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Aetna, Inc. (NYSE:AET)

Citi 2013 Global Healthcare Conference

February 25, 2013 10:20 am ET

Executives

Shawn M. Guertin - Chief Financial Officer and Executive Vice President

Analysts

Carl R. McDonald - Citigroup Inc, Research Division

Shawn M. Guertin

Great. Thank you. Thank you, Carl. Good morning, everyone. As Carl mentioned, this is actually my first official day as CFO, and it occurred to me that my first IR act of scheduling a 7:30 a.m. breakfast meeting may not have endeared me right out of the chute with everybody. So I'll have to make a note of that going forward.

All right. I'm just going to start. If somebody -- I can't. The slides aren't advancing, so. Which way that got pointed at? Maybe over there. Okay.

At our Investor Day in December, we spent a lot of time talking about the strategy and how that strategy was going to position Aetna with a competitive advantage that, most importantly, would ultimately produce profitable growth. Today, I want to focus on the execution of that strategy because that is sort of the story for 2013 for the company, how that execution is producing some top-tier EPS growth in '13, and I'll also talk about how the proposed acquisition of Coventry later this year could actually accelerate that sort of leading EPS growth rate even further over the next few years.

So how will Aetna grow? We outlined these 6 key answers to that question. I think through the course of today, I'll probably circle through most of those in one fashion or another. But let me start off with diversification. Why do I think or why do we think diversification is important? Obviously, it gives us multiple avenues for growth. As you can see, and certainly current times are good example of this, the growth rates by product can kind of ebb and flow over time, and it's nice to have multiple avenues to get that growth from. But obviously, it's equally as important not to be overexposed in any one way to any single earnings stream. And again, sort of at the current timeframe in 2014 are probably no better example of the wisdom of that.

We tend, when we look at this slide, to talk about the things that worry people. And I think it's worth pointing out maybe what we're not worrying about because it's a pretty big number on this slide. If you look at the first 2, that is basically the Large Group Commercial business we have, both self-insured and insured, that's 68% of the EBITDA in 2012. If you go down to the last line and lift up the Group Insurance, another 7%, what that really says is 75% of our EBITDA in 2012 either has a stable reform outlook or has a limited exposure to reform. So I think that's a pretty key point to keep in mind as we talk about the other items on there.

You can see Medicare, which is certainly top of mind, is meaningful but certainly not an overweight position, at 15% of EBITDA. And as we think about 2014 and the exchanges and all of the other reform changes, you can see that our Individual and Small Group business is only 7% of the EBITDA, and within that, the Individual is only 1% of our EBITDA. So again, when thinking about that, Individual clearly is the one that has the most potential reform impact. You can see we have very, very small exposure from an EBITDA standpoint to that.

The good news is that this story really doesn't change post-Coventry. One of the many reasons why Coventry was attractive to us is that it didn't radically change this mix. If you do go through the same sort of metrics we went before, you can see what I'd characterized as stable or limited impact is now 70% of the total. Medicare moves up modestly from 15% to 18% and Small Group and Individual, the same from 7% to 9%, still a very manageable exposure. I would re-emphasize again that even after this combination, Individual is still only 1% of the pro forma EBITDA of the combined company.

So it's one thing to talk about how a diversified portfolio positions you for predictable growth, but at some point you have to walk that talk. And I think the good news is, starting in 2012, we have started to grow again and we see that growth potentially accelerating into 2013.

So let me turn a little bit -- let me turn to 2013 in particular now. You can see here, this is the guidance that we shared on the earnings call. At least $5.40, which would be at least 5% EPS growth. As that stands today, that would be the best in the group year-over-year and would be the best in the group over the last 3 years as well.

Cutting behind that, let's spend a little bit of time on the top line because you've got to grow your business for the long haul. You can see on this slide that starting in second quarter '12 -- 2012, we started to grow membership, and we're projecting that to continue in the first quarter and through the final quarter of 2013. But membership, as I often remind a lot of our sales folks, is only a means to an end. It needs to produce revenue. And you can see here that after a respectable revenue growth year in 2012 of 6%, we see that revenue growth accelerating to 9% in 2013. Fixed cost leverages, important in any business, but it's really important given the amount of fixed infrastructure in this business. And we shouldn't underestimate the value of growth and our ability to get that leverage on our expense base.

In terms of membership growth, the headline here is Medicare. But before I talk about Medicare, there's a couple of points I want to make on this particular slide. The first is you see the Commercial ASC, which is our self-funded business, is minus 75,000. But keep in mind that, that includes a minus 100,000 for the conversion of TRS from an ASC arrangement into a Medicare Advantage arrangement. So when you adjust for that, our ASC membership is actually up 25,000 on an underlying basis. And while that's a modest number, when you consider the fact that a year ago that that number order of magnitude was more like minus 500,000, that is a substantial turnaround. And that's a testament to our folks running the business each and every day. But it's also a testament to customers finding their way back to the total cost management philosophy that we have always espoused as opposed to just buying discounts or anything else.

The other point I would make on this is the Commercial Insured line, at minus 50,000. Sometimes growth scares people in this industry. But as you can see, while I'd never like to see membership go down, I do think that this is, again, some evidence of us sticking to our guns on taking margin over membership and being price-disciplined. And I think when you think about what's coming in 2014, and we'll talk more about that, I think it's really important to protect your margins going into any kind of period of uncertainty, and that is the tact that we have taken on the commercial risk business.

As I mentioned, Medicare is really the headline story, up 220,000 members. 175,000 of those are Medicare Advantage and 25,000 are Medicare pension. 150,000 of that 175,000 are Group Medicare Advantage members. The remaining 25,000 is Individual.

Aetna's book here, you see the 623,000 members in '13, would now be comprised of about 70% group Medicare Advantage business and about 30% Individual. The Coventry book, interestingly enough, is almost exclusively Individual. And so when you mix that in, we will be more like 50/50, very, very balanced, and I'm sure when we talk in Q&A about Medicare, we can talk a little bit about some of that dynamics around the Group business that are a bit different than the Individual.

I don't want to lose the Med Sup [Medicare Supplement] story here as well. You can see it's growing 45,000 members in the first quarter. This is being driven almost entirely by our acquisition of Genworth's Med Sup business in the fourth quarter of 2011. This rounded out, actually, their portfolio of senior offerings. So think diversification again, and it has probably grown in excess of 100,000 members since we acquired it. So I think not only is this a good organic growth story, this is a good example of smart capital deployment actually driving growth in the business over the long haul.

Like every year, the biggest driver of earnings in this business tends to be managing the trend yield spread on our Commercial Insured business. It is still, if you remember that chart, the biggest piece of our EBITDA. We have continued to approach this in a very prudent fashion. As I mentioned, we have espoused the philosophy that you shouldn't be chasing membership, you should be protecting margins right now. In addition, we have assumed a 50-basis-point utilization increase in our forward pricing assumptions for no other reason than that things have been so low for so long. We just want to protect against movement in that particular number.

And the final point I'd make when you think about this business is the Large Group risk business can grow earnings if we just maintain margins and grow the top line with medical trend. And again, so when you think about our earnings profile and you go back and you look at that chart and think about, I think it's 46% -- actually that may be the ASC number. But if you look at that number, that has the potential to sort of be the slow and steady grower behind-the-scenes.

All of this results in a fairly attractive margin profile. I think this is a testament to both pricing discipline but also a testament to the value of diversification in the business. And again, I can't stress enough, sort of I think the importance of having higher operating margins going into periods of uncertainty. Not that I expect this to happen, but if margins are going to decline 100 basis points, I'd sure as heck like to be starting at 8 or 9 as opposed to 4 or 5 when that happens. So again, something that I think is very important in terms of how we go into the future.

If you would ask me before Black Friday, when the preliminary MA rates came out, I think I and most people in the industry would have said the way 2014 was shaping up was actually emerging favorably. I think we saw some early success in recovering taxes and fees from our Commercial business. The exchange regulations and most importantly, the risk protection mechanisms were starting to crystallize. I think all of those things were starting to feel better and giving us increased clarity. I think that's what led some people to make very specific statements about what they thought '14 was going to be. Clearly, Medicare was not something that we were thankful. We didn't expect what happened. And clearly, that creates a new question for 2014. So let me shift gears and talk a little bit about that.

The one thing that shouldn't be lost in that announcement is that the Medicare minimum MLR requirements, which you can see are on the minus side of this balance sheet, I think they largely came out as good as a reasonable person could have expected them to come out. And so while that's been something that's been hanging around on the unknown list, I think that one's shaping up to look like it could be quite manageable going forward. Clearly, the surprise was around the baseline trend estimates in the numbers.

The one thing, clearly, and I'm sure we we'll talk in Q&A about it, if the preliminary rate stands, that creates a significant challenge for 2014. We would certainly try to solve for that challenge between then and now, but that clearly would be a major work effort to do so. But when you think about this, and you think about what's been happening here anyway, which is flat yields to down yields in a low single digit cost trend, we've been managing against this negative spread for a number of years. And to compete long-term in this, I think it's been obvious to us and others that you're going to have to build a better mousetrap and improve the medical cost management side of this equation. We've probably done what we can on revenue. You need to have an attractive product from a benefit plan design and premium. And so the way you need it to survive long-term was really to be an effective manager of medical costs. And certainly, when you think about the preliminary notice, any effort to sort of solve for that is going to have to go to the medical cost line as well.

I think the good news here is this isn't a new path for us. This is an interesting example. When I talk to people about potentially solving this through our ACO strategy, which has been underway for a while, and our provider collaboration strategy, we were moving in this direction before the announcement. You can see here we've had a goal to get 50% of our Individual Medicare Advantage members into provider collaboration arrangements or accountable care organizations by the end of '13. What this data is -- this is the results of a study that was actually published in the September 2011 issue of Health Affairs. Nova Health is a provider collaboration arrangement we have in Maine. And it looked at a group of Medicare Advantage members.

And you can see that the first 4 numbers are pretty staggering numbers and they're measured against unmanaged Medicare. I think what I find the most powerful on this slide is the total cost number in that we were getting significant savings as a result of this provider collaboration arrangement against Medicare Advantage members who are already being managed to some extent. And I certainly don't want to diminish this, but to some extent, this isn't overly sophisticated. This is about having an aligned incentive with the provider in sharing in the -- in giving them upside and sharing in the risk. This is about embedding maybe a nurse case manager in a doctor's office. So I point this out because these are the kinds of things, when you think about the gaps we're dealing with, that are really going to be essential to long-term success in Medicare Advantage. And again, this has been a path that we've been investing heavily in for the couple of years through our accountable care organization initiatives.

Medicaid was one of the other 14 items on the chart. While it's not a big part of the 2013 story, I think it is an opportunity for the future. Even before Coventry, we were getting a lot of traction in this area. We're batting 1,000, 2 for 2, in our bids for some of the new dual eligible programs. And I think it's important to note that we have a very highly successful dual program already. It's not the full integrated sort, but in Arizona, and CMS has looked at our model of care there and given it a very, very high score. So again we have good traction in Medicaid. We have the integrated capabilities of the medical behavioral and pharmacy to succeed in this space. And then, clearly, bringing Coventry in gives us a bigger footprint and I think gets us over the critical mass threshold to succeed down the road in Medicaid.

Last but certainly not least is the proposed acquisition of Coventry Health Care. Some of you may have seen the 8-K this morning. We now have 20 of 21 state approvals for this. We are waiting for that one state, and we're also still waiting for the Department of Justice approval.

This might be part of the Aetna story that to me, especially the financial metrics, feels the most underappreciated. And it's from 2 perspectives. One is the financial bandwidth, their capacity that that just gives us as an organization. $4 billion plus of EBITDA, $2 billion plus of parent company cash flow. And I think that's really evident in even over the next 2 -- 2 or 3 years as we meet our delevering commitments following the deal, we expect to generate in excess of $1 billion of deployable free cash that could be used for share repurchase or other uses. So very powerful from a cash standpoint. But maybe most important is it's the accretion that I think feels the most underappreciated.

As I mentioned before, we have strong EPS growth in this sector already. And that doesn't count what would happen when you start layering in what we project would be a highly attractive or highly accretive acquisition in '14 and '15. The numbers get pretty impressive when you think that through. And as I mentioned, the cash accretion is even stronger than this when you consider some of the accounting for the deal. So it's not often in your business career that you can find a reasonably priced deal that is so strategically and financially attractive.

So in conclusion, as I stated, 2013 is a year that's going to -- where we're going to focus on execution. We've put a lot of things into place. And every day when I get up, certainly taking this job, there's 3 things that are on my priority list: delivering on the 2013 guidance that we've already given you; closing the Coventry deal and delivering that accretion; and successfully navigating 2014 and turning some short-term risk and uncertainty into long-term opportunity. If we did nothing else but those 3 things, you guys can run the numbers as well as I can, it would be a very, very successful few years at Aetna.

So let me finish this, my prepared remarks. So open it up to Q&A.

Question-and-Answer Session

Carl R. McDonald - Citigroup Inc, Research Division

So I guess -- yes, let's start where everybody wants us to start with, with Medicare. So the first question would be, regardless of what CMS does in the final rates in terms of potentially improving it, you're still going to be facing a pretty significant negative spread between pricing and cost trends. So what's the strategy to go after that?

Shawn M. Guertin

Yes. You'd break this into pieces, and the first piece would be to try to work on the things that don't disrupt the fundamental value proposition to the consumer. And I mentioned that before. And what is that? That's your own administrative expenses and that's the medical cost structure that's behind your plan. Solving those is a dollar-for-dollar protection to your margin, and it doesn't really disrupt any kind of value that the member or consumer might perceive in the product. So you're going to go as far as you can there. And you might say, and it's a fair question, "Why aren't you doing that already?" And to some extent, we are. But it's a lot different when you're going to a provider looking for some space when your rates are going down 700 basis points than when they're flat. And I would certainly say you're going have a lot more courage to your convictions if that's the hand that you're dealt to go after that. But that's key, and we need to do as much as we can to sort of fill the hole from that bucket. I think ACOs and provider collaborations, as you saw today, also play into that, solving that particular problem. Then you're going to be into things that do affect member value potentially, the benefit plan design and the premium. And there's been a lot of talk about what's called sort of arcanely the TBC and whether it's $30 or $60. And to some extent, while there's more flexibility than the $30 or $36 would indicate, it's a bit of an academic point because it's unlikely in most circumstance you're going to try to solve this problem by reducing benefits by $60 per member per month or increasing premiums $60 per member per month. So it's going to take a combination of initiatives to try to attack this. We were already working on this because we had expected the rates to be flat to down 300. So we had already been again planning for another year of negative trend yield spread. The one point I would add -- I alluded to it when I was talking -- is our Group business. Our Group business, obviously you have the one added benefit of being able to negotiate with an employer for potentially added revenue. Now I would also say the same thing I said about the TBC. It's no small feat to go get $50 or $60 from an employer per member either. But I'd rather have that flexibility and option than not have it going forward. So I feel a little bit better about it. But certainly, the Group business, there's no silver bullet there, either.

Carl R. McDonald - Citigroup Inc, Research Division

And as you go through the comment period with CMS, where are the areas do you think they've got discretion and potentially make some changes?

Shawn M. Guertin

Okay. I think the one that's clear is the HCC model recalibration, which we've scored to be maybe minus 100 to minus 200 basis points, that order of magnitude. That appears to be clearly discretionary at this stage. We've been tinkering with this a lot over the last few years. And I would think that you certainly may start with making a case of that's not -- this isn't the year to sort of throw that switch and inject that into the equation. It's interesting to try to understand -- the real home run here would be if they sort of fixed the silly dance we do around the provider cut every year. And we've been waiting for a while for the year they fix that to sort of get the one-time catch-up benefit that we know is coming because we know they're not going to cut doc rates 30% or whatever it's up to now. In the past, the way folks have talked about that, that sounded -- we thought that was rooted. But they didn't administrative flexibility over that. And they always sort of conveyed that that was an issue where it was law, they had to put it in. I found it interesting that the sequester is law too, and that wasn't in the rates. So frankly, one of the things we're trying to understand is do they have more administrative flexibility than maybe we heretofore thought around the doc fix more than anything else like that? You recall sometime about a year in the past where there was also a tight situation. It was one when they did the demonstration project, enhancing the Stars bonus programs. So they clearly have some administrative authority. And frankly, in fairness to them, the communications and the body language from CMS has been very positive, almost saying -- in fact, in some cases almost directly saying, "This is the answer that comes out of the machine. We know it's sort of not the answer that you'll want and maybe not the best answer for the business, and we want to try to find a way to sort of soften this going forward." So I'm more encouraged than not because we're hearing this. And I think one of the things that's different now, that's worth keeping in mind, is the penetration rate on this product has now gotten up into the high 20s. That's 14 million or so seniors. Upsetting this applecart is going to be a noisy political issue. And I'm sure that is playing into a lot of people's thinking on this in terms of thinking what to do in response to the preliminary notice.

Carl R. McDonald - Citigroup Inc, Research Division

So let's go with the scenario that CMS does nothing. So where do you think that translates into from a Medicare margin perspective and putting in place medical management, SG&A, all the things as much [indiscernible] cost sharing as you'll be willing to do?

Shawn M. Guertin

Well, again, I think it stands, it's a significant challenge. It's a little bit difficult to answer, again, assuming we thought we were staring at a minus 500 problem already and that we could solve that problem, doubling the problem. You sort of start off mentally, really wondering if it's realistic about filling that whole hole. I would think that we could eat into it. But again, it's speculative at this point because we haven't hit the ground running. And indeed, if this stands, it will be a real challenge to fill it. I do not think we're doing nothing here as an industry. I do think there's levers we can pull to mitigate it and to question, "Can we to get all the way through and minimize the margin impact?"

Carl R. McDonald - Citigroup Inc, Research Division

We can take questions from the audience, too, if anybody has anything.

Unknown Analyst

Shawn, just 3 questions. First, just clarification. So you said you expected the Medicare Advantage rates to be flat to down 300. There are many calculations about what it is based on Friday's numbers. So if you could update what your view of it is, that's that. Two, just on the Coventry deal. Can you just offer some perspective in terms of how the DOJ thinks about it versus the states? Obviously, since health care delivery is local, if all the states have no problem with the deal, why is the DOJ taking so much time? And the third, obviously, on the exchanges. It's often to discuss that the commercial rates subsidize the government segments. So as you approach the exchanges and setting rates there, are you also simultaneously thinking about getting some reductions in rates on the commercial side, some relief there since that debt expense is going to go down for the hospitals?

Shawn M. Guertin

I think rough order of magnitude, the answer that came out on Friday was probably 500 basis points worse than our flat to down 300 scenario. And so that's our take. If you do the math, then it's probably a minus 700 or 800. And that's before you consider recovery of the health insurance fee sort of through that product as well, which is kicking in. What was your second question? I remember your third one.

Carl R. McDonald - Citigroup Inc, Research Division

DOJ.

Shawn M. Guertin

Oh, yes, good. That's an easy one. Under advice from counsel and the fact that Mr. Cowhey would probably strangle me, we just cannot speculate about the DOJ process at this point. And on exchanges, I think the way -- I have always sort of been more in the camp that the provider reimbursement that will exist in the exchange environment is not going to be akin to Medicaid. I actually have always thought that it would land somewhere between commercial and Medicare. And I think the way providers are thinking about this is correct, that they have -- they're going to have 2 groups of people here. There's a bunch of people that are insured now, who in essence they're getting commercial rates on. And there's going to be a bunch of new people into the system who might have been on compensated care if they got anything on that. And I think when they do that calculus, you would come out sort of somewhere between Commercial and Medicare, maybe as a breakeven point. When they think about it, it's all about revenue model. I mean, needless to say, we're pushing as much as we can. But again, I don't think that the uncompensated care is making up in such a dramatic way that they're going to cut the reimbursement down into that lower tier.

Unknown Analyst

How many of your members today are in a relationship that you've tracked with Nova Health? And then I think you said something about the revenue side. Maybe you've sort of done what you think you can. Is that a comment intended to mean that your risk scores are roughly as good as you think they can be?

Shawn M. Guertin

On that point, all I would say -- what I really mean by that is that's a very mature process, right? You're always working that when you get new members, right? And it's just -- it is something, though, that on your existing membership base, there's sort of a diminishing return as you keep working that. Every year we make some inroads and get better at it. You always do have the opportunity on new members to improve their score in the second year. So there's still room there. But it's just, again, it's diminishing returns. And frankly, that's just going to be -- you're going have to do that just to be in business, right? You're not going to be able to afford to be sloppy there. Again, the goal is 50% by the end of '13.

Unknown Executive

Those are Individual Medical Advantage membership.

Shawn M. Guertin

Where are we today?

Unknown Executive

We're roughly 130 now, and -- I'm sorry. So where we are today in terms of -- yes, it's probably about.

Shawn M. Guertin

1/4 to 1/3 of our members are probably in those today.

Unknown Executive

And then I think the other thing to think about is we've talked about at our Investor Conference the Accountable Care Solutions relationships encompassing roughly 130,000 members at the end of 2012 and that we're looking to roughly triple that membership by the end of the year to roughly 375,000 members. That should give you some benchmarks.

Unknown Analyst

The not-for-profit integrated companies, Intermountain, Geisinger and Kaiser, have the most 5-star MA plans. The for-profit insurance companies average in the 3s. Do you consider integrating so you can control the acute-care setting, the post-acute care setting, more than just a collaboration so to get your scores up?

Shawn M. Guertin

I would say certainly as a general rule, the answer is no. We -- in terms of in essence following a vertical integration model, which I sort of, I get the logic of it by what you're articulating. We've actually think that it's just as effective and frankly more capital efficient in essence to try to create virtual integration. And we think with our technology stack, aligned incentives, we don't have to be in there managing docs to sort of get where we need to get going forward. Again, I get the logic of doing so. It just seems more capital intense. It seems more difficult to scale to me. And again, we think we have, with our technology stack, sort of a unique positioning to try to create this on a virtual basis, which I think we can replicate more easily across the country.

Unknown Analyst

Could you talk a little bit about your changes or any changes in strategy around non-PAR high-dollar claims, where in many cases you've historically paid close to 100% of gross charges? Maybe this is a small example, but my understanding is an air ambulance, for example, you paid over 85% of charges there, which on a gross basis could average $30,000 or $50,000. How successful could you be in combating non-PAR providers? Could you negotiate contracts and/or simply pay less and argue reasonable in customer?

Shawn M. Guertin

Yes, there's always anecdotes. We have a whole battery of sort of layers to go through with rental networks and whatnot and payment policies before you would ever do that. Clearly, some things spill through. But we do -- we are actively working sort of across the medical cost spectrum. But we are actually actively working on the non-PAR issue this year as a way to sort of keep a lid on costs. So it is something that's on our radar scope.

Carl R. McDonald - Citigroup Inc, Research Division

As you think about the next couple of years, it seems to me like you'll have the highest rate of growth among the big commercial companies, just using some of the numbers you gave here. Even if you don't grow earnings in '14, you do $5.40; you grow 10% in '15, layer on $0.90 of Coventry accretion. That's $6.85 in earnings. So you've got pretty significant growth. You also have very limited exposure exchanges, 9% of the earnings post-Coventry, yet you trade at the lowest multiple in the group. So what are people missing and how do you as CFO fix that?

Shawn M. Guertin

Yes, the water [ph] people, this might be a better question for this group than me. I would say as CFO, the first and foremost way I'd change that is to deliver on numbers. If the numbers start showing up, I can do whatever I want to do from an IR perspective and sit up here. But if the numbers don't show up, it's not going to make a difference to that issue. So first and foremost, it's about putting the numbers up, and that's why I stressed the focus on execution. But some of this, I think, we've tried to frankly tell our story clearer from Investor Day of last year. I mean, now let's take something as simple as that only 7% of our EBITDA was Small Group and Individual, right? That was such a simplistic slide that we almost didn't put it in the Investor Day deck, but it was the most powerful slide from Investor Day. So trying to really be very transparent and get the story out is, I think, the second piece of that. I think that historically, I think people might have viewed diversification as a negative, not a positive. I think people are starting to see the wisdom of having multiple levers to pull. As I mentioned today I think the financial attractiveness of Coventry feels to me like the most underappreciated aspect of our story today.

Unknown Analyst

Aetna has clearly done a lot of share repurchase over the last several years, plans to continue to do a fair amount going forward. Can talk about your approach to it? Is it programmatic? Is it price-sensitive? How are you thinking through the day-to-day tactical allocation of that?

Shawn M. Guertin

Yes, I would say when you think about capital deployment at large, I'm a firm believer in a balanced deployment of that capital over time. And within a pretty wide band of valuations, I would say we approached share repurchase as we're an investor, not a trader. And if I do it over time and I do it in an unbiased fashion, that should return my equity cost of capital and that would be okay. So we tend to think about it more programmatically than we do opportunistically. Clearly, you could come up with scenarios at either end where you might think differently about that. But those would be the extremes. I'd certainly like to think about that's the same on the repurchases we've done, which have been significant in the last few years, will turn out to be very good investments over time.

Carl R. McDonald - Citigroup Inc, Research Division

Coming back to the Coventry deal. You've talked about $0.90 in accretion from the first day you did the deal. What's never been clear to me is sort of what the assumptions were in that $0.90 number, meaning, what have you assumed in terms of Coventry margins going forward? Does that assume the current margin? Is there degradation there? Some of the underlying methodology there?

Shawn M. Guertin

We obviously got projections from Coventry during due diligence. We spent a lot of time with them on those. Ultimately, we formed our own opinion. And the results of that projection, I believe, are in the proxy. And that I think is probably most indicative of sort of what we assumed for their business and then layering in the $400 million of synergies on top of that is simplistically how the $0.90 was crafted.

Unknown Executive

Just a point of clarification. Within the proxy is the Coventry management projections.

Carl R. McDonald - Citigroup Inc, Research Division

All right. We're going to wrap it up here. Thank you very much. Excellent.

Shawn M. Guertin

Thank you all.

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