Good morning ladies and gentlemen and welcome to the CVS Health Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow CVS Health's prepared remarks at which point we will review instructions on how to ask your questions. As a reminder, today's conference is being recorded.

Thank you and good morning everyone. Welcome to the CVS Health third quarter 2020 earnings call. As a reminder, this call is being recorded. I'm Valerie Haertel, Senior Vice President of Investor Relations for CVS Health. I am joined this morning by Larry Merlo, President and CEO; Eva Boratto, Executive Vice President and CFO; and Karen Lynch, Executive Vice President and President of Aetna. Our question-and-answer session will also include Jon Roberts, Executive Vice President and Chief Operating Officer; and Alan Lotvin, Executive Vice President and President of Caremark. We have also posted a slide presentation on our website. During this call, we will make certain forward-looking statements reflecting our current views including projections and statements related to our future performance. Our forward-looking statements are subject to significant risks and uncertainties. You should review the information regarding these risks and uncertainties in particular, those described in our annual report on Form 10-K and quarterly reports on Form 10-Q filed with the SEC. You should also review the cautionary statement concerning forward-looking statements in our earnings press release. During this call, we will use non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is included in our earnings press release and the reconciliation document posted on our website. Today's call is being broadcast on our website where it will be archived for one year. Now, I'll turn the call over to Larry.

Thanks Valerie and good morning everyone and thank you for joining this morning's call. Before discussing our Q3 results, let me say a few words about this morning's news. After more than 40 years with the company and a decade as CEO, I will be retiring from CVS Health next February and I'm very pleased to share that we have chosen Karen Lynch to become CVS Health's next President and CEO effective February 1. As you know Karen is currently President of Aetna and she is ideally positioned to lead CVS Health on our ongoing journey to transform health by making it more accessible and affordable, while delivering better health outcomes. And I'll work closely with Karen and our Board of Directors to ensure a seamless transition as I remain on the Board and serve as Strategic Adviser through May of next year.

Thank you, Larry. I'd like to start by thanking you and the Board of Directors for this opportunity to lead CVS Health. I have tremendous pride in our company and in the 300,000 talented colleagues who work tirelessly every day for millions of Americans.

Thanks, Karen and congratulations. I also want to thank all of our CVS Health colleagues past and present, especially, our management teams with who I have been privileged to serve. I know you'll have questions for Karen, a few for me, but for now let's get down to the business of our third quarter results. And our strong Q3 demonstrates the value we're creating through the resilient, strength and flexibility of our diversified business model and underscore the impact of our transformation and growth strategies. We are accelerating elements of our strategy with innovative healthcare offerings that address the evolving consumer landscape providing both personalized and connected care that deliver better health outcomes. Importantly, as we expand our range of offerings our client and customer satisfaction metrics are at all-time highs. We continue to serve our local communities as a trusted provider of essential healthcare services and now as the leader in diagnostic testing during one of the most challenging times in our nation's history. We are working closely with local community organizations as well as federal, state and local governments to expand COVID-19 testing, especially, within traditionally underserved communities. In addition, we are pleased to have been selected to partner with the government in administering COVID vaccines when available for long-term care facilities. And our track record with COVID testing along with our experience in vaccinations have demonstrated our ability to rapidly scale services and we expect to play a significant role in all vaccination administration.

Thanks Larry. I want to thank you for your leadership over the last 10 years. It's been a true pleasure to work together. I'd also like to congratulate you Karen, and I look forward to continuing to work closely with you as we enter our next chapter of growth at CVS Health. During the third quarter, we made steady progress on our strategic priorities, keeping us on our long-term growth trajectory. Our diversified assets are delivering innovative health solutions, as Larry noted, and have also provided enterprise-level resiliency through the challenging market conditions as evidenced by today's results. During the quarter, we generated $1.9 billion of cash from operations, bringing our year-to-date total to $12.3 billion and we have paid down $4.75 billion of net debt in the quarter. We remain committed to achieve our low three times leverage target in 2022. We maintained our commitment to delivering solid shareholder returns through our dividend while also investing in our enterprise to support our customers during the pandemic and accelerate future growth. Our core operations performed above our expectations with the Pharmacy Services segment driving continued momentum. The quarter reflected the benefit of our successful COVID-19 diagnostic testing in retail long-term care. In addition, we had some lower medical utilization in the Health Care Benefits segment, partially offsetting the planned COVID-19 cost in both Health Care Benefits and Retail/Long-Term Care during the quarter. Turning to our operating results by segment. Our Health Care Benefits segment, total revenues increased 8.8% year-over-year, driven primarily by membership growth in our government products and the favorable impact of the reinstatement of the HIF in 2020. Adjusted operating income declined $343 million, largely reflecting the planned COVID-19-related investments, benefiting customers and members costs associated with the actions to right-size our operations and divestitures of Aetna's PDP…

And we'll go first to Lisa Gill with JPMorgan.

Thanks very much. Let me be the first to congratulate you Larry on your retirement. It's been great working with you and to see the strategic vision that you put together for this company, so congratulations. And obviously congratulations to Karen also. I am incredibly happy to have a woman as CEO for one of our large-cap companies. So all the way around I think this is great for CVS.

Thanks, Lisa.

So Larry, my question, just want to understand, you gave us a lot of information today. Clearly, moving in the right direction around some of the initiatives that you've put in place. When we think about for example the HealthHUBs 450 in 30 states is there a way to think about how that has driven the performance of the enterprise or has driven the performance of those stores to get a baseline of how we think about some of these opportunities going forward? As well as you talked about incremental chronic visits in the MinuteClinic. How do we think about those things coming together? And what are going to be the most important metrics for us to follow as we think about the progression of the company into 2021, 2022?

Yes. Lisa, thanks for the question. And Lisa, as you look at the HealthHUBs today and as you look at the performance within the four walls of the store, we continue to be pleased with what we're seeing even in a COVID world. Okay, in terms of additional visits whether it's MinuteClinic, whether it's pharmacy utilization. And as we look at the front store performance, we are selling a different mix of products that -- with that comes a higher margin profile for the front store. So that's the first part of the story. The second part of the story is really what the HealthHUBs enable across the enterprise. And as we talked last quarter, COVID did slow us down in terms of turning on all of our marketing programs and related activities. In the last, I'll say four to six weeks, we have now begun to turn those things back on along with some of the integrated products that are coming to market example of that being Aetna Connect that we talked about in our prepared remarks. So the second value creator is what the HealthHUB enables in terms of value creation that accrues somewhere else across the enterprise. And as we begin to scale up those types of whether it's enrollment in Aetna Connected as one example along with the other products, we talked about Transform Diabetes Care and obviously Alan plays a role in terms of how that plays through the Caremark business with their clients. That's what we'll be talking about in totality, acknowledging that there's a scaling issue as those products come to market.

Yes. So just as a quick follow-up I mean as we think about -- you talked about the marketing of these programs. Are we thinking about this as primarily a driver of adding to membership for Aetna whether it's in the MA programs or the commercial programs, or are you thinking Larry of this more broadly of when you think about advertisement, is it more towards the consumer, where the consumer is going to be picking some of these programs? And I'll stop there.

You know what Lisa, it's a great question and it's really both. There's the general marketing to consumers in terms of the awareness of what new products and services may be available in the store; an example the countless numbers of people that suffer from sleep apnea and how we now become part of their maintenance program as you think about the products associated with that. And then equally if not more important is the second part of your question in terms of what it does in terms of attracting its – what we talked about is one of the important value creators in terms of how we can grow lives as a result of that and how those lives further penetrate the various community assets that we have in terms of higher utilization. You heard us talk about examples in our Medicare offerings for 2021, as another example that leverage those CVS community-facing capabilities.

Lisa another way to think about – to add to what Larry said between Caremark and the health segment, we have 100 million members between the two of us. So if you think about those 100 million members and the opportunity we have to change our products and services to attract them to the HealthHUBs, that gives us a good opportunity for growth as well.

Thank you.

Eric Percher with Nephron Research.

Thank you, Eric and Josh here. And credit to the board on succession and congrats to Larry and to Karen. Question on PDP. The plans nationally next year had premiums of around $7. This appears to be about half of the next closest competitor. So I think the question is what is the strategy driving this? And can you show positive income in PDP on those premiums?

Well, first of all, thank you. Relative to PDP, if you recall when we took over the SilverScript business, we had a very defined strategy to rebalance the product portfolio to achieve higher margins. And the second part of that strategy was to attract PDP members that we could ultimately convert to Medicare Advantage members. So as we changed the product portfolio, this year we introduced the new PDP product. We have priced it at the target margins that we believe are appropriate. The product is designed for a certain set of individuals that we believe can ultimately and will be interested in moving to Medicare Advantage. So we're pleased with where we are priced and the products and service that we're offering in PDP.

Thank you for that. And just on the PBM purchasing side, can you give us a little of what does that mean? And is it early for the link benefits that you spoke to last quarter?

Yes. Eric, thanks for the question and the comments earlier. I'll flip it over to Alan.

Yes. So, Eric, thanks. When we think about purchasing economics it spans a broad range of activities, right? It's drug purchasing within our own pharmacy. It's retail network contracting. It's contracting with the pharmaceutical manufacturers. It's driving brand generics which is – all of those things go into purchasing economics and they're among the most important and most active parts of the organization.

Thank you.

We'll go next to Ricky Goldwasser with Morgan Stanley.

Yes, good morning and you know, Larry always appreciated your long-term vision and using your words of Karen not being afraid to make the hard decisions for the long-term opportunity and also your access and your insights. So best wishes in everything. And Karen looking forward to working with you for a very long time. My question is related to the 2021 guide. I appreciate that there are multiple variables but we now know what – CMS established reimbursement for COVID vaccine. You guys a couple of weeks ago said that – quantified how many more individuals you're going to hire to assist in that effort. How should we think about this opportunity within the 2021 growth target that you provided us, or is it an incremental and one that you will address upon a vaccine approval?

Hi, Ricky, it's Eva. I'll take your question. Thanks for that. Overall, I guess where I want to start is as we look at all of the aspects of our business and all of the variables that could affect our business, we remain confident with mid-single-digit growth. And certainly in February on our year-end earnings call, we'll have more to provide there. But we believe we've made the right investments over the last several years to set us up to continue to accelerate growth. Some of the things I'd highlight are we've invested in our Star Ratings; delivering new offerings you've heard Karen and Larry talk about that, continuing to expand our diagnostic areas and things you've heard us talk about, related to the HealthHUBs and modernized and managed our underlying cost structure. So there are many moving pieces. As you can appreciate there's a lot of uncertainty as well, in terms of the timing of different aspects. But we'll come back in February providing greater detail. And I would add -- one more point Ricky, I would add is, as you've seen our business perform over the last several quarters during COVID, we have some natural offsets in our business. What is an opportunity from one side of the business may be an incremental cost for another area. So our diversified portfolio is really playing together nicely.

And Ricky thanks for the comments. The only other point that I would make, in terms of -- I think what we'd like people to walk away from is -- if we told you a year ago that to-date six million people would have gone to their local CVS Pharmacy for a diagnostic test, related to some virus. We'd probably get an eyeball roll. The reality is, that's happened. And it really speaks to the strategy that we've talked about, in terms of meeting people where they are. One example of that's being in the community. So again, I think it's a very tangible proof point of our strategy coming to life in a very meaningful way. And we look forward to playing an important role in the vaccine administration, once that becomes available. And as Eva pointed out there's a lot of uncertainties. And in February, when we get to the Q4 call we'll provide a lot of context in terms of 2021 as well as the assumptions that we're making. Because -- between now and then probably all the questions won't be answered, but we'll talk about how we're thinking about it for the year.

Okay. And just a quick follow-up, as you think about the strategy. In the retail segment you highlight long-term care is still a headwind. You've been evaluating this business for a while now. So as we sit here, do you view it as strategic asset to the business, that justifies keeping it at the losses?

Well Ricky, look, as we look at the challenges in long-term care, we view those as -- I'll describe them as cyclical that are directly tied to COVID. And Eva talked about, lower bed census. That continues. We think that, once the -- once COVID is behind us, that they will return to more historic levels of occupancy. And we continue to see the assisted living space, as an important element of those that we can serve. And we're continuing to look at those opportunities, as we think about what we can do today in a COVID world, okay, in terms of supporting those facilities when you think about both, testing as well as vaccine administration. And then, how that transitions in a post-COVID world.

Thank you.

We'll go next to A.J. Rice with Crédit Suisse.

Hi everybody. And best wishes to Larry and congratulations to Karen. Just maybe to pick up on the comments that we've made around the Medicaid business in the prepared remarks, I know we're talking about the lack of re-determinations helping the enrollment growth that you're seeing there. I wonder -- one of the issues with re-determinations is people not being eligible for Medicaid and being taken off the rolls. With the underlying economic situation we have now, as you assess that, do you think that the headwind of re-determinations coming back will be less of a headwind, if the economic environment stays persistent? Because maybe more of those people will actually be eligible, and then you mentioned that there were some -- you were looking forward to RFP activity next year, any assessment of that and early discussions about rates around 2021, at Medicaid?

Hi, A.J., it's Karen. Relative to the opportunities for next year, we are -- there are a number of RFPs that we are assessing that we feel that we're well positioned for. So we're excited about the integrated value and the opportunities, we think we can bring to the marketplace with all of our enterprise assets. So we're working through that. I would note that, relative to one of our contracts that is under protest. So, we're monitoring that very closely and that was a large contract. On re-determinations obviously we are monitoring that. And that has been a big part of our growth this year. Unemployment we expect to continue to see unemployment. We expect to see increases in Medicaid enrollment, as a result of that as well. So, Medicaid is an important business for us. It does have the opportunity for growth. It is strategically positioned, as an important business and we hope to continue to grow that asset.

Just any thoughts on the rate outlook given some states are having budgetary pressures?

Yeah. Thank you. I forget you asked that question. Yeah. Obviously the states are -- have a lot of budget concerns. In a lot of our contracts we have -- they have protection on risk corridors and we're working very closely with the states on Medicaid rates. And we've always been in the position to have conversations with them about actuarial soundness. So those are the conversations that we're having. But we do anticipate in the fourth quarter to see some impact on our Medicaid business as a result of state rate adjustments.

Okay. Thanks a lot.

We'll go next to Charles Rhyee with Cowen.

Congratulations to Larry and Karen as well. My question really goes back to a little bit on the Aetna Connected also with the HealthHUBs. I think last year, obviously, very few HealthHUBs were up and I think you guys wanted to get to a bit more of a critical mass before having it launched more directly into the Aetna membership. When I -- when you guys talk about this Aetna Connected Plan is the HealthHUB, a key part of that benefit design? Because my sense was -- back then that that was the idea moving forward is to really use HealthHUBs as a key part of the care delivery here for Aetna members to demonstrate the savings able to generate from that and then be able to maybe prioritize that going forward to sell to other plans. Just wanted to understand if that's still the idea that you're moving towards, is that in the benefit design for 2021? And just any kind of color around how that's evolving?

Yeah. What we've done to drive volume into not only the HealthHUBs but our MinuteClinic is we've offered low-cost, no-cost copays. We have almost four million members in that product design today. We have started to see increase in Aetna membership in our HealthHUBs overweighting for chronic diseases. So we're pleased with what we're seeing for the benefit design, and then obviously driving utilization into MinuteClinics and the HealthHUBs. Our connected care product, which we introduced this year as well is designed to essentially leverage all of our company assets. And we're really excited, we've seen good pipeline, good interest in that that not only supports the MinuteClinics, HealthHUBs, our standard formulary, our telemedicine, our Coram business. So again we are looking at opportunities. When we develop products, we develop designs for the integrated assets of the company.

And Karen if I could just add in addition to what you said as you thought about the MA designs as well. And for this year it was a smaller pilot, but we've also expanded as we look forward to 2021 incorporating the enterprise assets and the hubs.

That's correct.

Yes. And Charles, I alluded to this on an earlier question in terms of concentration. And we continue to believe that 1,500 hubs is the right number. I'm sure everybody can appreciate that converting HealthHUBs in a COVID world has been a challenge just from a logistics point of view. So the build-outs have been a little more difficult. We will end the year this year around 600 hubs. And as you think about 2021, and the earlier discussion -- or question around testing vaccines, we have reprioritized some capital and resources investing in those capabilities as we think about the ongoing role that testing and vaccine administration will play. So as we think about 2021, we will -- by the end of the year we will have at least 1,300 hubs. There may be some spillover to that 1,500 number into the early part of 2022 but that level of concentration certainly allows us from a sales point of view to address the multiregional and the national clients in a very differentiated way than what exists today. So most of what -- the question you were asking is more very regionally focused where we have a concentration within a particular geography.

That's helpful. And Eva if I could follow up with you real quick. Cash flow is, obviously, very strong for the full year here. If I recall, you guys have more or less said you'd probably hold off on really any meaningful share repurchase until you get the leverage down toward that three times range by 2022. If cash flow continues to come in stronger than expected, any potential to layer in a little bit of additional share repo earlier than we could assume?

Thanks for that question. At this juncture what I would say is we continue to stay focused on achieving our low three times leverage ratio. And I'm extremely pleased with the cash and the focus across the company. You heard our increase in guidance was due to the underlying operations as well as the focus on working capital, and we will continue to focus to get to that target ratio while -- I'd just add while investing in the business as we've spoken about and maintaining the dividend.

Next question.

We'll go next to George Hill with Deutsche Bank.

Good morning guys, and thanks for taking the questions. And let me echo my congratulations to Larry and to Karen. And I'll say given the week we're in it's always good to see a peaceful transition of power so that's nice?

Thanks, George. Good comment.

I guess Larry and Karen, as we think about the MinuteClinics and the HealthHUBs, one of the things we've seen coming out of the COVID crisis is that ED utilization remains sharply lower likely to the benefit of other benefits channels like retail and urgent care. I guess what I would ask is are you guys seeing anything that you can do to kind of lean into the market share shifts where people are accessing the care delivery channel? And kind of like what do you see as the best opportunity to maximize that if we look out over the next six to 12 months?

So as you said, consumer behaviors have changed dramatically because of COVID and we do believe that we need to meet people where they need to be met for their care delivery having that be in our HealthHUBs and MinuteClinics, having that be through telehealth capabilities. And as we mentioned on our last call, we are building out E-Clinic capabilities so that we can certainly address when people want to have telehealth capabilities. We also see an advantage for people being in the home and we believe there's opportunities for serving members in their homes through our nurses and other services that we have yet to build out.

And George the only point I would add to that is keep in mind the regulations being relaxed have enabled a lot of what Karen just alluded to. And the customer satisfaction, patient satisfaction around that is extremely high. And I am very optimistic that in a post-COVID world, we won't go backwards okay because those relaxed regulations are -- you got a high level of customer satisfaction. And in terms of what we're monitoring there's also a high level of quality associated with how the services are being provided for today.

Okay. And if I could have a real quick follow-up for Karen. I want to ask a follow-up on Eric's question. What have you guys seen to be the most effective tools for flipping PDP members to MA and keep the member from kind of making a fresh plan decision from a vendor perspective or a carrier perspective, if they want to make the PDP to MA flip?

Yes. We've had tremendous success in doing that. You heard Eva earlier talk about the 40,000 members that we've moved. We really have a targeted strategy to identify those members that make the most sense. We use our marketing tools and then obviously with our broker channel have those conversations. And now with the change in the pandemic we're using a lot of digital capabilities to interact with those individuals. But we're quite pleased with the success that we've had. The product that we put in the marketplace has been very targeted and we're confident that we can continue to grow moving from PDP to MA.

That's helpful. Thank you. And congrats again guys.

Next question please.

We'll go next to Lance Wilkes with Bernstein.

Great. Certainly, congratulations to you Karen. And congratulations Larry on your tenure. I wanted to ask a question related to your go-to-market strategy and the way in which you're integrating HealthHUBs into the Aetna offerings not just as an access point of things you might be doing with care management and things like that. I was interested in how it worked going into the 2021 sales cycle, how it's looking in 2022 as well?

Lance, let me comment on the national accounts. You recall that our first and foremost strategy was to deliver the medical pharmacy integration. We achieved over $300 million of additional pharmacy revenue as a result of that integration. Relative to the HealthHUBs, the MinuteClinics I think what we've done here on the benefit designs recognizing that four million people have already -- have benefit designs that support our HealthHUBs and support our MinuteClinics is truly a good indication that we -- that it's resonating. We also are working with certain national accounts on piloting where HealthHUBs would be kind of primary first place for them to go. So we have one large national account that's working with us to see how that would work. And we're excited about that possibility and then leveraging that to other national accounts. Clearly, there's other opportunities from our Caremark business and let me have Alan talk about what those are as well.

Yes. Lance, I would say as we went through the 2021 selling season, the ability to use HealthHUBs was really demonstrative of the last-mile connectivity we have into members. And so it really was a very important part of a successful sales season in differentiating the enterprise and Caremark. So we're super excited to continue to drive these sort of new tools into the Caremark book of business. The Caremark customers are very receptive very responsive to some of our early pilots with Caremark health plan. So I think this is going to be a -- continue to be a real differentiator for the Caremark organization as well.

Yes, that's great. And just a quick follow-up on -- with you moving up, Karen, to run the whole company, what are you guys thinking from leadership at Aetna? I know you've been adding talent in there. Just interested in any initial comments on that.

Yes. We'll be announcing a leadership change shortly, so more news to come on that.

Thanks.

Next question?

We'll go next to Michael Cherny with Bank of America.

Good morning. Thanks for taking the question. And like some of the others, Larry, best of luck in retirement. It's been a pleasure working with you. And Karen congratulations on the new role and look forward to working more closely together. So, again, best wishes to both of you. Thinking about the front end of the store. Clearly, there's been a redefining on how people are shopping, both in your stores and through some of the digital capabilities. As you think about the next three years of -- next five years, whatever the right number is, of the store-based build-out, store-based adjustments, how do you think about the changing dynamics of the types of SKUs that you want to use? And also, as well, some of the potential investments you're making on the digital side, specifically tied to front of store and the e-commerce channel, as much as you're doing some of the digital efforts on a lot of the pharmacy and, obviously, across the rest of the business?

Yes. Hi, Michael, this is Jon. So, as you think about what we've done in the HealthHUBs and the SKU pivot that we did to more health and wellness products, skinning down general merchandise and we ended up taking space from the front end of the stores. And we're continuing to see an increase in sales in less space and an increase in margin. And so, we've been able to take those learnings and move that out to the balance of the stores and that will continue to happen over time. As we think about digital, our strategy is going to be anchored around the pharmacy customer and omnichannel and promoting products that are relevant to them, based on what we know about them and then allowing them to pick up their products, either at the store, through the drive-thru or sent to their home. And as you know, we have our CarePass program that we launched last year in August and we're up to 3.4 million members. And the encouraging thing is our enrollments have remained constant through COVID. And CarePass enables that free delivery. It enables them to come in and buy incremental front-store product as they participate in that program and we're seeing an additional trip from each of these members per month. And so, we're very happy with linking all of these capabilities together.

Got it. And then, I know -- I don't want to get too much into 2021 guidance beyond the baseline, the dynamics that you gave. But as you think about the incremental COVID-related costs you have in the store, how should we think, at least, qualitatively about how those should transition especially against the backdrop of the potential ramping of costs tied to hopeful vaccination process?

Yes. Michael, thanks for the question. As you think about the incremental operating costs, the PPE, the store cleaning and those types of areas, I would think about those on a monthly run rate in the $7-ish million range. It obviously can fluctuate depending on what's going on in a particular area in a particular market. And as Larry said earlier, we have been investing and looking in terms of the testing going forward, readiness around being a vaccine distributor and to be ready to deliver a vaccine when one comes to market.

Great. Thanks.

Rita, we’ll take two more questions, please.

Ann Hynes with Mizuho. Please go ahead.

Yeah. Hi. Good morning. Congratulations, Larry, on your retirement. You will be missed. And, obviously, congratulations to you Karen. I have a Washington question for you Larry. Over the past few years, the talk about removing the rebates from Medicare Part D has been a big overhang. And I feel like that's been a President Trump and Alex Azar issue. And now since Biden's likely going to win and HHS and CMS will change, can you just give us a feel for how much Democrats support that policy, since it has been such a big overhang for your stock?

It's a great question Ann. And look, I wouldn't say that I could answer that there is one party preoccupation with rebates. And I think, it comes back to the stories that we've told countless times in terms of the value that PBMs play in driving down the net cost of pharmaceuticals and the fact that the vast, vast majority of those rebate dollars get passed back to plan sponsors. And you'll remember when we had the great debate, as it related to the PDP program and the analytics that were done not by us, but by independent authorities that said that premiums were going to go up for seniors by as much as 25% to 30%. And yes there were a relatively small percentage of higher utilizers that would net up favorably but for more than 80% of seniors their costs were going to go up as a result. And those facts haven't changed and it's those facts that killed that rebate roll from moving forward. And if we were to sit here today and reinvigorate that debate, we would be having the same discussion that we had a few months back.

All right. Great. And then also just on Biogen's Alzheimer's drug. I know we've talked about this before. But obviously the market really didn't think it was going to be approved and now there's a greater chance. I guess going into 2021, can you just talk about how this potential drug was underwritten in the managed care business? Thanks.

Yes. Ann I would just say that and we'll talk more about that as we give our 2021 guidance and outlook. That drug we're still working to understand the indication in terms of -- it is our understanding that it has a very narrow indication based on the symptoms that a particular patient may present. So it's -- there's more to come on that.

And I think Ann, from an underwriting perspective our actuaries always work closely with the clinical teams understanding the pipelines understanding the probabilities to factor in all of the variables to underwrite our business with the greatest level of accuracy possible.

Steve Valiquette with Barclays.

Great. Thanks. Let me offer my congrats to Karen as well. And Larry you had a pretty strong track record as CEO. I think the company actually either met or exceeded the initial EPS guidance every single year since 2011 so congrats on a successful career. Just a couple of questions here for me. First the monthly medical utilization trends on Slide 18 are pretty helpful. Is there any...

Steve we lost you.

Look I think where Steve was going with the question was about the utilization trends in COVID. So Karen can...

Yes. Let me just comment on utilization. As we've mentioned utilization has been steadily rising since April. It does vary by segment. We have our commercial segment that is back to almost near normal levels. Our Medicare business is slightly depressed. And relative to cost categories we are continuing to see lower utilization in emergency room and inpatient, but above levels in specialty pharmacy lab and radiology. Obviously it will vary by product and by geography. And we're closely monitoring our utilization because of the COVID viruses in the certain geographies. What -- relative to elective procedures, we have seen electives come back. But again that varies by geography. We see it more depressed in areas that the virus has spiked. But overall that's where utilization is and we're monitoring it very closely.

So do we have one more, since Steve got cut off. Or is he back on or?

We can go next to Justin Lake with Wolfe Research.

Thanks Steve for that. Thanks for fitting me in and congrats to Larry and Karen. A couple of follow-up questions here; first on the 2021 outlook, specifically in the second quarter you talked about being on track with COVID being an uncertainty to that. Here I hadn't heard you use that language. So is it fair to think that you feel like you've got a better view on Eva, I think you said puts and takes around COVID? And do you feel like 2021 you're on track even with the puts and takes of COVID?

Hi, Justin. Thanks for that question. Absolutely. We provided the baseline jump-off $7.10 right in the middle of our initial guide reflecting the underlying performance adjusting for the variables that I outlined in my prepared remarks. Additionally as I said, we remain committed and on track towards the mid-single-digit targets that we have for 2021. As you've seen quarter in quarter out, our overall enterprise has been performing, delivering on the expectations that we have set and the assets are working together to deliver on our expectations.

Great. Thanks for that. And then just my last follow-up on you -- on the pharmacy business, and specifically you talked about the fact that -- the monthly numbers are really great. Appreciate you, offering those each quarter. September was really strong across the pharmacy business. And I think, you said it had to do both with early flu and COVID. October, a little weaker I assume that's because of flu. I think you noted that. Can you try to delineate that for us in terms of how did flu impact September? And also, what are you seeing in terms of -- is there a number you can put around the benefits of COVID from a testing perspective that's running through the pharmacy? Thanks.

Okay. Justin, it's Larry. And there's a couple of variables in play here. And if you go back to the March time frame when we saw a lot of pull-forward activity, especially with 90-day, you're going to see -- you're going to continue to see some spike. It's starting to even out, where you saw this dynamic in March, but then you saw 90 days later in June, 90 days later in September. The second dynamic that, we did see flu -- the seasonal flu vaccine, really spiked in September. We started -- we always start that program in very late August. And we ran September, where flu vaccines year-over-year were probably double what they were the prior year. Good news, people were heeding, the public service advice in terms of the importance this year of . So, as you move into October, that is beginning to normalize. So you don't see that spike continuing. And as you look at the comparison of seasonal flu year-over-year, the good news is, we do not see any outbreaks at this point even regionally of the seasonal flu. And if you compare that to last year, the seasonal flu did begin in the month of October, so that is depressing the October numbers. So hopefully that gives you some context of the variables that are in play.

And with that, look, it was a long call. I know, there was an awful lot of information. We appreciate everybody joining us this morning. And I think you hear our enthusiasm for the progress that we made our Q3 results. And please stay safe, stay healthy and we'll talk to all of you soon.

This concludes today's CVS Health Third Quarter 2020 Earnings Call and Webcast. You may disconnect your line at this time. Have a wonderful…