Ladies and gentlemen, please welcome Nancy Christal, Senior Vice President, Investor Relations, CVS Caremark Corporation.
Caremark's 2012 Analyst Day. Looks like we have a pretty full house this morning. It's great to see so many of you here, and we do appreciate you taking the time to spend the morning with us. As many of you know, we've been hosting an Analyst Day like this once a year for many years, well over a decade. And as you can imagine, a lot of planning and preparation goes into these meetings, but we think they're important for 2 key reasons. First of all, we want to provide you with an in-depth review of our strategies for long-term growth and enhancing shareholder value; and second, we want to give you the opportunity to hear from more of our executives than you typically get access to throughout the year, so you could see for yourself the depth and breadth of our management team at CVS Caremark.
We have a great lineup of speakers for you today, and the slides that they'll walk you through as well as management biographies are in the slide books at your seats. And for those of you listening in on the web, all of that is available on our website as well. And it will be archived there for a 1-year period following the meeting.
Now before we get started, our attorneys have asked me to post the Safe Harbor statement. Please take a moment to read it. It's also in your slide books as well as on our website. In addition, please note that over the course of the morning, we'll discuss 2 non-GAAP financial measures that are posted on this slide in accordance with SEC regulations. You can find the reconciliation of these non-GAAP measures to comparable GAAP measures on the Investor Relations portion of our website.
And I truly hope you find this morning's presentations informative and helpful as you evaluate your investment in CVS Caremark.
And now I'll turn this over to our President and CEO, Larry Merlo. Thank you.
Larry J. Merlo
Thanks, Nancy, and good morning, everyone. And I also would like to thank all of you for taking the time to be with us this morning. Now this is my second Analyst Day as CEO, and I'm very happy to have a chance to update you on our progress over the past year. Now at last year's Analyst Day, we talked about the fact that we are a pharmacy innovation company, a company whose purpose is to help people on their path to better health. And we see pharmacy innovation as central to meeting future health care challenges, central to helping more people achieve their best health and central to our growth. Now along with defining our purpose, we captured our strategy in a very simple idea. We are reinventing pharmacy. And this strategy, along with our purpose serves as a filter for everything we do and is helping us to drive shareholder value. Now last year, we said we'd be focused on 3 key elements: continued leadership in our core businesses, our driving pharmacy innovation to solve key health care issues, the access, cost, quality challenge and capitalizing on the power of what we called our integration sweet spots to drive superior long-term growth and value. And we defined those sweet spots as areas where we can leverage our integrated assets to provide solutions to our client and customer needs that no stand-alone retailer or PBM can provide.
And I'm very happy to report that we have made significant strides forward since last year's meeting. Going into 2012, we set challenging, yet achievable financial targets, and we outperformed those expectations with earnings per share and cash flow expected to be solidly ahead of our initial plan. We said that we would capitalize on industry disruption, and our retail team has done an excellent job of attracting and retaining new Express members as a result of the impasse with Walgreens. In 2012, we gained over 24 million scripts as a result of that impasse, well ahead of the range that we provided at last year's meeting. And you'll hear more from both Dave and Mark about where we stand with retention.
Now we were also highly focused on returning our PBM to healthy operating profit growth, and we did just that. PBM EBIT is projected to be up about 20% this year. We said we would reaccelerate growth in MinuteClinic, and we'll open about 100 clinics this year while maintaining a breakeven profit performance at the enterprise level. And we also said we'd continue to gain traction and further develop those integration sweet spot programs, and we've added just under 4 million lives to our Maintenance Choice product in the past year. We've also added about 4 million lives to our Pharmacy Advisor program, and we expect to continue this momentum into the 2013 plan year. You'll hear a lot more about the evolution of our integrated programs throughout this morning.
So with that backdrop, where do we go from here? Well, obviously, that's what we're going to talk about today, and there are 3 key takeaways that I'd like you to have from this meeting. First, we are uniquely positioned to drive results. Our integrated model enables us to drive pharmacy innovation, and we understand the health care landscape and where it's heading. And with our breadth of capabilities, scale and agility, we can and will pivot to address significant health care opportunities however they take shape. Second, our strategic growth framework aligns our priorities with emerging health care opportunities, and we're focused on growing our total enterprise.
Now it's important to acknowledge that our core PBM and retail businesses both continue to grow and gain share on a stand-alone basis, and over the past year, we have further evolved the way we evaluate opportunities and initiatives to capitalize on our unique assets. And this allows us to begin to migrate to a more integrated view of our company. And this is a critical point is our differentiated products and services gain increasing traction in the market, and Dave will speak more about this and give you some examples as to why this makes sense.
Third takeaway from the meeting, we remain committed to enhancing shareholder value, and our unique position in the marketplace along with the enterprise growth initiatives that we'll talk about today are expected to lead to solid earnings growth over the long term. Our business is well positioned to drive substantial free cash flow, and we'll continue to employ a highly disciplined approach to capital allocation.
So let me lay out our agenda for the morning. Dave Denton will start the day off by providing a financial review, including our 2013 guidance, along with a discussion of our capital allocation plans and long-term targets. After Dave's presentation, we'll hold a Q&A session specific to that '13 outlook, and then we'll take a brief, I'll call it, BlackBerry break, so you can send out any e-mails or make any calls before we get into the more strategic discussions. After the break, I'll return to provide an industry overview. I'll talk about how we are uniquely positioned to capture share and create value in this rapidly changing environment. And I'll then lay out our strategic growth framework at a high level. That'll set the stage for the rest of today's speakers. Per Lofberg will then discuss trends affecting the PBM industry and offer his perspective on how we've positioned the PBM for long-term growth. And I think as all of you are aware, Per handed off the PBM reins to Jon Roberts this past September, and Per will continue to work with myself and our management team on PBM and enterprise strategies.
After Per, the heads of our core business segments, Jon Roberts and Mark Cosby, will each provide updates of the growth strategies in their respective areas, and then Andy Sussman, President of MinuteClinic will give you an update on that part of our retail business. Now in addition to talking about their respective businesses, our speakers will also talk about some of those key long-term enterprise growth initiatives that we're working on. And then Troy Brennan will pull it all together. Troy will talk about how we are positioned to take advantage of the changes created by health reform, what we're doing to drive clinical innovation and why this all matters. And then following Troy, we'll wrap things up and hold a general Q&A session.
So we have got an outstanding executive team, and I expect that their presentations this morning will give you confidence that we've got the right leadership in place to drive solid long-term growth. So with that, let me turn it over to Dave for the financial review.
David M. Denton
Thank you, Larry. Good morning, everyone. I'm sure you're very anxious to hear about our guidance for 2013, which I'll provide for you in just a few minutes. But my most important goal for the day is to increase your understanding of how CVS Caremark will drive long-term shareholder value. And over the past several years, we have been able to generate a significant amount of value, but today, I'll highlight how CVS Caremark will build upon that very strong history.
The presentations throughout this morning by my colleagues will discuss the specific initiatives and outline them that will fuel -- that are designed to fuel that growth, enabling us to achieve our financial targets, as well as drive long-term value. So let's begin and here's my agenda for the morning. First, I'll touch upon our financial accomplishments throughout 2012. I'll bring you up to date on how we continue to enhance shareholder value through our disciplined capital allocation strategies. After that, I'll switch gears and provide some details around our specific guidance for 2013. And lastly, I'll revisit our steady-state growth targets that we laid out 2 years ago. I will frame up for you today what we see as a strong growth outlook for our business well beyond 2013. In addition, as Larry said, I'll highlight why you should be keenly focused on our overall enterprise growth, as we used the many assets across all of our business segments to maximize the earnings potential of the entire enterprise. So let me jump specifically into our 2012 financial highlights.
We've been very focused on this roadmap for driving shareholder value over the past several years, and it includes 3 major pillars: First is our focus on driving productive long-term growth; Second is our expectations to generate significant levels of free cash flow; and finally, our disciplined approach to allocation of that capital. These, together, lead to enhanced shareholder value. And in 2012, all 3 pillars contributed significantly to our success.
And now with only a few weeks left in 2012, we are very pleased with our results. We set an achievable target, and we expect to deliver approximately $0.15 more than the high end of our initial full year EPS guidance range. We've seen solid performance and growth in our core retail and PBM businesses, and we benefited from our ability to capture more than our fair share of Walgreens patients during their impasse with Express Scripts, all while converting a good portion of these customers to loyal CVS retail customers. We expect to generate a significant amount of free cash flow, which is driven by solid growth in earnings, as well as a number of successful working capital improvement efforts.
We've returned nearly $5 billion to our shareholders through a combination of dividends and a considerable amount of share repurchases. On our earnings call in early November, we narrowed and raised our 2012 guidance range given the solid results for the first 9 months, as well as our outlook for the remainder of this year. We continue to expect to deliver adjusted earnings per share from continuing operations of between $3.38 and $3.41 per share. And while we are not changing our guidance for Q4 today, I am pleased to report that our results are trending toward the higher end of this range. And in addition and consistent with our prior guidance, we expect to generate free cash flow for the year of between $4.6 billion and $4.9 billion.
So our outlook for the fourth quarter remains solid. We continue to focus on maintaining a very healthy balance sheet with sensible yet modest financial leverage. While we carry nearly $10 billion in debt, our credit metrics today are still modestly better than they were 10 years ago prior to our major acquisitions. We are comfortable with our current credit profile and our corresponding credit metrics, and we are very focused on maintaining our high BBB credit rating.
And as I've said, we've been focused on improving working capital. Since 2010, we have been able to take more than 12 days out of our cash cycle, with most of that improvement coming from our retail segment. And as we look forward, we see additional opportunities. And as we have said in the past, we are targeting an adjusted debt-to-EBITDA ratio of approximately 2.7x, again, consistent with our credit rating targets. Our debt maturities are well-laddered over the next decade with no 1 year requiring a significant outlay of cash to meet our obligations. However, given our -- the existing favorable interest rate environment, we have undertaken a debt refinancing that will enhance our long-term debt structure and provide us with more free cash flow in future years.
And here's a quick summary of what we announced at the end of November. We have extended cash tender offers for several of our higher interest rate long-term notes. We plan to buy back up to $1.3 billion of these notes. And by the way, the books that we handed out this morning, you'll notice that it says $1 billion, but as you saw on Monday, we upsized our buyback plan given the strong interest within the credit markets. We have already replaced this debt with a new 10-year $1.25 billion note at 2.75%. By extending this portion of our debt at lower rates, we will have interest expense savings of approximately $0.02 using today's share count. There will be a onetime cost in 2012 associated with the retirement of these outstanding notes, and we estimate this to be between $0.13 and $0.17 of earnings per share and probably closer to the higher end of that range. When we report EPS, we will provide the specific impact from this onetime item.
And keep in mind that the impact from the tender offer and the refinancing is not included in the guidance that I'm providing today, both for 2012 and for 2013. The tender won't officially be finalized until later this month, so we can only estimate the impact. We'll be in a better position when we report fourth quarter earnings in February to provide you with a more informed estimate of the annual interest rate savings for 2013 and beyond.
We remain focused on enhancing our returns, and we are making good progress, and we've targeted additional improvements over the next several years. In fact, thanks in large part to the successful initiative to improve working capital performance, we have already exceeded our 2015 goal for return on net assets. So we set a new higher goal for 2015 of between 31% and 32%. And I think that's a good segue into our capital allocation priorities.
When we laid out our 5-year steady-state targets in late 2010, we said these targets would allow us to generate approximately $31 billion of cash that could be made available to enhance shareholder returns. So on average, over the time period, we would have between $5.5 billion and $6.5 billion available annually. Our focus is to deploy our substantial cash available with the goal of achieving the highest possible return for our shareholders. When we first laid out our targets, we set a dividend payout goal of approximately 25% to 30% by 2015 versus our level of approximately 13% at that time. That implied a compounded annual growth rate in our dividend of nearly 25%. We'll use additional liquidity to invest in high ROIC efforts such as bolt-on acquisitions that can supplement our existing asset base; and absent more attractive value-enhancing internal projects, we'll do share repurchases with approximately $3 billion to $4 billion expected to be available annually on average. Our cash deployment under this strategy is guided by disciplined risk-adjusted decisions. We'll invest in projects that help us grow our business with good long-term returns. And we are committed to funding these types of projects or returning the cash to our shareholders if that creates the best value.
So how have our strategies performed over the first 2 years of execution against these targets? Let's take a look at the cash we generated in 2011 combined with the cash we expect to generate throughout the end of each year across our enterprise. More than $12 billion of cash is expected to be generated in '11 and '12 from our strong growth in earnings, as well as our solid working capital performance. We expect to reinvest approximately $3 billion of this cash back into our business, and that leads us with more than $9 billion of free cash or organic cash. And putting aside the impact of a debt refinancing, our expectations are that by the end of the year, we will actually have reduced our outstanding debt by approximately $1 billion, as we work to achieve our 2.7x leverage target. That means that we'll have approximately $8.5 billion to enhance shareholder returns, a substantial amount.
So how have we allocated this cash? Combined with approximately $1.5 billion of proceeds the company has received from other financing activities, primarily the exercise of employee stock options in the sale of our TheraCom business, we have allocated approximately $10 billion among dividends, acquisitions and share repurchases. Over the past 2 years, we have increased our quarterly dividend by 86%. Our payout ratio is on target to be approximately 21% by the end of this year. We've acquired a couple of first-rate PDP businesses that are already bolstering our strategy in the Medicare Part D space. And we've done approximately $7 billion of share repurchases or $3.5 billion per year on average. So our deployment of capital has been very much in line with the targets we outlined a couple of years ago.
Over the next several years, we will continue to build upon that success. During the 5-year time horizon from 2011 through 2015, over $33 billion of cash could be generated by the earnings targets we have in place, coupled with strong working capital management. Now it is reasonable to assume that we would invest approximately 30% of this cash back into the operations of our business. And once that is used, we'd have more than $23 billion of free cash available to enhance shareholder returns, adding nearly $14 billion of free cash over the next 3 years on top of the more than $9 billion we expect to generate in '11 and '12.
An additional $8 billion of cash could be made available by issuing debt while maintaining our 2.7x adjusted debt to EBITDA leverage target for a total of approximately $31 billion. This would allow us to maintain some financial flexibility while also preserving our high BBB credit rating. And based on our targets, our intention would be to roll all upcoming debt maturities and add incremental debt as necessary to maintain that leverage target. So over the next 3 years, we would have more than $22 billion available to enhance shareholder returns.
Now I want to take just a moment and look at our solid history of enhancing shareholder returns. In 2012, we marked our ninth consecutive year of a dividend increase. We've stepped up the magnitude recently, and over the last 2 years alone, our compounded annual growth rate in the dividend has been 36%. Additionally, we have returned more than $11 billion to our shareholders in the form of share repurchases over the past 5 years, including $4 billion from 2012 alone. And what we've said in the past, we plan to continue to enhance shareholder value through a combination of dividends and share repurchases. And today, we're announcing that our Board of Directors has approved a 38% increase in our quarterly dividend for 2013. The increase translates to $0.90 per share, up $0.25 per share, and this puts us on track to meet our 2015 dividend payout ratio target in 2013, 2 years ahead of our goal. Beyond funding this dividend increase, we expect to complete another $4 billion of share repurchases during 2013. For modeling purposes, the timing of '13's repurchase program is expected to be very similar to the timing of this year's repurchase activity.
And in line with our plan, we have increased our share -- our repurchase activity significantly over time. In fact, we have repurchased $3.5 billion to $4 billion annually since 2010. So between dividends and share repurchases, we'll allocate approximately $5 billion toward enhancing returns for our shareholders. Now those are the assumptions for dividends and share repurchases you should use for your 2013 models.
And with that, I'll turn our attention to 2013 guidance. This morning, we're providing guidance for the full year, as well as the first quarter of '13. For the year, we expect consolidated net revenue growth of 0.75% to 2%. And while we expect solid underlying growth across the enterprise, this guidance reflects the comparisons we have to the substantial share gains from the Walgreens-Express Scripts impasse in 2012, as well as the continued strong growth in generic utilization. That, of course, has a negative impact on revenues but a positive impact on profitability.
We expect adjusted earnings per share from continuing operations to be in the range of $3.84 to $3.98 per share, reflecting very healthy year-over-year growth of 13.25% to 17.25%. Our guidance assumes the completion of $4 billion in share repurchases but does not include the accretive impact of the debt tender transaction, as I mentioned a few moments ago. We expect to generate a significant amount of free cash flow again in '13. We expect cash from operations to be in the range of $6.4 billion to $6.6 billion. After capital expenditures and sale-leaseback proceeds, free cash flow is expected to be between $4.8 billion and $5.1 billion, up about 4% versus LY.
For the retail segment, we expect healthy operating profit growth 5% to 6.75%, reflecting another year of solid improvement across that business. We expect net revenue growth of 1.25% to 2.5% and same-store sales growth of 0.25% to 1.5%. For 2013, we are expecting same-store script growth up between 1.5% and 2.5%. We expect retail gross margin to be up moderately, driven by new generics and growth in private label, which together, are expected to more than offset any pharmacy reimbursement pressures.
We expect to see expense leverage at similar levels to 2012. While we expect operating expenses of percent of sales for the full year to be flattish, there are, in fact, several underlying productivity improvements embedded within our business. And as a result of all of the above, our retail operating margin is expected to expand by 30 to 40 basis points.
Moving on to the PBM segment, we are expecting another year of very strong growth, with operating profit expected to increase 10% to 14%. We expect net revenue growth of 1.5% to 2.75%, and we expect total adjusted claims of approximately $1,035,000,000 to $1,045,000,000. Gross margin is expected to modestly improve. This improvement is mainly due to the positive impact generics are having on our profitability, as well as the benefits we're seeing from our streamlining efforts. These, combined with other factors such as improved rebates, are expected to more than offset any renewal pricing pressures. We also expect modest improvement in PBM operating expenses, largely driven by our streamlining effort. And as a result of all of that, we expect PBM operating margins to improve 30 to 40 basis points. So overall, we are extremely pleased with our outlook for 2013.
And before I provide the details of our first quarter guidance, I'd like to discuss some of the key factors impacting our profitability next year. And in general, for the enterprise, we expect earnings to skew slightly to the first half of '13. This earnings cadence is likely to be somewhat more evident within our PBM segment.
And here are some of the factors you should keep in mind as you build your models for next year. First, we gained significant amount of share during the Walgreens-Express Scripts impasse in 2012, which lasted through mid-September. As we cycle into next year, this will have some effect on our year-over-year growth rates. And I'll come back to that point in just a moment. Second, generics will continue to improve our profitability, and in fact, we expect greater profit dollars from generics in 2013 than we garnered in 2012. The large bolus of new generic introductions in '12 will continue to have a significant impact as they wrap into 2013, and so we'll see more of an impact from generics in the first half of the year versus the second half.
There is another factor that -- this is another factor that I will visit in just a moment to give you a little bit more color. And we can't forget about the leap year we had this year, that one additional day added approximately $21 million in earnings to our 2012 results, and of course, that won't repeat it for another 4 years. So let's take a look at the effect of the impasse on our business. At our Analyst Day last year, we said that we could see a benefit of between $0.08 and $0.11 per share in 2012 should the impasse last throughout the year. That was driven by our ability to realize between $175 million and $235 million of operating profit derived from capturing between 17 million and 23 million prescriptions. These share gains will drive our pharmacy comps higher by some 300 basis points.
So how have we actually performed versus these expectations? Well, extremely well. We are expecting to realize approximately $0.125 of benefits in EPS and at least $260 million in EBIT for 2012. We've gained a disproportionate amount of share on our expected capture, at least 24 million prescriptions, throughout this year. That should drive our pharmacy comps up by about 360 basis points. And keep in mind, we did this all while the impasse lasted for 8.5 months, while our model last year assumed a full year's impact. So we captured more than our fair share in a shorter time frame. And as you'll hear later from Mark, we expect to be able to retain a disproportionate amount of that share throughout next year.
So what does this mean for 2013? Well, first and foremost, you need to remember that we will continue to benefit from the share that we gained. The good news is that our base is now bigger, even though the comparison to those share gains might depress our year-over-year growth rates somewhat in 2013. Q2 and Q3 should feel the heaviest effect of this event as share gains were fully ramped up and matured during these comparable periods. We currently expect to retain at least 60% of the share we picked up. And you can see from this table the full year impacts of this event on several retail metrics. Pharmacy comp scripts will be depressed by approximately 135 basis points. While pharmacy comp sales will see a similar impact. Of note is the impact on retail operating profit. If you exclude the approximately 225 basis point impact on this event, the underlying retail business is expected to grow a very strong 7.3% to 9% in 2013. We are very pleased with the continued strong growth trends in our core business.
Another factor is the continued benefit from generics, which is expected to drive our retail and PBM profitability, both now and well into the future. There are approximately $97 billion of branded drugs moving from brand to generic status between 2011 and 2015. So we will have a significant opportunity for earnings growth in the coming years.
In 2012, more than $35 billion of branded drugs are losing patent protection throughout the year and another $11 billion of branded drugs are expected to lose patent protection in 2013. That said, it's very important to keep the specific timing of the generic introductions in mind, as well as how these generics come to market.
As I highlighted last year, the manner in which generic drugs are introduced in the marketplace impacts the cadence on profitability and there are 2 key ways in which generics entered the marketplace the drive their economics: limited supply and break open. In the interest of time, I won't repeat the details here, but they are in the appendix of my presentation. The key thing to remember is that our profitability is highest during the break open period.
This slide illustrates the cumulative volume of generics as we progressed throughout 2013. The majority of launches we have seen in '12 did not see the first full quarter of multisource availability until the second half of the year. So our profitability for generics in 2012 has been clearly back-half weighted. This profitability from break open generics were wrapped around into 2013. So our profitability from generics across the enterprise may skew slightly to the first half of 2013.
And the impact from this bias becomes very clear when you look at our first quarter guidance. For the quarter, we expect consolidated net revenue growth to be down 2.5% to 4% due to the strong growth in generic utilization across the enterprise. We expect adjusted earnings per share in the range of $0.77 to $0.80 per share, reflecting strong year-over-year growth of 18% to 23% despite having 1 less day this year because leap year in 2012.
For the PBM segment, we expect a very strong quarter with operating profit expected to increase 24% to 31%, even though net revenue growth is expected to be down 1.75% to 3%. That's a reflection of the negative impact generics are having on the top line, as well as the positive impact they're having on profitability.
For the retail segment, we expect very healthy operating profit growth of 9.5% to 11.5% despite 1 fewer day in '13 versus '12. Net revenues are expected to be down between 1% and 2.5% and retail is expected to benefit from generics, as well as the shift of Easter from Q2 into Q1. From a quarterly cadence viewpoint, the impasse will help Q1 of '13 a bit more than other quarters versus last year as the share gains were just ramping up in 2012. Same-store sales are expected to be down 2% to 3.5% and same-store scripts are expected to grow 0.75% to 1.75%. We expect the impact from new generic introductions to be approximately 800 basis points on pharmacy same-store sales.
Now let me revisit our steady-state growth targets and the importance of focusing on our enterprise growth. I laid these targets out 2 years ago. Enterprise-wide for the 5-year period from '11 through '15, we are targeting compounded growth rates of between 5% and 8% on the top line; 8% to 10% in operating profit; and 7% to 9% in adjusted EPS from continuing operations. If we assume that a certain portion of our significant cash will be used to repurchase shares throughout the period, we can enhance the bottom line by another 3% to 6%. This leads to a compounded annual growth rate in total adjusted EPS of between 10% and 15% over the 5-year period.
So how are we progressing versus these targets through 2013 in what would be year 3 of our 5-year target period? And based on our expectations, we are expected to do quite well and I'll highlight this by reviewing adjusted earnings per share. 2010 was the springboard from which our targets were established. That year, our adjusted earnings per share was $2.68. If we apply the targeted CAGR range of between 10% and 15%, the implied 2013 target is between $3.50 per share and $4.07 per share. And as I just outlined for you a moment ago, our adjusted earnings per share guidance of $3.84 to $3.98 is comfortably between the high end of our implied targets. So our business is performing extremely well during the first 3 years of our steady-state targets and the enterprise is on track to achieve our 2013 steady-state goal.
Now let me quickly highlight the segment line item growth rate targets we laid out previously which result from the many assumptions that make up our model and these assumptions are outlined in my appendix. In the PBM, we are targeting 11% to 13% net revenue growth as we expect to be net share gainers over the course of these 5 years. This targeted revenue growth could translate into operating profit growth of between 9% and 11%. On the retail side we are targeting top line growth of 2% to 5% and the total revenue growth could translate into retail operating profit growth of between 8% and 10%.
The next couple of slides illustrates what our '13 guidance implies for operating profit growth in both '14 and '15. With everything you hear this morning, I hope you'll leave the meeting confident in our ability to achieve these targets. And as this slide illustrates, the PBM needs to grow by at least 11.9% on average to achieve the 9% CAGR from 2010 levels, and at the same time, the retail segment needs to grow by at least 6.4% in '14 and '15 to achieve its 8% target. So we believe that both segments have reasonable and achievable growth targets in place and we are fully committed to these financial targets and fully expect to be able to achieve this growth with solid performance. As we move forward, the products that we are bringing to market may blur the growth in each individual segment and make the focus on the enterprise growth even more relevant.
Since we merged in 2007, CVS Caremark has been focused on developing innovative products and successfully growing the overall enterprise, sometimes at the expense of one individual segment. As we grow larger and our offerings expand and gain more adoption, the impact on the individual segments, both positive and negative, may become more pronounced. This makes the sole focus on a particular segment's performance somewhat blurred, in comparison to many of our peers. As a pharmacy innovation company, we are focused on growing the share of pharmacy dispensing volume. As such, growth in covered lives remains an important factor, and with increased share comes the ability to increase savings for our clients and savings for their members.
Our focus isn't limited to just one channel, mail or retail, as it is for some of our competitors. Our channel and business segment agnostic offerings will enhance the performance of the enterprise, sometimes at the expense of one individual segment.
Now let me illustrate this point with the example of how an innovative solution we've developed will do just that. You'll hear more about Maintenance Choice 2.0 from my colleagues later today but let me remind you of the planned design difference between 1.0 and 2.0 by using a slide that I stole from Per's presentation last year.
In short, 2.0 is a voluntary program allowing PBM members to opt in and save money by getting 90-day maintenance prescriptions rather than 30-day prescriptions at either CVS Caremark mail or CVS/pharmacy retail. This program enables payers to achieve some of the savings of our mandatory Maintenance Choice 1.0 program. Because this offering broadens the universe of payors who are likely to adopt this program, we expect adoption to accelerate among clients as we look ahead. And as a result, we expect Maintenance Choice contributions to the enterprise profitability to increase over time.
However, due to its planned design, the 2.0 program will disproportionately benefit our financial performance at retail while muting the PBM's operating performance, but it will do so while ultimately driving more profits to the overall enterprise. With Maintenance Choice 1.0, given the mandatory requirement to CVS Caremark mail or CVS/pharmacy retail, we account for all 90-day Maintenance Choice profitability in both segments and eliminate the dual counting at the enterprise level.
Now with Maintenance Choice 2.0 product and its voluntary design, we will no longer do that. For clients choosing the 2.0 program, only those scripts transferred from CVS Caremark mail to CVS/pharmacy will be dual counted, but all other volumes associated with the 2.0 program will be recorded only once in the segment that dispenses the prescription. That means that we will book profits for majority of Maintenance Choice 2.0 volumes at the location the script is filled only.
So the 2.0 program, the PBM will benefit from having more managed lives within its book of business. However, it will gain fewer mail scripts despite a planned design that incents 90-day maintenance drug utilization as more members are likely to fill the prescription at retail given the choice. The PBM will also fill the impact as members migrate their 30-day retail scripts from network pharmacies to 90-day scripts at CVS/pharmacy, thereby limiting network margin for the PBM. So the PBM will gain more lives, attract fewer mail order scripts and lose some network margin opportunities.
At retail, however, we benefit from members now choosing CVS/pharmacy for their 90-day maintenance medications. The only headwind for the retail segment is that members who are already filling their 30-day maintenance prescription at CVS/pharmacy are now afforded better economics for their 90-day fill as the mail-order reimbursement rate is now available. When you look at the pluses and minuses as they stack up, you can see that PBM on a net basis will be disadvantaged by this product. While the Retail Business, on a net basis, will be advantaged in comparison. If you were to focus your analysis solely on either one of our segments, your conclusion about the health of our business might be skewed.
An analysis of the enterprise economics will provide a much better indication and, in this case, will show that the overall enterprise is indeed benefiting economically from Maintenance Choice 2.0. This innovative product should result in more clients signing on with the PBM and using our retail pharmacies, thus benefiting the overall enterprise.
As this new offering and others gain adoption, the blurring of the segments will obviously intensify. Some offerings will benefit one segment disproportionately and some will benefit the other, but they all will benefit the overall enterprise. For example, as we implement our integrated specialty initiative that Jon will speak about later this morning, the economics will disproportionately benefit the PBM, having the opposite effect of Maintenance Choice 2.0. Remember, as these programs are just being launched, they will have little impact in 2013. The blurring will take place over time but it was expected to become more pronounced.
So going forward, as these and other new innovative programs are introduced and again increased adoption, focusing on the growth of the enterprise will be the best way to gauge our success. The charts I've shown earlier that highlighted the implied growth needed in both '14 and '15 for each segment to achieve our targeted levels should become less relevant to the discussion while this chart should become the overriding focus. As I've highlighted, we expect strong adjusted earnings per share growth in '12 and '13. And based on our steady-state targets, the minimum growth we need in '14 and '15 is 6% to achieve the low end of our target.
Now obviously, as an enterprise, we'll strive to do even better, but given our progress to date and our strong outlook, we are confident that we can achieve the steady-state targets we laid out back in 2010.
And before I finish up, I'd like to take just a quick moment and look ahead to next year's Analyst Day. A year from now when we all meet again, I would expect that we could provide guidance for 2014. As you know, our enterprise steady-state targets cover the time span of 2010 through 2015. So next year, when we provide 2014 guidance and if we were to reaffirm our steady-state targets, we would be, in fact, implying guidance for the calendar year 2015, which I think is impractical.
So next year, along with providing 2014 guidance, we will take a fresh look at our steady-state targets, reflecting a longer-term lens on our enterprise. We do not intend to step away from our current commitments, we are merely thinking further into the future. And as we look to the future, we will migrate to a more integrated view of our company. As the healthcare environment is rapidly changing, our company is evolving to capitalize on the opportunities. Our innovative products and services will help solve cost quality access concerns while driving value for the enterprise.
Our steady-state targets next year will reflect an enterprise view as we remain focused on profitable enterprise growth. This enterprise focus simply makes sense given the rapidly changing and evolving health care landscape and our unmatched integrated solutions.
So in closing, 2012 has been a great your across our company. We've been disciplined in our allocation of capital and this is leading to better returns. The enterprise expects robust growth and we are on track to achieve our steady-state targets through 2015. Given that our innovative program span across the entire company, growing the overall enterprise is the key to driving shareholder value. And so thank you for your attention. And with that, I welcome Larry back up to the stage and we'll take some questions.
Larry J. Merlo
Okay, thanks. Am I live here? Okay. So what we wanted to do over the next 15 or 20 minutes is really give you an opportunity to ask questions, as Dave mentioned, specific to the financial numbers he just provided, in terms of our outlook, as well as our view of the 5-year growth targets. We're going to have another opportunity for a general Q&A at the end of the presentation, so we really want you to focus on those questions that you have that are financial in nature. So Lisa? We've got folks with mics around the room, if you can just state your name and company as well, please.
Lisa C. Gill - JP Morgan Chase & Co, Research Division
Lisa Gill with JPMorgan. No problem here asking questions on the finance side, Dave. I guess just a few questions. First, when we think about these new metrics on the enterprise side and moving away with what Maintenance 2.0 is looking at the PBM versus direct retail, what do you think is going to be the best metric for us to focus on going forward? Would be my first question.
Larry J. Merlo
Yes, Lisa, that's something that, as Dave mentioned, this -- what we're outlining today is something that is not going to be material in '13, and actually in my presentation, I'll talk a little more about this and talk about the value of a life across the CVS Caremark enterprise. And that's something that we'll work with you on as it becomes more meaningful to the P&L. Obviously, we're going to be focused on the enterprise performance. And similar to what we've been talking about for the last couple of years, we have been saying, on the PBM side, the EBITDA per script, which has been a traditional measure of performance, we didn't feel that that was a good metric of performance. It was really about operating profit growth. So we'll work, as this takes more shape, we'll work with you in terms of how to think about that.
David M. Denton
Lisa, our commitment would be to provide metrics that allow investors and analysts to really understand the health of our business and understand the economics and how we're driving performance going forward.
Lisa C. Gill - JP Morgan Chase & Co, Research Division
So is it correct to say then that in 2013, it won't really have much impact as far? And obviously you put out guidance around the PBM which is very strong.
David M. Denton
I think that's true, Lisa. That is true.
Lisa C. Gill - JP Morgan Chase & Co, Research Division
Okay. And then just one other bigger question on capital allocation. Can you maybe just talk about acquisitions? I think that there was recently a news story about a potential acquisition in Brazil. How do you think about things outside of the U.S.? And I'll hand over the microphone.
Larry J. Merlo
Yes, we, as a matter of policy, we don't comment on specific acquisition rumblings or rumors. I think that question came up at this meeting last year in terms of how are we thinking about international. And at that time, we said that we didn't see it as a question of if, we saw it as more of a question of when and where. And I think actually Dave described it as a toe in the water opportunity where those things presented what we thought was the right opportunity to create the expertise and the learnings. That posture hasn't changed. And other than to emphasize that as we evaluate opportunities, we'll certainly do it with financial discipline and what makes sense for our business strategically. A question still upfront here.
John Heinbockel - Guggenheim Securities, LLC, Research Division
John Heinbockel, Guggenheim Securities. So 2 things, guys. I know that the business model is very defensive, but how have you thought about different economic scenarios going into '13 and how that plays into guidance and whether that can move you to the upper or higher end of the range? And then secondly, any thoughts on disclosure changes as you move toward more of an enterprise view of the company? I imagine that you'll still do segment breakdowns, but what do you think you might do differently on disclosure?
David M. Denton
Yes, I'll take that, John, specifically. It's probably a little too early to talk about that specifically. Clearly, the scale of our business we will require multiple segments from a disclosure perspective. Certainly, that will continue. The specific elements of that, I can't address directly at this point in time, so probably more to come on that. I guess from a guidance perspective, as we think about '13, just the overall economic climate, we're not expecting that the climate's going to deteriorate and/or substantially improve as we cycle into 2013. We think that we're going to kind of move sideways from that perspective and that's what is contemplated within our outlook from a financial perspective for next year.
Larry J. Merlo
Tom, question here in the center.
Thomas Gallucci - Lazard Capital Markets LLC, Research Division
Tom Gallucci from Lazard Capital Markets. I was just wondering on Walgreens specifically, 60% retention at least, obviously a good number. A lot of people worried about the competitive landscape and the struggles with the cost that might take just to retain. So could you provide any comments there on what you're seeing so far and also a little bit of what gives you the confidence behind that sort of 60%-plus number?
Larry J. Merlo
Yes, Tom, actually Mark will be covering that in a little more detail. Not to steal any thunder from his presentation, I'll just acknowledge that when this impasse came to a conclusion in mid-September and Walgreens reentered the broadest network, as all of you are aware, we initially said we expect it to retain at least 50% of that business. Out of the gate, those expectations came in a little lower than what we were experiencing. On our third quarter call last month, we raised that to 60%. And things are performing as we had outlined back in early November, and that's what leads us to continue to expect to retain at least 60%, not just for the fourth quarter, but into '13 as well. And we've also talked about the fact that as we approach the end of the year, we don't see this as a 12- to 18-month bleed. We thing that as we approach the end of the year, perhaps trickle into the first quarter, we will reach a steady-state retention number.
Ann K. Hynes - Mizuho Securities USA Inc., Research Division
Ann Hynes from Mizuho Securities. Can you just talk about the Medicare Part D business? I know going into 2013 you had some headwinds with dual eligibles and being left out of some preferred networks for the managed care companies. Can you tell us what growth you're assuming? Is there some negative impact in guidance for that for those items, and just how you view the business going forward?
Larry J. Merlo
Jon will talk about Med D, but let me just take a minute and make a couple of points that I think are important as it relates to your question, and level sets perceptions, if you will. If you look at preferred networks and then contrast that against narrow or restricted networks and in a narrow network, pharmacies, not all pharmacies participate. They can't fill the prescription unless the customer wants to be a full cash customer. In preferred networks, the customer's incentivized to use one pharmacy over another in the form of a reduced co-pay. It's also important to note that not all preferred networks are created equal. Those incentives can range anywhere from $1 per script to $10 per script. If you migrate now into the Medicare Part D population, there are no narrow networks that exist, not permitted by the plan design in Medicare Part D. And I think as everyone here knows, that there are 2 segments within the Med D population there, what we refer to as the choosers and then there are the list members, the low income subsidy members. When you look at all of those published grids that have preferred pricing, those really apply to the chooser population. There is little to no economic incentive for the low income subsidy members to choose one pharmacy versus another. So with that as a backdrop, yes, there is, as you mentioned, there are Med D plans where CVS/pharmacy is in a preferred physician or in SilverScript product, the Aetna CVS product, there are some Coventry products, some Blues products in a variety of states and then there are other plans where we're not in a preferred position -- Walmart, Humana, United. And we believe that we have comprehended any migration across plans within our guidance for '13. Question, Meredith?
Meredith Adler - Barclays Capital, Research Division
I just have one question about Medicare, sorry, about Maintenance Choice 2.0. You talk about there being positives to retail and negatives to mail, but is there any concern that because the cost or the reimbursement to you at retail is so much lower for a 90-day script, you're matching mail pricing, that it doesn't work out as beneficially or has everything you've seen told you that you pick up enough other scripts, you take market share that it just isn't anything to be concerned about, because those are negatives, maybe more negatives than there were in Maintenance Choice 1.0?
David M. Denton
Meredith, that's an excellent question. We are very confident that the programs that were put in place, specifically Maintenance Choice 2.0, has an enterprise benefit from an economic standpoint to our company. What's interesting about us and our business, because we are agnostic to the business segment and agnostic to the channel, what's most important for us is to garner share within to one of our dispensing outlets, and this is another way of doing that. In some ways, the accounting kind of gets in the way of that. So what we're trying to do is highlight for you why the accounting is not as important as the economics that drive this program forward for us. And this is going to be a real opportunity for us as we think about where our book of business is today and as we think about those clients in the next 2, 3, 4 years that can adopt a program like Maintenance Choice 2.0 which is less restrictive, less mandatory plan design, so we're very comfortable. And the metrics that we've seen, although it's just been in pilot, support those conclusions, Meredith.
Larry J. Merlo
A question over here. Maybe upfront.
Michael J. Baker - Raymond James & Associates, Inc., Research Division
Mike Baker, Raymond James. Just wondering as we kind of move to the thought around key metric being a member or customer of CVS Caremark, can you give us a sense of your learnings today as to the acquisition costs of that member persistence and relative profitability of it coming through the retail versus the PBM?
David M. Denton
Yes, I can give you some high-level on that. Clearly, again, back to a little bit to what I just said with Meredith, at the end of the day, having a consumer use one of our channels to drive dispensing volume is very important to us, whether that be at mail, whether that be at our retail location and whether that be in our specialty business or even at MinuteClinic for that matter. What you have -- and we've talked about this a little bit with, like, Medicare Part D as an example. A Medicare patient, because they take 45 or 50 prescriptions per year, while a per script basis, the economics might be a little thinner than a commercial business, the total economics over the year is more impactful because the utilization level is higher. And some of the reasons why we want to migrate away from this EBITDA per claim notion because I think it gives you a false -- can give you a false negative or false positive, I can't answer in specific around the economics around the acquisition costs of a customer, because I think all members in some channels are created a little bit differently. But clearly, the programs that we're putting in place are allowing those consumers to choose our channel more successfully, over time is our focus.
Larry J. Merlo
And in my presentation, I'm going to give you an example that I think addresses your question probably with a little bit of a twist in terms of showing how a client who chooses to use our differentiated and integrated products can create an economic win for CVS Caremark, and equally important, an economic win for the payor in terms of a lower gross cost for eligible member. So I'll talk more about that. In the back?
Matthew J. Fassler - Goldman Sachs Group Inc., Research Division
It's Matt Fassler from Goldman Sachs. First a follow up to Meredith's question on Maintenance Choice, just to clarify is the advantage to CVS from 2.0 at the unit level, at unit economic level or just in terms of aggregate sharing and limited marginal cost for that incremental script?
David M. Denton
Yes, clearly, as you move from a 30-day claim to a 90-day mail claim, the economics per claim go down because it's a deeper rate. But the economics is really again about driving more share into one of our dispensing channels and that's what drives the performance in there, Matt.
Matthew J. Fassler - Goldman Sachs Group Inc., Research Division
Great, and then secondly, if you think about your long-run plan and the interplay between generics and reimbursements, clearly, that trade-off is going to work in your favor next year in a pretty significant way. As you think about kind of reading the tea leaves in the reimbursement environment, how do you expect that to play out in the 2 out years in your forecast horizon?
David M. Denton
Well, I think, Matt, as we talked about, generics have been very important to driving profitability both this year and '12 and certainly as we cycle into '13. Generics, as we look forward, are still a nice tailwind to our business, maybe less of a tailwind than they have been most recently as we're in the peak of generic wave right now. I hope that as you go through today, and Per, Jon and Mark and Andy and Troy will talk specifically about some of the things that we're doing to drive our business forward in areas that will fill -- that will continue to accelerate earnings over time. So maybe we'll come back to that. If we don't answer that question to the presentations today, we'll come back and take that question again at the end of the second Q&A. Thanks, very much.
Larry J. Merlo
There's still a question up front here.
Scott Andrew Mushkin - Jefferies & Company, Inc., Research Division
Scott Mushkin with Jefferies. I guess free cash flow I think you guided, Dave, to plus 4% in '13, yet EBIT gross is much higher in both segments. I was wondering if you could kind of square that for me. And just a follow up again on Meredith's question, is there a market share level in retail where Maintenance 2.0 starts to hurt if you guys looked at it that way? And then finally, levers that get you to the upper end or the lower end of your guidance?
David M. Denton
Okay. Maybe I'll take the free cash flow. Clearly, we continue to improve our free cash flow performance. It is slowing in comparison to our growth in earnings. A couple of things are happening here. One is, while we have made substantial improvements in our working capital performance, as we cycle into '13, the changes that now are required to accelerate that are actual changes that we have to make from our process and technology improvement perspective. And so those changes will be a little bit more difficult to get. We're still focused on it. We're going to after it. Secondly, within Medicare Part D, there are some receivables that we're not going to get in '13 that we actually cycle into '14. So that presents a little bit of a headwind for us as we cycle into '13, Scott.
Larry J. Merlo
And then, Scott, as it relates to the Maintenance Choice question, yes, there is a share gain number that we need to achieve to make the economics work, recognizing there are savings to the payor and we're not going to provide that other than to turn around and say that we're quite comfortable that we can achieve those goals.
Scott Andrew Mushkin - Jefferies & Company, Inc., Research Division
Possible [indiscernible] share in market? [Indiscernible]
Larry J. Merlo
No. No, there's not. A question up front here.
Todd Jones - Legg Mason Investment Counsel & Trust Company, National Association
Todd Jones with Legg Mason. Just a question on free cash flow, it's just pretty impressive for the next several years, and you've identified bolt-on acquisitions as one potential use of that. Can you maybe put some parameters around size in terms of what you classify as a bolt-on? And then maybe remind us of what sort of the parameters are as far as targets for a potential acquisition, in terms of ROI [ph] and things like that?
David M. Denton
Yes, what we have said is we look for, from returns perspective, we look for those acquisitions that meet our, kind of, midteens return threshold. I would say that clearly, if you look at the assets that we have across our business, we don't really have a gap, if you will, on capabilities that we need to fill in. We have been, I think, very successful at looking at businesses that are kind of within our core and pulling them into our company and taking synergies out of them and enhancing their performance. And I think that's really our focus as we think about bolt-on acquisitions. From a size perspective, I don't -- it's hard to give you kind of a quantitative threshold to that. I would just say that we would look for things that make economic sense for us. We have a sizable balance sheet so we have some flexibility there, but we don't have a threshold, per se.
Larry J. Merlo
Okay, we'll take one more question, again acknowledging that we'll have another opportunity later in the morning, so. I think it's Ed.
Edward J. Kelly - Crédit Suisse AG, Research Division
Ed Kelly, Crédit Suisse. So a question for you actually 2 parts. One on generics, when you say generics are better in '13 and '12, is that true for retail as well? We had all thought, I guess that retail was probably not as good in '13. And the second part is, what is your assumption for the consumer for '13? It does sound like things are pretty weak out there, promotional environment sounds like it's picking up, so any thought there would be great as well.
David M. Denton
Yes. Generics are better for both of our businesses, so I can address that specifically. I mean, as you cycle into '13, just the new generic introductions are back-half weighted, the new ones, but clearly, the generic introductions from this year, if you think about when they break open, which is really more impactful to us, really back half '12 so cycles into the first half of '13 and then you have some additional opportunities as generics come to the marketplace in late '13.
Larry J. Merlo
And Ed, the second part of the question, I mean we continue to see a value-conscious consumer. Mark will talk a little more about that in terms of things that we're doing on the retail side with that in mind. As Dave mentioned earlier, we don't see that changing in a material fashion either up or down. So with that, I have 9:10 a.m. As we mentioned at the beginning, we'll take just a quick 5-minute break to give you an opportunity to follow up some e-mails in response to our '13 outlook and we'll start back up promptly at 9:15 a.m.
Larry J. Merlo
Okay. We're going to go ahead and get started again, please. So we've got a lot to cover still this morning with our outlook for '13 on the table. I'd like to turn to an industry overview and the strategies that we'll employ to drive long-term growth. So here's my agenda. To set the stage, I'll talk about the rapidly changing healthcare environment and the key challenges and opportunities that are emerging in this environment. And then I'll review why CVS Caremark is uniquely positioned to drive results and how our distinctive model enables us to create greater value for our clients, their members, our customers and shareholders. And then finally, I'll lay out our strategic growth framework so you can see how we will continue to prioritize growth initiatives, make strategic investments. And this framework will enable us to address the changing needs of our customers and clients while also capitalizing on our unique assets to enhance shareholder value.
So let me start with an overview of the health care environment. As we've looked over the past 15 years, health care has been dominated by employer-funded insurance. That has left roughly 50 million Americans uninsured, often without their need of medications. Employers insure about 180 million Americans today, including active employees and retirees. And because third parties pay for the majority of health care costs, consumers have had a limited view of the real costs of care.
Fee-for-service physician models have dominated during this past 15-year period. And under these models activity is rewarded, not outcomes. Costs rise as doctors are incented to provide more care. At the same time, there's a growing shortage of primary care physicians as today, their incomes lag those of specialists and that's not being exacerbated by the growing demand for care.
The prevalence in cost of chronic disease continues to rise substantially with less than half of the population driving more than 80% of health care costs. And while wellness and disease management are popular ideas, our providers have yet to find a truly effective and efficient model.
The pharmaceutical industry underwent significant boom period over the past 15 years with a number of innovative treatments reaching blockbuster status. However, as everyone here knows, the industry is now facing a significant generic cliff. We got about $100 billion of branded drugs losing patent protection between 2010 and '15. And today's R&D investments are largely falling into the specialty medication category.
And last, we have seen the start of a transition to a digital society that has transformed how we live, how consumers behave, how businesses compete. And although this transition has been slower in healthcare, significant and lasting change is underway.
So with that backdrop, I think, as everyone here is acutely aware, healthcare is going through this period of intense change. That change will be accelerated by the implementation of the Affordable Care Act, as well as underlying demographic shifts, changes in technology and changes in consumer and patient behavior. Now given the confluence of these events, the health care industry is expected to change more in the next 10 years than it has in the past 50. So what does this change really look like?
Well, we're going to see more than 30 million newly-insured Americans as a result of the Affordable Care Act, most of whom will be more active selectors of coverage on the exchanges. We'll also see the growing importance of health plans given their role in covering these newly insured, as well as the government as Medicaid expands and we have more seniors eligible for Medicare. Physicians will be increasingly incented to improve outcomes, quality and cost-effectiveness and continue to play a critical role in the delivery system. And while chronic disease will likely continue to rise, we believe the health care system will be forced to focus on lower cost, higher-quality solutions. And those that are effective, including improving medication adherence, will prevail.
In pharmacy, the brand-to-generic shift will continue but at a declining rate as new generics to market begin to slow and flatten post-2015. And the greatest growth in pharmacy will be in the continued innovation in patented and biologic specialty drugs.
And then finally, the transition to digital we believe will accelerate new tech-driven methods for informing and engaging patients will fundamentally reshape individual behavior and health care delivery. So let's take a closer look at these trends and their potential impacts.
First, health care reform will significantly increase the number of insured lives resulting in increased utilization. A projected 36% decrease in the uninsured population represents a major tailwind for our business. Our reform will also substantially change the landscape of funding sources and plan sponsors with many more lives covered under Medicaid, as well as the growth in Medicare from an aging population.
Now this growth, combined with the growth in the individual market, results in a projected 38% increase in the government and individual segments by 2016. The health plans will be big gainers as the newly insured buy on exchanges, and we expect 30% more lives in health plans by '16 when compared to 2010, at the same time, employers will be forced to consider trade-offs between opting out of offering coverage and reducing benefits for retirees. And as a result, the employer-sponsored insurance is expected to decrease as a percent of the overall market.
Next, we're seeing significant changes in how healthcare is delivered and a dramatic increase in the focus on healthcare value. Payers all around the country are experimenting with provider reimbursement based on outcomes and cost effectiveness. And you can see from this survey that providers increasingly believe that more of their income will be linked to an outcomes-based model. Now we don't know how fast the shift-away from fee-for-service will be, but most agree that the world is moving in this direction.
Now this change will -- will put pressures on providers along with the support they require, and we see a big opportunity to serve these providers as pharmacy will play a significant role in cost-effective outcomes-based reimbursement.
As I mentioned today, about half of the U.S. population has one or more chronic diseases. The prevalence is expected to continue to rise over the next 20 years. People with chronic disease spend 5 times more than others on health care on a per capita basis. At the same time, the non-adherence to prescribed medications, I think, it can be considered an epidemic. This medication non-adherence among the chronic disease population is costing our health care systems some $300 billion a year in avoidable cost. And as the prevalence of high-cost chronic care grows, there will be an increasing need to coordinate care for these individuals along with driving high-impact interventions, including greater adherence to medication and treatment.
We reference the change in pharma landscape. And as I mentioned, we expect a continued rise in brand-to-generic conversions. You can see that begin to flatten post 2015 as fewer drugs come off patent. And as the growth in generic slows, we expect the growth in specialty pharmacy to accelerate with a projected 13% per annum growth rate.
By 2016, 8 of the top 10 branded drugs will be labeled in the specialty class, that's up from only 3 in 2010. And as specialty pharmacy costs continue to rise, payers and patients will increasingly need help managing this important part of their health care spend. Specialty represents about 20% of the total drug spent today. That number is expected to rise to more than 30% by the end of this decade.
And then the model for engaging with consumers and delivering health care services is fundamentally changing due to all the advances in technology. The growth in multi-channel touch points, including mobile, social media, other online platforms, this creates a significant opportunity to reshape how we engage consumers and influencing behavior and improving outcomes.
Additionally, the growth in innovative care delivery models like telemedicine or telepharmacy have the potential to reshape how care is delivered, lower cost, more patients, new care settings. Advances in health care IT will make comprehensive health care information more readily available and alter how and when physicians and consumers engage in and make health care decisions. E-prescribing, as an example, has skyrocketed over the past several years. That's changing how doctors and their staff interact with the pharmacy. And the greater use of electronic health records will also help spur greater coordination of care across providers.
And then finally, advanced analytics, or what's often referred to as big data, is creating a number of opportunities to improve how health care companies target interventions to improve patient outcomes. It's also creating an ability to more effectively target and personalize messaging and communications for both patients and consumers.
So we have highlighted where we see health care going with these last several slides. And given all the change that is underway, it is critically important that we're able to pivot to address these changes and serve the changing needs of our clients and customers. And we believe our business model lines up very well with these long-term trends.
In the 5 years since we merged, CVS and Caremark, we've talked a lot about why be brought these assets together and we always come back to 3 key goals: Greater access and convenience; improved health outcomes; and lower overall costs. And we continue to believe that these goals align very well with where health care is headed and the fact that we will play an important role in solving the quality cost access conundrum, and this will be an important driver of our long-term growth.
Now when I look at our enterprise-wide assets, I see 4 key areas that differentiate our offerings and enhance our value proposition: First is our unmatched purchasing scale; second, our deep clinical expertise; third, our strong client and consumer relationships; and fourth, our channel-agnostic approach to prescription delivery. So let's take a closer look.
Our purchasing scale. It's unmatched in the industry. We buy pharmaceuticals for both our leading PBM and our 7,400 drugstores. Across our distribution channels, we are the largest provider and purchaser of prescriptions here in the U.S. with just under 1 billion prescriptions filled annually. Now this is about 25% greater than our largest retail competitor, more than double our largest PBM competitor. And obviously, the scale enables us to create significant value for our clients and customers.
Now in addition to scale, the experience gained across our enterprise enables this what we're calling deep clinical expertise. We have diverse insights that build on our understanding of consumer behavior through our 7,400 drugstores, along with research collaboration with top-tier medical organizations, Harvard Medical School, Brigham, and Women's Hospital in Boston.
We drive best-in-class interventions across all of our channels with industry-leading adherence metrics in mail, retail and specialty, and our intervention methods leverage the most influential advisor at the point of care. Our pharmacists have access to relevant actionable information due to the integration of our retail and PBM systems, and that creates a single view of the patient across our distribution channels.
And finally, we're working on building the next generation of pharmacy care programs by infusing behavioral economics and predictive analytics into our programs. We're working on advanced targeting methods that will allow us to more effectively engage members, and we're rapidly expanding our clinical capabilities to address new models, customers and quality standards that are emerging as a result of healthcare reform.
Our current third key differentiator centers around our end-to-end relationships across both the client and consumer spectrum. We have a diverse PBM client base, and we're able to offer innovative products and services that meet their varying needs. And with over 7,400 stores, 5 million customers a day, the largest retail loyalty program in America, we have unmatched consumer insights. And our PBM members have access to our 24,000 pharmacists who help them achieve better health outcomes. And studies have shown that the retail pharmacist is 2 to 3 times more effective in driving adherence when compared to 2 traditional phone-based counseling models. As a result, our unmatched ability to coordinate plan designs and influence consumer behavior will serve us well as consumer-driven health care gains team and payers continue to look for greater efficiency and effectiveness.
And finally, our channel-agnostic approach, another key differentiator of our model. By combining our mail and retail capabilities, we have enhanced patient access and choice while reducing costs. And this is best demonstrated by the tremendous success of our unmatched maintenance choice program.
So look at CVS/pharmacy share of the Caremark book of business, it's grown dramatically over the past 5 years from 18% back in 2007 to more than 30% today. This significantly outpaces the growth in CVS/pharmacy's overall retail market share. I think it provides solid evidence of the value to the enterprise of our unique business model.
Now although mail order growth across the industry has been very strong over the past decade, this growth has slowed in recent years and it's likely to remain weak in the coming years due to changes in payer mix resulting from health care reform. Think about the dramatic growth in Medicare and Medicaid, that will likely shift script volume from mail to retail as the plan design strategies employed in this segment have not historically encouraged mail-order use. I think the beauty of our integrated model and agnostic approach is that we are well positioned to capture share over the long term regardless of changes in payer mix, payer strategies and patient preferences.
Now to take this one step further, when clients choose to implement our integrated programs, we often see consolidation of their scripts into the CVS Caremark book of business, meaning either the retail or mail channel. And this is what we were talking about during the Q&A. This slide begins to illustrate what we're calling the value of a life to the CVS Caremark enterprise. In fact, for 18% of our current PBM clients, more than 80% of their prescription volume flows through one of our pharmacy channels. For another 22% of our clients, we have between a 60% and 80% enterprise share. And I think this demonstrates the success of our integrated model in delivering win-win solutions.
Now we also know all PBM lives are not created equal. And for those clients that are more likely to adopt one of our integrated offerings, we can drive greater value and savings while maintaining an attractive economic profile on our business from an enterprise view. And as this slide suggests, we see significant opportunity to continue to grow our enterprise share of our PBM client spend. So that's a view from CVS Caremark lens. What about from the client lens?
Well, here are our retiree populations from 2 large employer clients. There are number of factors that determine what level of savings we're able to deliver for each individual client. And this slide illustrates the significant differences for 2 clients on each end of the spectrum. On the left, we have client A. They have chosen to implement a number of our value-driven plan designs and integrated offerings, such as Maintenance Choice, Pharmacy Advisor, exclusive specialty. And then on the right, we have client B, who for one reason or another, is not currently taking advantage of some of these programs. And you can see the significant differences in the value that we are able to deliver for these clients from both a cost and quality perspective. Client A fairs significantly better in key areas such as generic dispensing, medication adherence and ultimately, the gross cost per eligible member where we see a 15% reduction from that of client B.
And from our perspective, we have a significantly higher share of client A's prescription volume across the enterprise, 86% versus 55% for client B. So again, client A represents a real win-win situation. And given our experience with these programs, we can now quantitatively demonstrate the benefits to clients and their members. And I believe that our recent success is due, in no small part, to the superior outcomes and value that we can deliver through these integrated offerings.
So let me pull this all together in one simple slide, because when you look across the industry today, there are now 4 very distinctive business models that are focused on delivering pharmacy care. We are the only integrated PBM retail pharmacy provider. You have the traditional PBM model. You have the traditional stand-alone retail pharmacy model, and then there are a few integrated health plan PBM providers remaining. But when you look across those 4 key differentiating factors that we just discussed, you can see that we have a meaningful advantage over all of the different competitor models. And this advantage is not only relevant in terms of going to market and winning business today, we believe that our model aligns more effectively with the longer-term trends in the industry and uniquely positions us to drive value for our clients and customers in this rapidly changing environment.
So in light of that changing environment and our unique position in the industry, we have done a significant amount of work over the past 2 years to more clearly define our long-term strategic growth framework. Our enterprise growth strategy represents not a change but an evolution of our thinking. And we examined our unique position in the marketplace to determine how we can create value for various stakeholders across the healthcare supply chain. We also examined this changing external environment to determine exactly what those changes mean for our stakeholders. The takeaways, clearly, there is a need to reinvent pharmacy. And we landed on a three-pronged strategy to capitalize on market opportunities we foresee with our unique suite of assets. And together, this will lead to enhanced shareholder value.
First, we'll create greater healthcare value by increasing the convenience and quality of care, expanding and differentiating our services for better health at lower costs. Second, we will serve new and existing customers in new ways. Our teams from across the enterprise are focused on identifying and targeting opportunities to better serve the fastest-growing customer segments. And third, we will optimize our enterprise assets by delivering innovative solutions that leverage our unmatched breadth of capabilities. And we expect this strategy will lead to continued healthy earnings growth, substantial free cash flow, which we'll deploy once again to enhance shareholder value.
Now in last year's meeting, I highlighted 7 key areas that we were focused on to deliver innovative solutions that capitalize on our integration sweet spots, and we have made significant progress in each of these areas over the past year. We provided updates on our quarterly calls. You'll hear more about them throughout the morning.
But you also hear about how we're evolving our approach in the areas discussed and how we're going after some of the highest priority initiatives that we've identified through the lens of our strategic growth framework, and I'm going to outline them at a very high level. First, we are focused on, what I'll call, unlocking adherence. Now we have developed a number of programs over the years targeting adherence programs like Pharmacy Advisor, our Patient Care Initiative, and we plan to add to those existing solutions a set of breakthrough adherence interventions that further differentiate our retail pharmacy and PBM services. And we believe these solutions will be a key and bending the cost curve associated with chronic disease, and you will hear more from Mark and Troy about this today.
Second, we're working to transform primary care. We believe we are very well positioned to do so. You will hear from Andy on how we're accelerating the growth of MinuteClinic, along with expanding our breadth of services to help support primary care given the challenges of a physician shortage, compounded by increases in the insured population.
Third, we're working to expand our role in specialty pharmacy. Our clients are telling us this is the area of greatest concern for them, and you will hear from Jon about specialty's rapid growth, the burden this is placing on both payers and patients. And he'll discuss some of the new ways in which we can provide meaningful solutions to the challenges created.
Fourth, we have identified healthcare providers as a new customer group. Now given the trends that we've discussed earlier, our providers are gaining more influence over patient care management and are increasingly incentivized to care about outcomes. The widespread adoption of e-prescribing gives us the opportunity to intervene at the time a doctor prescribes. And we see the opportunity to deliver solutions addressing provider needs that will support patient outcomes while reducing the administrative burdens that exist for physicians today, and you will hear more from Troy about that.
Fifth, we are working to partner more closely with health plans. They have shifting needs to enhance clinical outcomes that we are again well suited to just given our access to the patient. We can engage and communicate business to business, as well as business to consumer. And as a result, we can offer differentiated tailored services that enable us to partner, I'm going to call it, beyond pharmacy, and drive more value to health plans, their members and CVS Caremark. Whether it's Medicare Star Ratings, the patient-centered medical homes, accountable care organizations, our goal is to garner the capabilities of our total enterprise to best meet their needs, moving clients to higher levels of service and deeper levels of partnership. And you will hear more about that from Jon and Troy.
And finally, as new technologies change the decision behaviors of patients and consumers, we remain focused on expanding our digital capabilities across the enterprise, all with a goal of addressing one's information and product needs in a seamless fashion. And you'll hear more from Mark about our integrated digital offering.
So in summary, CVS Caremark is very well positioned for continued growth. The rapidly changing environment creates significant challenges across the healthcare universe, but this also creates significant opportunities.
We are uniquely positioned to address these opportunities through pharmacy innovation. Our strategic growth framework provides the lens through which we'll make strategic investments and prioritize initiatives. And we are capitalizing our suite of assets to drive results and enhance value for our clients, customers and shareholders. We have a strong plan in place. We have the right leaders to execute on those plans. And throughout the rest of the morning, you're going to hear from our management team on how they're positioning their businesses for growth along with how they are capitalizing on our enterprise assets to drive long-term growth and value.
So with that, let me turn it over to Per.
Per G. H. Lofberg
Well, thank you, Larry, and good morning, and welcome everybody. It's great to see all of you. And I think as many of you know, and Larry actually touched on it, earlier this morning, we transitioned the leadership of Caremark a few months ago. So back in September, Jon Roberts took over from me as the President of Caremark, and he is now reporting directly to Larry Merlo.
And for those of you who don't know Jon, let me just tell you a little bit about him. Jon has served as the Chief Operating Officer for Caremark for the past couple of years. He is a pharmacist by training, and he spent most of his career in the CVS retail organization. He also served for a couple of years as the Chief Information Officer for the corporation following the merger between CVS and Caremark a few years back prior to coming over to the PBM. So he really has a strong background in all facets of the business. He is a transformative-results driver and he actually deserves a lot of credit for our performance in the last couple of years.
My role, going forward, will be to work with Larry and with Jon and the rest of our leadership team, focusing primarily on strategy issues, business development and organization development, and of course, ensuring that we have a smooth and successful transition in the leadership.
So before I turn the podium over to Jon for the PBM update, let me make a few comments about our industry and how CVS Caremark fits into it. The changes, and Larry touched on many of them in our industry, are really truly dramatic as we kind of survey the landscape. We have invested in and we have repositioned the company to put it in a strong position to add value and to compete successfully in this emerging environment.
The integrated model has been embraced by the marketplace and represents now a sustainable competitive advantage in the industry, and the fundamentals of our business are strong.
We've grown our PBM business approximately 50% during the past 3 years, delivering $24 billion of net new business over this time period. We've established leadership positions in the growing government-funded market segments, Medicare and managed Medicaid, and we continue to invest in the specialty pharmacy aspect of our business. And while we're expanding our suite of clinical programs, and you'll hear more both from Jon Roberts and Troy Brennan about our initiatives in those areas. And finally, we are in the third year and nearing completion of our streamlining initiatives, which will deliver $1 billion in cumulative cost savings through 2015.
So let's take a quick look at some of the critical changes in our industry, and I will start with the changing drug mix, which you're all familiar with. Traditional branded blockbuster drugs, which are represented in green on the slide here, they used to represent 80% of the drug spend a decade ago. They are now being replaced by generics, as you heard. And our goal here is to keep reducing the spending on the remaining expensive drugs, which have comparable generic alternatives. And we achieved this through plan designs and through reimbursement restrictions, but also through contracting with pharma to achieve cost competitiveness.
Secondly, generics will make up 84% of prescriptions in 2016, that's more than double the rate of 10 years ago. And our goal here is to maximize their use, wherever that's appropriate, and also to drive improved adherence to achieve better clinical and economic outcomes.
And thirdly, the specialty drugs are growing at double-digit rates, and they are becoming of increasing concern to our customers, the payers. So here, proactive management of these therapies is required to make sure that the drugs are appropriately used and the trend is controlled. And Jon will talk more about what we're doing to manage the specialty trend.
The payer landscape is also changing dramatically. So to begin with, employers and union-sponsored benefit programs, which really have been the core of the PBM business for a very long time, are declining. Both retirees and active employees are shifting out of these segments into Medicare and the health care exchanges, respectively.
On the other hand, health-plan sponsored drug coverage is increasing to capture both the government-funded programs and private exchange opportunities. These shifts will demand new solutions and new business arrangements between the PBMs on the one hand and health plans of the other hand. Partnerships with health plans are very complex and require often very tailored solutions. We support their needs for highly competitive pharmacy economics through our national scale, and we offer connectivity and integration with their care management through our local presence at retail pharmacies and MinuteClinic. A very substantial portion of our growth over the past 3 years has been in the health plans base, and expect this market segment to be a primary driver of our growth in the coming years.
And I know that those of you who have followed our industry for some time know that it has been consolidating dramatically during the past 15, 20 years. Our company, for example, is actually a roll-up of 5 separate legacy companies. Likewise, our major competitors have grown through multiple mergers and acquisitions over the past decade. I think I can count to over 20 M&A transactions in this industry during the years that I've been associated with it.
So why is all this happening? Well it starts with the tremendous cost pressures in our health care system and this is driving everyone to look for lower cost and better solutions. The consolidation trend has been fueled by increasing economies of scale and escalating capital investment requirements to address the greater transaction volumes, the complex product designs, the database management required and the regulatory compliance required.
So even now, with the top 2 PBMs representing 2/3 of the industry, we expect this consolidation to continue as small and midsized companies will struggle to stay competitive.
It's important to recognize that PBMs differ substantially in terms of the portion of their managed drug spend, which is dispensed from the in-house pharmacist, either the mail order pharmacist, their specialty pharmacist or in our case, the retail pharmacist. You can see this in the blue portion of the bar on this chart. So as a result, as Larry alluded to in his speech, the value captured from a managed life varies considerably dependent on the business model. And our goal is to continue to increase the portion of the captive dispensing to create win-wins for our customers and for our own company.
So in fact, looking ahead, the PBM business models are diverging. In the past, most PBMs pursued relatively similar models, where the pharmacy spends that will manage for employers and commercial health plans that was outsourced to the PBMs and many of the PBMs also had captive mail order and specialty pharmacies. The emerging models are increasingly different and therefore, harder to compare. Optum and Prime, for example, are clearly aiming to reintegrate pharmacy and medical management, but they're focusing primarily on their captive health plan lives. Our model, which integrates retail pharmacy and PBM services, offers broad access to consumers and personal interaction at the local level, not just through call centers. The growth areas on Medicare, Medicaid, exchanges and Accountable Care Organizations will require a broader set of capabilities than the traditional model offers. Those segments offer less potential to emphasize mail order like we've done in the past, but greater opportunity to influence consumer and patient behavior at the local level.
Additionally, as the market becomes more focused on individual consumers and local Accountable Care Organizations as supposed to the group buyers we have dealt with in the past, local presence will become increasingly important. And I believe CVS Caremark is best positioned in the industry to take advantage of those growth opportunities.
And finally, I want to touch briefly on the new performance-based payment models which open up new partnership opportunities and financial risk sharing arrangements. Stars, which is the term used by Medicare for performance-based metrics, they have until recently been primarily operationally focused. But these metrics are changing to clinically-oriented metrics with medication adherence right in the center. Star performance will drive both eligibility and reimbursement for the health plans in the Medicare program. So as a result, it has rapidly become a top priority for our health plan customers.
Accountable Care Organizations will actually be paid based on health outcomes for the patients they serve not just for the activities they perform for those patients. And patient-centered medical homes are created by health plans to pay physicians, again, based on overall outcomes, raising the relevance of good pharmacy care. So PBMs and pharmacists who can demonstrate improved outcomes through better pharmacy care are well positioned to support such business arrangements. Our capabilities will enable providers and health plans to succeed in this new environment, and you'll hear more about those priorities in the following presentations.
So to summarize, as we've shown in the past couple of years, CVS Caremark is in a very strong position to capitalize on these industry dynamics. Our key priorities are to, first, leverage our unique model, to create truly distinctive client and member value; secondly, to use our financial, technological and human resources to build strong solutions for the future; to continue to build leadership positions in the growing market segments such as Medicare and managed Medicaid; and to continue to invest in specialty pharmacy and clinical programs. And finally, to leverage CVS' brand franchise, its community presence and its consumer marketing expertise in an increasingly consumer-oriented health care environment.
So thank you very much for your interest and support. And please join me now in welcoming Jon Roberts to the podium. Thank you.
Jonathan C. Roberts
Good morning, everyone. Thanks, Per, for your comments and your continuing partnership. As I move into my new role as President of our PBM and Per focuses more of his time on sales and strategic development, Per and I have forged a vision of the future for the PBM. And we've outlined priorities that will deliver continued PBM growth over the long term, all the while staying focused on solid execution and disciplined expense management. Today, I plan to speak about the state of our PBM business, our core growth opportunities in Medicare, Medicaid and specialty. And then we'll take a few minutes and look at our unique enterprise opportunities, which Larry outlined earlier. So let's get into the business update starting with a question on all your minds, "How is the 2013 selling season progressing?"
We've been very successful again this year with $4.4 billion in total gross wins. While price is still a very important part of the decision process, clients are telling us that we're being selected not only because we're competitive on price, but also because of our unique capabilities we're able to deliver, capabilities that enabled them to better manage their cost, enhanced access and improve their members' health. Our retention rate is approximately 96%.
Moving onto net new business, our client net new business for 2013 is 1.1 billion. And when you take into account our net losses and our PDP of $700 million, essentially attributable to the 3 regions on which we didn't qualify this year, our overall net new business is approximately $400 million for 2013, and that's down from our second quarter update of $640 million given we are now including the impact of our PDP losses.
And as Per mentioned, over the past 3 years, we've achieved cumulative net new business of more than $24 billion. So our model is clearly resonating in the marketplace.
Let's dive a little deeper on our gross wins this selling season. It's important to note that we've been successful across all segments, employer, Medicare, Medicaid and the Blues and health plans. And you can see some of the flagship accounts that we've won this season. We continue to be successful in the larger national account arena, winning marquee clients like UPS and Lowe's. In the Medicaid space, we won the Healthfirst contract in addition to benefiting from Aetna's expansion in this segment, which I'll talk more about in a minute. And in the health plan space, key wins include HMSA, which is the Blue's plan of Hawaii and Blue Cross of Idaho.
We are also pleased with Aetna's growth in the marketplace, as well as our integration efforts. Aetna is adding more than 1 million pharmacy lives in 2013 with their win of Assurant, as well as their success in their other businesses. The Aetna CVS/pharmacy PDP is a competitive product offered in 29 regions. We're entering the final stages of Aetna migration with about 1/3 of Aetna's commercial lives now on our destination platform and the migration should be complete by the end of 2013. Aetna is very pleased with the quality of the migration. The schedule was to develop to ensure a seamless transition for Aetna's members and clients and we have accomplished that.
As lives move to our platform, programs like Maintenance Choice and Pharmacy Advisor become available to Aetna's clients, which we and Aetna believe offers them a competitive advantage in the marketplace.
Let's review a couple of our unique products in the marketplace. Pharmacy Advisor is our clinical program designed to address adherence in gaps in care. We continue to expand this program and we'll have 10 chronic conditions deployed in 2013. Adoption remains strong and we expect to have approximately 16 million lives enrolled in our programs in 2013. And in 2013, we will further expand Pharmacy Advisor to Medicare members. This expansion in the Medicare will help our health plan clients achieve their Star ratings in the clinical metrics that Per spoke about earlier. Mark and Troy are going to dig a little deeper into the Pharmacy Advisor program later this morning.
Let's now review how Maintenance Choice is doing in the marketplace. As you know, this program was introduced several years ago and has been extremely successful for the company. As Maintenance Choice 1.0 matured, we found that there were substantial number of clients that were unable or unwilling to implement mandatory mail. We see this particularly with our health plan clients that have historically designed full access benefits for their members.
In 2013, we are launching Maintenance Choice 2.0 across our book of business. And now clients with either a mandatory or a voluntary mail plan design can participate in Maintenance Choice and achieve additional cost savings. In 2013, we will have 14.5 million lives adopting Maintenance Choice, up from the nearly 11 million lives in 2012. We're seeing more new clients adopting Maintenance Choice right out of the gate.
We see a significant runway for future adoption of Maintenance Choice. And we believe the potential adoption among our current clients represents up to 34 million members in total. We expect adoption of the program to accelerate in coming years.
Maintenance Choice is a restricted network plan design which offers cost savings for 90-day prescriptions that are filled at either Caremark Mail or CVS retail pharmacies. In addition to unique programs like Pharmacy Advisor and Maintenance Choice, there's been an increasing amount of interest in preferred and narrow retail pharmacy networks. The market now understands that it can be served with less than the full complement of 65,000 retail pharmacies, while still providing excellent access for their members. We offer a range of 30- and 90-day networks to meet our varying customer needs. These networks offer a continuum of options that are balanced between choice and savings. If we look at the 30-day retail networks, we see interest in preferred networks in the Medicare Part D an employer space. As you move further to the right in the narrow networks, you actually take pharmacies out of the network and member's pharmacy benefits are only available in a smaller network. We primarily see interest for managed Medicaid clients in this most restricted network option, which yields the greatest savings.
Let's look at the savings across the continuum. As clients make choices to narrow access or move toward a mandatory 90-day plan, the savings opportunity increases for clients. As you can see, the highest level of savings can be achieved with Maintenance Choice 1.0 with the opportunity to save up to 4%. While we were able to deliver the savings of a mandatory mail plan design with this option, our clients and members benefit from our ability to deliver greater access and convenience. This is clearly the driver of the success and adoption of Maintenance Choice 1.0.
And on the 30-day continuum, clients can save approximately 2% with a 45,000 store narrow network and savings increase as clients choose to shrink this network even more. As I said earlier, adoption of these narrow networks has been most prevalent in the managed Medicaid segment.
As you move to the right with both 30- and 90-day networks, our overall share across all our business segments increases and so does the value of that life to the enterprise.
For the 2013 selling season, it's interesting to note that 40% of our 2013 new clients adopted either a 30-day limited network or Maintenance Choice. This is significantly higher than years passed. Now let me provide you with an update on our streamlining initiatives.
As many of you know, we undertook an extensive streamlining initiative that changed Caremark's internal infrastructure. The initiative included rationalizing our mail order pharmacies, streamlining our operations and consolidating our claims adjudication systems. I'm happy to report that these programs are on track to deliver cumulative savings of more than $1 billion over 5 years, 2011 through 2015, with steady-state benefits of $225 million to $275 million in 2014 and beyond. We're delivering on our 2012 goal where savings outwear costs. And in 2013, we expect savings will continue to increase while costs will decline. As I said, we expected our steady-state savings run rate in 2014.
Our streamlining project laid the groundwork for continuous productivity improvements in the PBM, which is critical to our continued success. Here are some specific actions we took as part of the streamlining project.
Our new state-of-the-art mail order pharmacy in Mount Prospect, Illinois became operational in September. Once rationalization is complete in the first quarter of 2013, we will operate 2 dispensing pharmacies, Mount Prospect, Illinois and Wilkes-Barre, Pennsylvania. We've also redesigned our front-end mail operation's workflow to eliminate redundancies and reduce handoffs during the prescription entry in clinical review process. By the end of the first quarter of 2013, we will have closed 33 facilities, including Mail and specialty pharmacies, as well as regional offices, and this is consistent with our original plan.
And finally, we've made significant progress with the platform consolidation with 2/3 of our business now on the destination platform. And by the end of 2013, 85% of our business is expected to be on this platform. We're focused on a mindset for continuous improvement in our PBM operations as it will be critical to maintaining our competitiveness.
Now let me transition to our core growth opportunities. These 3 areas, Medicare, managed Medicaid and specialty, are all very important segments which will help drive our long-term growth. Last year, we shared how we would continue building a winning strategy for the future by establishing a leadership position in Medicare Part D. We've experienced significant growth in this market, delivering strong revenue and earnings contributions.
There are various opportunities in this market. What are they? First, traditional employer-sponsored drug coverage for retirees continues to be replaced by EGWP Medicare offerings with significant expansion expected in 2013. We also see some employers, large and small, moving their retirees into the open PDP market and providing their retirees with a monthly stipend allowing them to select their own coverage.
In addition, MA-PDs, which we support for our health plans, continue to be an important part of the business and have been stable this year. And finally, the CMS auto-assign, low-income subsidy segment remains a key part of our overall portfolio.
With 15 million people aging into Medicare by 2020, drug spend in the Medicare space is expected to grow at an 8.5% CAGR with individual PDPs fueling that growth. CVS Caremark's investments and capabilities in Medicare will enable us to continue to drive growth in this important segment.
Industry consolidation this year has changed the mix of business and market dynamics. As of October of 2012, we were the #3 player in the market with 6.1 million lives, including our own PDP, along with our 40 health plan clients who sponsor their own PDP and MA-PD programs. When you look at the captive lives, which are displayed in blue, we are also the #3 player behind Optum and Humana.
In 2013, we expect our own captive Medicare Part D lives to grow by approximately 600,000 members, which reflects a 16% growth. This growth consists of EGWP members, including transfers of retires from the employer segment, plus new SilverScript Choice members, partially offset by net declines in our auto assigns.
I'm very excited about our new competitive Med D product for 2013, SilverScript choice. This product is focused on the growing segment of choosers that are entering the market as we move to expand our strategy in Medicare. This plan is attractive to the savvy senior shoppers. Our consumer research shows that as baby boomers move into Medicare products, they have a strong preference for moderately priced, 0 deductible plans. Having a predictable, fixed monthly expense is attractive to seniors, given an estimated 87% reporting Social Security as their major source of income.
SilverScript Choice has a retail pharmacy network that includes 65,000 pharmacies, 29,000 of which are preferred. Our 29,000 preferred pharmacies will offer 0 co-pays on Tier 1 drugs and includes many independent community-based pharmacies, Wal-Mart and of course, CVS/pharmacy stores.
So how is SilverScript Choice being received by consumers? We're happy to announce that more than 200,000 seniors selected SilverScript Choice as the Medicare PDP plan and are now enrolled in the program for 2013. We are extremely pleased with our success of this new product.
Moving on to managed Medicaid. We were the leading provider with an estimated 31% market share. And as you are aware with Health Care Reform, the market will expand by 15 million people. This is a great opportunity for us to continue to grow our share in this market. We have continued to win new clients in this space and have also seen our existing clients grow their members as states move from fee-for-service to managed Medicaid. Our success is due in part to our ability to tailor our programs and operations to support the unique needs of this segment. How do we do this? By enabling improved member engagement, by applying behavioral science and consumer research and member communications, by tailoring clinical and cost control programs and by delivering on this segment's unique requirements for compliance and operational excellence. We're very excited about the future of this segment with growth fueled by Health Care Reform adding 15 million people to Medicaid, as well as states moving from fee-for-service to managed Medicaid.
The final emerging market opportunity I want to speak about is specialty. If you look at the product market dynamics across all of pharmacy, you see Specialty's expected to grow to 31% of the pharmacy spend by 2016. You can also see by 2016 the actual dollars spent on specialty will double with half of the spend covered under the pharmacy benefit and the other half of the spend covered under the medical benefit. The drug pipeline is dominated by specialty by 2016, 8 of the top 10 drugs by revenue will be specialty drugs. Historically, PBMs have managed specialty drugs covered under the pharmacy benefit, but not the drugs billed under the medical benefit. We now have expanded our capabilities to manage specialty across the entire continuum of pharmacy and medical. Our clients are experiencing significant cost growth in specialty across this continuum and are looking for solutions over their entire specialty spend.
There are multiple approaches to managing drugs within and across benefits, both pharmacy and medical. Ultimately, we are developing solutions that address 3 key domains. First, unit cost. Minimize cost per unit by optimizing discounts for manufacturers and pharmacies, managing reimbursement schedules and provider offices and managing site of service and channel of dispensing. Next, utilization. Efforts here are focused on maximizing clinical quality while addressing inappropriate utilization, waste, overdosage and reimbursement. And finally, drug mix. Aligning incentives and creating programs to ensure that the lowest cost clinically-effective option is chosen. When patients implement all of our programs, they can save up to 12% to 16% of their specialty spend.
The best way to illustrate the power of our holistic approach to managing specialty spend is through a few examples. Looking at rheumatoid arthritis, I'll walk you through some of our programs that help our clients reduce their specialty costs across both benefits. Starting at the left, specialty guideline management is an evidence-based clinical program for a clinician prescribing the medication. Guideline suggests that a patient should first try the lower cost oral generic methotrexate for 1 to 2 months before moving on to a more expensive biologic. In our data, we see about 20% of the patients have a prescription written for an expensive biologic and have not tried methotrexate first.
Continuing to move to the right. We will evaluate if a preferred agent is being prescribed. For example, with a patient that is prescribed a self-injectable RA agent, such as Humira or Enbrel, we can apply our preferred drug strategy to make sure we are getting the lowest cost for our client in encouraging the use of a clinically appropriate drug. We evaluate our class strategies annually based on new drug entrants and a reassessment of clinical and financial value.
Now we move on to the right side for specialty drugs under the medical benefit and there's more we can do. Managing the site of care for infused drugs is an important part of our program. With the patient prescribed Remicade, where is it going to be administered? Getting an infusion drug in a hospital outpatient setting is approximately 2x as expensive as either the home or the physician setting. Our program helps ensure a patient receives their infusion at the lowest cost, most clinically appropriate site of care. It's programs like these that will enable us to deliver savings of up to 16% of specialty spend to our clients. And that's very significant savings, especially given the high cost of these drugs.
Let's now move on to our unique enterprise initiatives. As Larry outlined earlier, our unique assets enable us to capitalize on growth opportunities. First, I will focus on another specialty initiative, integrated specialty, which we're very excited about. We have a strategy that we believe is unique to the marketplace, to integrate our CVS retail stores and our specialty pharmacies into a seamless experience for our customers. Specialty today is primarily a mail order benefits that is not as easy for our members to navigate as it could be. Our integration will start with a patient having a choice, where to drop off their specialty prescription at any of our 7,400 CVS retail locations or send it to any of our specialty mail pharmacies. This significantly improves access and member experience.
All specialty prescriptions dropped off at retail or mail will receive the same level of patient services by leveraging the virtue of capabilities of our specialty clinicians to reach out to patients as they do today. Our fulfillment will also leverage our specialty mail pharmacies ensuring our patients have access to products without having to carry this very expensive inventory in all of our 7,400 CVS stores.
And finally, any prescription can be picked up in any CVS retail store or mail to their home from our mail pharmacy. This new capability is like our maintenance choice offering, where we will be the only company able to offer this service and flexibility for specialty patients and payers.
How are we doing in our pilot? We're very encouraged with our results today. Overall, during the 4-month period, we're seeing 112% increase in new specialty therapy starts at retail versus control stores. We've also seen that half the patients want their specialty prescription mailed to their home, and the other half want to be able to pick up their specialty prescription at their local CVS pharmacy. Physicians are also viewing this as a positive for their patients.
Wrapping up our specialty review, you can see it as a rapidly growing market that we are investing in new capabilities. This will allow us to capture our share of the intrinsic growth, while also delivering solutions to our customers that enable as to capture a larger share of this growing market.
Let me touch quickly on one other unique enterprise initiative transforming primary care through a unique MinuteClinic offering.
During Andy Sussman's presentation today, you will hear more about what MinuteClinic is doing to continue to grow as a best-in-class retail clinic. But right now, I'd like to focus on our MinuteClinic co-pay reduction solution available to Caremark PBM clients. Where MinuteClinic agrees to accept a lower reimbursement creating savings that a client can then pass along to their members in the form of a lower MinuteClinic co-pay, clients can implement a reduced or even a $0 co-pay for MinuteClinic.
For example, with Marriott, we've seen a sustained increase in new MinuteClinic user taking advantage of our convenient care for their basic health needs within overall threefold increase in visits since the start of the program. And 67% of the visits are from first-time users. This has been a great program for Marriott, whose members have excellent geographical access to MinuteClinic and who may have a harder time accessing care through other channels for a number of reasons, including their working hours. By creating a financial incentive for their members to visit MinuteClinic for basic health care versus higher cost channels like emergency rooms or urgent care clinics, Marriott has provided at no additional cost this type of win, win, win offering that only CVS Caremark is able to offer our clients.
In summary, we believe that the PBM is uniquely positioned to drive growth and our priorities remain focused on continuing to achieve profitable net new business, leveraging our unique model to create truly distinctive client and member value, continuing to progress in driving clinical outcomes, continuing to build on our leadership positions in specialty Medicare and Medicaid, and finally, we continue to build a culture of continuous improvement, building upon our streamline efforts. I believe these are critical to our success in this changing market.
Thank you. Thank you so much for your time this morning. I'm now happy to announce we have a 15-minute break. And when we return, you'll hear from my colleague, Mark Cosby.
Mark S. Cosby
All right. Welcome back, everyone. Hopefully, everybody had a little break, and you're rejuvenated and ready to go. This is my second Analyst Day since joining the company this past year. And as you know, a lot has certainly happened since then. This has been an incredible year in many ways, and I'm pleased to update you on the Retail business, and the initiatives we have in place to deliver consistent long-term growth.
Here's what I plan to cover today. I'll provide a business update. I'll lay out our key strategies to drive continued growth in the Pharmacy and in the front store. And I will recap 2 of our enterprise initiatives that are helping our people on their path to better health: Pharmacy Advisor and digital, both of which take advantage of our unique integrated assets.
Let's begin with the business update. So how are we doing? Our Retail business is really firing on all cylinders. We're continuing to grow market share and we're significantly outpacing our competition in both the front store and in the Pharmacy. And while we have clearly seen an uptick from our ESI Customers, our underlying core business continues to perform well. As I said, we have continued to drive share growth, both in the front store and in the Pharmacy. Our Retail script share has grown 2 percentage points in 2 years, and our front store share has picked up over 1%. Our strong organic share improvement, along with the share gain from our ESI customers, are great indicators that we are providing a truly differentiated offering across the stores. In fact, our performance gap versus other competitors continues to widen. We are outperforming our peers in the pharmacy with a 7.8% script comp, and in the front store with a 3.2% sales comp.
You've already heard Dave quantify the ESI impact in 2012 and our projections for 2013, so I will explain what is enabling these results. We have a strong and multifaceted retention plan. We communicate to our customers in targeted and differentiated ways with our highest-value customers receiving the most focus. Our base program included a comprehensive marketing program that feature TV, print and in-store advertising. We've also had conversations with many of our customers to ensure that they know that CVS can continue to be their pharmacy home. Our higher-value ESI customers were provided in-store consultations and some added values to encourage full store shopping. We also made calls to each of these high-valued customers to thank them for their business and review with them our many services and our many benefits. Our top ESI customers received an added touch, a personalized thank you handed to each customer by the pharmacist. Plus, we have been reaching out to those customers personally for refill reminders.
In total, we've engaged with 850,000 of our highest-value customers before the resolution of the Walgreens-ESI impasse. 55% of those customers elected to use ReadyFill, and 85% are now ExtraCare cardholders. This engagement has led to current ESI trends that are very encouraging. As previously mentioned, we fully expect to retain at least 60% of those customers. The best news is that our strategy of providing a differentiated level of service to our highest-value customers is leading to higher retention in those top customers. We are committed to providing an outstanding and differentiated customer experience for all of our customers, so that they happily stay with CVS.
While we have indeed benefited from the influx of new ESI customers, it is important to note that we have continued to perform well in our core business. Our 7.8% year-to-date comp script growth is equally driven by ESI and core business initiatives. In fact, our core business script comp alone, at 3.8%, is growing at a faster pace than the industry's script comp.
Let's now spend some time discussing our core retail growth strategies. This shows the growth-driving initiatives for the front store and for the pharmacy. First, on the pharmacy side, we will be working to take our patient care programs to a new level. We will implement our new WeCARE workflow initiative that will improve our service and our script results. These pharmacy initiatives will position as well as we move forward, and as clients and customers are demanding more from their health care providers. Second, in the front store, we are focused on personalization, leveraging the power of our ExtraCare program. We will extend our myCVS clustering program to better match the needs of our customers by trade area, and we will expand our differentiated store brand program. Third, we continue to grow our store base, and we're building a culture focused on growth through an initiative that we call Stores Own Sales.
Let me provide you with a brief description of each of these differentiating growth-driving initiatives. Our patient care programs to address nonadherence are unique within the retail world. Our initiatives help our patients on their path to better health, reduce overall health care costs and improve our market share. As you can see on this slide, we had 6 different programs to directly address the issues that often make adherence such a challenge for our patients, including new script outreach, first fill counseling, adherence outreach for those who have stopped taking their medication, refill reminders, ReadyFill and our enterprise initiative, Pharmacy Advisor. I'll devote more time to Pharmacy Advisor later in my presentation, and in his remarks, Troy will show how these medication adherence programs help to take costs out of the health care system.
All of these programs help our patients stay healthy. We have conducted over 230 million interventions since 2008, and these interventions are driving results. CVS now has the best-in-class adherence rate versus top retailers, as shown here through the medication possession ratio for diabetes, dyslipidemia and hypertension treatment. These adherence programs are a true differentiator, and they do deliver results for our patients, for payers and for CVS.
Another good indicator of the value we provide for our payers is our superior generic substitution rate. Our programs have driven significant improvement over last few years, moving from underperforming versus the competition in 2008, to a clear and widening position today. This value can also be seen in how quickly we have been able to move our customers into generics. The recent Lipitor and Plavix generic introductions are very good examples. As you can see in the chart to the right, our generic substitution rate is 8.6% above all other chains for Lipitor and over -- is 4% better for Plavix. We continue to find ways to reduce costs for our customers through high-performing lower-cost generics.
Let's now shift to the role of our pharmacists. The health care industry has evolved rapidly and so, too, has the traditional view. We're adjusting these trends and reinventing pharmacy for better health and better service to a new system that we call WeCARE. I'll tell you more about WeCARE in a moment, but first, let me give you a few examples of how the landscape truly has changed.
Electronic prescriptions have been a huge win for pharmacies and for our customers. In fact, we expect approximately 60% of all prescriptions to be delivered electronically to CVS by the end of this year. But because fewer patients are dropping off for their prescriptions in the store, it's difficult for our pharmacy teams to know when our patients will be there for their medication. Adding even more complexity is the fact that 35% of our pharmacy transactions are now made through the drive-through windows. So it's often just a matter of moments before our patients are at the pharmacy after leaving the physician's office, requiring added resources to handle the increased drive through traffic.
Another shift is our pharmacists are being asked to deliver more clinical benefits beyond just dispensing medication. As mentioned a few moments ago, we will provide 72 million customer interventions this year. The advent of pharmacy flu shots has been another big change in the landscape. Our over 18,000 immunization-certified pharmacists will give over 3 million flu shots this year alone.
The latest shift is the government push for improved star ratings as part of their Medicare programs. All of these shifts in the pharmacy landscape have been very good for us and they've been very good for our customers. As we spend more time on these efforts, we need to ensure that they don't put a strain on the efficiency and service delivered to our customers. And that's where WeCARE comes into play. There are 3 primary objectives of WeCARE: to implement enhancements through our pharmacy model to improve our service, to improve clinical outcomes, and to grow scripts.
So what are we doing to deliver on these objectives? First, we modified our powerful RxConnect system to address the landscape changes. WeCARE integrates all prescriptions in to one workflow to efficiently manage, whether they are faxed, e-prescribed or dropped off. WeCARE also integrates our patient care intervention programs directly into our pharmacy workflow.
It also clearly defines the role of each member of our pharmacy team. The biggest changes are related to the drive-through and drop-off in light of the growth in e-prescriptions. Most of our stores will have this new workflow in place by the end of this year, with a few stores moving in it to 2013.
WeCARE was extensively tested for 2 years, and the results are very encouraging. The biggest benefit is enhanced service. We have significantly reduced, by greater than 50%, instances of patients coming into the pharmacy for scripts that weren't ready when they expected them to be ready, a problem created by e-prescribing. Another big benefit is the system flags every prescription that belongs to a customer, not just the current prescription, to ensure that the customer departs the store with their needs met.
The system has also been optimized on many differentiated services, such as Pharmacy Advisor and our patient care programs. The system allows our teams to better prioritize the most important work and achieve optimal outcomes, resulting in a 5% increase in our customer outreach. We have also reduced the time it takes to fill prescriptions by approximately 6%, allowing our teams more time to invest in patient care. This WeCARE workflow is certainly more efficient, and it will also provide our customers with a better customer experience. We have leveraged this rollout to train our pharmacy teams on the behaviors that our customers will notice and appreciate.
In summary, WeCARE will be a big win on many fronts: an improved customer experience; improved store efficiency and will ultimately drive an improvement in our market share.
I will now focus on several initiatives that are differentiating the front store. Let's get started with personalization, which is a big part of our retail growth strategy. Personalization will allow us to address the consumer shift away for mass media options such as newspaper and TV. We will continue to reduce our spending on less productive mass media options and shift our funding toward highly productive, personalized spending. Our goal is to personalize all aspects of our business to meet the needs of our customers. Personalization plays across our business in many ways. Every initiative in the company plays a role on helping us connect directly to individual customers, from our patient care programs to our specialty programs, to our digital approach, to our store clustering initiative, to our myCustomerService initiative, we are focused on differentiating through personalization.
The central driving component of our personalization effort is ExtraCare. We have been building, refining and perfecting our industry-leading ExtraCare program for over 15 years. As a result, we have set a standard for the industry. Now with over 275 million cards issued, our loyalty program is 6x the size of our next closest pharmacy competitor. We have been successful not only in building our base of now 70 million active cardholders, but we have leveraged the insights to support our customers. The program is so pervasive that over 68% of our front store transactions are now with the card, and 84% of our total front store sales use ExtraCare.
We have a number of initiatives in place to take ExtraCare into the future. The first is to build our digital circular toward a personalized circular. Our customers will be able to log into their ExtraCare site and obtain product or category deals that are tailored directly for them. As we move forward into the next year, we will be building on the strength of our Beauty Club. We rolled out the Beauty Club nationally in 2011, and we now have more than 14 million members. We have aggressive plans to build on this Beauty Club strength in 2013 and beyond.
We will also introduce an industry-leading pharmacy and health care program that will build pharmacy loyalty. The program is intended to provide positive reinforcement to customers on an individual basis for refilling their prescriptions. It is another way to encourage them to stay adherent to the prescribed medications. We are focused on driving usage of our ExtraCare coupon center, as customers who use our coupon center purchase 10% more than similar card member who does not use the coupon center. Today, only 12% of the customers leverage the coupon center when they enter the store. Our goal is to at least double that penetration by the end of next year, and move towards 50% over time. The objective is to provide our customers with more value that will encourage them to shop more broadly across the store.
The newest tool that leverages the power of ExtraCare is a program that we call Conversion. The program converts customers to become broader category users within the store. Let me spend a few moments explaining the program and how it will help drive growth. Our customers tend to shop a limited number of categories within the store. This chart just shows a few of those examples. Our cosmetic shoppers purchase facial care only 38% of the time over the course of the year. Our pain relief customers purchase hair care products only 42% of the time. And our oral care customers purchase vitamins only 36% of the time, over the course of 12 months. The simple math would indicate that we can add $7 billion in sales by encouraging our customers to shop across all categories. This 100% goal is certainly not practical, but it does show the magnitude of the sales opportunity for us. We're working to implement tools that would allow each of our buying teams to build strategies that encourage existing shoppers to shop their categories.
It starts with the customer insights that ExtraCare provides us. We use those insights to help us define the barriers to purchase by category. We then create plans to reduce barriers leveraging ExtraCare, pricing, assortment, location and service. The result is an action plan by business category, that will unlock the sales potential inherent within creating whole store customers. This conversion initiative will be a powerful sales driving program for us starting in 2013.
I'll shift now to a discussion of our myCVS clustering initiative. This initiative focuses on the store designs that perfectly match the needs of customers within each type of trade area. We use the power of our customer insights to influence the customer touch points for each store, from the product, to the pricing, to the store environment, to the service. We have defined 8 unique clusters to match our customer base, and we are organizing to capitalize on this cluster opportunity. The 8 clusters were defined based on an in-depth assessment of our current store base, our sales results and a detailed consumer research study. We will execute these clusters through our existing asset programs. We will integrate quick wins into our planograms. The clustered learning will also be leveraged when we remodel stores and when we build new stores. We are designing a new store prototype that will be fully-oriented toward each of these clusters.
We had a head start on this clustering effort with a first cluster that was oriented towards the high-density front store-heavy segments. This first cluster is what we have called our Urban effort that began rolling out in 2011. This cluster is designed as a general store for dense trade areas with limited competition. The concept is focused on the expansion of grocery, fresh foods and faster checkouts. We have 450 of these Urban Cluster stores, and our recent cluster assessment indicate that we have another 85 Urban stores that can be rolled out in 2013. These stores continue to perform well for us, with sales up 9% -- 8% and margins up 9% over their pre-urban results.
So what's next? We will begin expanding myCVS clustering in 2013. Our next big cluster will be suburban focused, featuring enhanced pharmacy and an elevated, health and beauty assortment. We will roll out this new suburban cluster through remodels and as part of our new store program.
We will also begin testing new clusters that can be rolled out starting in 2014. Many of these clusters will be integrated into our new store program, and into all future planogram efforts. The myCVS clustering effort will be a powerful growth driver for us, both in the front store and in the pharmacy.
A good example of how we are leveraging the cluster learning within our planogram efforts is our health care reset program. Our suburban cluster studies have shown that vitamins are a very important category to our suburban customers. As a result, the reset will move highly productive vitamins to the aisle versus low productivity magazines and "as seen on TV" products. The reset features wider aisles and aisle breaks to allow easy access to the full vitamin assortment. This simple low-cost reset is driving a double-digit increase in vitamins sales and a 3% to 5% increase in the entire health quadrant. Our plan is to roll out 600 of these units in 2013. This is just one of many examples of our customer insights in integrating those learnings into quick-run planogram changes that drive results.
Let's now move to another front store sales initiative, store brands. They represent 17% of our front store sales and 26% of our front store growth over the last 4 years. They've also been a big margin driver for us as their margin is, on average, 2x the size of our national brand margin. As you can see, our leading in store brand category is health care, with a 35% share. There's opportunity for growth, clearly, in the other areas of the store.
We have an aggressive game plan for growing our store brands across the store, with a goal of moving from the current 17% penetration towards a goal of well over 20%. We are building our open organization capability to deliver upon this goal. We are defining our white space and the plans to fill that white space, focusing on our existing brands as well as developing new differentiated brands.
In 2013, we are redefining our Gold Emblem consumable brand. The brand has been rebuilt to provide improved taste appeal and a new contemporary packaging design. We will update the packaging in all 260 of our SKUs, and we'll improve the product quality in 25% of those SKUs based on taste and quality test assessments. The brand will be relaunched in stores in January, just in time for the Super Bowl.
We also had some news to share about the launch of our Total Home brand. This brand will consolidate many different home brands, and at 150 SKUs into one cohesive quality brand story, covering a broad range of home products. We are very bullish on this brand, and you will start seeing it in the beginning of 2013, setting up a formal launch in May of next year. So we do have a strong game plan for growing our store brands.
Now the third pillar of our growth strategy, growing our store base and building a culture of growth through the initiative that we call Stores Own Sales. We are enhancing access through our new stores. As we have grown substantially over the years, we have both a powerful national footprint that reaches 5 million customers per day across 44 states. This map shows our historic top market share by DMA, with red being our highest market share DMAs; in gray, our lowest market share DMAs. You can see that we have higher store share in the East and on the West Coasts. You can also see that we have plenty of growth potential, particularly, in the middle of the country. We have made progress entering new markets. We've introduced our brand name to 14 new markets since 2009, as shown here in blue. These new markets such as Puerto Rico, St. Louis, Omaha and Tulsa, have been very successful versus our pro forma expectations. We will continue to improve our presence by consistently adding 2% to 3% square footage growth with a focus on filling our top markets and expanding into new markets.
We are also building a culture of growth through an initiative that we call Stores Own Sales. The initiative empowers our store teams to own and drive their sales results. We're driving sales by making the stores the center of our universe because they are the closest to our customers. We listen, we respond, and we provide the tools -- with the best-practice tools that they need to drive results. We have clearly defined the priorities for our stores with a focus on helping customers on their path to better health. Every store has a growth scorecard and a menu of best practices for delivering a great scorecard. We have structured our field team to coach our pharmacy field leaders to drive growth. We have also rolled out recognition program to ensure that our teams are inspired to deliver results. The benefit of Stores Own Sales is our store teams are focused and motivated to deliver consistent long-term growth.
I'll now speak, for a few moments, about enterprise initiatives that are helping us to drive growth: Pharmacy Advisor and integrated digital. I'll focus first on Pharmacy Advisor. Working in coordination with managed health care programs, Pharmacy Advisor improves adherence and reduces gaps in care through face-to-face interventions. The store teams are highly engaged around this pharmacy-based approach to condition management. The reason Pharmacy Advisor is such a powerful differentiator for our company is because it delivers results. A few minutes ago, I showed you that CVS/pharmacy is far exceeding other retailers on measures of medication adherence. Pharmacy Advisor builds off our existing capabilities to improve adherence by providing a full 4% improvement in the number of patients who are optimally adherent compared to those not enrolled in the program.
However, one of the hardest problems to solve related to the underuse of prescription medication, is that patient who is not on therapy at all. Sometimes, this is because the doctor has not filled -- has never prescribed a medication for the patient. Other times, the prescription was written and it was never filled. What you see in the graph on the right side of the page is that members enrolled in Pharmacy Advisor show a 17% decrease in gaps relative to one -- not enrolled in the program. When our pharmacy teams work to make sure a diabetic patient is on the right medication and stays on that medication, they are reducing the cost of care for the average patient by $3,700 per year. As you can see on this slide, patient feedback to Pharmacy Advisor was overwhelmingly positive, particularly in response to questions around how consultation with pharmacists have impacted the way patients managed their medication. The program is clearly benefiting the patient and helping to improve adherence.
As we look into 2013, we will continue to make significant investments in expanding Pharmacy Advisor along 3 key dimensions: first, as Jon already noted, we will be expanding the scope and reach of our program by extending Pharmacy Advisor to include 5 more disease areas in the first quarter of 2013. Second, we will be expanding the eligibility for Pharmacy Advisor through a broader set of customers, to include client serving patients enrolled in Medicare, where Star ratings and other quality-based measures for our patients will be critical differentiator for our enterprise. Finally, we will be deploying new capabilities to increase the value and impact of Pharmacy Advisor for members using our retail pharmacies, including delivery of new types of clinical messages to members at the pharmacy counter. Our success in pharmacy goes beyond dispensing medications. It will be defined by how influential our people have become in shifting behaviors in ways that improve health outcomes for our patients and lower the cost of care.
Let's now shift to digital, which is transforming healthcare at an accelerating pace. Our enterprise digital program is designed to optimize these important assets, and it is driven by 3 priorities: first, digital helps us to create a more personalized consumer experience, including building stronger relationships with our pharmacists and other Caremark professionals. Second, digital is helping consumers with information about their health care prescription benefits. We're empowered with this knowledge that can take advantage of the lower-cost channels like mail order and lower-cost products like generics. Third, we're driving enterprise value by providing an integrated and connected digital experience. A CVS/pharmacy customer who uses digital to manage their prescriptions delivers 5x greater margin to our company than the average CVS/pharmacy customer.
In short, we are designing the enhanced integrated user experience where our customer is at the center and they are in control. So let's meet Beth. We're enhancing our digital offerings with her in mind.
Mark S. Cosby
So we believe this experience is what Beth and people like her need to navigate health care. And it is something that only CVS Caremark can deliver for a fully-integrated pharmacy experience.
Let me conclude my time by saying that we are reinventing pharmacy to drive consistent growth. Our Retail business is strong, and we are outperforming our peers. We have a differentiated retail growth strategy to help our customers on their path to better health, and to take our results to an even higher level. We will be the best-in-class retailer. The integration with Caremark and MinuteClinic differentiates us and creates true customer loyalty. We have the strategy. We have the initiatives and the team to drive consistent long-term growth.
And with that, I'd like to thank you and turn it over to my partner and colleague, Andy.
Andrew J. Sussman
Thanks, Mark. Good morning, everybody, and happy holidays. This morning, I'll begin with a brief business update and then, outline our plans for core growth, and clinic locations, and scope of services. I will, then, focus on our initiatives that leverage unique enterprise assets, supporting exciting care delivery innovations and opportunities to transform primary care.
Let's turn to the business update. MinuteClinic is the largest and fastest-growing retail clinic chain in the country. Our walk-in clinics in 25 states offer convenient, cost-effective care, 7 days a week without an appointment. About half of our patients are seen on evenings and weekends when physician offices are closed, and the only options are costly emergency rooms or urgent care centers. MinuteClinic providers have now cared for over 14 million patients, and over 8 million patients in the last 3 years alone. Our 2,000 nurse practitioners and physician assistants care for patients with both acute and chronic medical problems.
Now we support the medical home concept, but more than 50% of our patients do not have a primary care physician and are medically homeless. This number is likely to increase as the primary care physician shortage worsens, and is a contributing factor to our growth.
Speaking of growth, revenue growth at MinuteClinic continues to be robust. I am pleased to report that despite a mild flu season in Q1, our 2012 stand-alone MinuteClinic revenue will be in the high end of the range we projected, between $185 million and $190 million. Our compound annual growth rate for revenue for the past 6 years is 39%. For next year, we expect revenue from MinuteClinic operations to be at least $225 million, up more than 20% from 2012.
Another driver of our growth is expansion, and we have added over 200 clinics in the past 2 years, 171 on a net basis. In 2012, we added new clinics to 2/3 of our markets and opened 5 new markets. We now have almost twice as many in-store clinics as our next largest competitor. By year end, we will operate 640 total clinics, 98% of which are open year-round.
In addition to clinic growth, we continue to add new services. Non-acute non-flu vaccination services tend to be less seasonal than our acute care. This segment now makes up 16% of our total visits. These services include physical exams, chronic disease monitoring, immunizations and wellness. They help us to broaden our patient base and enhance our collaborative role with primary care physicians. Over the last 3 years, our non-acute services have grown at a compound annual growth rate of 41%, a reflection of our high-quality care.
How are we doing on quality? Well, in 2012, MinuteClinic was reaccredited by the Joint Commission, the national certifying body for health care organizations, meeting rigorous standards for quality and safety. Our Net Promoter Score is 81, a measure of recommendation to family and friends. This score is on a level with the most respected brands, such as Amazon and Apple, and higher than other health care providers. Excellent quality and patient satisfaction has helped us to grow brand awareness, which has increased by nearly 50% since 2009. MinuteClinic is now a recognized brand by over 2/3 of consumers in our markets, and is the clear brand leader in our industry.
As we look to the future in an era of health care reform, we see enormous opportunities for core growth of our clinic sites and scope of services. Why is MinuteClinic so well positioned for growth? Well, the primary care physician shortage is likely to reach at least 50,000 doctors by 2020. Training of new physicians is a decade-long process with no major increase in sight. An epidemic of obesity and chronic disease, as well as an aging population, all compound the problem. A year from now, 30 million patients will begin to obtain coverage as part of health care reform.
Now Massachusetts has already implemented some of these reforms. Despite having the highest number of primary care physicians per capita, wait times for primary care physician appointments continue to rise. Massachusetts is one of our fastest-growing MinuteClinic states. In fact, recent cost-containment legislation in Massachusetts recognizes our valuable role in providing access and expands our scope of services.
Insurance coverage is a key business driver for MinuteClinic. We added 8 million covered lives in 2012, and now accept 250 different commercial and governmental health plans. Our business began on an all-cash basis. But since 2007, we have seen more than a 70% increase in patients using their insurance, now covering 85% of visits.
Now for the remaining uninsured and the growing number of patients with high deductible health plans, our low and transparent 2-digit prices promote access to affordable care solutions. For example, this spring, we performed camp physicals at MinuteClinic for just $49. That's a price point in American health care that usually only applies to parking. Does MinuteClinic lower costs? Well, a 2009 ran study based almost exclusively on MinuteClinic found our costs as being 40% to 80% less expensive than alternative sites of care and equal in quality.
This slide represents a recent study accepted for publication this spring of CVS Caremark employees, comparing MinuteClinic users to nonusers. The groups are matched on over 500 demographic, health status and care-seeking characteristics. Utilization of physician visits, emergency department visits and hospital care were all significantly lower for MinuteClinic patients. Adjusted total cost of care for MinuteClinic users were 8% lower than for nonusers. This is an important savings opportunity as MinuteClinic expands.
Regarding expansion, last year, we described a plan to grow to over 1,000 clinics by 2016 by opening 100 clinics per year, as indicated by the red bars. Today, I am pleased to announce our intention to accelerate that expansion plan to 150 new MinuteClinic locations in 2013. And this is part of our larger plan to grow to more than 1,500 MinuteClinics by 2017, indicated in blue. We will continue to enter new markets and intend to expand to more than 35 states by 2017. For example, we're entering Hawaii and Louisiana next year. We will be filling in much of the CVS retail map and establishing ourselves as a truly national primary care provider.
What about scope of services? Well, we'll also expand our scope in areas such as chronic disease care, wellness, convenient point of care testing and injection therapies. We're developing clinical visits that can help to prevent costly hospital readmissions. We're planning services that screen newly-insured patients for risk factors and health status, and can help to improve quality metrics such as Medicare Star scores.
Now let me turn to our unique enterprise initiatives that seek to leverage our clinical capabilities across a variety of settings. As my colleagues described, we think of these initiatives as having 3 fundamental characteristics: driving greater health care value, serving customers in new ways and optimizing our enterprise assets. Transforming primary care will encompass all of these. One of its key components is creating value by collaborating closely with Caremark clients and members to efficiently meet a range of their health care needs.
For example, as Jon mentioned, we have launched a reduced co-pay pilot where clients can change their benefits structure to offer a reduced or 0 co-pay at MinuteClinic, in order to lower overall health care costs and encourage new patients to try MinuteClinic. We also have biometric screening programs, wellness programs for weight loss and smoking cessation, as well as on-site clinics for clients. We expect these valuable programs to grow significantly over the next 5 years, as the need for low-cost accessible care intensifies.
Among our top 100 clients, 42% of members live within 10 miles of our clinics. We are committed to broadening our reach with targeted expansion and by 2017, expect to increase the number within 10 miles of the clinic to 2/3 of all Caremark members. This will strengthen our ability to support both regional and national client accounts, and prepare us to care for the millions of Caremark patients from coast to coast.
The second component of transforming primary care is expanding our affiliations with major health systems, creating opportunities for a variety of collaborative programs. MinuteClinic is rapidly forming strategic clinical affiliations with some of the largest and most prominent health care systems in the country. The relationships are based on health system physicians serving as MinuteClinic medical directors, collaborating with our providers and include integration of electronic information systems and development of joint clinical programs. In 2012, we added 8 new health systems, bringing the total to 22, which include more than 130 hospitals and nearly 60,000 physicians. These relationships set the groundwork for participation in accountable care organizations and other integrated networks of care.
The final component of our strategy will rely on increased connectivity between patients, providers and payers to form a vital central nervous system for all of our integrated clinical initiatives. Increasing connectivity with electronic records, digital technology and MinuteClinic kiosks is a critical way to improve quality and reduce wasteful duplication.
This graphic reviews the sequence of care. First, the patient registers at one of our efficient self-service kiosks, answering a set of the health status questions. Then, our nurse practitioner evaluates the patient for a sore throat, but also accesses their medical record from a local collaborating health system. She learns the patient is allergic to penicillin, which affects her antibiotic choice and needs a blood pressure check for their hypertension. After providing this care, the MinuteClinic record is sent directly into the health system electronic record for physician continuity and follow-up. This collaboration allows for a broader, virtual medical neighborhood enabled by use of clinical information systems and agreed upon medical practice guidelines at our low-cost walk-in clinics.
Another innovation we are just beginning to explore is telemedicine. This capability will allow for remote patient care and workload balancing among our providers. It will also facilitate direct physician consultation by telemedicine, promoting even greater expansion of our scope of services. Imagine a hospital dermatologist looking at a MinuteClinic patient's rash from 30 miles away, and saving a costly visit to the hospital. Telemedicine kiosk booths can provide a mechanism for convenient care in CVS/pharmacies and Caremark client locations that do not have a full-service clinic.
Ultimately, we may make some of our services available to patients at home and on secure mobile devices. Imagine a handheld MinuteClinic. We believe innovative use of advanced technologies such as telemedicine, combined with our low-cost model of care, will allow us to achieve truly transformative pricing while enhancing quality and access.
What does the MinuteClinic system of care look like in 2017? Well, we anticipate a wide array of capabilities, with 1,500 MinuteClinic locations and a variety of telemedicine resources. In this environment, MinuteClinic will play an ever greater role in both acute and preventative care. Programs for Caremark clients will extend beyond traditional PBM services, adding valuable clinical capabilities such as checking the patient's biometric measures or coaching a patient on weight loss. These will all be linked by a unified electronic medical record that integrates with local health care organizations and payers, creating a connected health care system.
What does all of this add up to? Well, in summary, MinuteClinic is well positioned for robust growth. We executed and delivered our plan for 2012, and are the clear market leader in our industry, expanding clinics, services, covered lives and our brand. Our Caremark client programs are growing and health system collaborations extend across the country, engaging patients and providers in new and cost-effective models of care. And we have set up a 5-year growth plan that aligns with our nation's needs in an era of reform. It will make us a vital and well positioned innovator, working to transform primary care with a focus on quality, access and cost, while helping millions of our patients on their path to better health.
It's now my pleasure to turn it over to our Chief Medical Officer, Dr. Troy Brennan.
Troyen A. Brennan
Thank you, Andy, and good morning. You've heard a good deal from my colleagues today about our performance in the individual businesses. Now we would like to describe for you how it all comes together in a rapidly changing health care environment.
We at CVS aim to provide solutions. Larry Merlo set forth the major challenges we face with regard to the nation's health. New lives are being insured, our population is aging rapidly, chronic disease is growing in prevalence and resources are limited. These problems demand health care value, getting more quality for less. That is just what better pharmacy care is all about.
As reform occurs, alternative ways to organize health care delivery are developing with providers assuming more risk for population health. We are ready for this. In fact, we believe our programs work even better in a reformed system where we serve new customers to improve quality and reduce costs.
Finally, we've talked in some detail about the transition to tech-driven delivery, where informed consumers are going to make more sophisticated decisions. Our unique enterprise assets can help provide answers that our competitors cannot. So let's turn to the ways we create health care value. My colleagues have all given examples, now we just like to make the value statement more explicit.
One of the great health care success stories in the last 30 years has been in the development Medicaid to treat various physiological processes underlying chronic diseases. Statin medications are a great example, treating the high cholesterol levels, which previously have caused so much heart disease. As these medications become more widely available and as they've gone off patent to become less expensive generic medications, their value proposition has grown.
This graph, which was published last month by a group of leading health economists, shows that the cost benefit ratio for statins is much greater than previously thought. In fact, based on the statins alone, producing nearly $1 trillion in social value in the past 2 decades, with much greater value in the coming decade. This is why generic medications for chronic disease had a foundation for our health care value statement.
Over the last 3 years, we've developed empirical estimates of how much good pharmacy care can lower health care costs, an analysis that's now crystallized in what we call the Pharmacy Care Economic Model. The underlying theory is very simple, a patient who takes her statin medications will avoid a heart attack and all the cost of the hospitalizations and doctor visits that accompany that poor outcome. It's a straightforward concept, but the numbers that the model produces are really quite striking.
Consider 100,000 Medicare patients. Their total cost of care for a year would be approximately $1.1 billion. Our better pharmacy care involves 3 steps. First, we optimize medications, we make sure that people are on generic medications when they're available and clinically appropriate, that saves $36 million. Second, we closed gaps in care, signaling providers when patients are not taking the medications that they should, $11 million saved. Third, we make sure patients take the medications they've been prescribed, improving adherence and saving another $198 million. This total is just a bit less than $0.25 billion, over 22% of total costs. No other set of care management interventions comes close to this kind of savings.
These estimates are important, however, only if we can successfully move people to be more adherent and to take the most cost-effective medications, and if we can get doctors to prescribe the right medications. We believe we can do so through our Pharmacy Advisor program, with which both Jon and Mark have referred to. The combination of pharmacy benefit management and Retail Pharmacy counseling provides a powerful boost to adherence and closing gaps.
Consider this graph from our original pilot of the Pharmacy Advisor program for diabetes. The red bar show the control population and the sadly well-documented deterioration in adherence over time. In this example, an 18-month period. We intervened on a matched group of patients. They behaved just like the control group in the 6 months before the intervention began. Once the intervention begins at month 7 without reaching both call centers and the local CVS pharmacists, adherence improves dramatically. This Pharmacy Advisor program, available in January for 10 diagnoses, is the best adherence program currently available as our publications document. And only we can do it either freestanding PBMs, nor retailers can coordinate care like this. But once we stop the intervention, the patient's regress to the baseline. This reiterates the point that improving pharmacy care is a 24/7 endeavor.
In this latter insight, the improving patient health is a continuous effort that motivates our next generation of pharmacy care programs. As one leading expert has recently pointed out, the average patient spends 3 to 4 hours per year with his or her doctor, but he's awake another 5,000 hours per year. We have to be available to help patients continuously, and we're developing new programs and technologies that work during this other 5,000 hours.
In addition to the more thorough Retail Pharmacy counseling, we're experimenting with smart pillboxes that signal patients when to take their medications, with new types of financial incentives based on the most recent thinking in behavioral economics and by identifying patient buddies who can help us help the patient remain adherent. And finally, by outreach through social media and signaling to smartphones among other things.
We're also trying to get smarter by where we intervene and how we intervene. The challenge is designing really cost-effective adherence programs is to identify early those who will not be inherent, and work with them on the terms they prefer. In particular, we need to identify using predictive analytics the 50% of patients who are going to need adherence interventions. As well, we should be able to predict what type of intervention will work best with each one. Some might do well with a text message, others will do best with a set of creative financial incentives. Again, this is an area of active research for us. We are piloting new advanced predictive analytics at the same time we are testing various intervention types.
Our pharmacy care intervention program is fueled by insights from our research partnerships with Harvard, University of Pennsylvania and Brown. We published over 30 papers in the best medical journals in the last 3 years. We believe that this represents the largest industry-funded research program in health care services. Our commitment to publication provides transparency on our results. This means our clients can know that our claims are supported by peer review process, which distinguishes us from other PBMs and retailers.
The work on health care value is going to be put to a real test in a changing health care environment, where we're going to be called upon to serve customers in new ways. As Larry has discussed with impetus from the Affordable Care Act, the government and payors are expecting more health care value from providers. They're moving away from the fee-for-service system, in which providers are paid for doing more procedures and moving towards payment for cost-effective health care management.
You can see from this graph, published in Health Affairs this fall, that providers are hearing the message. Nearly 20% of them expect to go off a fee-for-service payment in the next year. Instead, they expect to be paid for performance on quality measures or paid a per capita fee for the management of patients. This movement has been anticipated in Massachusetts, the first state to go through reform where all the major insurers or now turning the global capitation payment. And where a recently enacted reform law explicitly states that fee-for-service payment must be abandoned. In effect, the government and other payors are transferring the economic risks of illness to providers. As this graph shows, fee-for-service leads the cost of illness with the payor. The higher the total cost, the better from the providers' financial viewpoint.
Moving toward payment for a bundle of care puts the provider at risk. The payment is the same for the bundle, no matter what the provider does. Capitation carries this concept to the other end of the spectrum. Instead of being paid more for doing a procedure, the provider does better financially by being parsimonious with care, providing only that care which is necessary. In this arrangement, providers are suddenly much more interested in pharmacy care. They want patients to be on generic medications and they want to reap the savings associated with better adherence and closing gaps in care. In essence, they need programs and lower costs to improve quality.
To make this clear, reconsider the pharmacy care economic model from a capitated provider's point of view. They have just taken on full risk for a population of 100,000 Medicare beneficiaries. The at-risk providers will think in terms of the amount they are being paid on a per member per month basis. For this population, approximately $925 per member per month, which includes all pharmacy and medical care. If they spend less than this in medical cost each month for the average patient, then at the end of the year, they will make money; overspend, and they lose money.
Here's where pharmacy care comes in. We can show at-risk providers that by optimizing medications, they can save $30 PMPM. Closing gaps in care yields $9 PMPM. Optimal adherence really reduces health care costs, saving $165 per member per month. This total comes to more than $200 per member per month, the 22% we referred to previously. Importantly, our studies show this value is available almost immediately. There's little latency to the benefit. At-risk providers will be looking a lot of different mechanisms to control costs, but nowhere will they will find a better partner than in pharmacy.
Two new types of health care systems are developing under pressure from government and private payors, the patient-centered medical homes typically organized by a large insurer. The insurer encourages the aggregation of primary care providers and care managers into so-called homes where the patient has his or her care delivered. The idea is to move away from this aggregated specialty care toward PCP care, motivated by quality and cost base measures of performance.
The other type of delivery systems centers on the Accountable Care Organizations, usually a hospital or hospital chain with employed or closely contracted doctors. These ACOs take performance-based or global capitation risk from the insurer for a set of patients tied to the ACO through a primary care relationship. Some question how rapidly this change will come. We think rapidly. In 2008, there were more ACOs and few medical homes. Today, Blue Cross plans and other insurers have more than 24 million patients in medical homes. And just last week, Oliver Wyman estimated that there are 25 million patients being cared for by ACOs, with the federal government having moved at least 2.5 million Medicare beneficiaries into such arrangements.
Andy discussed some of the relationships we are developing with Accountable Care Organizations. Let me give you an example on how we are pivoting, to use Larry's term, to bring innovative pharmacy care to at-risk providers in primary care medical homes. In January, we become the pharmacy benefit manager for HMSA, the Hawaii Blue Cross Blue Shield program. HMSA has been carefully moving to an entirely PCMH-based system. Our Longs Drugs are highly regarded in Hawaii. Based on our PBM and Retail Pharmacy assets, we are moving forward to work with the medical home-based providers. We're going to be sending all of our adherence and gaps in care-based messaging through the health information network, that HMSA has designed for the medical homes. It in the medical homes, both doctors and case managers will be able to access our information and work with us to improve pharmacy care. As well, our Longs retail pharmacists will be reiterating the same messages to patients through the Pharmacy Advisor program. We also plan to carry out health promotion campaigns with HMSA in the Longs stores and have individual stores build relationships with local medical homes.
Finally, we're collaborating with HMSA in the patient-centered medical homes to open up 7 new MinuteClinics in Hawaii, first in Oahu, sited where they can best serve the at-risk population. The MinuteClinic's will be linked to the medical homes, as Andy adjusted, and will coordinate both acute and chronic care according to mutually agreed upon clinical protocols. All of these interventions will also be piped to the medical homes through the HMSA designed electronic health exchange called, Cozeva. This is the kind of collaboration we expect to reproduce throughout the country, taking advantage of the changes in financial incentives for providers and applying a greater connectivity that they will need to manage care. From our viewpoint, provider risk should turbocharge our efforts to ensure patients are getting and taking the right medications, and none of our competitors in the PBM space or retail world can match these programs.
Having described the ways better pharmacy care can contribute to health care value, and outlined the new pressures on providers to work with us to harvest that value, we can now show how our enterprise assets can be integrated into a new era of population health management. We start with the example of the typical Medicare patients, someone who is much more burdened by disease than most of us realize. The elderly patient with 3 comorbidities averages in 19 medications daily. Less than 50% of these patients are up-to-date on preventive clinical practices. And their care is complicated, they're seeing an average of 7 doctors across 4 practices each year. We believe that our assets can be an important complement to the provider team caring for the complex patient.
Consider this patient named Maria, who has diabetes, hyperlipidemia and rheumatoid arthritis. She faces all the problems with chronic disease we have previously discussed. She does not remember to refill her medications or take them when she has them at home. She is not sure which medications have recently been added to her regimen, and which she was supposed to have stopped. She does not always get the laboratory tests she needs, especially those that determine her medication dosing. She uses multiple pharmacies, adding to the confusion. And as is the case with most of us, Maria finds it very difficult to describe for each of her doctors any changes that the other doctors have made in her complicated therapy. Working closely with her providers, the CVS Caremark assets can be deployed to simplify and improve Maria's care.
We text Maria when she's due for a refill. Maria goes to CVS to pick up her prescriptions, getting the same co-pay as at a mail service pharmacy, the Maintenance Choice program Jon discussed. The pharmacist receives several alerts about Maria. He should prompt her on non-adherence with one of her medications, provide a referral for Enbrel counseling and remind her about the need for cholesterol testing. These are examples of the Pharmacy Advisor and specialty at CVS capabilities that Mark and Jon described.
Maria goes from the pharmacy counter to the MinuteClinic. She gets a cholesterol test, and the results return within 20 minutes. The nurse practitioner reviews these results and provides counseling on diet and self-care. Since the cholesterol levels are elevated, the nurse practitioner, following evidence-based guidelines, will be able to increase the statin dose, and Maria can pick up the new prescription 15 minutes later, following the types of clinical programs that Andy reviewed.
Taking advantage of our new connections through health information exchanges, CVS Caremark sends a complete record of all interactions to Maria's primary care providers electronic medical record including prescription changes, test results from MinuteClinic and details about the pharmacists counseling. The primary care provider is freed up to concentrate on Maria's more complicated problems and on other complicated patients. He sees CVS Caremark as his care partner in the virtual medical home and refers more patients to CVS Caremark. Maria, like any Medicare patient with complex chronic disease, wins with the CVS Caremark unique assets operating in unison on her behalf. She gets electronic refill reminders, as well as a variety of other adherence programs designed for her. She receives expert counseling from the pharmacist. She could take advantage of the convenience of MinuteClinic for testing and treatment. She enjoys integrated PBM Retail Pharmacy support, including for her specialty medications. And all of these is seamlessly integrated with Maria's providers. We are combining convenience with quality, thereby making Maria's care more affordable.
Maria's case well demonstrates our enterprise approach, but let's illustrate one more point using the format that Larry outlined in his presentation. In this case, partnering with health plans to improve quality for readmission prevention. In the hospital, care becomes ever more complex. The hospitalized Medicare patient is treated by an average of 27 different providers. Once discharged, fewer than 1/2 will see their primary care doctor within 21 days. As a result, 1 in 5 is readmitted. Most of these readmissions are avoidable and more than 1/2 are due to problems resulting from pharmacy.
These expensive and unnecessary readmissions are getting scrutiny they deserve. Hospitals and physicians who are now at risk for the cost of heavy hospitalization are just as motivated as insurers to prevent them. CVS Caremark assets will be used in a greater fashion to prevent readmission. Before discharge, we work with our insurer and ACO colleagues to evaluate readmission risk and the insurer alarming CVS pharmacist to provide the patients with medications before a discharge. For those patients at highest risk for readmission, we apply a Caremark pharmacist to the home within 48 hours of discharge. The pharmacist does a medication reconciliation, provides counseling with telephone follow-up thereafter. For those with medium risk, an appointment is scheduled at MinuteClinic within a week after discharge, again, to counsel and ensure the medications are correct. Those at lowest risk are referred back to the CVS retail pharmacist, who can address medication issues and refer back to the MinuteClinic or the primary care doctor as necessary. All of the details of these consultations are then sent back to the providers and the insurers electronically, again, emphasizing the importance of connectivity in the reformed higher-quality lower-cost health care system.
So in summary, our unique assets allow us to adapt rapidly to the changing health care marketplace. With the increasing focus on cost of care in a new environment, our prescription of better health care through innovative pharmacy care is timely and resonant. Finally, the expanded role of providers in population management will demand cohesion, connectivity and convenience, all of which we are prepared to deliver. Thank you very much. Now we'll have Larry for some final comments.
Larry J. Merlo
Well, thanks, Troy. And I'd also like to take a moment to thank all of today's presenters. I think they did a great job in framing up why we have the right assets, supported by the right people leading those assets to capitalize on the opportunities presented by this changing landscape.
So we're going to wrap up the presentations, actually, with where we started. We began this morning with these 3 takeaways from the meeting and we certainly hope that the time we spent this morning has further clarified our unique position in the marketplace, along with our ability to bring solutions to the challenges that we've talked about throughout the morning.
We also spent a fair amount of time outlining our growth framework, along with the key initiatives that we're pursuing to capitalize on our unique assets. And I do want to emphasize that as we look to the future, the lines between our businesses will blur. I think you saw some examples of that this morning and we'll migrate towards a more integrated view of our company. We provided those examples demonstrating how our integrated products and services benefit the CVS Caremark enterprise.
And finally, we expect the combination of our unique position in the marketplace, along with the initiatives we discussed, will lead to solid earnings growth, significant cash generation and we'll continue to deploy that cash to enhance shareholder value.
So let's open it up, again, for Q&A. I'm going to ask our presenters to join me up here to my left. And similar to last year, we'll be able to take questions from those that are out there on the webcast, so we'll work to weave those in. For those of you here in the audience, we've got, again, mics around the room. Please raise your hand, we will find you. And as we did earlier this morning, would you please state your name and company. So. one up here, Deb.
Deborah L. Weinswig - Citigroup Inc, Research Division
Deborah Weinswig from Citigroup. So if you think about everything that we heard today and the ability to leverage digital and drive efficiencies, why couldn't we see greater expense leverage in 2013?
Larry J. Merlo
Well, I think the challenge, Deb, that we're going to see in '13, maybe Dave can tag along to this as well, we're seeing top line compression as a result of generics. So I think, as we talked on the third quarter call, on the retail side, we're going to see generic compression of over 1,000 basis points. And that's reflected in our guidance in the first quarter as well.
Deborah L. Weinswig - Citigroup Inc, Research Division
Okay. And then in response to -- it sounds like there's an opportunity to drive greater traffic through your retail stores as you're doing more with MinuteClinic, et cetera, can you talk about, as you further look to do more with big data et cetera, how should we think about e-Commerce and further leveraging the card and everything you're doing in terms of this kind of more holistic approach as you go forward?
Larry J. Merlo
Yes, it's a great question, Deb. And I think there are a number of things that are underway. I know Mark showed the video that really speaks to how we think about that health customer in terms of consolidating, whether it's information, making things easier for them. And we don't do that today, quite frankly. You've got caremark.com, you've cvs.com and we believe there is a huge opportunity to bring those together to create a seamless view as patients order prescriptions through the web for pickup in store, for mail delivery, however they choose to make it easiest for them. I think some of those same principles can apply in the front store. Maybe I'll throw it over to Mark and talk about some of the things that I know has been discussed in the retail group.
Mark S. Cosby
Yes, so I think you heard a lot about what we're trying to do from a personalization perspective. It has a lot to do with ExtraCare program, but the integration with digital is a big component of it, as people start to shop in different ways and we have to be there for them. And the combination of ExtraCare and digital really is a perfect match in many ways. You've heard us talk a lot about the integration with the other pieces of the business from a digital world but both in the PBM, we're going to work to strengthen their interface. We have a lot going on in the Retail side, too, to make -- particularly around our mobile applications to make that easier to use, both in the pharmacy as well as in the front store. But the key is the integration that we get through the ExtraCare and the personalization that, that delivers.
Larry J. Merlo
Don, to your right, there.
Ricky Goldwasser - Morgan Stanley, Research Division
Ricky Goldwasser from Morgan Stanley. You spent today's discussion really focusing on how CVS is positioned for the new health care system. So if we tie it back to your long-term guidance, what type of volume benefit did you factor in, in your '14 and '15 long-term goals? And then also, when we think about Pharmacy Advisor, should we think about it as associated with direct revenue stream? Or should we think about it as an add value offering in sort of similar pricing levels?
Larry J. Merlo
I'll take the second part and then flip it over to Dave. I mean, as you think about Pharmacy Advisor, think about some of the points that Jon made about the fact that by the end of '13 we'll have Pharmacy Advisor for 10 conditions. So we are certainly going to be able to broaden the number of people that we touch. And the opportunity there comes in the form of revenue as people stay more adherent to their prescriptions, as well as close gaps in care.
David M. Denton
And then, I guess specifically related to Health Care Reform, clearly more lives into the healthcare system is a benefit to our enterprise. If you think about -- first comes access to coverage and access comes utilization. So the 30 million Americans are more having some access, utilization trends in broader pharmacies is going to accelerate. Our challenge through that period is to make sure that you deliver value and services to those customers so that they can come into one of our dispensing channels to drive value. Clearly, as we look forward for between '14, '15 and beyond, part of that tailwind is Health Care Reform. But I think as you heard from all the presenters today that much more than just Health Care Reform, there are many things that we're doing across all aspects of our business that we think will drive our value and drive shareholder value over the next several periods.
Mark S. Cosby
And then just to add, we're not viewing Pharmacy Advisor as a revenue stream. We're really viewing it as a way to provide value for our clients, win new clients, retain existing business, driving more volume across our enterprise.
Larry J. Merlo
I think one of the interesting points that should not be lost, I hope all of you saw the announcement by Congressional Budget Office within the last 2 weeks about the fact that for the first time, they have actually quantified the value of improving medication adherence and how that relates to lowering overall health care costs, and they did some work as it relates to the Medicare population and I think that's always been one of the challenges as our medication adherence story has been told in Washington. So we see that as a huge breakthrough and some of those metrics lined up very closely with what Troy just reviewed.
Peggy, over here.
Steven M. Hamill - Winslow Capital Management, LLC
Steve Hamill, Winslow Capital. I had a question about one of the slides in Per's presentation about your positioning versus traditional PBMs and captive health plan PBMs, specifically where the pie chart shows you advantaged in Medicaid individual/exchanges in ACOs. I'm not really sure I understand completely because in each of those cases, you'll have to partner with health plan presumably. And so what is your advantage versus the other 2 categories there?
Per G. H. Lofberg
Well first of all, I mean, I think Medicaid is a health plan partnership opportunity for us. So as various states move from fee-for-service Medicaid to managed Medicaid, it will be health plans who will be picking up those lives. And so we will serve that population as a PBM for those health plans. So that's sort of point #1. The thing which is interesting about the way managed Medicaid works today is that it allows for Retail networks that are far more limited than the full broad networks. So even though there's no real mail order opportunity in managed Medicaid, there is a significant opportunity for restricted networks, and that obviously is something that we can benefit from on an enterprise level. But it will be done through partnerships with health plans that actually serve those lives.
Larry J. Merlo
Mark R. Miller - William Blair & Company L.L.C., Research Division
Mark Miller from William Blair. Larry, I thought you presented very clearly the win-win outcomes with -- particularly Maintenance Choice and I was hoping you could disaggregate where the value is coming and the cost savings to the payor; relative importance of adherence savings; the higher penetration of 90-day fills taking work out of the system; and then third, your willingness to accept possibly a little bit lower gross profit per script and you're emphasizing or de-emphasizing the EBITDA per script. And then drilling in on the last point, when you highlight the benefit of higher volumes to offset the lower gross profit per script, do you see it being a bigger benefit to the enterprise in Retail share gains or on the PBM side?
Larry J. Merlo
Yes, Mark, you did a pretty good job of answering that question actually. But no, I think all of the attributes that you put into play there are all true to varying degrees, from the share shift that we see in Retail to the fact that we can leverage the Retail cost infrastructure that -- you've heard Dave say this many times, that we've got the fixed cost of pharmacist at Retail that, that next prescription that we fill becomes the more profitable one, and all of those things are absolutely correct. John?
John Heinbockel - Guggenheim Securities, LLC, Research Division
John Heinbockel, Guggenheim. So 2 things. I guess for Larry or Jon, when you look at MC 2.0, to what degree is that a stepping stone back to MC 1.0? And about 13 million lives in here, it looks like in '13 that are 1.0. Where could that be in 4, 5 years, order of magnitude?
Larry J. Merlo
Go ahead, Jon.
Jonathan C. Roberts
I think that's absolutely right and we do see this large number of clients that are willing to move right away to this mandatory design and we see a lot of interest in this 2.0 discussion, and we've actually already had some of the clients -- some clients when we started that discussion. So why don't I just go to Maintenance Choice 1.0 and take advantage of the greater savings? So I think it is a pathway. For clients about to stick with 2.0, they have an opportunity to put a greater share of their maintenance medications into the mail-order channel, over the Maintenance Choice channel, so that provides some savings as well. As far as what the upside, we believe it will grow to 30 million, 34 million and I think it'll clearly start more skewed towards 2.0 when you look at our client base, but I do think you'll see some more movement to the 1.0 as people gain experience and seeing that it's a very positive benefit for the members and saves everyone a lot of money.
Per G. H. Lofberg
The other thing that's worth to keep in mind is that most of our health plan book of business -- if you saw it on the pie chat, it roughly 1/2 of our -- 1/2 of our book of business. Those members have the mail-order option. So they can use mail-order pharmacy if they want to, and many times they have a co-pay advantage. All of those health plan customers will essentially become eligible for Maintenance Choice 2.0 and there's really no downside for them to accept that. I mean, they provide the same economics for the plan, it's same economics for the members and they just have more flexibility. They have more opportunity to take advantage of the lower co-pays associated with 90-day prescriptions by using CVS retail stores.
John Heinbockel - Guggenheim Securities, LLC, Research Division
All right, then just for Mark. On conversion, how do you execute that? How do you know why I'm not shopping a category, whether it's price or some other factor? And then you go address it. It seems like it's somewhat complex.
Mark S. Cosby
That's really the beauty of it because every category, every product has a different reason that it's being shopped in a particular way. So we give the data to the buying group and we give it to them in a way that it's usable to them and then they can dial down and determine, first, what is the conversion rate. And then second, they go through a series of questions around what's driving the barriers. And then once they've defined the barriers, then they can attack it with individual action plans based on the category. And every category has a different reason. Sometimes it's dominated by price, sometimes it's dominated by location, maybe it's even service in some cases. So it's a great way for our -- to teach our buyers to more effectively put a plan in place to change customer's behavior.
Larry J. Merlo
And John, I think the ultimate answer to that will be through trial and error to a large degree. I think that's one of the big advantages that we have in terms of being in the loyalty program for almost 15 years now. Lisa?
Lisa C. Gill - JP Morgan Chase & Co, Research Division
Lisa Gill, JPMorgan. I think you did a good job today showing the differentiated offering of the PBM. However, if I look at this year's selling season, it was not as robust as we've seen in the last couple of years. Jon or Per, can you maybe talk about what happened in the selling season and why you think it's going to look better next year? Would be my first question, and then my second question, as we look at moving towards Accountable Care Organizations, moving towards -- away from fee-for-service, do you think that PBMs are going to have to take some of level of risk, whether it's around adherence or other programs as we move forward in the new health care world?
Larry J. Merlo
Yes, Lisa, let me just comment on the selling season and I'll flip it over to Jon and Per. Because -- keep in mind that we did win $4.4 billion worth of gross new business and that's coming on the heels of, as Per outlined, more than $20 billion of new business over the last 3 years from Aetna to the UA acquisition and the wraparound of that to include the MAPD plan and so on and so on. So it was a strong selling season and in an environment where I think there was an awful lot of speculation that there was going to be a tremendous number of RFPs out in the marketplace and I think we saw our RFP activity increase about 7% year-over-year, and not a lot of large clients like FEP or some of the clients that we've experienced the last couple of years. So I think it's important to think about it in that context as well and I'll turn it over to Jon to maybe further elaborate, and then Per can take the risk question.
Jonathan C. Roberts
So I agree with Larry, Lisa, that when you look at the new clients that we won, it was very successful $4.4 billion. And our retention rate was 96%, so that's a couple of ticks below what we experienced last selling season at 98%. And then you couple that with what happened with the PDP. So even though when the PDP we're pretty even with lives, we're seeing less revenues because low-income subsidies spend a lot more than the choosers. But as I think about 2014, I think with everything that's going on in the marketplace, with all of the mergers and acquisitions and all the disruption that, that can potentially bring, I do believe, as we look at the 2014 selling season, I think we're going to see more clients going out and taking a look at what's available in the market. So I'm expecting an uptick in opportunities in '14. I think we're extremely well positioned from our economic size and scale, we talked about it earlier, combined with our differentiated offerings. And the fact that, as we're -- in the '14 selling season, we're actually viewed as the stable PBM provider in the marketplace.
Per G. H. Lofberg
So your question about risk, risk assumption around adherence programs and so on is sort of an interesting one. There's no question that there are going to be new opportunities for us to take risk and share risk and have -- participate in the upside associated with adherence programs. The Star ratings that several of us alluded to in the presentations, you can't really underemphasize how important that's becoming to health plans. So basically health plans that participate in the Medicare space, they will have to meet certain minimum Star ratings even to be eligible to have lives covered under Medicare. And then the higher their Star ratings are, then basically the bonus payments available to them from the government, that can essentially double the profit margin that they make as an HMO. So it's hugely important that they perform not just to qualify but also to earn profits as a Medicare health plan. So that has become really kind of a top topic of discussion and really high priority for the health plan customers. And we have a role to play there because the number of the metrics that will drive the Star ratings are specifically related to pharmacy care and to medication adherence. So obviously if we can deliver results there, that's hugely important to those customers and we have an opportunity to participate in that. And the better the results that we can deliver compared to others, the more of a competitive advantage it becomes.
Larry J. Merlo
I think I'm going to ask Mike McGuire who's been tracking questions coming in from the webcast.
Larry, we have a 2-part question for you from the web. First, how big do you guys think the MinuteClinic business can be ultimately? And next, how is MinuteClinic's relationship with doctors these days?
Larry J. Merlo
Okay, I'm going to ask Andy to take that. Before I do, I just want to emphasize the role that MinuteClinic plays. When you think about everything that we talked about today, okay, and the value of a life across the CVS Caremark enterprise, MinuteClinic, while it is certainly smaller in scale to our other businesses, it does play an important role, and I think Andy provided some great examples of that in his presentation. So.
Andrew J. Sussman
Yes, thank you for that question. And the way we think about it, if you think of the entire primary care universe, there about 500 million visits a year provided all providers. If you'd look at the area that's addressable for us and our future capabilities, it's about 1/2 that. So we'd say about 250 million visits. And today, we provide a little more than 1%. I think, over the next 5 years we'd anticipate to getting to 2% to 2.5%, so $400 million to $500 million in revenue. Of course, as I've described and my colleagues have described, there are benefits to the enterprise that go beyond just the revenues at MinuteClinic, MinuteClinic collects. And by the way, that would make us, at that point, one of the largest primary care providers in the United States. We're in an industry that still is quite unconsolidated, so steady growth, as I've described. On the other question, our relationship with physicians, I think I described the Health System relationships. Those are some of the largest and prominent health care systems in the country, places like the Cleveland Clinic and Emory Healthcare, new this year, UCLA. Many of these organizations are either led by physicians or physician groups. And I think it represents a very significant move towards a collaborative relationship which recognizes our ability to provide care on weekends and evenings and hopefully, keep patients that don't need to be in an emergency room out of an emergency room, also our ability to provide preventative care, help fill gaps on a variety of measures. Increasingly, these groups will be or are at risk in P4P arrangements and increasing risk sharing. So they're looking for opportunities to work with an appropriate provider at the right price point which allows providers to practice at the maximum ability of their license and provide a cost-effective care. And of course, all of that is dependent on sharing that information back with your medical home. And I talked -- my colleagues talked at length about our desire to be connected to these systems and the work we're doing in that direction so that, that care is all integrated into a patient's overall medical care.
Larry J. Merlo
Okay. Tom, right here, Don.
Thomas Gallucci - Lazard Capital Markets LLC, Research Division
Tom Gallucci from Lazard. My question really is around the integrated plan PBM and sort of the competitive landscape as it pertains to that type of amenity. I think one of your slides there and one of your slides, Per, suggested that you're fairly well-positioned. We've been hearing the integrated sales pitch, do everything under one roof for years, but obviously, it's got a little bit louder with what United is doing lately. So just curious how you sell against that. Can you integrate medical data? Does medical data even matter? And any other color you could add there.
Larry J. Merlo
Go ahead, Per.
Per G. H. Lofberg
So I think -- it's obviously a topic that's been on the table for many, many years. At one level, it makes a lot of sense to integrate pharmacy with medical care, because if you strictly focus on pharmacy and you do everything you can to sort of minimize the cost of pharmacy, you may basically do stuff that is sub-optimum for the long term. So at one level, I think there's a lot of logic to combining the 2. I think the kind of detention that has sort of really created the trend in the opposite direction are the economics. So if you have health plan, even if you have a couple of million lives, even 10 million lives, even 50 million lives, you're going to be subscale in terms of the economics of that ingredient cost and the pharmacy components and the network economics and so on. So over the past number of years, the trend has actually been in the opposite direction of carving out pharmacy for exactly that reason. It's been hard for the health plans to really be fully cost-competitive. So for us, really the goal is to try to provide sort of the hybrid by integrating with the health plans with respect to care management which makes a lot of sense while at the same time providing them with kind of a state-of-the-art economics. So that's going to be the kind of the competitive comparison I think over the years. But there's a lot of merit looking at the 2 components of health care in an integrated fashion.
Larry J. Merlo
Peggy, over here.
Keith Mills - Trillium Asset Management LLC
My name is Keith Mills from Trillium Asset Management. First for Andy, as you build and grow the MinuteClinic model, how do you manage over time or minimize the liability that you may face by providing care services as physicians do with malpractice insurance, for example? And the second is, your adherence in terms of the medication program seem to be moving down to a maximum of reminding patients that they need to fill their prescriptions. Will you get to the point where you'll move down to actually reminding them to take their medications via texts, as senior citizens are having cell phones, et cetera?
Andrew J. Sussman
Yes, we have a tremendous focus on quality of care at MinuteClinic. I mentioned being reaccredited by the Joint Commission, which is actually a very high standard on quality and safety, a one that many urgent cares and even other retail clinic chains have not achieved. And actually, all the national data on our model has shown excellent quality of care. Our EEDIT [ph] scores in states where they're publicly available are among the highest of provider groups. And we continue to have excellent outcomes. Our goal here is to expand routine care and I don't think you'll see us going deep. And no one's going to get an appendectomy in the back of the CVS unless we get more space. But no, don't take it seriously. I mean, we are broadening, but broadening on things that are relatively routine. And the other critical thing is that all the care we provide is on clinical practice guidelines that are evidence-based and we focus on evidence-based guidelines. If the patient should fall off our rigorous guidelines because they're complicated in some way, we send them on to a physician for their care. So our goal is not to sort out complicated cases. And as soon as they look complicated at all, we refer them to their -- to the physicians. All of our charts go into our electronic record, we have a chart review process that goes over those cases. It really focus in and make sure that we are following those evidence-based guidelines.
Larry J. Merlo
Maybe I'll ask Troy to take the second part of your question, Keith.
Troyen A. Brennan
Yes, I mean, making sure that people take the medications is the whole thing because that's where you're going to get the savings associated in here. It's not just the fact they got medications at home. So there's a variety of different devices that are available today that will give us information of whether or not the patient actually at least remove the medication from the pillbox at the appropriate time. We've got experiments that are going on, and actually they all start Q1 with 3 of those different types. And we're not sure which is going to be sort of best for us out there, so there's going to be a lot of experimentation. We're not getting to the point where we'll actually start making sure that it actually goes into somebody's mouth, but at least they take it out and we can see if they've taken it out of pillbox. We think it's in pretty good shape.
Larry J. Merlo
Scott Andrew Mushkin - Jefferies & Company, Inc., Research Division
Scott Mushkin of Jefferies again. So you guys put up a slide talking about how many employers are likely to drop coverage in '14 and those estimates have been all over the place. Been talking to a lot of the companies I cover and service in restaurants, inside retail. What if the number is quite a bit bigger than that 5% you put up there? How is the business set up? Are you satisfied with the partnerships you have with the health care plans? Do you need some more of those? Would you deploy some of your cash flow to make that happen?
Larry J. Merlo
Yes, I'll take the first part of that, then I'll ask my colleagues to jump in. But Scott, you're right, there are many, many different estimates out there. I just read an article the other day where it went the other way, where employers are going to take a wait-and-see approach. Obviously, as postelection, there's, I'll say, a renewed urgency in terms of getting the exchanges up and running. And we have many, many active discussions taking place, and maybe Andy and Troy can tag onto in terms of the dialogue that's taking place where can -- where we expect to be a participant in terms of supporting health plans in that regard.
Troyen A. Brennan
Yes, I'd say it goes to the point that, I think, both Per and Jon emphasized about the importance of sort of the health plan business overall. But we figure if there's a massive shift over into the exchange population, the limits that the government places on what the insurers can do in the exchange population probably stimulates even more risk going at the providers, and so that's why the provider differentiation strategy is so important. There was a question earlier about sort of how we compare the health plans with that. What they're going to be looking for is basically sort of care management techniques that really work, and we think we've got some things that are really sort of better than what's out there. So I'd say we're prepared for it. And in some ways, we're in a very good position to pivot one direction or pivot the other direction, as Larry puts it, in terms of dealing with these big shifts. And there are a lot of estimates out there from sort of 5% to about -- down about 35% of loss of the employer population.
Andrew J. Sussman
I'll just add to that, having a patient enrolled through an exchange and getting insurance coverage it sort of step one. But the immediate step 2 that we've certainly seen in Massachusetts was there weren't enough providers to take care of them so they can use that insurance and we feel like we can help to fill some of that gap which is really critical, and do it in a low-cost way. I mean, one experience in Massachusetts is that the low-cost premium products did well and I think that's going to be a tremendous focus on cost as part of this transition.
Jonathan C. Roberts
The only other thing I would add is that there's 2 ways that people are going to move into these exchanges. One is retirees which we're seeing some employers move their retirees into the open exchange and there it's primarily private exchanges and they can buy a freestanding PDP SilverScript product as an example. So we've been very successful this season with retirees that have moved through these private exchanges with our SilverScript product. And then the actives obviously are going to go into the exchanges that are going to be through the health plans that we already mentioned.
Larry J. Merlo
And, Scott, I think the important -- another important point around all of this, and you heard it a couple of times in the presentations is, as a result of our assets, we can communicate in many different ways. So obviously, there's tremendous interest among the health plans and our ability to communicate directly with the consumer, as well as the fact that we can communicate business-to-business as well and that is not lost on many as we're engaged in these conversations.
Scott Andrew Mushkin - Jefferies & Company, Inc., Research Division
I just wanted to follow up just quickly. If you look at your book of business, would you say it's away from lives that might be thrown off, in other words lower scale retail-focused types of companies, that's number one? And if it's that is true, does that give you -- if there is more, far more thrown on, would that give you a chance to increase covered lives next year in '14 more rapidly, then on a yield?
Per G. H. Lofberg
I think our employer book of business, I think, covers the full gamut really of sizes and industries and kind of benefit structures and so on. So I don't think there's any particular skew there. I do think that there's probably more likely that midsized and small employers will be kind of the ones that go first in terms of dropping health benefits for their actives. So we obviously, like everyone, who source that segment, we have the potential churn there. I do think we have a robust spectrum of health plan customers across the country, really pretty much everywhere across the country, that we will be able to be very active in trying to capture that churn, both from our own customers, as well as from other PBM competitors that have similar types of exposures. So that's really where the health plan partnerships in the future will become really, really important for us. But we're starting off, I think, with a very good spectrum of health plan partnerships to be part of that market churn.
Larry J. Merlo
We'll take 2 more questions. One way in the back.
John W. Ransom - Raymond James & Associates, Inc., Research Division
John Ransom, Raymond James. David, you and I are talking about this in the break and I thought it might be useful to reiterate these comments. When you look at the first month then with Walgreens trying to grab share back, could you contrast the experiences in your markets where you and Walgreens have relatively equivalent number of stores versus markets where you don't? And secondly, how does the share gain compare across high market share versus low market share markets?
David M. Denton
Yes, Scott. It's a great question and I think Scott was asking me about -- a little bit about at least 60% comment that we made. And I think it's important to kind of step back and look at -- not every market's created equal. There are markets which from a competitive standpoint we are at parity with Walgreens from a store location perspective. I think those markets will see a greater level of retention in those markets versus markets in which we might be disadvantaged where our store count isn't as full at this point in time compared to Walgreens. My sense in those markets, our share loss will be greater. And I think we'll see that play out over the course of 2013. I think the other thing that we touched upon that you maybe didn't specifically ask is that, as you look at retention, I'm not sure that retention will be equal across all players and all competitors within the marketplace. I think chain drug, if you had chosen a chain drug location, i.e. Walgreens and you go to another chain drugstore, I think the retention levels in those customers might be higher compared to if you were -- if you moved your prescriptions into either a food outlet or a mass outlet. That experience is just different, and some customers may like that and some customers may not. So I think retention levels across the channels might be different as well.
John W. Ransom - Raymond James & Associates, Inc., Research Division
Just one quick follow-up. All your Retail Business and the generics, clearly, one of the things that's changed is there's more reimbursement pressure today than there was 5 years ago, yet you guys -- the profit picture on the break open period looks very similar to what it looked like 5 years ago. So let's take like a Zocor in 2007 versus a Lipitor in 2012. Is it just that simple, that you've been able to drive your acquisition costs down faster than the reimbursable rates have fallen? And is there a point where that will no longer be the case? I'll stop there.
Larry J. Merlo
Jon, I'll take the first part of that. I mean, your premise is correct and we talked about that as one of our key differentiators, our scale and our ability to purchase as the largest provider of prescriptions across the country today. And that's why we've talked about the fact that we can maximize profitability with 3 players in the marketplace during that break open period. So Jon, if there's anything else you want to add to that from...
Jonathan C. Roberts
No, I mean, I think that's right.
Larry J. Merlo
Okay. Don, right behind you there.
Steven Valiquette - UBS Investment Bank, Research Division
It's Steve Valiquette from UBS. Hey, just a quick question here on the -- if you've covered this already, I apologize. But as far as the -- within the PBM, you showed the adjusted claims guidance kind of 1% to 2%, but then later on, you have that slide where you're showing the employers declining 15% and health plans growing 30% as far as the lives. Is there any just additional color just within 2013, specifically what's baked in there between those 2 metrics?
Per G. H. Lofberg
Well, I don't know if there's anything specific baked in there. I think what we have -- the way that we've created our outlook for 2013 as we've built up our projections kind of at a client level and so we work them up at a very detailed level to understand what their outlook is for next year. And what you're seeing is a movement in some of the different blocks of our business. So for example, we didn't qualify in 3 Medicare Part D regions, so we're losing about 220,000 low income subsidy members. Those members are very highly utilizing member. So while we're making them up in the number of lives, but our lives count from that perspective might be equal. The number of prescriptions is actually declining because of that. So I think what you're seeing in our guidance there is that churn of business as it moves across the different segments of the PBM book.
Larry J. Merlo
Okay, well, listen, first of all, thank you for your interest in our company. Thank you for your time this morning and I just want to wish you and your families a very happy and healthy holiday season. Thanks.
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