Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter 2018 Earnings Release Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded, Wednesday, August 8, 2018. I would now like to turn the conference over to Mr. Mike McGuire, Senior Vice President-Investor Relations. Please go ahead, sir.

Thank you, Jose. Good morning everyone and thanks for joining us. As usual, I'm here this morning with Larry Merlo, President and CEO; and Dave Denton, CFO. Larry and Dave have a number of prepared remarks to share after which Jon Roberts, Chief Operating Officer, will join us to participate in the question and answer session. During the Q&A 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-Q was filed this morning before the call and that too is available on our website. 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 Aetna acquisition, including the expected consumer benefits, financial projections, synergies 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 maybe 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-Q (sic) [Form 10-K] (00:02:00) and the cautionary statement disclosures in our 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 in 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, and good morning everyone and thanks for joining us today. We're pleased with the solid performance of our business in the second quarter and our results year to date continue to validate our confidence in the strength of our model and the strong foundation in place as we bring CVS Health and Aetna together to transform the health care experience. Strong revenue, adjusted earnings per share, gross and operating margins along with cash flow demonstrate our success and driving value. Additionally, our enterprise streamlining efforts are continuing to deliver value through process improvements and technology enhancements and Dave will review our performance in detail. Now that said, we're clearly disappointed with our performance in the Omnicare business. And despite this disappointment, we continue to believe in the business's long-term prospects. And Dave will provide an Omnicare update focusing on the factors contributing to its current performance along with our plan to improve results and deliver on our expectations. We continue to believe in our ability to drive growth in this sector by improving our presence in the assisted and independent living areas. Now let me provide an update on how we are moving forward on the regulatory pathway and integration planning for our proposed Aetna acquisition. On the regulatory front, we continue to make excellent progress. Our highly experienced legal and government affairs teams are working hard, ensuring that we provide all the additional information requested by state regulators and the Department of Justice. To-date, a substantial number of states have approved and more are expected to approve this summer. In fact, several additional states have already held or scheduled hearings. You should also keep in mind that as a matter of practice some states prefer to wait for the DOJ decision before finalizing their approval. And…

Thank you, Larry, and good morning, everyone. This morning I'll share some financial and business highlights and provide a brief update on our financial guidance for 2018. I won't go through all the details in my prepared remarks, but you can find the additional information in the slide presentation that we posted on our website and in our SEC filings. Overall, the company posted extremely strong financial performance in our core business as we met or exceeded all elements of our guidance in Q2. But before I go into that discussion, I want to begin by addressing the goodwill impairment charge that we took for the Omnicare business. We continue to see growth opportunities in the assisted living market, particularly as the most efficient operator in the space. That said, industry-wide financial challenges have created unexpected financial pressures on our facility clients, which has resulted in lower growth than we anticipated when we acquired the Omnicare business three years ago. The impairment was caused by several factors: higher levels of bad debt and longer collection times on receivables; a faster decline in facility reimbursement rates than we originally forecasted; and lower client retention rates. Additionally, bed census at skilled nursing facilities continued to track lower, resulting in fewer prescriptions across our platform. And despite a growing opportunity in the assisted living market, our programs to serve these clients have grown more slowly than we originally anticipated. In 2017, we disclosed that our annual goodwill impairment test of our long-term care reporting unit resulted in its fair value exceeding its carrying value only by a narrow margin. As a result, we've been closely monitoring the performance of the business for potential indicators of impairment. As we began our planning for our 2019 budget in the second quarter, we updated our 2018…

Well, thanks, Dave. Before we open up for Q&A, I want to talk briefly about a couple of topics, because in recent discussions with shareholders, there are two broad industry themes that seem to be top of mind. One is government action on drug pricing and rebates and a second, the competitive landscape given the possibility of new entrants. So let me touch on both. And I'll begin with the conversation around drug pricing. We see the impact rising drug costs have on plan members and patients every day. And we use every innovative tool possible to bring down the cost of drugs. We do that through highly effective clinical programs, innovative purchasing and formulary design and enhanced data analytics that allow us to provide the right drug to the right patient at the right time at the lowest possible cost. Now the current debate regarding drug pricing and the role of PBMs centers on rebates and the impact of out of pocket costs on consumers at the pharmacy counter. Drug manufacturers want you to believe that increasing drug prices are a result of them having to pay rebates and that PBMs are retaining these rebates. And this is simply not true. If list prices were the result of a manufacturer's need to address rebates, then you would expect rebates and list prices to be highly correlated. And to the contrary, our data show that list price is increasing faster for drugs with small rebates than it is for medications with substantial rebates. And this makes intuitive sense as the products with small rebates are more likely to be in uncompetitive drug classes, where there is less incentive for manufacturers to compete on price. Rebates are maximized only when there are therapeutically equivalent competitor products in a drug class. And…

Thank you. And our first question comes from the line of Lisa Gill of JPMorgan. Please proceed.

Thanks very much. And Larry, thank you for all your comments here towards the end of the call. I just want to better understand where you stand on your conversations with the administration. Clearly, President Trump has met with CEOs from both Pfizer and Merck. I'm wondering if you've had any conversations, number one. And number two, how do we reconcile everything you said and the way the administration seems to be talking about this? And then in July your response to the RFI and the blueprint said that you return 95% of rebates to commercial clients and members. Today you're saying 97%. And I think historically you talked about returning more than 10%. Is it just that the commercial market is changing that quickly as far as contracting goes? I just want to understand how to reconcile those numbers.

Yeah, Lisa, I'll start and I know others will jump in here. Thanks for the question. But, Lisa, it is true that as we stated in our prepared remarks that more of the value of negotiated rebates are being passed back to clients. And keep in mind, we've been saying for a while now that we have different flavors of contracting where we've had clients for a while now that prefer to have 100% of that rebate value passed back. So that is a trend that has continued. And again, as we said, we underwrite our PBM contracts to an overall level of profitability. So, Lisa, if you triangulate all of the numbers that we threw out there for 2018 that rebate pass-through is closer to 98%, okay, than some of the others that we had historically talked about. Lisa, your second question around interaction with the administration, we have had productive engagement and discussions with the administration, on the Hill, at the secretary's office. And I do believe for reasons that we talked about and reasons that you see outlined in the President's blueprint, there is an acknowledgment as to the role that PBMs play. And again I think yesterday afternoon's CMS announcement is just another example of that. So I'm sure those conversations will continue. And, Lisa, I think that as we talked again in the prepared remarks, this über focus on rebates, what we believe, Lisa, wherever we end up because the administration hasn't finished the story in terms of what their desire is on rebates, but what will not go away is the ability for PBMs to use size, scale, competition, private sector innovation to garner discounts that lower the cost of medications for clients and their members.

And so as we think about that you brought a value-based care a number of times. And then as we've talked to people in D.C., it sounds like the administration wants to move away from this word of rebates. And this relationship, as you talked about, of the gross to net and this whole idea that the system is paid on rebates, how would you envision a value based program in government? And are you or Jon seeing this in the commercial market that what I've heard from some people is that the commercial market is actually ahead of where Medicare is. And you can take some current commercial market programs and bring it to the government and bypass this whole idea around rebates, but yet to your point, still be able to have a reasonable amount of profitability for the PBM while saving the government money. So just any thoughts you have around that would be great. And then just lastly, I want to say Dave, it's been great working with you and if the transaction closes, I really wish you all the best.

Thank you, Lisa.

Well, Lisa, listen, I think there are a number of different pilots or programs around value-based care today. And I think that folks are still testing and learning. I don't – I would sit here and say as we sit here today, I don't know that there is one that has gotten any type of substantial traction in the marketplace. And we're going to continue to be part of that solution and pilot and see what we can do to push the ball up the court because we do believe that that's where the marketplace ultimately has to go.

And, Lisa, this is Jon. So we have a lot of value-based contracts. I would say they're pretty comparable to the traditional contracts we have in the marketplace and there really hasn't been as much uptake as we would like to see. I do think that the market will move there. And the thing I like about it is it aligns incentives for the payors, for us and for the pharmaceutical manufacturers. And I think as Aetna comes onboard and we now own the entire life (00:51:12) combined with our data capabilities, we're going to have the ability to really advance this value-based contracting notion in the commercial space and we'll bring that to CMS and hopefully they'll learn from our results and adopt it over time.

Our next question comes from the line of Ann Hynes of Mizuho Securities. Please proceed.

Hi. Good morning.

Good morning, Ann.

So, I want to thank you for disclosing rebates-only account for 3% of earnings, in fact that it's that low is probably an understatement on what the Street views the impact was. But I'm going to ask some non-rebate questions. Could we – on the federal employees' contract, congratulations on extending that, because I know it's a big contract for you and the government seems to continue to extend that with you rather than put it out for RFP. Do you have any color on why that continues to happen?

Ann, this is Jon. It's just a one year extension and through 2020, we would expect them to go out to RFP at that point. So I think it's pretty typical of what we've seen with them over the years and we've got a great relationship with FEP and we hope to continue to serve them in the years to come.

And Ann, listen, I also think it underscores the high level of service and value that FEP has come to count on us for and we expect that that will continue as we go forward.

Our next question comes from the line of Charles Rhyee of Cowen. Please proceed.

Hey. Thanks for taking the question guys. Hey, Larry, you mentioned that the retention rate here is ahead of where you were in recent years. Obviously, that's – it's good news here despite some concern – I think there's been some concerns that with the Aetna transaction in process, you're going to have some disruption in the business. Is this a good indicator from your current customers that they're looking at the transaction in a positive light?

Charles, as I say, it's a great question. And I think it's really a function of two factors. I think one is the point that you just made that I think there's a lot of interest in terms of what we can bring to market with CVS Health and Aetna and how that can benefit some of our existing clients, especially in the health plan space. And I think the second one is what we've talked about previously, what Dave outlined in his remarks that RFP activity has been lower this year. And I think with all of the activity in the marketplace, I do think that there are clients that want to see where everything shakes out as they think about longer term commitments that are typically associated with contracting.

Our next question comes from the line of George Hill of RBC. Please proceed with your question.

Hey, good morning, guys. Thanks for the question. And Dave, best wishes in new endeavors. It's been a lot of fun. I guess, Larry, I would start off with the proposed rule last night, or the step edit rules that it looks like we're going to get from Med B to Med D (00:54:38). I guess can you talk about how you think about the opportunity there? And how is that opportunity enhanced through the Aetna acquisition? And then, I guess I would just ask if you could comment on given that tumultuous regulatory environment, have you seen anything either in proposed rules or in announced rules that either I guess kind of makes you – do you see new opportunities or new challenges as it relates to the transaction? Would just love comments around that. Thanks.

Yeah, George, on your first question, we see the proposed rule from CMS last night as being a real opportunity for us and probably an even bigger opportunity as CVS and Aetna come together because it picks up a component of the business that largely has been isolated to the medical side of the house, if you will. And the point that I had made earlier that the NovoLogix capabilities that we have resident today that have proven to be able to bring, I'll call it, the management of that portion of pharmacy flowing through the medical spend to treat that with the same diligence that we do with the traditional pharmacy spend, we think that that is a significant opportunity, obviously first in the Medicare space. And I think it will be interesting to see if that moves into the commercial sector in terms of the pace with which that would happen. George, your second comment, I guess when you asked that question I think of some of Dr. Gottlieb's comments coming out of the FDA in terms of his focus in terms of removing what has been a significant backlog for potential drug approvals, especially generics, as well as his focus on getting more biosimilars into the marketplace. And today, we've got four in the marketplace. We currently have two of those biosimilars in our formulary and are working to add to that list. And you compare that to Europe where you have over 50 biosimilars in the market. So both of those, again, it falls under the heading of giving PBMs more bandwidth with the tools that they have to further reduce drug costs.

Our next question comes from the line of Michael Cherny of Bank of America. Please proceed with your question.

Good morning, and thanks for taking the question. So I want to dive in a little bit more as you think about the changes going on in Washington. You talked about the conversations you're having with various members of HHS. As you think about some of the other pieces of the blueprint and what gets you most excited for the business model, what are your clients telling you that they essentially hope comes through? Is there any feedback interaction with them on the blueprint on the drug pricing side, where they're saying, we hope there is a encouragement of this. I know value-based contracting was asked earlier, but anything else where you think that aside from the Part B conversation that there's value that you think can be unlocked as this blueprint gets put into place?

Mike, this is Jon. Our clients are actually very happy with the benefit that we've been managing for them. So they saw their costs grow on average 1.9% last year. They know they're getting the majority of rebates. They understand that pharma is responsible for raising prices and we're working on their behalf to manage that down. So I think if anything, they're interested in more transparency as we move forward. And we embrace that and we think that's a great idea. And I think today is the first step as we talk about how much we're retaining in rebates is another step forward in that transparency journey.

And, Mike, it's Larry. I think that clients rely on us to separate, to pore through the detail of all that. Obviously, they want to continue to see more opportunities. To Jon's point, they see what we're doing today. And are there opportunities beyond what we're doing today? Again, some of that goes back to how we bring them solutions. And listen, as one example, we're encouraging our clients that have high deductible plans to take a portion of those rebate dollars and pass them back to their members at the pharmacy counter, while they're in that deductible phase. Once they hit the deductible phase, then they fall into the plan design, where their out of pocket costs dramatically go down. So I think in many respects, the responsibility falls to us as we help educate them in terms of ways that we can help them reduce costs but at the same time improve satisfaction among their members.

And, Mike, the only thing I would add to that is as clients talk about their highest priority, it's really around what they're seeing with specialty cost growth. So they would like to see more biosimilars get to the market much faster than what is currently occurring. That's pretty uniform as we're out in the marketplace.

Our next question comes from the line of Ricky Goldwasser of Morgan Stanley. Please proceed with your question.

Yeah. Hi. Good morning and congrats on good results. So I have two questions here. First of all, Larry, to your point, consumer cost at point of sales is really at the core of the brand price debate. So how long do you think after closing the transaction, do you expect to be able to offer plan design that will lower consumer cost at the front end? And will really kind of like look at the benefit design from the entire life of the member that Jon referred to earlier? So is this something that we are going to start to see materializing in the 2019 selling season? So that's question one. Second question is around your script growth. I mean you've done a great job translating the preferred networks that you signed late last year with increased volume and market share. When we think ahead, SilverScript Plus remained an open network. Are you planning to move to a preferred network following the lead of what you've done with SilverScript Choice? And what other preferred network opportunities you're seeing for next year?

Hey, Ricky, this is Dave. Maybe I'll take the script growth perspective and Larry will come back to the first piece. Keep in mind that our script growth is really coming in three buckets, and each of those buckets is really supporting our growth in the market. One of them is our – how we're partnering with payors and health plans across the industry, so that's contributing nicely. And our relationships with Part D providers are a part of that. Secondly, organically, we're just taking share in the marketplace as our service and metrics and performance out in the marketplace have done really well. And we continue to garner share from all the participants. And then finally, we have a very robust clinical program. Our patient care initiatives are improving adherence for our members, and that's driving script utilization and share gains in the marketplace. So all three of those components are really important. So we've talked about – your question is really around one, and we'll continue to focus on that. But that's not the only contributor to our growth.

And, Ricky, this is Jon. SilverScript has two plans and both plans have a preferred pharmacy network as part of their designs. So that happened in 2018 for the large SilverScript Part D plan.

And then, Ricky, back to your first question, in terms of new products, plan designs, I think it's probably more realistic that those innovations would find their way into the market for the 2020 selling season. But give Aetna a lot of credit, because you may recall, I think, it was a few months ago they announced in – specific to your question on point of sale rebates, they had announced that in their fully insured book of business that they were going to be applying point of sale rebates to that segment of their business.

Okay. Our next question comes from the line of Steven Valiquette of Barclays. Please proceed with your question.

Great. Thanks. Good morning, Larry and Dave. I will also echo that the disclosure around the rebates is definitely helpful to clear the air. And the takeaway just seems to be that you're probably not losing much sleep on the notion of rebate elimination, potentially morphing beyond Medicare and into the commercial segment. That seems to be what some investors are focused on. So I guess just my quick question around that is the rebate footnote suggests that the $300 million excludes SilverScript. Maybe just to quickly clarify, is the $300 million, is it more heavily weighted to commercial related rebates? I think you said there's some MA-PD in there, but curious on the weighting of that. And also, is SilverScript being excluded because it's primarily just an intercompany number? Just curious on the thought pattern on not having SilverScript, thanks.

Yeah. So just to be clear, the $300 million retention is for commercial, all of our commercial rebates. All of our Medicare, think about them as 100% pass-through because they support the bid and the premium, so there's no retention on that at all. So $300 million would be the impact of both Medicare and commercial because there's no retention on Medicare.

And, Steve, to Dave's last point, we talked about our results of the benchmarking process. But, yeah, I think what's interesting to note, obviously you have to preface this by saying it's competition in the private sector. But you look at what's happening to beneficiary costs and even government costs, okay? And the bid levels have an 11% reduction over the prior year and – both for beneficiary as well as the government. So you may point to competition, but you also have to point to the value of rebates in contributing to those numbers as well.

And our next question comes from the line of Erin Wright of Credit Suisse. Please proceed with your question.

Great. Thanks. Two questions here and a broader question on the PBM. I guess, at this point how would you rank, I guess, outside of rebates – and that was great color that you gave. But what those core profit drivers are for your PBM business at this point and how that kind of evolves under the new regulatory environment and what you think actually could play out? And then on Omnicare, you mentioned new leadership and other initiatives. I guess what needs to be done there, or how quickly can you address some of the challenges there? And what is that longer term growth and profit prospects for the Long-Term Care business and how those expectations changed? Thanks

So maybe – this is Dave. I'll talk a little bit about PBM. Obviously the growth in the PBM has been, over the last several years, we continue to see this over the next future periods, especially continues to be a nice driver into this business. Obviously the movement as has always been moving from branded drug to generic drug is a big driver of growth in our business model in the PBM, but importantly our business in totality. So we still think there's opportunities as new generics come to the market to improve our performance from a generic perspective. And then finally, we do believe that the innovative solutions and products that we have in the market that can support essentially a mail order platform with the convenience of a retail outlet i.e. CVS Pharmacy, is a big opportunity for us to continue to enhance and grow earnings over time. So with that, I'll turn it over to Jon.

Yeah. Erin, this is Jon. I'll talk about Omnicare. So Dave talked about our four-point plan and he talked about the new management team that's in place. So I'll focus on where we see a lot of the growth opportunity, which is assisted living and not only growing new beds, we're growing penetration. So as we have been working to grow this business what we found is that the Omnicare service model was not optimal for assisted living. It was really built to service long-term care. And long-term care is facility focused. As an example, all members for the facility are serviced on a same day except when there is a stat order. In assisted living model, think about it as being more member-centric. So these residents order their prescriptions very similar to what we see in Retail. So, not all members receive their orders on the same day in that facility, they call them in as they need them. So we needed to change the front-end of our pharmacies to service these members. And so we're building assisted living centers of excellence and we have three of these in operation and we'll complete the rollout by year-end. And I talked at our last earnings calls, how we had invested in account management resources to work directly with facility managers and their residence to improve our service and penetration of the facilities. So early results where we have this model fully in place are positive and we're confident that this service model will enable us to achieve our goals in assisted living.

Okay. Our next question comes from the line of Ralph Giacobbe of Citi. Please proceed with your question.

Thanks. Good morning. Talked a lot this morning about sort of the evolution of the PBM and you talked about value-based care, but then you also mentioned sort of not much uptake. So with that as the case, one, what would drive that uptake? And then the second piece of that, what's your interest in sort of taking more risk on the PBM side? Could you give us a sense of what percentage of the business you do that on currently? And do you ultimately think that's the biggest change from the current model sort of meeting more trend guarantees and the like? Thanks.

Yeah. Ralph, its Larry. I think it's a great question. And as you look at where we have risk today, obviously the SilverScript is a risk-based product, okay? And we've begun to take – I'll describe it as elements of risk with our Transform Care program which started with diabetes and I think we've now expanded it to three other chronic diseases. So I do think that we have a growing appetite, okay, to move in that direction. And I believe that the combination of CVS and Aetna can serve as an enabler to doing more of that as we go forward.

Okay. Our next question comes from the line of John Ransom of Raymond James. Please proceed.

Hi. Sorry for the airport noise. But beyond the rebates, could you talk about the process of re-contracting if gross prices on branded drugs change? And I'm thinking about downstream with PBM and upstream with your retail drug stores, how long that would take? On a 1 to 10, how disruptive that might be? Thanks.

Well, John, this is Dave. We've obviously – when the industry has changed in the past, I can go back to when AWP rules changed, we went back and recontracted our entire network to conform to new standards of the industry. I would anticipate that if the market were to change in a dramatic fashion, we would have the same opportunity to do that. And I think our contractual structures at this point allow us that flexibility.

Hey, John, this is Jon. So if something were to change and Medicare, as an example, those are annual bids so – and we actually recontract every year with pharmas and the retail networks. So we think we could do that within a year. I think when you think about the commercial market if things were to change, I think it would happen over a much longer period of time and I think we would have plenty of time to pivot to how the market evolves as a result of those changes.

Our next question comes from the line of Eric Percher of Nephron Research. Please proceed with your question.

Thank you. Thinking about the comments you made on the blueprint and squaring that with $300 million of rebates and I wonder if there was any thought to being more aggressive in your proposals and suggesting that we move towards a system where 100% of rebates must be passed back to the payor, whether it's government or commercial were fairly close. And I would think that would put the onus on pharma to address price increases and on payors to address, how much of the rebate goes toward may be plan cost versus consumer cost share or rebates. What are your thoughts on how that might be detrimental or beneficial?

Well, Eric, listen, I think we have always worked to be as flexible as we can in terms of meeting the diverse needs that exists with our clients. And as we acknowledged earlier, today we've got many contracts with 100% value of the rebates being passed back directly to them. As you know, Medicare Part D works that way today, okay? And I do believe that one of the challenges that we need to solve for is as you think about the plan designs, okay, especially – we acknowledged earlier those with high deductible plans, okay, that how do we take care of those members, those patients customers who were in the deductible phase, okay, and are incurring costs? Because oftentimes, it's the pharmacy spend within their plan that – that's where the dollars are spent to go and meet their deductible. And that's why we advocate for at a minimum that let's apply some of those rebates at the point of sale, while people are in their deductible phase. And once they've satisfied that then the balance of those rebates can be applied by plan sponsors to buy down premiums et cetera, et cetera. So that's where our focus has been along with expanding the definition of HSAs, okay, the use and utilization of preventive drug lists that again can reduce consumer out of pocket costs. So in response to the blueprint, we've spent a tremendous amount of time on those elements as quite frankly opportunities could be brought to market sooner than later. All right, Jose, we'll take two more questions.

Thank you. Our next question comes from the line of Robert Jones of Goldman Sachs. Please proceed with your question.

Great. Thanks for the questions. I guess just two quick clarification questions. I know we spent a lot of time on rebates and the trend there, Larry, but I guess just making it a little bit more simple to think about, outside of Part D, if a client choosed a full pass-through rebate contract with you versus one that was maybe more traditional when you were keeping some of that rebate, what is the difference in operating profitability in those two types of arrangements, or are they really kind of a wash? And then just one other clarification on the retention rate. If I back out the FEP extension, it actually does look like – if my math is right here, it actually looks like the retention might have been a bit lower actually than what you've seen in recent years. So just was – want to make sure I was looking at the math right there. And if that is the case, any commonalities for why maybe some clients had choose to leave?

Yeah. Hey, Bob, this is Dave. Retention rate is actually higher this year, year-to-date than it has been in past with and without FEP. So I think that's – there must be something wrong with the math there. Our client retention has been extremely strong. We're very pleased with our progress at this point in time. And I can't really comment on the profit margin on those clients. Each client obviously is underwritten by – with a target margin rate and we're very focused on maintaining that rate. And we have been successful with clients who have full pass-through and clients who may have an incentive for us to do better in a rebate than a shared savings. So we've been very successful in both models.

And our last question comes from the line of John Heinbockel of Guggenheim Securities. Please proceed.

So guys two questions. Just do you guys have a sense given the strategic change, right, we're seeing in a lot of these models, how long that will dampen RFP activity? And beyond that, switching, people may put out an RFP but may decide to stick with their existing PBM for a longer time to sort of feel out some of these changes. What's your sense on that time? And then secondly, specialty grew how much in the quarter? Maybe it was in there, but I didn't see it.

Yeah John, its Larry. I'll take the first one. And John, listen, I don't know that we can sit here and answer that question, today. I think some of it is going to be based on bringing closure to the variety of activities and questions that exists in the marketplace. And I think that that's probably the key driver to people taking more of a long-term view in terms of understanding how the future marketplace lines up. And then in terms of specialty, our growth in the quarter was...

Just the low- to mid-single digits, in that ZIP code.

And John, keep in mind that that would include the loss of the FEP specialty business.

That's right. Yeah.

Okay and in terms of that number being somewhat depressed from prior years.

Okay. Thank you.

So with that, listen, I know it's been a long call this morning. We appreciate everybody's patience. But obviously there was a lot to talk about and a lot of information to disseminate and as always, Mike McGuire is available for follow-up.

Ladies and gentlemen that concludes the conference call for today. We thank you for your participation and ask that you please disconnect your lines.