q4. We paid $510 million in dividends in the fourth quarter and $2 billion during the full year of '17. Our dividend payout ratio currently stands at 30.9% over the trailing fourth quarters, retreating slightly due to the non-cash tax reform benefit we captured in net income during the fourth quarter. Now going forward, as we previously announced and due to the Aetna transaction, we are keeping dividends flat until we get back to a leverage ratio that is more in line with our credit ratings category. During the fourth quarter, we did not repurchase any shares. However, for all of 2017, we repurchased approximately 55 million shares for approximately $4.4 billion, averaging $78.68 per share. We ended this year with $13.9 billion left in authorization to repurchase our shares. And as with dividend increases, the share repurchases are suspended until our leverage ratio comes back in line. As expected, we saw an outflow of $642 million of free cash in the fourth quarter. This is largely driven by the settlement of the CMS payable associated with the 2016 plan year. For the full year of '17, we saw improvement in our cash cycle of more than 4 days. For the full year, our gross capital expenditure was approximately $1.9 billion, about $306 million…

Okay. Thanks, Dave. Before we open up for Q&A, just a few additional comments. As you may have seen last week, we received a second request from the DOJ for an additional information related to the Aetna transaction. And the timetable that we laid out in our initial press release back in December, as well as in our S-4 filing reflected this expectation. So things were moving along as planned, and we continue to expect the transaction will close in the second half of the 2018. In addition, the integration planning has begun, and we have assembled a team with representatives from both companies and are very pleased with how the planning process is progressing. So just wrapping up. As we move forward in '18, I do want to take a moment to thank our more than 240,000 colleagues who have worked tirelessly to move the enterprise forward and position us for our next era of growth. We've emerged from '17, a stronger company, well positioned to meet the health care challenges of tomorrow and to take advantage of the emerging opportunities in this growing and vibrant market. And we're excited to continue on our path of driving more affordable, accessible and effective care for all health care stakeholders in 2018 and beyond. So with that, let's go ahead and open it up for your questions.

Thank you very much. [Operator Instructions] And our first question comes from the line of Lisa Gill with JPMorgan. Please go ahead.

Thanks very much. My first question is really around the investments that you're making, Dave or Larry, can you talk about what component of that is wage and benefit when I think about it - that is being permanent versus the data analytics or store pilot, et cetera, where eventually I would expect that we'll see some level of return from investors?

Yes, Lisa, it's Larry. Lisa, I just - if we get into that, I just want to emphasize that what we're looking to do is accelerate the work that's important you know, in this CVS-Aetna [ph] combination. If you think about the role of technology and analytics and digital tools and capabilities, and as far as investments in our employees, service and capabilities, especially at retail will continue to grow an importance. And specifically, these investments will allow us to enhance the role that pharmacy technicians play, which, we believe is key to enhancing the role that pharmacy can play in overall patient care. As far as the level of investments in terms of what Dave was talking about, I would say that a lion share of that is investments into and with our employees, okay, versus in the other areas. But they're both equally important as we go forward.

Okay, great. And then just my follow-up would just be on the 2019 selling season. So you talked about the $39 billion. When we think about FEP and the renewal, Larry, am I thinking about this right that, that's roughly $6 million to $7 billion? And then can you just give us any indication? You said health plan business, which is usually renewed now, you don't have a lot of renewal. Can you just give us an indication as to how much of that $39 billion has already been renewed?

Yes, Lisa, in terms of the FEP, your range is pretty much in the ballpark there. And as we talk about the health plans business, keep in mind that the selling cycle is usually a bit longer than on the employer side. So that in many respects, that's hard - late last or in the fall timeframe last year. So as you know, as we go through the year, we typically begin to quantify the selling season, as well as the renewals. So recognizing the cycles associated with the health plans, we have a better picture of what that looks like. And as we mentioned, a large percentage of our health plan clients have been renewed, okay, there are still work to be done there. And we acknowledge that as we look at RSP opportunities, at least on the health care side, health plan side, most of that is behind us at this point, which we're acknowledging that the opportunities there are not as great as we've seen the last couple of years.

And our next question comes from the line of George Hill with RBC. Please go ahead.

Good morning, guys. And thanks for taking the question. I'm going to commit a foul here and look at a little bit beyond 2018. But I guess, Larry, Dave, as you guys think about the combination of the businesses going forward, do you expect another large step up in the investment rate. I think a lot of us are trying to figure out what the pro forma 2019/ '20 numbers look like, and I think whether or not we have the discretionary expense run rate, right, is a big part of the math. I guess, any color that you can provide around that is helpful?

Hey, George. It's Dave here. I think as we've talk a little bit about the combination, obviously, we're going to make investments in the combination going forward to enhance our care model and data and analytics. Keep in mind that as we discussed, as we build out in our stores new capabilities, we have a fairly robust capital plan for the next several years that's going to touch the majority of our stores. We'll likely repurpose some of the investments that we had earmarked to that into I'll say changing the scope of design in those stores. So the incremental CapEx required to deliver on those promises is not that large. So we think that we can manage within the performance that we put out there over the next several years.

Okay…

George, to Dave's point, keep in mind that our historic run rate on gross capital has been in the $2 billion, $2.2 billion range. So to Dave's point and a lot of that was investments on the retail side of the business. So there is a real opportunity to repurpose much of that capital as we build out these new capabilities.

Okay. And then maybe a quick follow-up. Interested in the investments in data analytics and care management solutions. Should we think of those investments as specific to pharmacy? Or are they broader with respect to, I would call it, like care management solutions, data analytics for health care? So are these kind of investments in the core or are these investments thinking about 2020 and beyond?

No George, you should think about these as being broader. We've made many investments on the pharmacy component to date, which we believe has paid us dividends and really, serve as a gateway in terms of how we're thinking about these broader capabilities as you think about the 2 companies coming together.

And our next question comes from the line of Charles Rhyee, Cowen and Company. Please go ahead.

Yes. Thanks for taking the questions. Dave, and Larry, may be following a little bit on that - on George's question. Can you speak more to where you are with MinuteClinics. You had a rollout schedule that you guys talked about a little while back. And I know a couple of years ago, at the Analyst Day, you had talked about sort of where you're tracking in terms of revenues as well. Now, obviously, in the future, this looks like to be a key part of what a combined entity could be delivering. Can you tell us where you were in terms of MinuteClinic today? How that rollout schedule changes at all with the pending acquisition? And maybe any kind of metrics you can give around that? Thanks.

Yes, Charles. It's Larry, I'll start and I think others will jump in. It's a great question, Charles. And certainly, this combination, it enables 2 things. One, a broader expansion of the MinuteClinic footprint. Today, we've got just over 100 clinics across 33 states in the District of Columbia. But equally important is we see an opportunity to expand the breadth and the scope of practice that exists in MinuteClinic. And so there's a number of things that we're thinking about, whether it's broader management of chronic diseases is one example or even the ability to do lab draws, blood draws in the clinics. So we'll have more to say on that as we get these pilots up and running.

Great. If I can follow-up, you talked about the integration cost related to Anthem. Can you give us a sense as we roll into 2019, will those integration costs continue? And would they be more or less than we are looking at here in '18? Thanks.

Yes. This is Dave. Obviously, we'll have some integration costs in '18, likely some in '19 to get that business online, just given the share of scope and scale of that. But I expect more in '18 because we want to be up and running in parallel sometime in '19.

And our next question comes from the line of Robert Jones with Goldman Sachs. Please go ahead.

This is Nathan Rich on for Bob this morning. Dave, just a question on same-store script guidance for 1Q, you know, looks strong relative to the 7% to 8.5% relative to full year range of 6% to 7%. I know you talked about the full impact being a benefit in Q1. Just wondering if you can maybe help us think about the magnitude there? And then also, can you give us a sense of how the performance in the new preferred Part D networks like SilverScript and Aetna that you're in for this year, how that's compared so far relative to your expectations?

Yes, Nathan, I guess, it's probably a little too early to answer the performance of those networks at this point in time, just given the - we've just kind of started the year off. Clearly, Q1 as we think about the script, I guess, the growth in script utilization that we cycle into Q1 here being a little bit higher than for the full year. Clearly, the flu season, the impact of that is fairly significant as we look across the country and more or less all of each of the country at this point in time. So that will affect Q1 into the positive. Clearly, as we get into the Q2, likely we'll get back into, I'll say, in the normal zip code. As we - maybe the earlier comment I will make, as we thought about Medicare Part D and being a preferred provider in Medicare Part D, the scripts and in some cases, don't just transition right away, we will see script capture build throughout the year as those members chose to move into our network, in those preferred network points.

Okay, that's helpful. And then just maybe just a follow-up. Dave, can you help us think about like how you're thinking about gross margin for the Retail segment in '18? I didn't see - I think you, guys, typically give sort of qualitative guidance at least. I'd just be curious this year, given potential to have some pressure from the lower-margin scripts in some of those preferred Part D networks, how we should think about the gross margin trend for the year?

Yes, you're right. We have not given specific color around that. I would say that this year, more so than other years is a transition year or step year as we go through planning for the acquisition for next year. Clearly, I think what's important to us is we have a very robust plan to get back to growth in this business, which we delivered upon, clearly meets some now - some investments with the tax benefit back into the business to support our growth longer term. But I think what's important here is we position the company in preferred networks and in teaming up with other payers and building capabilities and programs to drive long-term growth in the business segment.

And our next question comes from the line of Eric Percher from Nephron Resources. Please go ahead.

Thank you. So a question with Helena moving on, I'm interested in how your view of retail has changed, of course, now, we include long-term care, and it sounds like there will be a lot more that this done in the store over time. How are you conceptualizing what you need in the leadership of retail?

Well, Eric, it's Larry. And listen, I think as you're aware, these things happen, and we certainly wish Helena continued success in her new role. And I'll just acknowledge that we're going to - we're an attractive company for people to come and work at, and we'll check the external landscape, but at the same time we've got a deep bench of very talented individuals. And Kevin Hourican', who has had a number of senior level jobs in the retail business, in the supply chain, in field operations. Most recently, he leads of our Retail Pharmacy Services Group. He will take over the business reporting to Jon, and we're all confident that we're not going to miss a beat. So, you know, as you've heard us talk in the past, the retail environment is evolving, okay? And we've talked about the front of store being a combination of products and services, the products with a focus on OTC, beauty, personal-care and some elements of convenience. And you've seen what we've been doing with services, whether it's MinuteClinic or the pilots that we've done, and we're beginning a broader rollout of audiology and optical. And we've talked this morning about some additional opportunities that we're excited to pilot as you think about broader care management, especially with the combination. So I do think that we're making health care a retail option, recognizing that health care is becoming local, okay. And we're looking to deliver health care to where people are, okay, whether it's in their local community or in many cases perhaps even in their homes. So again, we're excited about the opportunities and again, we've talked about where we're headed in terms of the leadership of the Retail business.

So my thought on that was that you're acting as a provider, as much as a traditional retailer, maybe to pivot that to a follow-up. With Amazon I think that many of us were looking to see if there was an answer that would come out of Amazon as to the issues that impact health care. With this new creation, it appears to be a partnership in search of potential answers itself. What would your message be as a player, a provider to what you expect you can do and how you might partner?

Well, Eric, it's a great question and we all saw the announcement last week. And you know, listen, we absolutely agree with the goals and objectives that were outlined in that press release. And I think it's important to acknowledge that the press release had few details and the press release acknowledge that there is a plan. So what that group aspires to is what we're going to deliver as part of the CVS-Aetna combination. And you think about the fact that we have the infrastructure, we have the assets, we certainly have the health care expertise, resident in both companies. And we've demonstrated that we can execute on goals and objectives. So we're chopping [ph] as a bit to get started. We've talked about the fact that we want this new CVS-Aetna combination to be an open source model that as we build out these capabilities, we can make them broadly available in the market. So we're looking forward to partnering with all groups of individuals, including this new combination of Berkshire, JPMorgan and Amazon.

And our next question comes from the line of Ricky Goldwasser of Morgan Stanley. Please go ahead.

Yes. Good morning. So Larry, in line with the opportunity to have kind of like CVS-Aetna combination is an open source program, what is the feedback that you've been getting from your existing customers about the combination? Are they kind of like open to that idea? Are they taking a wait-and-see approach?

Yes, Ricky. I'll start and Jon has spent a fair amount of time with our customers as well and he has some thoughts. And Ricky, look, I would say that there is tremendous amount of interest. There's a level of curiosity in terms of what can be created here. And I think that in those conversations, certainly, with our health plan clients, we've talked about the reality of - the lines between being competitors and being partners are blurring like never before. And by the way, as you know and as we've talked many times, we have examples of that in our own business today when you think about Medicare Part D and the fact that we manage the Part D component for more than 40 health plans. And we've demonstrated, not just the high level of service as more than 80% of those members are in 4 or 5star performing plans. But those clients have seen that their business as a result of our support is growing faster than the overall PDP marketplace. So listen, I think, obviously, they want to know more, okay. And the lines of communication will be critically important as we move forward, and keep them updated as to our progress and the opportunities that, that creates for us to partner broadly with them.

And Ricky, this is Jon. Just to build on what Larry has said. So we, obviously, have a larger book of employer clients, so clearly, no issue there. And in fact, we share some common clients that could create opportunities. We do have health plan clients that may compete with Aetna, and I would describe the dialogue as constructive. We serve Aetna today as a PBM, and our goal will be to continue to serve not only Aetna but all of our health plan clients. And we have firewalls in place today that we talk about that allows our competition to occur today as we support health plans on the pharmacy benefit to compete with each other. And as Larry said, as we build out new products and services, we're going to make them available to all of our health plan, so they're actually pretty excited about that. And we have proven with our SilverScript model that, again, competes with many of our health plans that are in the Medicare market that we can do both. We can compete and support them and with our expertise, they've been able to grow significantly better than the balance of the market.

Okay. And then my follow-up is on specialty. Obviously, you highlighted on the press release that you're seeing accelerating contribution. Are there specific products that you can highlight for us? And also, when you think about specialty within your existing members, what percent of your member's dispensed specialty in-house and what's the opportunity there? And how does that compare to the Aetna members?

Well, I'll speak, Ricky, maybe broadly about what categories therapeutic classes we're seeing growing in specialty. So autoimmune and oncology continue to grow and outpaced the balance of the specialty market. And we actually are seeing multiple sclerosis kind of flat, and we also saw hep C volume come down pretty substantially in '17. So with the puts and takes that we're still seeing this business grow pretty dramatically. We're filling about 60% of the specialty business that we manage in our specialty pharmacy. And for Aetna, we actually fill 100% of that volume in our specialty pharmacy. So obviously, the highest and fastest growing part of the pharmacy benefit, and we're pretty excited about our capabilities and the new capabilities that we continue to build out.

And your next question comes from the line of Kevin Caliendo of Needham and Company. Please go ahead.

Thanks for taking my call, guys. Just a couple of quick questions. On the investment spend, you mentioned that the run rate would be about $425 million. In terms of modeling that or thinking about that, should we be exiting the year at up over $100 million in spend, and that's how we should be thinking about it going into 2019?

Yes. Because as you can imagine, all of those investments don't happen right away and certainly, some of the payroll happened in Q2 and beyond, so it ramps up.

Okay, that's a great. Just a follow-up on the Amazon thing. Post the press release that came out, did you approach them in any way, shape or form? Did they approach you? Have there been any even just cursory conversation high, this is who we are and this is what we're doing kind of thing?

No, Kevin, we have not had any discussion since the press release came.

And our next question comes from the line of Priya Ohri-Gupta with Barclays. Please go ahead.

Hey. Thank you so much for the question. Dave, I was wondering if you may be able to shed a little bit of light on some of the potential plans around your debt issuance. I think one of the question that we've been hearing consistently is sort of how are you thinking about where the debt issuance would take place in terms of sort of the HoldCo versus may be one of the subsidiaries. And then just secondly, how do you think about the treatment of the debt at sort of subsidiary levels versus HoldCo levels and your view on making sure that, that is put through? Thank you.

Yes, so those are all great questions. I would say a couple of things. I think one thing to keep in mind here, which I think is important. If we talked about the capital structure of the company a few months ago when the deal was announced, actually our cash flow yield for the company substantially improved with the advent of tax reform. And we've actually now committed that we're going to take a subtle portion of that - now benefit from tax reform to improve our balance sheet over several years, to deliver more rapidly than what we originally anticipated. So we're committed to our capital structure, we're admitted to paying down our debt in a reasonable fashion here. And getting to about 3.5 times levered by the end of 2 years post the acquisition. So I think that's an important foundation. Clearly, we're looking at all possibilities of how to issue this debt over the next several months. I would say we're going to issue it that HoldCo company levels. We will evaluate exactly the tenure at which we will issue this debt over next several months and we continue to watch the market pretty actively to make sure that we place this debt in the best way for us from an economic standpoint to make sure that's prudent and then also structure in a way that does allow us to delever in the timeframe that we've committed to.

Thank you.

You bet.

And your next question comes from the line of John Heinbockel with Guggenheim Securities. Please go ahead.

So Larry, in terms of investing in people, do you think labor hours in the stores go up as well? And if so, where will that go to? How much does that tie into your thoughts on increased services? And would that be outside of the MinuteClinic?

Yes, John. There's - you can think about a portion of that and some of that is over time, okay, and you're spot on in terms of as you think about those hours being signed to additional services or extended capabilities that would be created, whether it's through the pharmacy, through MinuteClinic or things that perhaps don't exist today.

And I mean, as a follow-up, it's clearly the right thing to do. When you invest in labor, is that something you can think about on an ROIC basis like you might make a capital investment? Or is it's hard to do, but you know there ought to be a benefit there?

You know, what, John, it's a great question. John, there are - think about it this way, okay. There are indicators that we contract in our business that we know if we're doing these things well, sales, profits will follow, okay. So obviously we have those metrics that as we look forward, as we think about these investments, we will use those metrics to guide us in terms of being on target, okay, to ensure that the investments that we make provide a tangible return.

And your next question comes from the line of Glen Santangelo with Deutsche Bank. Please go ahead.

Yes, thanks. And good morning. Hey, Larry, I just want to follow up on some of the comments you made with respect to the second request. You've had it for almost a week now, and I'm just kind of curious, I mean, as you've gone through, was there anything sort of out of the ordinary in there or unexpected or any opposition sort of worth calling out at this point? Anything that sort of make sure rethink the timing? Or does seeing the second request, and what's into that actually make you feel more comfortable about the timing?

You know, what, Glen, there is nothing that has surfaced. That has come as a surprise, and it's very much as I mentioned in my preferred remarks, things are moving forward as planned. And obviously, we've begun to have discussions with those individuals. And those discussions, there's a very good level of engagement and the discussions have been very constructive and positive. So we feel good in terms of how the process is moving along at this point.

Okay. Maybe I'll just have one follow-up for Dave on the investment. I apologize because I think this has been asked a little bit. But you said the run rate was $425 million. And so are you basically and should we assume that most of those are in the people, those costs are going to be ongoing, we should be modeling an incremental $150 million in annual expenses in fiscal '19 on a go-forward basis. Is that the way to think about it?

Yes, that is correct. Keep in mind, think about it this way. We're going to increase wages and those wage increases are not going to be affected until 4 1, or 5 1 or 6 1.

And our next question comes from the line of Brian Tanquilut with Jefferies. Please go ahead.

Hi. Dave, just to ask a question on that last comment you made. So as I think about wages, I mean, is this basically an across the board. Wonder is there any waiting as we think about store-level wage increases versus corporate and back office?

Yes, this is - just look at - if you look at the mix of employees that we have across our enterprise, they're largely store based. So if you think about just waiting, this is largely a store wage increase.

Okay, got it. And then Larry, as I think about - my follow-up, as I think about the PBM business in the past, obviously, you're benefited from disruptions in the industry with market share gains. So with about third of your contracts summing up for renewal, how should we be thinking about your strategy and messaging for your clients the play defense against your large competitors trying to put clients away in the middle of the Aetna transaction?

Well, Brian, I don't - as you think about the things that we have talked about, okay, that there is as you think about Aetna, obviously, there's an important message that is delivered to our clients that, listen, we've got dedicated resources for your business and all of the things that go along with that, and it's our job and it's our commitment, and we are absolutely confident that there'll be no slippage in the level of service that we provide to our existing clients and prospective clients as we go forward. So we've got the infrastructure to do that and the talent resides in the organization to do that. And I think that's an important message that we are delivering in addition to all the other things that we talked about, whether just as part of the normal ongoing business that are independent from Aetna or any other acquisition.

And Brian, this is Jon. Just as Larry said earlier, the majority of our health plans have already been renewed for the selling season. And then as I think about moving forward, payers have 2 priorities. One is optimizing unit cost. That it's a competitive market. That dynamic hasn't changed and will continue into the future. But the second goal of payers is reducing overall health care cost. And we think that this acquisition will enable capabilities that will allow us to bring even more programs to the marketplace that meet the goal of payers whether they be employers or health plans.

And our next question comes from the line of Peter Costa, Wells Fargo Securities. Please go ahead.

Good morning, guys. Once again, in the state of union address, President Trump talked about rising drug prices as being an issue. And you've also seen state-level regulation in terms of Kentucky talking about carbon PBM services out of Medicaid contracts, both seemingly being shot at the pharmacy channel. And the drug companies continue to use a redirect towards the PBM. So what are your lobbying efforts going to be over the course of the next year? And how are you measuring the success of those lobby efforts in terms of what you're seeing in Washington?

Yes, Peter, it's Larry. Obviously, this has been a dialogue. And as you pointed out, we expect it will continue to be a dialogue. And Peter, there's no one single answer to that question. But you will see a steady stream of activity from us, and we'll be coming out with our annual drug trend report shortly, okay. IT will talk about the year-over-year increase, okay, which will be well below the rate of inflation, okay, that you would see in the pharma marketplace, okay. And how that increase ties to our clients spend, but equally important, okay, we will also be spending more time talking about what about the member okay, and what did the member incur, okay, in terms of their out-of-pocket cost associated with drug spend because I think that, that's the component that's getting lost in this PBM dialogue, okay. That we're spending a lot of time talking about clients spend, we're going to spend more time talking about how their members are benefiting from the roll that PBM are performing in the marketplace. So I think that's one of the things that you will see a little different going forward.

So as a follow-up with that, what would be the impact to you if all of your clients move to point-of-sale, rebates and discounts being taken?

Yes. Peter, we've talked about this in the past that we have a variety of flavors. We have clients today who have point-of-sale rebates or 100% of the rebate value was passed through and there's an administrative fee associated with that. So it would take some time to transition that, okay. But it would have little to no effect on overall PBM economics.

Your next question is from Mohan Naidu, Oppenheimer. Please go ahead.

Thanks for taking my questions. Larry, one more on the technology investments. How should we think about this the mix between those investments that you're pulling forward to get ready and to integrate Aetna when it closes versus accelerating investments into solutions that can add new services right away to your store?

So this is Dave. I think one thing that we've done is we've created a platform that is really engages members around the pharmacy benefit. And when we have done that, we see really enhanced improvement from adherence, as an example, and engagement with the member, this changed behavior. Again, that's been largely focused in the pharmacy benefit. So now, think with the Aetna combination, potential combination, we're thinking about other things that we can now engage that member on that was just outside of pharmacy but still in health care. So we're making investments to create that platform of engagement such that now, we can focus that member and other areas of health care. So think about our data and analytics investment and infrastructure to support that kind of engagement model.

Thanks. Dave. Maybe one quick modeling question, the Q1 tax rate, is it going to marginally different from full year or is just going to be anything meaningful there?

Yes, it could be slightly better than the full year. So with that, we'll take one more question.

And our final question comes from Scott Mushkin, Wolfe Resources. Please go ahead.

Thanks, guys. Thanks for fitting me in. So just kind of housekeeping issue and going back to the health care plans. I just want to see you guys talked about the opportunity not being as big this year. I guess, I didn't quite understand why on that. Is it just something in a market, or is it because the pending acquisitions, so that was kind of a housekeeping issue? And then I had a follow-up.

Yes, Scott, it's just a normal cycle of the market. And the plans that were available were for the most part renewed by the existing PBM including ours.

Perfect. And then my last question and talking about the store footprint, I know you guys are thinking about the assets going forward. How should you think about the store footprint? Do you think over time, you're going to need these many stores? And how should we be thinking about the store footprint as this acquisition unfolds?

Scott, this is Dave. I do think we'll still need a number of stores that we have. And importantly, if you look at our pipeline going forward, we're still going to continue to grow our store base. I do think with a now the advent, the combination of Aetna, we might decide and reposition where the next new store is built such that we can deliver a service model in areas that are most impactful to the combined organization.

And gentlemen, that's all the questions we have. I'll turn it over to you.

Okay, Malian, thanks. And let me thank everybody. I know this was a long call. We appreciate everybody's interest. And as always, you can give Mike McGuire a call for any follow-ups.

And ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation. Everyone, have a great rest of your day, and you may disconnect your line.