Good morning, and welcome to CVS Caremark's 2011 Analyst Day. I'd like to thank all of you for taking the time to be with us, especially so close to the holidays. We know it's a busy time, and we really appreciate your interest in CVS Caremark. I'd also like to welcome those listening in on the webcast. We are very excited to be here this morning to discuss how we're reinventing pharmacy for better health and better shareholder value. As promised, we'll also walk you through our 2012 guidance, so we have a lot to cover this morning.
Please note that at your seats you'll find a slide book containing all the slides we'll walk you through this morning. It also contains management biographies, and I encourage you to read those. And for those listening in online, all of that information can be found on the website, and I'd note that all of that will be available there for one year.
Now before we begin, our attorneys have asked that I post a Safe Harbor statement. Please take a moment to read it. This statement is also posted on our website and in the slide books.
In addition, please note that over the course of the morning we'll discuss 2 non-GAAP financial measures, free cash flow and adjusted EPS, and they're both defined on the slide. In accordance with SEC regulations, you can find the reconciliations of those non-GAAP measures to comparable GAAP measures on the Investor Relations portion of our website.
And with that, I hope you find today's presentations helpful as you evaluate your investment in CVS Caremark. And now, I'll turn this over to our President and CEO, Larry Merlo, who will walk you through today's agenda. Thanks.
Larry J. Merlo
Well, thank you, Nancy. And good morning, everyone. And I, too, want to thank all of you for coming today. Once a year, we hold an Analyst Day, and we do so for 2 key reasons. First, it gives us an opportunity to provide a deep dive into our strategies to drive long-term growth. And second and equally important, it gives the investment community an opportunity to see the depth of our senior management team. And actually, this year, our Analyst Day includes a third key reason, that being a timely forum for providing our 2012 guidance.
Now we know that the quality of a company's leadership team as well as its management's credibility are very important factors in your investment decision. I have great confidence in our leadership team, and I'm certain that you will leave this meeting this morning with great confidence in our ability to deliver solid growth in the coming years. We've got the right assets in place. We have the right growth strategy, and we certainly have the right people to execute upon that strategy.
So let me review today's agenda. First, our CFO, Dave Denton, will talk to you about how CVS Caremark is driving shareholder value through a disciplined approach to capital allocation as well as solid earnings growth. Dave will provide our 2012 guidance and discuss our long-term financial targets. And then before getting into our more strategic presentations, we're actually going to hold a Q&A session after our earnings outlook to give you an opportunity to ask questions specific to our financial targets. Dave and I will respond to those questions and then we'll take a quick, I'll call it a 5-minute BlackBerry break, at about 9:00, and that will give you an opportunity to send off your emails.
Then when we start back up, I'll be back up here to talk about how CVS Caremark is reinventing pharmacy for better health. We are extremely well positioned to benefit from the evolution of U.S. health care, and our capabilities are extremely well aligned to successfully address our nation's key health care challenges.
And then after my presentation, you will hear from the heads of our 3 key businesses: Per Lofberg, President of Caremark Pharmacy Services; Mark Cosby, President of CVS/pharmacy and the newest member of our senior leadership team; and Dr. Andy Sussman President of MinuteClinic. Each of them will talk about why their respective business is best in class and how they're capitalizing on what we call our integration sweet spots, those capabilities that are unique to us because of our distinctive model and integrated assets. And you'll hear more about these throughout the morning, but suffice to say that these are products and services that no standalone PBM or standalone pharmacy retailer provides to its clients, its members and its customers. Only CVS Caremark does.
And then following Andy, the final presentation of the day will be given by Dr. Troy Brennan, our Chief Medical Officer. Troy will provide the clinical perspective to tie all of this together and talk about why our integrated model is best positioned to solve this cost quality access dilemma facing our health care system. And Troy will share some very encouraging results that we have achieved today with these unique integrated offerings. Then I'll be back up for some brief closing comments and then we will open it up for your questions. We plan to conclude the meeting around 12:15.
And with that, I'll turn it over to Dave Denton for his financial review and 2012 guidance. Dave?
David M. Denton
Thank you, Larry. Good morning, everyone. Happy holidays. Thank you for joining us here in New York in this holiday season. I'm sure you're very anxious to hear about our guidance for 2012, which I'll provide to you in just a few minutes. But my goal today is also to help you better understand how CVS Caremark will drive shareholder value over the long term, both through a disciplined approach of capital allocation as well as solid growth in earnings. And the presentations throughout this morning by my colleagues will provide the context around some of the specific strategies and initiatives that provide the pathway for achieving our financial targets.
So here's my agenda. First, I'll provide some perspectives on our accomplishments throughout 2011. Then I'll discuss our focus on enhancing shareholder value through disciplined capital allocation strategies. After that, I'll switch gears and provide some specific details around our guidance for 2012. I'll go into greater detail around some of the key drivers impacting the timing of our profitability so you can get a good sense of our expected quarterly earnings cadence. I'll also briefly review the potential upside to our guidance if the Walgreens-Express Scripts impact remains unresolved. And although we are not including this on our guidance, we think it's important to provide a framework for how we might benefit should that agreement not be reached. And then lastly, I'll revisit the steady state growth targets that we laid out for you last year to frame up what we see as a strong growth outlook for our business beyond 2012.
With 2011 nearing an end, we are very pleased with our accomplishments and where we stand both competitively and financially. We executed successfully on a number of major initiatives across the company, delivering solid results in a very difficult environment. Importantly, 2011 built the foundation for long-term growth and value creation. We set achievable targets throughout 2011, and we expect to deliver the high end of our initial full year EPS guidance range. We executed on our disciplined capital allocation strategy, returning a very significant $3.7 billion to our shareholders. We remained focused on cost efficiencies across the enterprise, with substantial progress made on our PBM streamlining initiatives and continued productivity enhancements across the retail segment.
We delivered on a number of working capital improvements, including the targeted reduction in inventory in the retail segment to the tune of $1 billion. And as of the third quarter, we had reduced related retail inventories by $850 million, well on track to meet our full year goal. And finally, we completed the acquisition of Universal American's Medicare Part D business, making us a solid #2 player in the Medicare Part D space and position us to take advantage of the rapid growth in Medicare in the coming years.
On our earnings call in early November, we narrowed our 2011 EPS guidance range, giving both solid results during the first 9 months and our outlook for the remainder of the year. We continue to expect to deliver adjusted EPS from continuing operations of $2.77 to $2.81 per share. In addition and consistent with prior guidance, we expect to generate free cash flow of between $4 billion and $4.2 billion. So our outlook for solid performance in the fourth quarter remains intact.
As I mentioned, we expect to generate at least $4 billion in free cash, and we followed a very disciplined approach to the allocation of that cash throughout 2011. We acquired Universal American for approximately $1.3 billion. And the integration has proceeded as planned, and the transaction will be nicely accretive to earnings in 2011, adding over $0.08 per share. Additionally, we raised the dividend by 43% in January and should end the year with a payout ratio of between 19% and 20%. And we completed approximately $3 billion of share repurchases this year, a nice step-up from the $2 billion we completed each of the 2 prior years.
We continue to focus on maintaining a very healthy balance sheet with reasonable and modest financial leverage. Our debt-to-capital ratio at the end of the third quarter was 22.3% or 41.7% when adjusted for our operating leases. While we carry nearly $11 billion in debt, our credit metrics today are modestly better than they were in 2003 prior to our major acquisitions.
While we are comfortable with our current credit profile and our corresponding credit metrics, we are very focused on maintaining our high BBB rating. And as we have said in the past, we are targeting an adjusted debt-to-EBITDA ratio of 2.7x. The BBB rating is important to us as it allows us to participate in the sale-leaseback market at a reasonable cost, and the sale of our developed properties is an important component of cash flow.
Additionally, we believe our debt maturities are well laddered over the next decade with no one year requiring a significant outlay of cash to meet our obligations. Given our strong financial position and the significant amounts of cash we expect to generate in the coming years, we foresee a significant amount of cash being available to continue to enhance shareholder returns in a very meaningful way.
At last year's analyst meeting, we laid out a roadmap for enhancing shareholder value that included 3 main pillars. First is our focus on driving productive long-term growth, our expectation to generate significant levels of free cash and our disciplined approach to the allocation of that cash. These together should lead to enhanced shareholder value. And to help frame up this discussion, I also laid out our 5-year steady state earnings targets using 2010 as a jump-off point. And I'll review that again today after I provide 2012 guidance.
Let's take a look at the cash generation capabilities of our enterprise, which are very substantial. 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's reasonable to assume that we'll invest 30% of that cash back into the business operation, whether through working capital or capital expenditures. Once that is used, over $23 billion of free or organic cash could be available to enhance shareholder returns.
An additional $8 billion of cash can be made available to us by simply maintaining a 2.7x adjusted debt-to-EBITDA ratio for a total of approximately $31 billion. This would allow us to maintain financial flexibility while also enabling us to preserve 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 ratio.
So on average, over the time period, we could have between $5.5 billion and $6.5 billion available annually to enhance shareholder returns. The manner in which we deploy this substantial amount of cash will be guided by disciplined, risk-adjusted decisions to achieve the highest possible returns for our shareholders.
Last year, we set a targeted dividend payout ratio of approximately 25% to 30% by 2015 versus our then level of 13%. That implies a compounded annual dividend growth rate of nearly 25%. In January of '11, we increased our dividend by 43%, providing a nice head start to achieving this very important target. We would use additional liquidity to invest in high ROIC efforts. 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 and other strategy will be guided by disciplined risk-adjusted decisions. We'll invest in projects that help us grow our business with good long-term returns. We are committed to funding these types of projects while returning the cash to our shareholders if that creates the best value. And for your reference, I've included a summary of our capital allocation priorities as an appendix to my presentation this morning.
We are very focused on enhancing returns, including returns on invested capital or returns on net assets. We've already made great progress on reducing inventories in '11, and we see significant opportunities to improve working capital and capital expenditures over the next few years. Along with good working capital management, our expected earnings growth and disciplined capital investments all will be key drivers of improving our returns.
Obviously, our strategy of organic growth combined with growth by acquisition has then allowed us to properly grow returns during periods of integration, which has happened and which we've experienced over the past several years. But I believe that the era of very large acquisitions is likely behind us. And while we will continue to look for bolt-on acquisitions to support our business objectives, we don't expect these acquisitions to detract from our focus on improving our returns. By 2015, we are targeting significant improvements in return on net assets and return on investment capital.
I want to take a moment to look at our solid history of enhancing shareholder value. 2011 was a continuation of that important trend. We've marked the eighth consecutive year of increases in our dividend, with compounded annual growth of 21% over just the past 4 years. And including the $3 billion in '11, we've returned over $12 billion to shareholders in the form of share repurchases over the past 5 years. As we said in the past, we will 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 30% increase in our quarterly dividend for 2012. This increase translates to $0.65 per share, up $0.15 per share from the previous rate of $0.50. Combined with the 43% increase in '11, this puts us well on track to meet our targeted payout ratio by 2015. And as for share repurchases, we expect to complete, at a minimum, $3 billion for 2012. Between dividends and share repurchases, we expect to allocate approximately $3.8 billion to enhancing shareholder returns for our shareholders.
So those are the assumptions for dividends and share repurchases you should use in your models for 2012. So with that, I will turn my discussion to guidance for 2012. This morning, we'll provide guidance for the full year as well as the first quarter of '12. But first, let's walk through the full year details.
We expect consolidated net revenue growth of 11.5% to 13%, a reflection of strong revenue growth across our enterprise but especially within the PBM following another great selling season.
We expect adjusted EPS from continuing operations to be in the range of $3.15 to $3.25 per share, reflecting very healthy year-over-year growth of 13% to 16.5%. The estimate assumes the completion of $3 billion in share repurchases, as I mentioned before. And based on these earnings expectations, our new dividend rate translates to a 20% to 21% payout, up from 19% to 20% this year and 13% in 2010. Again, we expect to generate significant free cash flow in 2012, a reflection of the strong earnings growth and continued discipline around working capital and capital expenditures.
We expect cash from operations in the range of $5.7 to $6 billion. We expect gross capital expenditures to be in the range of $2 billion to $2.1 billion, essentially flat to this year's levels. With sale-leaseback proceeds anticipated to be between $500 million and $600 million, our net capital expenditures is -- would be approximately $1.5 billion. This translates to free cash flow of between $4.3 billion and $4.6 billion, approximately $300 million to $400 million higher than anticipated levels for '11.
For the retail segment, we expect operating profit growth of 7% to 9%, reflecting yet another solid year in solid improvements across our business. We expect net revenue growth of 2% to 3% and same-store sales growth of 0.5% to 1.5%.
You'll notice that the net revenues and same-store sales growth are at levels somewhat below those experienced in recent past. This reflects the impact associated with the significant amount of new generic introductions expected in 2012. These generic introductions will pressure the top line but will help the bottom line, especially after a post-exclusivity period, and this trend is expected to carry forward over the next several years.
Given the distortion on the top line caused by the generic wave, it's important to look at our underlying script growth. So for '12, in addition to same-store sales growth, we'll provide guidance for same-store script growth of between 3% and 4%.
We expect retail gross margins to be up moderately, driven by new generics and growth in private label, which is expected to more than offset pharmacy reimbursement pressures. We expect to see a slight decline in our expense leverage, which I'll talk more about on the next slide. And as a result of all the above, our retail operating margin is expected to expand between 40 and 50 basis points.
Given the start of the significant wave of new generics expected in '12 and beyond, I want to take a minute to touch on the significant impact new generics could have on various retail metrics next year. For example, in 2012, we expect annual net revenues could be impacted between $2 billion and $2.5 billion, while pharmacy same-store sales growth to be impacted between 500 and 650 basis points.
So it's important to note that we could potentially experience negative pharmacy comps in some quarters throughout this year. Again, that's why we encourage you to focus on our underlying same-store script comps. Additionally, generics will also have a greater than usual impact on operating expense leverage given the sheer size of the top line impact. While we expect only a modest de-leveraging in the operating expenses or percent of sales, there are, in fact, underlying productivity improvements that are being more than offset by the impact of new generics. That said, new generics are clearly good for our business and are expected to contribute significantly to operating profit growth for the next several years.
For the PBM segment, we expect operating profit growth of 11% to 15% for the year. We are obviously very pleased with this healthy profit growth outlook for the PBM, and we are well positioned for continued healthy growth in the years to come.
We expect net revenue growth of 22% to 24%, a reflection of another strong selling season and on top of a 25% growth we've achieved in 2011. We expect to fill or manage more than 1 billion adjusted claims, reflecting a growth of 13% to 16%.
Gross margin is expected to be down notably. This decline is due to the normal reimbursement pressures and the impact of some contracts following the governments OPM guidelines for cost-plus and transparency, especially the FEP contract. Additionally, it reflects the mixed effect of the significant growth in the lower margin Medicare Part D business and the wrap effect of Universal American acquisition, which closed in April of this year.
We expect moderate improvement in the PBM operating expenses, largely driven by strong top line growth and the streamlining efforts. And as a result of all that, we expect the PBM's operating margin to be down between 25 and 35 basis points.
Within the healthy growth outlook for our PBM, there are a few select items that we've talked about in the past that I'd like to call out. They were built into our long-term profit targets, and they include the PBM streamlining effort, the expected accretion from the Aetna contract and the acquisition of Universal American's Medicare Part D business.
Many of you have built various assumptions into your models about how much each of these items might contribute to our growth in '12. Now based on what I've seen out there, I thought it will be helpful to break out these -- the impact of these items combined to give you a better view of our underlying operating profit growth within the PBM.
So starting with our 11% to 15% expected operating profit growth for the PBM, when I remove the EBIT impact of these 3 items combined from both 2011 and 2012, we still see healthy underlying operating profit growth of between 7.5% and 11.5%.
Said another way, if you remove these items from the PBM's expected performance for both '11 and '12, you can isolate the effect of these items on the PBM's operating profit growth. This calculation yields a 350-basis-point impact, recognizing that these select items together increased the operating profit in '12 compared to '11 by approximately $110 million. As expected, the impact of the PBM streamline initiative is positive for 2012 as the benefits increased and the cost began to subside. We're on track to achieve $1 billion of savings through these initiatives over the 5-year time period from '11 through '15.
Contributions from the Aetna contract is increasing as we continue through the implementation phase that began in 2010. However, the contribution in '12 was somewhat lower than that we had outlined when we first signed the deal for 2 primary reasons. First, Aetna has fewer lives under management when compared to when we first signed the deal. Most notably, Aetna's Medicare Part D lives were negatively impacted by their sanctions by CMS. And second, we are incurring somewhat higher costs associated with the implementation than we originally anticipated.
That said, Aetna is expected to be accretive to our results in '12. We remain excited about the partnership, and we continue to expect Aetna will be a solid contributor to growth over the long term as we complete the implementation and upsell our products and services to help their clients better manage the trend. And I would also say and note that while we are generating a bit less accretion on the PBM from the Aetna relationship than we originally anticipated, we are expecting some earnings contributions from our co-branded Aetna CVS/pharmacy PDP product, which will show up in the retail segment's P&L statement.
And lastly, the Universal American Med D business is on track both operationally and financially. Following strong accretion in '11, we expect the impact to be flat to slightly dilutive in '12, as we expected, due to the wrap effect. As you know, we closed the transaction partly through the second quarter in '11, so we did not own the business during the period of losses. The first 2 quarters of '12 will be a tough comparison for us as we cycle this acquisition. So again, we are -- overall, we are extremely pleased with the outlook for '12.
Now before I go into the details of our first quarter guidance, I'd like to discuss some of the key drivers that impact the timing of our profitability next year and our strong long-term earnings growth outlook.
We expect 2012 to be back-end loaded, and there are 2 key factors you should keep in mind when you build your quarterly models. First, our Medicare business is substantial and is growing rapidly. You can see that we expect roughly $18 billion of revenue, encompassing approximately 264 million adjusted scripts in '12.
Our Medicare business has a few key components. As shown on this pie chart, the biggest and fastest growing component, about $12.5 billion, relates to our PDP business. The next biggest component is the $5 billion we expect to generate by serving as the PBM for clients with PDP or MAPD businesses, followed by our EGWP business.
The earnings from our fast-growing PDP business are heavily back-end weighted. The accounting for Medicare Part D makes it a seasonal business from a profitability perspective. The Medicare Part D business typically incurs losses in the first several months of the year as we take out premiums but pay out on all the claims. When members reach the doughnut hole, we pay fewer claims by continuing to take in premiums, and that obviously enhances the profitability. So as we work through the year, the profitability of this business grows relative to the number of people in or past the doughnut hole.
In '12, we expect to have more lives under coverage, which accelerates this trend. That means that at the beginning of the year, we will see increased pressure on profits, while the end of the year will see greater benefits. Additionally, as I said earlier, since we closed on the Universal acquisition in April of '11, we will see a tough comparison in the first part of '12.
The next item that will have a significant impact on the cadence of earnings growth in '12 is the timing of profitability from new generics. Additionally, new generics set the stage for our strong earnings growth outlook for the next several years. This is very important to keep in mind. Generics, both now and in the future, will drive profitability in both the PBM and retail businesses. There are approximately $97 billion of branded drugs expected to go generic over the next several years, so we see a very significant opportunity for earnings growth through 2015 and beyond.
In 2012, approximately 35 billion of branded drugs are losing patent protection. That said, it's very important to keep the timing in mind as well as how these drugs come to market. The manner in which generic drugs are introduced in a marketplace impacts the cadence of profitability. There are 2 key ways generics enter the market which drive their economics. I'll call these 2 ways limited supply, meaning 2 or fewer suppliers; and break-open, meaning 3 or more suppliers.
Remember that supply generics typically have a 180-day exclusivity period. During the exclusivity period, these generics generate economics for us that are much like that of a branded drug. There are limited supply competition, so price and cost remain high. In the post-exclusivity period, the market for these generics break open with 3 or more suppliers. At that point, these generics generate economics for us that are significantly better than that of a brand given the intense supply competition and our ability to drive down our procurement cost with our purchasing scale.
The other key way that generics can enter the market would be as a break-open generic. These enter the market with 3 or more suppliers on day one and behave like the limited supply generics do post their exclusivity period. So obviously, these generics, when introduced, we see optimal profitability right out of the gate.
Here are some examples of each type of generic launch. Lipitor and Zyprexa are good examples of limited supply launches. As you know, Lipitor launched in late November, and there are 2 generic suppliers during the exclusivity period, Ranbaxy and Watson. The number of manufacturers from Lipitor won't break open until midyear of 2012, meaning that Q3 of next year will be our first full quarter of a meaningful positive impact from this introduction. So we'll have a positive impact on the second half of '12 and the first half of '13.
Plavix and Singulair are great examples of break-open generics, which entered the marketplace with 3 or more suppliers. Again, we see optimal profitability on a new generic once there are 3 or more suppliers in the market. That either occurs following the 180-day exclusivity period with limited supply launches or day one, if the generic launches as a break-open with no exclusivity period.
Now you can see on this slide that the amount of generics introduced with 2 or fewer suppliers at launch versus 3 or more suppliers at launch varies significantly year-over-year. There are significant drugs that are likely to enter the marketplace as break-open generics during 2012 through '15. However, keep in mind that the specific timing of each launch needs to be considered.
Now this slide will help you better understand our earnings cadence in '12 as well as the significant growth potential we see from generics over the next several years. There are several things to know. First, the majority of launches expected in '12 should not see the first full quarter of multisource availability until the second half of the year due to the expected timing of patent expirations and the exclusivity status of each. So our profitability for new generics in '12 is clearly back-half weighted.
And more importantly, this chart illustrates that total volume of break-open generics should accelerate over the next several years, and it should be quite significant, which is reflected in our long-term growth targets. In fact, $83 billion of the $97 billion of generic introductions are expected to migrate to break-open status during this timeline.
Clearly, generic launches during the next several years are expected to add meaningfully to our bottom line, and the generic wave we're about to undertake is quite substantial.
Now let me turn to our guidance for the first quarter of '12. Consolidated net revenues are expected to grow 14.5% to 16%. Adjusted EPS is expected to be in the range of $0.58 to $0.60 per share, reflecting growth of 3% to 6.5%. GAAP diluted EPS is expected to be in the range of $0.52 to $0.54 per share.
PBM revenues are expected to grow 28% to 30%, while PBM operating profit is expected to decline 10% to 14%. As I said, this is due to the Universal American wrap, the typical timing of Medicare Part D profitability and the timing of generics. Retail revenues are expected to grow 3% to 4%. Note that 2012 is a leap year, so the first quarter will have one extra day versus last year.
Same-store sales growth is expected to be in the range of 1.5% to 2.5% while same-store script growth is expected to be in the range of 2% to 3%.
Retail operating profit is expected to grow between 8% and 10%. And as I illustrated, the biggest factor affecting the cadence of our profitability next year in the retail business is the timing and type of generic launches.
So that's our 2012 guidance. Before moving on to our long-term targets, I want to outline the potential upside from our guidance if the impasse between Walgreens and Express Scripts is not resolved, which could present a very significant opportunity for us.
The most immediate benefit would be to our retail business come January when Walgreens is no longer in the Express network. As shown on this slide, we have a significant overlap with Walgreens stores. 43% of our stores are within 1 mile of a Walgreens. 78% are within 3, and 85% are within 5 miles. Walgreens have said that they fill approximately 90 million prescriptions for Express members. So if you make some assumptions about how much of that -- how much business would transfer from Walgreens and how much of that business CVS/pharmacy would pick up, you can quantify this potential opportunity.
We think many customers are more likely to move to another major chain due to convenience, pharmacies with drive-thrus, 24-hour store locations and service reputation versus any other channel. So for purposes of this analysis, we've assumed 75% to 85% of the 90 million prescriptions transfer from Walgreens, and we assumed that CVS would pick up between 20% and 30% of those transferred scripts. So we would expect to pick up somewhere in the neighborhood of 20 million incremental prescriptions throughout 2012.
But what would this mean for us in terms of potential upside? Well, if the situation remains unresolved, the full year impact could be potentially in the range of $175 million to $235 million in incremental EBIT or between $0.08 and $0.11 per share. The potential benefit to our pharmacy comps for the year could be approximately 300 basis points. We expect the impact to be a bit back-half weighted as some customers may stock up in December of this year in advance to the change. Furthermore, we would expect our associated labor and marketing expenses to be higher in the first half of 2012.
So this slide shows you how the benefit could theoretically help our quarterly earnings in 2012. I should note that while we will be able to identify transfers of maintenance scripts, directly tracking the number of new or acute scripts that we pick up from a Walgreens customers will be somewhat more difficult. But this gives you a good sense of the magnitude of benefit that we could see.
So in the short -- so this is a short-term opportunity we see in the retail side of our business. If the situation remains unresolved into and through 2012, there could be longer-term opportunities in our PBM business. However, we don't believe that the situation will be the primary reason for customers to consider switching PBMs. It is our belief that as long as PBM members have convenient pharmacies to choose from, they will not switch PBM simply due to the lack of Walgreens in the network. We believe CVS Caremark is more likely to win in the PBM marketplace due to the breadth of our capabilities, our reputation for service excellence and our differentiated offering that enhance access, lower cost and improve health outcomes.
Now let me revisit our steady state earnings growth targets, which I laid out for you last year. As a reminder, when I use the term "steady state," I mean that we have attempted to boil down overarching industry demographic and challenges, our company specific strengths and a macroeconomic climate into a reasonable view of CVS Caremark's future performance. I will once again stress that this is not guidance but rather a reasonable 5-year target based on the assumptions and our educated best guess of future performance. I've included a summary of our high level assumptions behind this outlook as an appendix to this presentation.
I'll also remind you that our steady state targets include bolt-on acquisitions. Our $1.3 billion acquisition of Universal American's Med D business is a great example of a bolt-on acquisition that is helping us to drive improved returns. Over the next several years, there may be opportunities for some other -- other small bolt-on deals in our PBM or retail business or even a toe in the water international opportunity that could position us for even more significant growth over the long term.
Enterprise-wide, for the 5-year period from '11 to '15, we are targeting compounded growth rates of between 5% and 8% on the top line, 8% to 10% in the operating profit, and 7% to 9% in adjusted EPS from continuing operations. If we assume that a certain portion of our significant cash would be used to repurchase shares throughout the period, we could enhance the bottom line by yet another 3% to 6%. This leads to compounded annual growth rate in total adjusted EPS of between 10% and 15% over the 5-year time period.
Note that while maintaining our targeted CAGR for operating profit and earnings growth, I've adjusted the CAGR for the top line growth. That change reflects our latest thinking around the impact of increasing generic penetration in our retail segment. But again, we have made no change to our profitability assumptions.
Now let me quickly highlight the segment line item growth rate targets that result from the many assumptions that make up this model. In the PBM, we are targeting 11% to 13% net revenue growth as we expect to be net gainers over the -- net share gainers over the course of the next 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%. As I said earlier, this is a bit below our original revenue outlook for the model as we recast our assumption around the impact of increasing generics on our retail revenues.
I'm not going to provide a steady state same-store sales number since it's an annual number and not really a CAGR. So we'll give some guidance to comps each years, but I have not included that in my 5-year targets. Our total revenue growth target could translate into a retail operating profit growth of between 8% and 10%.
And this next slide simply illustrates how our performance looks for the first 2 years of our 5-year targets, taking into account the guidance ranges we provided for both '11 and '12 and what that implies for operating profit growth in '13 through '15.
You can see that our guidance for '11 and '12 implies that to achieve our 5-year targets, we would have to deliver a PBM operating growth CAGR of 13.3% at a minimum and a retail operating profit growth CAGR of 7.7% at a minimum. We are very confident that these targets are achievable.
With everything you will hear this morning about our pathway for growth, I hope you will leave this meeting more confident in our ability to achieve these targets. Clearly, the generic wave will play an important part in this. 2012, we see a significant benefit from new generics in the second half, and we expect to even see stronger generic benefits in '13 from the Lipitor wrap and the launch of some break-open generics. You will hear a lot more about this throughout the morning about how well positioned we are with our unique suite of assets, which are enabling us to reinvent pharmacy for better health and better shareholder value. So we are confident that the 5-year targets we have in place are achievable.
So in summary, 2011 built the foundation for solid long-term growth. We expect solid growth in '12, reflecting consistent strong retail performance and a return to healthy operating profit growth in the PBM. We'll continue to drive shareholder value through driving productive long-term growth, generating very significant levels of cash flow and executing on our disciplined capital allocation strategy.
So with that, I'd like to conclude. And I'll ask Larry Merlo to come up to the stage, and we'll take some questions. I will ask that if you have a question, raise your hand. We'll get the mics around. If you could just state your name and your firm, that would be helpful. Thank you.
Larry J. Merlo
I know this was a little unconventional to start an analyst meeting this way, but hopefully -- we know that our 2012 guidance has been on your mind for several months, and hopefully, we answered most of those questions with Dave's presentation. So John?
John Heinbockel - Guggenheim Securities, LLC, Research Division
John Heinbockel, Guggenheim. So 2 -- just 2 quick things that are sort of related. The growth of the PBM next year, top line, just the building blocks, and so Medicare is $6 billion and then FEP and CalPERS is probably $2 billion to $3 billion, what else is there on top of that? And then secondly, the Walgreen benefit, what's the thought in either taking that to the bottom line or taking a windfall and trying to invest in the business in some form: advertising, promotion? And what would be the most fruitful things to invest in?
Larry J. Merlo
Yes, John, let me take the Walgreens piece first. And I think you saw on Dave's slide that as we start the year, you will see us do some marketing, acknowledging that if this issue is unresolved, you've got an awful lot of prescription customers that are going to be looking for a new home come January 1. So we're going to be out there telling the CVS/pharmacy story, and we believe that, that is an investment in the future, both from a marketing as well as the experience that those patients would find at a CVS/pharmacy. In terms of the PBM revenue story, Per is going to get into a lot of detail in terms of how that builds up. And I'd ask you to hold that, because I think he's going to answer most of those questions. So I'll simply say since we had our last update in terms of the selling season, there's been an incremental $2 billion in new client wins that are reflected in our '12 guidance.
John Heinbockel - Guggenheim Securities, LLC, Research Division
Is it possible you could take some of the Walgreen windfall and invest it on the PBM side in terms of drawing forward contracts early, a year early as opposed to when they would expire? Or is that not likely?
David M. Denton
I guess anything's possible, John, but I would say that that's really not our focus at the moment.
Larry J. Merlo
A question in the middle there.
Edward J. Kelly - Crédit Suisse AG, Research Division
When I think about your -- the way you're talking about the benefit from Walgreens -- and this is Ed Kelly, Credit Suisse, sorry -- it seems to me like you're assuming your average market share within those markets. And if you think about a script leaving Walgreens, I think it's pretty safe to assume that maybe you'd get more than your fair share of those scripts. So is there upside on those numbers, I guess, is question #1. And then question #2 is some of your peers have been talking about reimbursement rate pressure or concerns about that as we head into the generic wave next year. And the issue with Walgreens and Express, the merger between Express and Medco all point to potentially more pressure within that business. So what are your assumptions, I guess, in terms of 2012 and in the longer term in terms of what's going to be taking place in reimbursement side for retail?
Larry J. Merlo
Yes, let me talk about the Walgreens share first, Ed. And again, if you look at our retail share across the country, we have about a 20% share. I think as Dave alluded to, acknowledging the significant overlap that exists between the CVS footprint and the Walgreens footprint and the fact that Walgreen's a very good pharmacy operator providing very good services that CVS/pharmacy also offers, between drive-thru pharmacy, 24-hour pharmacies and many of the other conveniences that we both talk about. I think Dave reflected in the numbers that we would expect to pick up between 20% and 30% of those scripts that may be available out in the marketplace, which does reflect a higher retail share than our current book of business across the country. So in terms of reimbursement pressures, as we talked on our third quarter earnings call, we have seen some increased reimbursement pressures on the retail side. A lot of that is coming out of the state Medicaid programs, and we would expect that to continue in 2012 just as we had seen for the last couple of years. I think the opportunities that we have with generics, as Dave outlined, will abate some of those pressures, and I think you could see we're expecting margin expansion as a result of that. But that's something that we've experienced in the past, and we expect it to continue. Question here.
Ann K. Hynes - Mizuho Securities USA Inc., Research Division
Ann Hynes from Mizuho. Just a couple of questions. On your 13.3% operating growth for 2013 and 2015, can you tell us how much comes from generics versus how much comes from streamlining and how much comes from potential new business?
David M. Denton
Yes, I'll take that. We haven't broken it out specifically in those components. I would tell you that we're clearly very focused on the streamlining effort, and that will drive $1 billion in savings over that period of time. As you saw in my presentation, generics present a big opportunity for us over that time period as well. So we'll certainly capitalize upon that trend and get more than our fair share, but I can't give you the components of that.
Larry J. Merlo
Meredith Adler - Barclays Capital, Research Division
Meredith Adler from Barclays Capital. You talked -- when you talked about generics, you talked about multisourcing and how once you get to 3 suppliers, it's better. But unfortunately, that doesn't last forever. You usually see a drop in profitability at some point after you've got multisourcing. Can you give us some idea what kind of assumptions you've made in here on how long you get, what I call the sweet spot? How long does that last?
Larry J. Merlo
Well, Meredith, I think as Dave outlined, when -- and I think he did a great job of answering the generic question, which -- in terms of how to think about it, in terms of its impact, its magnitude and its timing. Because of our purchasing scale, we are certainly able to leverage that, and we've said in the past that we can maximize our generic profitability with 3 suppliers out in the marketplace. We don't need 5 or 6. And we're expecting that, that will continue well into the future.
Meredith Adler - Barclays Capital, Research Division
I'm actually thinking about the reimbursement side of it not the procurement side, because clearly, you're the best buyer. It's just a question of at what point do you see a drop in reimbursement, because it does happen.
David M. Denton
Yes. I would say, Meredith, I mean, that's a typical trend with generics in the sense that we've talked about reimbursement pressure across our retail business for years, and it's kind of a matter of fact at this point in time. That's why we're so focused on putting in productivity improvements to drive cost efficiencies and/or drive adherence to generic medication in providing low-cost alternatives for the patients who shop our stores. So I don't think there's anything new or different to that trend, Meredith.
Meredith Adler - Barclays Capital, Research Division
I guess within then -- but there is still some assumption that the reimbursement pressures will hit at a certain point for each drug. Is that fair?
David M. Denton
Meredith Adler - Barclays Capital, Research Division
Okay. But you don't want to tell us what your guess is.
David M. Denton
I'm sorry. I can't .
Meredith Adler - Barclays Capital, Research Division
Okay. Can I get you -- just ask you another question about -- this is a little further out than this year, but the doughnut hole is going to go away. Can you just talk quickly about what that means for the PBM business? Will pricing change to customers when there is no longer a doughnut hole? Or am I not understanding it?
David M. Denton
Yes. I think it's more of an issue maybe not for the core PBM as so much as it's for the PDP business within the PBM. And I think what we do is we underwrite that business on the annual basis based on how the government designs the program. So I think what it would mean is we would have to change the assumptions that we put in place to bid that business, like everybody else would need to do to accommodate that regulatory change.
Meredith Adler - Barclays Capital, Research Division
I'm sorry. I just have one more question. You're going to be investing a little bit to win Walgreen business hopefully in the first quarter. The money, the $0.02 that you think you could save and the $0.08 for the year, if they were to resolve the issue April 1 or July 1, would we expect to get less than the $0.02 in the first quarter or $0.02 in the second quarter? That is to say are the investments you're making going to eat away at that if you don't get it for the full year.
Larry J. Merlo
Yes. Meredith, that's something that we'll see how it plays out. We have often talked about that pharmacy customer is the hardest customer to lose. But once you lose them, they're the hardest customer to win back. And I'm sure we're not going to be the only ones marketing out there come January 1. A question over here.
Scott Andrew Mushkin - Jefferies & Company, Inc., Research Division
Scott Mushkin from Jefferies. So I noticed you guys obviously went into great detail with the impact on the scripts from Walgreen. Noticing you've really talked about the front-end impact, and I wanted to know if you could give us any insight into what your expectations are on cross-shopping. And then the second question is on to the PBM. Revenues, I think, you guys said are up a couple of billion more in wins. Can you talk a little bit about profitability and what's going on in the -- at the end of the selling season? And the knock is always -- it comes at to your buying the business.
Larry J. Merlo
Yes, let me -- Scott, let me take the second question. I'll come back and talk about the cross-shopping issue. To be clear -- and I'm sure Per is going to talk a little more about this as well, that pricing remains competitive in the marketplace and rational. And to be clear, we are not underwriting new business wins or renewals at a loss, and that includes in the initial year of the new contract. In terms of the question on cross-shopping at Walgreens, that has always been a very, very difficult number to quantify. You see customers that come in, sometimes they may buy a front store item with their prescription. Other times, they may buy it in a separate transaction. Other times, they may come back and make a front store purchase independent of picking up any prescription. When we look at those transactions that have a pharmacy -- a prescription and a front store item, it is not the majority of our transactions, so very difficult number to quantify. Dave's guidance does not comprehend any benefits in the front end of our business.
Scott Andrew Mushkin - Jefferies & Company, Inc., Research Division
Maybe one -- you guys have the ExtraCare card, which is obviously a competitive advantage. So you must see how many people do both shop at your pharmacy and shop at your front end. I mean you must have that data. Could you share that data?
Larry J. Merlo
Yes. We see -- when I mentioned, Scott, that we see both items in a transaction as a relatively small percentage of the time, it's less than 30%.
Scott Andrew Mushkin - Jefferies & Company, Inc., Research Division
But as far as the cardholders go, I mean, do you have -- are 80% of the ExtraCare cardholders both utilizing your pharmacy and your front end? Do you know that data?
Larry J. Merlo
Yes. That's a number that we haven't talked about in the past. Question, Robin, behind you there.
Lawrence C. Marsh - Barclays Capital, Research Division
Larry Marsh. A question on Aetna. They've been in the market suggesting that their relationship has exceeded their expectations. You are, today, suggesting it's slightly below expectations. Part of that's the Med D loss because of the sanctions, which are also communicating higher implementation cost. Can you elaborate a little bit about that? And also, with the PDP, the $3.3 million for next year looks like it's a little bit below your current run rate. Can you communicate why?
Larry J. Merlo
Yes. Let me take the first part of that question, Larry, and then I'll ask Dave to pick up from there. But we talked about the Med D sanction. That is now behind Aetna. And keep in mind that in '11 and '12, we are largely in the implementation phase of a 12-year contract. A lot of the work has been done in terms of bringing specialty onto our systems. We'll complete the mail order migration actually this month. In 2012, that's the heavy lifting on the systems migration. So the incremental cost that we're incurring specifically relate to the systems activity that will be occurring in 2012. We are very pleased with the relationship. Our 2 respective teams are working extremely well together. And as we get this -- the implementation phase behind us, we're excited about the prospect that, that brings for the future. As an example, the selling season that has recently got underway, this is the first opportunity that the Aetna sales organization has to tell and sell the CVS Caremark products and services story. So we're excited about the opportunities that, that will bring, but we will not see that in 2012.
David M. Denton
Yes, and I would say from a Medicare Part D perspective, Per is going to get in some detail on that so you'll see it in a few minutes. So I won't go into great detail. But I would say there was fewer displaced auto and rollings this year than it has in the past. Last year was a big displacement. This year is not quite as much. But we're very pleased with what we...
Just a clarification, Dave, you said the OPM carrier letter language has been migrated to selected other customers, now? Or did you just say FEP specifically?
David M. Denton
It's FEP in, I forgot what they call them, payroll address. I'll come back to that question. There's a couple of other that fall within that category throughout the call.
Mark R. Miller - William Blair & Company L.L.C., Research Division
Mark Miller with William Blair. Dave, you talked about the change in the long-term revenue assumptions within retail. And I think you said it was due to higher generic assumption. But can you also highlight, are there any other changes around store growth or anything else? I guess I would've thought as Maintenance Choice is getting more and more traction, that you'd actually see more volume and retail from them.
David M. Denton
Yes, we have not changed any other assumptions other than dollar revenue associated with retail. And quite honestly, we -- when we originally did the model, probably underestimated the price compression from generics as those branded drugs switched to generic. So we just refined that a bit and that's the delta, if you will. And again, we made no change from an operating profit perspective to our 5-year plan.
Larry J. Merlo
We'll take 2 more questions.
Matthew J. Fassler - Goldman Sachs Group Inc., Research Division
It's Matt Fassler from Goldman Sachs. One quick question on generics and one on Aetna. First of all, the 500 to 600 basis point impact from generics on same-store sales that you discussed, just to help us frame the economics, you could talk to what kind of generic dispensing rate that's based on the retail. And then briefly on that, last year, I think you said that you expected $0.02 of accretion in 2011 and then $0.07 accretion in 2012 with Aetna's, I guess, falling a bit short. This year, can you tell us what '11 looked like just to give us some benchmark to base that off?
David M. Denton
We haven't changed our assumption around '11. I'd say for kind of going forward, I gave you a breakdown of the impact of those 3 items together, and that's kind of what we're going to provide going forward on that. Regarding generics, clearly, we see the introduction of Lipitor here in November as a major driver of generic penetration over the course of the next 12 months or so. I don't have a specific number for you as far as generic penetration, but you will see a significant increase in penetration over the year.
Larry J. Merlo
Matt, we've modeled it on our historical past in terms of what we see in terms of the uptake of generics and the timing associated with that. And the 500 to 600 basis point impact on comp sales is on pharmacy comp sales, okay? Versus the total comps. We'll take one more question.
Thomas Gallucci - Lazard Capital Markets LLC, Research Division
Two quick questions, if I could. Tom Gallucci from Lazard. The first one was just on narrow retail networks. I think you mentioned that out of the Express-Walgreens situation, you expected less benefit on the Caremark side over time. Are you seeing an increased interest on behalf of clients or PBM clients toward narrower or preferred retail networks? And also, I guess, as an addendum to that, is this sort of situation helping to highlight your Maintenance Choice benefit?
Larry J. Merlo
Yes, Tom, we'll get into a little more detail in the remaining presentations around that, but I do believe in this selling season that is just underway, we will see more dialogue around restricted or limited networks.
Thomas Gallucci - Lazard Capital Markets LLC, Research Division
Okay. And then, Dave, I just want to make a housekeeping question here. On the slide you had, that you're expecting PBM operating growth in the 11% to 15% range in '12. And then, you had the adjustment there, 7.5% to 11.5% number. So in the guidance, the EPS guidance for the year, you're expecting 11% to 15% and that 7.5% to 11.5% is just a housekeeping sort of perspective on, if you took those items out in both years with the underlying PBM would be growing?
David M. Denton
Larry J. Merlo
Okay, so I have 9:00 sharp. And as we said, we will take a 5-minute break for you to shoot off some emails in response to what you just heard and we'll start back up at 9:05. And then we'll take a more prolonged break after Per's presentation in about an hour.
Larry J. Merlo
Welcome back, everyone. For those of you just tuning in, Dave Denton spent the first part of the morning discussing our guidance for 2012, along with our long-term growth targets. And let me reiterate the fact that we are very pleased with our outlook for growth, both in the short and long term. So with that, we plan to spend the rest of the morning discussing the strategies that we'll employ to achieve that growth, and as a result, drive shareholder value.
So here's my agenda. First, I want to provide my perspective on our recent accomplishments and 2012 outlook. And then I'll address how we're leveraging our best-in-class businesses and what we're calling our integration sweet spots to drive growth. I'll review the current healthcare landscape and highlight how these ongoing changes are creating significant opportunities for us. I'll talk about pharmacy's role as an increasingly important part of this solution and show why CVS Caremark is best positioned to bring innovative solutions to the marketplace. And lastly, I'll share the work that we've done to sharpen our corporate purpose and how we're capturing the hearts and minds of our colleagues to achieve our goals and again drive shareholder value.
So let me turn to our recent accomplishments. I am very pleased to say that we did what we said we would do this year. We set achievable goals for 2011, and we delivered on our promise. Our retail business continued to show a solid growth on both the top and bottom line, and we achieved share gains throughout the year. Our PBM continued to execute on its plan for healthy growth, and I am very pleased with the progress that we have made this year. We're finishing up another excellent selling season for 2012. And as we mentioned earlier, Per will discuss this in more detail and at the same time, our unique offerings have continued to gain traction with both existing and perspective clients. Our MinuteClinic business is on track to reach breakeven on an all-in basis, actually this month. And at the same time, MinuteClinic opened 100 new clinics this year as part of our plan to double our clinic count by 2016.
So as we near the close of '11, we look forward to an even better 2012. We're very pleased with the anticipated levels of growth across the business next year, and we are well positioned for healthy growth in the years thereafter. We expect to maintain a leadership position in the retail pharmacy business, and another year with a solid growth outlook certainly helps to underscore this. And our PBM is back on track with healthy operating profit growth for '12 as promised.
Now earlier this year, I outlined our 5-point plan to turn around the PBM business and return to a strong growth trajectory. As we've mentioned, we made great progress in all of these areas, and we'll continue to do so throughout 2012. Following a strong '11 selling season, we carried the momentum into this year, posted yet another very strong selling season for '12. We continue to innovate and develop unique clinical offerings that drive savings for our clients and improve the health of their members. Flagship products such as a Maintenance Choice and Pharmacy Advisor are gaining increasing traction in the marketplace, and we are not resting upon the success of these products.
This morning, we will announce some exciting new initiatives that will set the bar even higher, and we certainly look forward to sharing those with you throughout the morning. We continue to aggressively drive growth and 90-day utilization and generic penetration with strong uptake in our Maintenance Choice and generic step therapy programs. And we're making great progress on those opportunities that provide us with the greatest potential for growth, especially those in the Medicare Part D space and specialty pharmacy and through our relationship with Aetna.
And lastly, we are executing successfully on our PBM streamlining initiative, and we are on track to achieve our targeted savings of more than $1 billion from 2011 through 2015. So we've successfully executed on our 5-point plan, and as a result, the PBM is back on track and expected to...
...produce a strong track record of consistent execution and superior customer service. Since the launch of ExtraCare chain-wide back in 2001, we built the top customer loyalty program in the country, with currently now more than 69 million active cardholders. In addition to ExtraCare, we built unique proprietary pharmacy technology that places relevant information into our pharmacists' workflow, so they can deliver superior care and clinical interventions when and where needed. And unlike pure-play PBMs, we are able to offer face-to-face counseling with a trusted pharmacist, which is becoming increasingly important as we better engage and enable patients in managing their health. And you'll hear a lot more about our retail business and its strategies for increasing shareholder value from Mark.
In our PBM, our deep clinical expertise allows us to deliver a wide spectrum of best-in-class services and innovative plan designs for our clients and their members. Our specialty pharmacy is the leader in the industry and our Medicare Part D PDPs make us the strong #2 player in this fast-growing space. And our PBM continues to lead the way to find innovative solutions aimed at improving adherence and reducing gaps in care. And you'll hear a lot more about all of this from Per.
Our MinuteClinic business holds the leadership position in the retail clinic industry with about 650 clinics across 25 states and the District of Columbia. MinuteClinic was the pioneer in providing convenient, high-quality, affordable health care and remains at the top of its field with continual innovation, collaborating with key healthcare systems. And we expect to further enhance our role as a collaborator by working with integrated health networks and accountable care organizations. And you'll hear a lot more about all of this from Andy.
Now if you think about the ongoing transformation in healthcare today, I think we all know that the challenges are numerous and new approaches are needed to survive and thrive in this new environment. So we are leveraging the power of our combined entity to capitalize on this environment. We're developing innovative products and services that leverage our unique set of assets, or the integration sweet spots as we're calling them. And if you think about when we brought our PBM and retail pharmacy assets together, we really had 3 primary goals in mind: the first was to provide greater access, convenience and choice to pharmacy care; the second one was to deliver solutions that improve the health of those we serve; and equally important, the third, to lower the overall cost of healthcare. And those goals continue to align very nicely with the direction of healthcare in this country, as well as with the priorities of payers. And we have experienced some early successes with our unique programs that leverage these sweet spots. Programs such as Maintenance Choice and Pharmacy Advisor. These programs leveraged the clinical expertise and insights from our PBM business along with the broad reach in face-to-face engagement in our retail business. And as a result, they're delivering innovative solutions that are unmatched in the marketplace today. We'll have just under 10 million lives enrolled in our Maintenance Choice program, and we expect to have over 12 million lives enrolled under our Pharmacy Advisor program after just one year of being broadly available. And we see substantial upside to these programs as we look to evolve the offerings in the coming years. And you'll see throughout today how these programs are driving substantial cost savings for our clients and customers while helping to improve health outcomes.
Here's what some of our clients have had to say about CVS Caremark's integrated offerings. A midsized employer client said, "The recommendations we continually receive from CVS Caremark have been essential in helping us reduce costs and improve employee health and safety."
A second client said, "The CVS name recognition is very high. It instills trust in our employees that we selected a vendor who they can rely on for their prescription needs."
And a large employer client said, "Problem-free pharmacy services. Employees are very happy with the service and with the size of our population, that is a huge compliment. Certainly makes it easy for me."
And taking it one step further, given the experience with these programs, we can now quantitatively demonstrate the benefits to clients and their members. And our success in the '11 and '12 selling seasons were due in no small part to the superior outcomes that we are demonstrating that we can deliver through these integrated offerings. And Troy will provide some powerful data to put all of this into context for you, which again will demonstrate how CVS Caremark can be an important part of the solution to the challenges facing healthcare today.
So with that as context for how we want you to think about the CVS Caremark enterprise, how do we see healthcare evolving? And we see several trends that are shaping the healthcare landscape, trends that exist as both challenges and opportunities further defining this cost-quality access dilemma. And for our business, we think that there are 4 that are worth highlighting: First, the fact that costs will continue to rise and that will be further intensified by an aging population. Second, exacerbating this problem is an insufficient focus on low-cost solutions such as preventative care and prescription drug adherence. Third, the current shortage of primary care doctors, combined with the growing demand, will result in a major physician shortage, not to mention the lack of integration between physicians and other providers that already exist today. And fourth, the fact that the consumer will take on greater accountability for their healthcare as direct-to-consumer markets grow and employers shift more and more of the cost onto their employees.
So let's take a look at some of the details that support this. While healthcare spend already represents a significant portion of the GDP at 17.7%, it's actually expected to approach 20% by the end of this decade. And you can see on this slide with healthcare reform, national health expenditures are expected to grow at 6%, that's 50% higher than the forecasted GDP growth rate. Additionally, a primary driver of rising healthcare costs is our aging population as seniors experience more health-related issues. As a result, seniors take 3x the number of prescriptions compared to people in the under-65 population. And with Medicare enrollment expected to grow by about 10 million people over the next 10 years, related costs are expected to nearly double.
The lack of preventative care is also part of this problem, with very few patients receiving the care that they need to stay healthier, and this is leading to high-cost treatments that could be avoided. There are many, many examples out there. I'm just going to highlight 2.
Back in 2009, about half the people aged 50 to 64 received a flu shot. Yet if 90% of those individuals received flu shots, 15,000 fewer people would die annually. And we know we're helping to address this problem and raise awareness by providing pharmacists and nurse practitioner administered flu shots at CVS and MinuteClinic.
Another example relates to avoidable emergency room visits with nearly 21% of adults visiting an ER when they could've been seen by a doctor or nurse practitioner. And these visits are estimated to be responsible for an additional $38 billion in annual spending. And with over 650 MinuteClinic locations, CVS Caremark offers an affordable alternative to the emergency room.
At the same time, patients frequently do not receive the ongoing care they need to stay healthier. And prescription drug adherence is just one example of this challenge, and one in which we feel very passionate about improving.
Now on this slide, on the left, you can see that a majority of maintenance prescriptions are not being refilled on time. And obviously, these scripts are a critical component of preventative care. And the impact on costs from nonadherence is pretty dramatic. On the right is data from a study that looked at patients with diabetes. Its conclusion was that medical costs for nonadherent patients are nearly double in comparison to those patients who adhere to their drug regimens. And we have done our own research to better understand this dilemma and have tailored our offerings to help address the adherence problem.
The physician shortage is also a growing concern with an expected gap between supply and demand of over 45,000 primary care physicians by 2020. Now other providers will increasingly be relied upon to fill this gap, and we see our more than 25,000 pharmacists and nurse practitioners as a critical component of this solution and a natural extension of care.
The better coordination of care is a significant opportunity to reduce costs across the system. In a study of Medicaid members, 10% of patients were considered to receive uncoordinated care, and as a result were responsible for about 36% of total costs. Additional studies performed present similar findings, the fact that patients with uncoordinated care not only present a cost savings opportunity but also the chance to improve the quality of care provided. And we believe we have a significant opportunity to improve the system by helping to eliminate instances of uncoordinated care. And programs such as Pharmacy Advisor serve as an enabler where, through one-on-one consultations, we are able to advise patients on the appropriate use of medication, again improving adherence along with helping to close gaps in care.
Now as a result of the Affordable Care Act, the coverage landscape is expected to look very different in the next 5 years. And we expect to see significant growth in the individual market as the exchanges are launched and income-based subsidies are made available. At the same time, Medicaid expansion and the aging population will result in significant growth in government-sponsored insurance, the Medicare and Medicaid programs. And Per will highlight the opportunities this creates with this high-utilizing population. But in total, these changes are likely to create a much larger market in which consumers will be more responsible for selecting their own healthcare coverage.
In addition, when you think about those workers still with an employer-sponsored insurance, they will take on greater accountability for their choices as their financial burdens grow. If you look at this slide, you can see their premiums have grown at a rate of 9% annually over the past 10 years. That is much higher than wage inflation and in absolute dollars, about a threefold increase over that timeframe. As a result of this growing responsibility, consumers will begin to play a bigger role in selecting their insurance coverage.
Now pharmacy can and will play an important role in helping to address these challenges. And while greater adherence may increase drug costs, payers and patients will see significantly lower medical costs as a result. The comparative review of drugs, the targeted use of clinical edits, innovative benefit designs, personalized messaging, those are a few of the cost-effective programs we have to improve a patient's quality of care.
Our research is showing that pharmacists are trusted advisors for patients. Our pharmacists provide another touch point for patients to help improve adherence and again lower costs. And studies have also pointed to the fact that there is a very high level of patient satisfaction with nurse practitioners. And our staff of NPs at MinuteClinic assist patients in acute urgent care, as well as preventative care, again increasing access and helping to lower costs across the system.
And finally, our unique assets and capabilities positions us well to develop innovative consumer solutions. Think about this. By leveraging our retail expertise on how to interact with the consumer, along with our PBM expertise on how to affect behavior, we bring those together, we can play a valuable role in helping the consumer on their path to better health in the most cost-effective ways.
Now we have already acknowledged that pharmacy will be central to addressing the cost-quality access dilemma that our healthcare system faces. And in addition to the broader shifts we see occurring within the healthcare industry, we're also seeing some unique trends within the pharmacy market that will help focus our efforts even further. First, given the seismic shifts that we foresee in payer and patient mix over the next 5 to 10 years, it will be increasingly important that we invest in capabilities and resources that enable us to reach and engage those payers and patients in new ways. Second, as we've stated in the past, we believe that reimbursement and pricing pressures in both the retail and PBM businesses will continue into the foreseeable future. And as a result, market share gains and operating efficiencies become a critical offset to those margin pressures. Third, payers are looking for every way in which they can achieve incremental savings in their pharmacy benefit plans. We just touched on this a minute ago, restricted or preferred networks are another way to accomplish that. We offer restricted networks. In this year's selling season, we have some uptick. And as we mentioned earlier, it's likely to be a very important topic in next year's selling season. And we'll work with our PBM clients on opportunities to save them money through more limited networks.
At the same time, CVS/pharmacy is very well positioned to be a beneficiary in an environment of restricted networks. We have strong relationships with all of the major PBMs, a solid reputation among the payers, and our 7,300 conveniently located source across the country make it highly likely that we would be a key participant.
And last, we believe that as specialty pharmacy costs continue to rise in the coming years, payers and patients will increasingly need help in managing this important part of their healthcare spend. Specialty represents about 20% of the total drug spend today. That will arise to approximately 30% by 2020.
Now these market trends all point to the importance of innovation as the key driver of our future growth. And CVS Caremark has a solid history of innovation. ExtraCare, programs like Maintenance Choice, they're great examples. They were both firsts, and they both changed the game in terms of results. And we're just beginning to unleash the full power of pharmacy innovation that comes from our integration edge, from the creativity of our people and from the new opportunities that will come from the healthcare changes that we just discussed. So today, we are outlining 7 key areas where we're focused on delivering innovative solutions that capitalize on our integration sweet spots. We're working on solutions to address emerging customer needs that no standalone PBM or standalone retail pharmacy provides. You'll hear more from our business heads on the work that they are doing to bring these solutions to market and the potential each area holds for improvements in the delivery and coordination of care.
But let me just hit the 7 at a very high level. First, we're developing new Medicare offerings to help us win in the Part D space and deliver solutions to our health plan clients. We're capitalizing on our increased size and scale from the Universal American acquisition, as well as our partnerships with Aetna and the other health plan clients to deliver improvements in both the quality of care, along with lowering prescription costs for seniors.
Second, we're working on a new program that will leverage our industry-leading specialty offering and the convenience of our 7,300 retail touch points to build an integrated specialty solution. Our aim is to improve convenience and expand access to pharmacist counseling for our specialty patients who are among the most chronically ill.
Third, we're working towards the next evolution of our breakthrough product, Maintenance Choice. The next generation that we're simply calling 2.0, will extend the offering to most of our commercial clients and will include the seamless integration of our mail-order pharmacies and the CVS retail network. This will provide an improved member experience by offering more control and more flexibility around when and where patients get their medications.
Fourth, we plan to continue expanding our flagship clinical program, Pharmacy Advisor, to include additional disease states and additional clinical intervention opportunities. Pharmacy Advisor 3.0 will help drive adherence and promote lower-cost, evidence-based treatment option.
Fifth, our enterprise digital initiative recognizes the advent of this retail health consumer and will help patients better understand and manage their choices. And we're pursuing strategies that capitalize on this incredible influx of new technological capabilities.
Sixth, MinuteClinic continues to build affiliations with high-quality health systems across the country. These affiliations will enable greater coordination between providers, providers like the Cleveland Clinic, thereby driving improvements in quality and again, lowering costs.
And seventh, you'll hear about Caremark member care at MinuteClinic, a collaboration between our PBM and retail clinics to deliver new solutions that lower costs and improve care.
So again, Per, Mark, Andy and Troy will talk further on these initiatives in their presentations. But again, we see pharmacy innovation as central to meeting future healthcare challenges, central to helping more people achieve their best health and central to our growth.
And we're talking about innovation with a purpose, a purpose that defines why we exist as an organization, the fact that we see ourselves as a pharmacy innovation company. And as we've gone out and surveyed the marketplace, it is clear that the challenge people face today is this complex confusing world of healthcare change, and people just don't know what to do about it. They are looking for help, they're looking for a place, they're looking for a company that can help them achieve the best health that they can have despite all of this complexity and confusion. And with this understanding of what people want and our focus as a pharmacy innovation company, we have defined our purpose, helping people on their path to better health.
And if we're truly going to make a difference in helping people on their path to better health, then we're going to have to innovate because old solutions will not solve new problems. So we're sharpening our strategy. We've captured it in a very simple idea, reinventing pharmacy. So this strategy, along with our purpose, will serve as a filter for everything we do, and as a result, drive shareholder value. Reinventing pharmacy means providing more relevant, caring, expert guidance, more cost-effective solutions and even more convenient access. And we're already reinventing pharmacy. We've talked about some of the things earlier. And today, you'll hear more about where we're taking it. So let me show you a brief video that will bring all of this to life.
Larry J. Merlo
So in summary, we set achievable goals in 2011, and again, we delivered results. We've executed successfully on our initiatives and we are well positioned for strong growth in 2012 and beyond. We're focused on continued leadership in our core businesses, and we are driving pharmacy innovation to solve key issues in healthcare today. And finally, we are capitalizing on our integration sweet spots to introduce innovative products and services into the marketplace. And now more than ever, we are unlocking the value of CVS Caremark to reinvent pharmacy for better health and better shareholder value.
So again, thank you for joining us today, and I'm going to turn it over to my colleague, Per Lofberg.
Per G. H. Lofberg
Well, thank you, Larry. Ladies and gentlemen, good morning. Let me begin by welcoming all of you to this year's analyst day. I am delighted to be here to bring you up to date on the developments at Caremark, the PBM portion of our company. And I will focus primarily on the key strategies and priorities for our business since they've already covered a number of the financial aspects of it.
I have been here at CVS Caremark for almost 2 years now, and I'm really enjoying what I'm doing, and we've made tremendous progress so far. As many of you know, my contract with the company runs through 2012, and Larry and I have talked, and I'm happy to tell you that I will be staying on as a member of the executive team through the end of 2013.
So what have we been up to during these past 2 years? We have been focused on orienting the business to how we see the future and building strength, both externally and internally, to drive long-term growth and successful returns for our shareholders. Our priorities are regaining momentum in the marketplace through strong client retention and market share gains in a consolidating industry; building leadership positions in key growth segments of our business; streamlining our operations to enable productivity improvements; developing new and innovative solutions for customers, which in part leverage our integrated capabilities which we are calling, as you heard from Larry, our integration sweet spots; and finally, building a strong leadership team to drive our future growth and success in a rapidly changing healthcare environment.
The next 2 charts summarize the results of the 2012 selling season to date. So where do we start? Let's start with retention. You can see in 2011, our retention rate improved significantly over 2010, which was a very challenging year for Caremark. Moving forward to 2012, we expect our client retention to be 98%, and I'm very pleased with that result.
Now let's look at the net new business for 2012. When we last updated you during the second quarter earnings call, the net new business, excluding the Universal American wrap, totaled $4.8 billion. And I'm happy to report that we won an additional $2 billion including an estimated impact from the Medicare order selling lives. And when you include the wrap of the Medicare business acquired from Universal American, the total 2012 revenue impact will be approximately $12.3 billion.
Let me clarify Universal American impact a bit further since it is a bit complex. As you heard from Dave Denton, we took over the PDP entities from Universal American in April of 2011 and booked those revenues during the balance of this year. The Universal American wrap includes the wrap of those premiums, as well as the PBM contracts associated with Universal American, which we are taking over on January 1, 2012. These contracts are essentially a claims processing service, which has limited margin but provide a nice synergy from the Universal American acquisition.
Some of the flagship accounts that were added in this selling season are listed on this slide. Many of you have heard about FEP and CalPERS. It's been commented on a lot by Wall Street and in the press. So I won't expand on them here. MetroPlus is a managed Medicaid health plan in New York. Lilly, Siemens and IBM are examples of leading employers who went through an RFP process during this year where we ultimately were successful.
It is interesting to note that several of these new customers have decided right out of the gate to implement Maintenance Choice to replace their existing mail-order benefit. This is a new and very encouraging pattern for us. In the past, the adoption of Maintenance Choice has been an add-on to existing customers. The new customers here have clearly recognized that Maintenance Choice adds flexibility for their members while preserving the co-pay and pricing benefits of mail order. And I'm going to talk a little bit more about Maintenance Choice in a few minutes since you heard from Larry that we're planning to take it to the next level.
Now when we combine the 2011 and 2012 selling seasons with the Universal American acquisition, we have increased our book of business by 50% compared to 2010. And the major building blocks of that growth are the strategic alliance with Aetna, the acquisition of Universal American's PDP business, organic growth in both Medicare and Medicaid, net new business in the employer segment and we include in this number government employers like FEP and CalPERS. We have had some net losses in the health plan segment during this timeframe, primarily due to consolidation, which has offset the new sales.
I'm confident that we can now declare that we are back on track, we're gaining market share and any questions around our integrated model, I'm very pleased to say are behind us.
The 2013 selling season is already well underway and with all the distractions in our industry others are facing, we look forward to a very active and successful year. We have every intention to maintain the strong momentum we are now enjoying in the marketplace.
Let me now turn to some of the key growth segments of our business, and begin with Medicare and Medicaid. Clearly, one of the most profound changes in our industry is the growing importance of Medicare and Medicaid as payers for prescription drugs. If you look back a decade, Medicaid represented maybe 10% to 15% of the drug business, and Medicare was a very small factor as a payer of outpatient subscription drugs. Looking to the end of this decade, forecast vary somewhat, but maybe 2/3 of all prescriptions will be paid by Medicare and Medicaid. And with the introduction of Medicare Part D, traditional employer-sponsored retiree drug coverage, which has been the core of the PBM business for a very long time, will be replaced by Medicare-funded programs.
And this will develop in several different ways: EGWPs, which combine Medicare funding with employer-sponsored wraparounds; PDPs, where retirees are individually selecting coverage, often with a defined contribution from their former employer; and MAPDs, which are comprehensive healthcare offerings sponsored by health plans and funded by the government.
Healthcare reform will reduce the tax benefits beginning in 2013 for companies to continue sponsoring their own programs, which will accelerate the migration to Medicare. And I think, as many of you know, the government subsidizes the Medicare benefit for low-income people, which are then assigned to plan sponsors based on a competitive bidding process.
We are very focused on building a leadership position in this growing segment of the market. The Universal American acquisition, combined with Caremark's legacy of PDP business, gives us approximately 3.3 million covered lives where we are the insurer. In addition, we support approximately 40 clients who sponsor their own PDP and MAPD programs. And we continue to support many employer customers with their own retiree programs who receive the RDS payments from the government. This is, as I mentioned, a declining business which eventually will be replaced by the 2 above. The regulatory requirements, combined with the complex benefit designs for Med D, create new and extraordinary demands on systems and operational effectiveness. We're continuously investing in our systems to achieve state-of-the-art capabilities to support this important market segment. And these escalating requirements have led to industry consolidation, and we expect that trend to continue.
Here is how it looks in figures. On the left, you can see the growth by segment in the Med D space. Over the next decade, the overall growth in Medicare drug spend is expected to be about 8.5% per year, with PDPs and EGWPs growing at 13% per year. And as you can see, PDP plans in blue on the left-hand chart are expected to become the dominant segment in this business. RDS, as I mentioned, is a shrinking business that we expect to ultimately disappear. On the right, you can see the estimated number of lives served by the various competitors. The blue section of the bar reflects sponsored PDP lives. The pink represents Medicare lives managed for health plan customers. UnitedHealthcare is the overall leader in this segment through their OptumRx subsidiary and their partnership with AARP with a total of about 7 million members. We are second with a total of 5.7 million members. These figures are as of mid-2011 and do not include the 2012 low income order assignments to us and to our health plan clients nor the annual enrollment period, which is currently underway. And I'm very pleased to report that we expect to receive approximately 160,000 order signed beneficiaries in this coming year.
Similarly, Medicaid represents a very significant growth opportunity for us. There are 2 forces driving the growth in this area. Under healthcare reform, approximately 15 million people are expected to be added to the Medicaid population, and as a result, receive coverage for drugs, which they don't have today. Secondly, many states are likely to convert their Medicaid programs from fee-for-service reimbursement to managed Medicaid plans. Fee-for-service programs have traditionally not been a PBM opportunity. It has been more of a cost-plus government transaction processing service. Managed Medicaid plans, on the other hand, outsource the pharmacy component to PBMs.
A recent study published by the Lewin Group suggested significant cost savings may be available to states by converting to managed Medicaid programs. And as a result, several important states converted major populations to managed Medicaid this year, which contributed significantly to our growth, and we expect this trend to continue as many states struggle with our budget deficits and will pursue similar solutions.
Here are the numbers. As you can see, the overall growth for managed Medicaid drug spend is going to be 16% per year. During this timeframe, managed Medicaid, as a percent of total Medicaid, is expected to grow from 30% to 50%, leaving room for substantial growth beyond that. In this segment, as you can see on the right, CVS Caremark is the leader followed by OptumRx. And our leadership position here is the legacy of CVS's acquisition of Longs Drug Stores in California. Longs' PBM, RxAmerica, was specifically focused on the managed Medicaid business. We have now integrated our RxAmerica into Caremark and expanded on their franchise in this area. As you saw in one of the earlier slides, this segment was an important contributor in this year's selling season, and we expect continued activity in this segment over the coming years. In 2012, we expect revenues for managed Medicaid plans to be approximately $4 billion.
As we discussed, the growth in Medicare and Medicaid, it's important to recognize that the business model is quite different in these segments compared to the traditional PBM business. In other words, how you make money and where you make money is changing as a result of the growth in these areas. If you oversimplify it, the traditional PBM model is primarily about mail order and generics. It's about benefit designs, which maximize incentives to use mail for maintenance medication and maximize the use of generics. Both of these tactics save money for the payer and the patient and support margin for the PBM.
Some of these rules don't work as well in Medicare and Medicaid, but there are different ways to earn a profit. First, with respect to mail order, which has been a very strong component of traditional retiree programs, over 30% of revenues, as you can see on the slide, is not nearly as viable in either Medicare or Medicaid. Medicare, while allowing mail order, does not permit restrictive plan designs that maximize mail. So it has much lower utilization on mail order than many commercial retiree plans. And Medicaid has essentially no co-pays for the member so mail utilization is negligible in that segment.
So let me now move to the second part, which is about retail networks. There is a lot of talk right now, as all of you know, about the potential for limited or restricted retail pharmacy networks fueled in part by the Express-Walgreen dispute. And I expect these opportunities to be more fully explored in the upcoming selling season as you already heard, especially if that dispute remains unsettled.
Clearly, the market can be well served with less than the full complement of 60,000 pharmacies around the country, while still providing good access to the consumers. The reality, though, is that so far in the commercial segment of the PBM business, there has been limited uptake of such networks, maybe 5% as you can see from the slide.
In Medicare Part D, the regulations allow for preferred networks with co-pay benefits for selected pharmacists which helps bring down the premiums for the members. Humana appears to have had good success this year with the joint offering with Walmart, as some of you may have seen. And the current enrollment period for Med D has now multiple entrance with a similar model including our own co-branded offering with Aetna, which you may have seen advertised recently during this enrollment period.
In managed Medicaid, the regulations permit actually restricted networks while certain pharmacies simply are excluded for reimbursement in return for deeper discounts from the remaining pharmacies in the network. And as a result, 7 of the large managed Medicare plans have restricted networks in place today. So these are clearly very interesting opportunities for us as an enterprise, which we are uniquely positioned to take advantage of because of our integrated model.
Thirdly, in both Medicare and Medicaid, the plan designs drive higher utilization of generics, which reduces cost and improves margin. And as you can see on the slide, the generic dispensing rate in Medicaid is nearly 15 percentage points higher than in the commercial business.
So to summarize the last 3 slides. The loss of margin from reduced opportunities to drive mail order in Medicare and Medicaid is offset by greater opportunities to participate in preferred or restricted networks, as well as higher utilization of generics. And the Medicare PDP business introduces an additional source of margin from the insurance aspect of the business. This profit stream is obviously predicated on successful underwriting and the ability to predict the drug utilization for the insured population. Both CVS Caremark's legacy PDP business and Universal American have strong track records in this regard.
The third growth area I want to comment on is the specialty pharmacy segment. And this slide shows the disproportionate growth of both generic drugs and specialty drugs in the PBM business. Overall, the PBM business is expected to grow at 7.5%, with generics and specialty growing at 17% and 12%, annually.
Larry and Dave have commented already on the importance of generics to our business, both on the retail and the PBM side, so I won't dwell any further on that here but instead focus on the specialty part of the business.
First, to level set. This segment is made up of complex medicines to treat serious disease such as cancer, multiple sclerosis, hemophilia, for example. And these drugs are typically infused or self-injected. They, many times, have to be refrigerated, and they often create side effects, which can cause patients to fall off therapy unless they get ongoing support from pharmacists or nurses. And they are typically extremely expensive, many thousands of dollars per month, and patients generally have to go through a prior authorization process to qualify for reimbursement. It's a labor-intensive, high-touch patient support and dispensing process. This happens to be the most vibrant part of the pharma R&D pipeline. The majority of compounds, which are pending FDA approval or are in late-stage clinical trials are large-molecule injectable or infused medicines, which fall into this category. And it's an area of increasing concern to payers as they try to strike the right balance between providing access to important medicines while ensuring utilization is appropriate and that costs are managed as closely as possible.
Caremark has been a leader since the inception of this business, and it is rapidly becoming a significant contributor to top and bottom line growth. As you can see, this is expected to be a $15 billion business for us, growing at 17% annually in the past 2 years as we have added PBM lives and the category itself has been growing. The bulk of this business has historically been dispensed through specialized mail order pharmacies, and the balance is dispensed by network pharmacies and CVS. We are focused on several opportunities to advance this business. As part of our streamlining initiatives, we are consolidating the fulfillment and the clinical and customer service operations into fewer, more efficient facilities and leveraging the overall scale we have in the PBM business.
Secondly, we're upgrading the technology in this field to improve productivity and customer turnaround time. And thirdly, we're expanding this business to introduce programs to manage the portion of drugs that are billed directly to the payer under the medical plan and falls outside of the traditional PBM relationship. And this involves primarily injectable drugs that are administered in clinic settings, and the drug is then billed by the physician to the payer.
Because these charges fall outside of traditional PBM contract terms, this area has not received management focus comparable to the rest of the PBM business in terms of either contracting for better prices or clinical protocols to optimize treatments. We believe that savings of 15% to 20% can be generated by greater focus on this area. We've been developing this program during this past year, and our clients have responded very favorably to it, so we expect to have it operational in early 2012.
We have a unique opportunity to improve our value proposition in the specialty field by utilizing our integrated assets, the CVS retail pharmacies, as well as the MinuteClinics. Today, we serve specialty patients through multiple channels, primarily the mail order pharmacies and apothecaries. By more tightly coordinating these entities -- by more tightly coordinating these member touch points and including a subset of CVS retail pharmacies, much like MinuteClinics are established in close to 10% of CVS retail stores, we can make a meaningful improvement in results for patients and clients. And this is another example of how we are reinventing pharmacy to help members improve their health.
This integration will provide patients with a truly seamless experience from initial intake through dispensing and adherence management. It will give patients easier access to their medications, as well as personal access to expert clinical pharmacists. Specialty patients will have more flexibility to choose between receiving their medications through the mail or picking them up in person, much like we've done with Maintenance Choice for regular maintenance medications. And of course, this also enables us to reduce cost through leverage of our entire infrastructure.
As many of you know, we embarked over a year ago on an extensive overhaul of Caremark's internal infrastructure, rationalizing our mail order pharmacies, clinical operations and call centers, as well as our claims adjudication systems. I'm happy to report that these programs are well underway. They're on track with respect to implementation milestones and expected financial benefits, and they have not led to any disruption of our client service or impacted our selling season. The projects are expected to yield cumulative savings of more than $1 billion over 5 years, and they will be completed by mid-2013. In 2012, savings will exceed cost and steady state benefits will be achieved in 2014 and beyond. This project is made up of multiple work streams which are managed and coordinated under one consolidated project management process.
This slide highlights some of the key initiatives, a new state-of-the-art mail order pharmacy outside Chicago and expansion of our Wilkes-Barre, Pennsylvania pharmacy, significant progress with the platform consolidation with 2 waves completed and the third to be completed by year end, and a new website platform with expanded functionality and mobile access, just to mention some of the progress to date.
Finally, I want to touch on some of the emerging capabilities which will differentiate us in the marketplace, bring additional value to customers and drive growth in future years. The major initiatives fall into 2 categories: those that are specific to the PBM; and those that capitalize on CVS Caremark's integration sweet spots, in other words build on the retail pharmacy capabilities and MinuteClinic.
In the PBM-specific category, I mentioned briefly a moment ago the medical benefit pharmacy management initiative. You may also have heard us talk in the past about our work to introduce genetic testing to improve precision of certain drug treatments. This program was introduced in 2011. It's expanding in scope over the next year, especially as Plavix is coming off patent. It is the beginning of a critical long-term capability to apply genetic information to ensure better patient outcomes. We're also introducing a program this coming year to better coordinate drug treatments for patients that are discharged from hospitals to reduce the chance that they will have to be readmitted to the hospital as a result of uncoordinated prescribing.
In terms of the integrated assets, I will talk in a minute about our enhanced Maintenance Choice program, which we refer to as Maintenance Choice 2.0. Troy and Andy respectively will talk about the expansion of the Pharmacy Advisor program and the collaboration between Caremark and the MinuteClinic.
As many of you know, our Maintenance Choice program, which was introduced a few years ago, has been a very successful program for the company. This program extends the mail-order benefit for Caremark members to use CVS retail stores for 90-day prescriptions with the same co-pay for the member and pricing to the payer if they use their CVS Caremark retailer mail for their maintenance medications. We now have clients representing 10 million lives using this program, and as I mentioned earlier in my speech, a number of the new clients from this year's selling season are adopting the program on 1/1/2012.
The Maintenance Choice 2.0 improvements are designed to make our integrated capability more broadly available to the Caremark book of business and make it easier for consumers to use. As we introduce these enhancements, the runway for program adoption among our current clients represents over 30 million members in total, and we expect to dramatically accelerate adoption among these clients as we head into 2013 and beyond.
So what are we talking about with Maintenance Choice 2.0? First, in terms of benefit design, eligible members with a co-pay advantage for 90-day prescriptions will now be able to use CVS retail with the same co-pay as mail order and the plan will be charged the lower mail-order price. Our Maintenance Choice clients can achieve this today if their plan has a mandatory plan design in place, but we are now extending the mail-order pricing at retail to qualifying clients without mandatory designs to drive savings for payers and their members, all while growing our share. In other words, with Maintenance Choice 2.0, eligible members can continue to use other network pharmacies for 30-day maintenance medications, but they will then have to pay the higher co-pay at retail and the plan will pay the 30-day retail reimbursement. This offering broadens the universe of payers who are likely to adopt the program, especially allowing those players who don't want restricted designs to achieve some of the savings that Maintenance Choice can offer. Of course, our current Maintenance Choice clients and members will continue to maximize their savings with the more restrictive plan designs they have already adopted since that will maximize the use of 90-day pricing.
Second and just as important, we are significantly enhancing the member experience for all of our Maintenance Choice clients. For instance, we will allow consumers the flexibility to choose home delivery or pickup at CVS at any time, much like today where you can move a prescription from one CVS retail pharmacy to another. Another example will be allowing eligible members to get access to Customer Care and counseling from a pharmacist, either through the call center or at the store regardless of whether they are using retail or mail. The net of all of this is more flexibility and easier access to 90-day supply for the member and lower cost for the payer, very much the central theme of CVS Caremark.
The overall improvements to Maintenance Choice are designed to enable eligible members to order their prescriptions, fill their prescriptions, ask questions about their medication, track delivery of their prescriptions and pay for their prescriptions any way they want. These enhancements give members what they've told us they're looking for: control, flexibility and financial value.
I'm now going to demonstrate how this will work. In this case, how you order a refill. So here's my iPad with the CVS Caremark App on it. And this capability will also be available on other mobile platforms, as well as on our website or through Customer Care. When a refill is due, a message will pop up, and if I look at the message, I see the details about my prescription. In this case genetic atorvastatin. In the upper right-hand corner, I can now select if I want home delivery or pickup at the CVS store. So I will pick home delivery, of course. And I can decide if I want to have the prescription mailed to my home or to my house in Florida or I can add another address if I want it to be mailed somewhere else. And I can then submit the refill and get a confirmation. If instead I want to go to a CVS retail store to pick up the prescription, I can just click on that and my preferred CVS/pharmacy is in South Dartmouth, Massachusetts, but it can also pick any other CVS retail store in the country. Pretty slick, I think.
For all of you who are experienced e-commerce users, this may not seem that much out of the ordinary, but I can assure you that this is a huge step forward compared to what's available anywhere today. It goes without saying that other PBMs who lack integrated mail and retail capabilities will have a bit of a challenge to come up with an offering that provides comparable convenience, service and cost savings.
So to summarize, we have a lot going on at Caremark, we have a strong team who is very motivated to push ahead and take the company to new levels. Our priorities for the next year will be: continued momentum in new business wins and retention; develop and upsell innovative offerings that leverage our integration sweet spots; drive growth in 90-day Maintenance Choice; focus on growth in Medicare, Medicaid and specialty; and successfully execute on the PBM streamlining initiatives. Our team is committed to deliver on the expectations we have set for our shareholders.
Thank you very much, and happy holidays to everyone. We will now take a quick, I guess, a 15, 20-minute break and then continue. Thank you.
Larry J. Merlo
Okay, if we can get started. I'm going to take the opportunity to actually introduce our next speaker. As I mentioned earlier, the newest member of our management team, Mark Cosby, our Retail President. And Mark joined the company only a few months ago after serving positions as President of Stores at Macy's, and prior to that, senior positions at Sears and KFC Yum! Brands. So we're excited to have him here. He's gotten off to a great start. And let me turn the podium over to Mark.
Mark S. Cosby
Thank you, Larry. Welcome to all of you, and certainly good morning. It is great to be here as a part of the CVS Caremark team as we work together to drive long-term consistent growth. As Larry mentioned a couple of seconds ago, I joined the CVS Caremark team 3 months ago. So let me start by answering one of the questions that might be top of your mind. What enticed me to join the CVS team? First of all, this Pharmacy business is a great place to be. You've heard all the reasons, but some of the key industry tailwinds are worth repeating. The generic wave, the aging population, health care reform and the fact that we can influence market share through our face-to-face interactions all drive tremendous growth potential. And we are, as CVS Caremark, uniquely positioned to deliver against that potential.
The other big attraction to joining CVS is the tremendous growth history and the future growth potential. We've had strong results for many years as best evidenced by the dramatic improvement in market share shown here. We have improved our share by 6 points over the last 7 years from 13% to 19%. The good news is that there is tremendous growth potential in front of us, and I'm excited to be here leading the team to deliver against that potential. My 3 months with CVS have been spent with 2 big priorities in mind: Priority one has obviously been to learn; priority two has been to work with the team to develop our long-term potential growth plans. So today, I want to share with you how we'll drive growth over the next several years.
We're implementing strategies that will drive both the front and the Pharmacy business. We will drive our front store growth through unique customer insights with our ExtraCare card, enhanced digital capabilities, store clustering through My CVS, differentiated store brands. We will drive the pharmacy growth through superior customer service, increased access, patient care improvements and capitalizing on our integration sweet spots with MinuteClinic and Caremark. Let's go deeper into each of these initiatives, starting with the front store and our unique customer insights.
Our ExtraCare loyalty program is the foundation of our customer insights. We have the largest and most successful loyalty program in the retail world. We have a 14-year history where we have issued 275 million cards, which is more than 5x as many as our next closest competitor. We have 69 million active cards and the best evidence that our customers truly love this program is the fact that 67% of our transactions and 82% of our front store sales go through the ExtraCare program.
We introduced ExtraCare loyalty back in 2001 after several years of careful study and analysis. This chart provides a great snapshot of the 14-year ExtraCare history and it defines the features that make the tool so unique in the retail world. The basic premise is, the customer sign-up to become ExtraCare members, we then provide them with the appropriate offers and spending-based rewards to entice them to spend more and to visit more often. We have developed many different offer vehicles over the years that have improved our ability to drive loyalty from direct mail, to register receipts, to e-mail, to the most recent innovation care -- innovation ExtraCare card center.
Our latest innovations have been our the Beauty Club, and most recently, the send to card reward feature that we just rolled out this past year. That allows our members to receive their rewards directly onto their card as opposed to carrying paper receipts. This long history provides us with a tremendous competitive advantage as we gain valuable insights that help us drive our business and work with our suppliers in mutually beneficial ways. There are big benefits for being an ExtraCare customer, it is truly a big win for our customers.
ExtraCare is a win for CVS as well because members shop more often and they spend more each time they shop. In fact, they buy 85% more items per trip than our other customers, 4.4 items versus 2.4 items. This obviously results in spending more money per trip. The real science to ExtraCare program is that it dictates where we invest to optimize profitability. We deepen our investment in our top customers, we invest to move our middle customers to become our top customers, and we limit the investment in what we call our cherry pickers, or the customers who use us almost exclusively for a promotion and thus are not very profitable.
We still invest in general merchandising via our newspaper circulars and our TV advertising, but we are able to target our ExtraCare investment with our best customers to encourage them to visit us more often. This targeted strategy helps us to optimize both our sales and our profits. The fact is, that no other pharmacy retailer can deliver on this formula for success.
The good news is that there are still plenty of room to gain greater share of our top customer's wallet. For example, our top customers spent 43% of their health and beauty spending with us, which means they spend 57% in other places. The opportunity is even more extreme in the beauty world, where they spent 27% of their wallet with us and 73% of their wallet in other places. So there is a big growth opportunity in front of us by leveraging the power of the ExtraCare card to increase the spending of our middle and top customers.
ExtraCare is also allowing us to address the big newspaper challenge that faces us because of reduced circulation, limiting the power of these circulars. We will still promote via the circular in a very big way in the coming future, we are reducing pages over time to fund our digital promotions. We will take another big step by promoting via a personalized circular in a 2012 pilot. This personalized circular will allow us to target our ExtraCare users via e-mail or via our .com site, with offers specific to their needs based on their front store purchasing history. This is just one more big step in front of us to improve our sales and profitability driving power of our promotions.
We do have a very rich loyalty program history and the program has become a true competitive differentiator for us. We are not resting on this history as we have an aggressive plan in place to take our leadership position to an even higher level. As we do every year, we will continue to refine our promotions to optimize their sales and profit driving power. We will define and enhance the Beauty Club that we started this year. The beauty business is a big priority for us, and we now have 10 million folks that we signed up just in this past year, and we will work over the course of this next year to enhance the offering and encourage more repeat business.
We will also pilot a healthy rewards program in 2012. The program will provide added incentives to encourage even greater pharmacy loyalty. If successful in the pilot, we plan to roll it out nationally in 2013. ExtraCare has been a true differentiator for us, and we will take the sales driving power of this tool to an even higher level in the coming years.
Our digital program will benefit from the deep understanding of our customer base that we gained through ExtraCare. We have a plan in place over the next couple of years to take our digital program to a new level through 4 components: First, as previously mentioned, we will be able to personalize our advertising message to our ExtraCare members based on their past front store spending profile. We will do this via personalized e-mail offers. We will also do this versus the .com site. Our members will be able to sign in and all they need to know will be available to them on their personalized dashboard. Their pharmacy status, their ExtraCare reward status and personalized offers dictated to them based on their spending history.
Second, we will extend the capabilities of our digital with the concept that we call, endless aisle. We will sell products on our site that we do not sell in our stores, but they fit logically within the brand umbrella of CVS.
Third, we have an aggressive mobile plan in place. The plan will include a mobile wallet pilot, real-time inventory checking capability for all of our stores, a drug interaction checker and a rollout of our mobile personalized circular.
And finally, we will continue to take big steps forward on the social media front. We have been very creative in the use of our social media. Recently, we launched a campaign to encourage our customers to use their ExtraCare rewards. This advertising was only available via the web and it did go viral. Here is an example of one of those web-based commercials.
Kind of a fun commercial, but it also was a huge hit. There were 600,000 video views and 32 million PR impressions came off of this campaign. And the video was also part of a campaign that led to a 6-point improvement in our ExtraCare coupon redemption rate and 1 million members used their card for the first time in terms of rewards. So our powerful customer insights, ExtraCare and our digital capabilities will be big future growth drivers for us. Let's now review how we will drive sales through our My CVS program.
The goal of My CVS is to drive sales by matching our store's needs to the needs of our customer in each trade area. This starts through the power of our customer insights, and through these insights, we influence each of the customer touch points, from the product, to the pricing, to the store environment, to the service, to the pharmacy. The reality is, that one size does not fit all in retail these days. Every store has its own customer profile, and we can drive sales by better meeting customer needs. We will address this challenge through a clustering approach. Our initial foray into My CVS started in 2009 as we varied assortments based on trip-based segmentation of each store or how they are shopped based on the neighboring competitive set. We rolled out 2 different clusters. We rolled out the food convenience cluster and we rolled out the Urban Cluster. Let's take a few minutes to review the success of our food convenience and Urban Clusters.
Our food convenience cluster was rolled out to 4,000 stores over the course of 9 months, starting in 2009. We doubled the consumable assortment space and we remodeled the stores. The remodels resulted in a 12% lift in trips. Our Urban Cluster was also very successful. The Urban Cluster can be viewed as the general store where we implemented this cluster in stores with limited food competition. The cluster focuses on expanded grocery, the addition of fresh on-the-go foods and we have implemented self-serve checkout units. The results have been impressive as our sales went up 8% and our profits went up 9%. We will have 400 stores in place by the end of this year and we will roll out another 50 in the first half of 2012. This Urban Cluster has been a big win and it has taught us the power of My CVS in store clustering.
Beyond trip-based segmentation, we will expand our My CVS segmentation approach with tests that will be implemented in 2012. We will test several demographic-based segmentation approaches. Our first 2 demographic-based clusters will be Hispanic and various clusters focused on income extremes. We will also test several volume-based clusters, including a program for our top pharmacy stores and a program for our top beauty stores. We are very bullish on this My CVS program, and we believe that it will be one of our big sales driving competitive differentiators as we move into the future.
Let's now shift gears to talk about our store brands. Our store brands are a key front store sales driver for us. They represent 17.5% of our sales and 32% of our front store growth over the last 4 years. As you can see, our leading store brand category is healthcare with 35% store brand share. There's big opportunity for growth in the other categories, as you can see here, and we have been adding 800 to 1,000 new items per year to address this opportunity.
We remain committed to our goal of having store brands climb to 20% of our sales. This increase will help both our sales and our profit growth. This store brand growth will require creating new brands that are differentiated versus other retailers. A good example of this differentiated approach is the recent Salma Hayek launch. The brand is positioned to become a broad-based beauty line customized to address skin care, body care, hair care and cosmetic needs. Salma was personally involved in the design of the concept, borrowing heavily from the recipes of her grandmother.
The results have been impressive. In fact, it has been the #1 new store brand launch in recent history. A very good sign is that 50% of the Nuance customers are new to CVS beauty. The brand is broad-based in its appeal, but it does over-index with our Hispanic customers, which is good since the Hispanic population is a big part of our future growth potential. We are committed to growing this brand, and we have plans to double its size in 2012.
A good indicator of the quality of this brand is the fact that it won the Women's Wear Daily Beauty Inc. 2001 new cosmetic brand of the year award. We plan to leverage the learnings from this new product and launched several new differentiated brands in other business categories.
So we do believe that we have a solid plan in place for growing our front store sales with ExtraCare, enhancing digital, My CVS and differentiated store brands. Let's now look at how we plan to grow our Pharmacy business through superior service, improved access, patient care improvements and leveraging our integration sweet spots.
We are committed to driving growth through improved customer service. Our Triple S program measures the percentage of customers who give us an excellent or top box rating. Our new pharmacy system and processes led to our ratings improving by 4 points over the last 5 years. This improved service is important because we know our top stores from a service perspective are also our top sales growth stores. Our top stores have driven script growth of 2.6% and all other stores are one point below that. We will take our stores service to a new level through the development of what we call our my customer service program. This program will teach and encourage our associates to proactively reach out to our customers because we know that, that proactive service will lead to improved customer satisfaction, and ultimately, improved sales growth. We will develop and pilot this program in 2012, in advance of a national rollout in 2013.
Another sales driver for us will be to continue to enhance our access via new stores. We do provide great access today through our national presence. We will continue to improve our presence by consistently adding 2% to 3% square footage growth with a focus on filling in existing top markets and on entering new markets. We have made big progress entering new markets as we've introduced our brand to 9 markets since 2009. These new markets such as Puerto Rico, St. Louis, Omaha, Tidewater and Tulsa, have been very successful versus our pro forma expectations.
Let's now shift to the role of our pharmacist. Our pharmacists have helped us take significant strides through our Patient Care Initiatives and in helping our customers move towards better health. We have been evolving our pharmacist role over the last several years to deliver on this better health expectation. In 2006, we introduced Medicare Part D program with a comprehensive launch. Our pharmacists are trusted advisors and they continue to educate millions of Americans about their options even today.
In 2009, we launched our immunization program. Today we have 18,000 trained pharmacists who can do immunizations, and that training has led to doubling our flu shot program versus last year.
In 2010, we launched our CustomeRx Savings Initiative. The program encourages patients to switch to lower-cost drugs that have the same benefit as the current drug that the patient uses. This service has provided an average savings of $395 per year to our customers. This evolution toward broader services is helping our patients and increasing our pharmacy share. Let's spend a few more minutes on our Patient Care Initiative, generic substitution and our Pharmacy Advisor program.
Our patient care programs are unique within the retail world. We have a compressive plan in place to address non-adherence. Our initiatives help our patients on their path to better health and they improve our pharmacy service. We have launched 5 different programs that directly address the key facts or issues that often make adherence such a challenge for our customers. We launched New Script Outreach, First Fill Counseling, Adherence Outreach, Refill Reminders and ReadyFill. Our New Script Outreach program addresses the fact that over $40 billion is spent a year on unnecessary hospitalization, often due to patients not staying current with their medicines. We call patients who have not picked up a prescription to encourage them to stay on their regimen.
Our First Fill Counseling program addresses the fact that these patients who start on our maintenance program will discontinue after their first refill. We proactively counsel patients who are taking a new drug to ensure that they understand the benefits and rationale for staying on the drug. Our Adherence Outreach programs address the fact that 3 out of 4 people will stop their medication within the first year of treatment. We call our patients to address the fact -- we call our patients who have stopped to taking their medication to encourage them to get back on the program. Our Refill Reminder program addresses the fact that fewer than a half of our patients take their doses as they are prescribed. To address this, we inform our patients when their scripts are due for a refill. Our ReadyFill program addresses the fact that patients who use multiple pharmacies are 5x more likely to stop their therapy. This program automatically schedules script refills when they're due and informs patients when they are ready.
All of these programs help our patients stay healthy and they drive results. We have conducted over 150 million interventions since 2008, and these interventions are driving powerful results. CVS now has the best in class adherence rate versus top retailers, as shown here through the MPR for diabetes, dyslipidemia and hypertension treatment. These adherence programs are a true differentiator and they drive results for patients, payers and for CVS.
It is very true that partnering with Caremark has helped us better navigate the healthcare environment. One example is how the partnership has helped us deliver best-in-class generic dispensing rates. Our generic dispensing rate, as measured by the GSR, has historically been behind the top 3 retailers. By 2009, we had the top generic dispensing rate, and we have kept that superior service level throughout 2011. The partnership with Caremark has also led to our successful Pharmacy Advisor program. Here is an example of how it works.
An employer with 100,000 employees might have 6,000 folks with diabetes, 4,000 of which have opportunities to improve their adherence or have gaps in care. Our pharmacist will engage these patients regarding 2 important points: First, adherence to their currently prescribed drug regimen; and second, the identification of any potential gaps in care for follow up with their physician. As an example, a diabetic should be on an ACE inhibitor to protect their renal health. As a result of this engagement, we will resolve an average of 1,200 issues for this population, resulting in $3.3 million cost reduction for our partners. Troy will show you later today that this Pharmacy Advisor program has lowered the cost of past-due diabetes prescriptions and they will have increased our script results associated with diabetics. This is a true win-win for our patients, our payers, for Caremark and for CVS/pharmacy.
As Troy will cover later today, the goal is to extend this program beyond diabetes and into cardiovascular disease in 2012. The program will extend to more disease states in 2013 and beyond as part of our Pharmacy Advisor 3.0 initiative.
You might be asking yourself, how can your pharmacist get everything done that I'm describing here? Great store service, adherence to outreach programs, immunizations and Pharmacy Advisor. The number one response is that we provide our pharmacy teams with the tools and the technology that they need to deliver on all of these objectives. We have an industry-leading pharmacy system that helps our pharmacist deliver results.
The other big answer is that our pharmacist teams are very engaged in the CVS business, and this engagement is a real competitive advantage. In fact, our pharmacists enjoy an expanded role because they became pharmacists in the first place because they could take care of patients. This chart shows the percentage of associates that answer a 5 out of 5 on the employee engagement survey. The chart compares CVS in red to the retail normal for pharmacists in blue. You will note that the red CVS bar is far above the retail norm. Let me read one example question. "I feel like I'm an important part of CVS." Our CVS pharmacist responded with a top box rating 4x more often than the retail norm. Our pharmacists were 2x more favorable for all of the other questions. This associate engagement is a true competitive advantage that allows us to ask more of our team and be confident that they will deliver.
As we move forward, we have a strong game plan in place for building on our true strengths. We will continue to capitalize on generic wave. We will continue to leverage Maintenance Choice to help our customers lower their costs. We'll expand our successful patient care programs. We'll expand Pharmacy Advisor to new disease states. We will take our store service to a new level through our program called my customer. As I mentioned earlier, the program will teach our associates how to proactively engage with customers so that we improve customer satisfaction and drive sales results. We will provide improved access through new stores and through MinuteClinic expansion. We will also continue to evolve our store prototype to help us better take our customer down the path towards better health.
This is a strong game plan that will build upon our past success and help us get to the next level. As I shared with you earlier, our strategy has been successful as best evidenced by our consistent market share improvement. We believe that our strategy and position will continue to drive market share improvements over time. This share improvement is how we measure success, and we are committed to delivering upon this expectation.
In summary, we are reinventing pharmacy for better shareholder value. We have a history of innovation and market share gains. We will leverage ExtraCare to provide advanced customer insights and to grow our business. We will also expand our successful My CVS clustering initiative to drive sales by matching the needs of our customers to our stores. And we will reinvent the pharmacy through our outreach programs and through improved customer service. Yes, we will be the best in class retailer. The integration with Caremark and MinuteClinic will also help us provide true differentiation. We have the initiatives and we have the positioning to drive long term consistent growth.
And with that, I'd like to thank you, and turn it over to my partner, Andy.
Andrew J. Sussman
Thank you, Mark. Good morning, and happy holidays, everybody. It's a pleasure to speak to you this morning about the important work that we're doing at MinuteClinic to reinvent pharmacy by providing convenient access to high-quality, affordable health care.
This morning, I'll start by briefly discussing the severe shortage of primary care that we face, following up on Larry's comments, and describing why we think this problem is likely to worsen in the coming decade. Then I'll review the MinuteClinic model of care and the significant progress we have made at expanding the scale and scope of our practice. Then I'll turn to 2 of our key strategic objectives: Integration sweet spots, the collaboration we are establishing with Caremark clients to provide affordable healthcare solutions and the formal affiliations we are establishing with major health systems around the country. Sounds like I'm going to cover a lot for a 15-minute talk. But then, this is MinuteClinic.
We face a profound shortage of primary care in our country with a shortfall of at least 45,000 primary care physicians in 2020. Why? Well it's both supply and demand. For more than a decade, declining numbers of young physicians have selected careers in primary care. At the same time, established physicians are retiring in increasing numbers or entering more limited concierge-style practice. Given the long training cycle, increasing our PCP supply will take many years. At the same time, we face enormous medical challenges in our country. An epidemic of obesity affects nearly a third of our citizens and related diabetes could impact 75 million Americans in 10 years. Our population is aging with 10,000 Baby Boomers turning age 65 every day for the next 20 years. All of this is backdropped to the changes ushered in by healthcare reform. 32 million Americans acquire health insurance coverage beginning in 2014. The challenge is, we simply do not and will not have enough primary care physicians to meet all of these urgent medical needs.
The PCP shortage is already having an impact on the waiting time to see a physician. This data reveals the long waits for appointments in several major cities. Massachusetts already has in place the type of universal access to insurance coverage expected to occur nationally under health reform. Massachusetts also has the highest number of primary care physicians per capita in the country. And yet, waits for primary care appointments in Boston can exceed 2 months. Current PCP capacity is being overwhelmed. Emergency room visits in the state have not declined despite universal access to healthcare insurance. If you think of some of the patients we see at MinuteClinic, patients with sore throat and sinus infection or poison ivy, long waits for appointments and a general lack of access to primary care is a real problem. Massachusetts is one of our fastest growing MinuteClinic states.
The shortage of primary care is worse in some states than others. You can see on this map that we already have many states at shortage levels, as indicated by pink and red on this slide based on the number of visits per PCP. The map turns largely pink in 2016. Some of our most popular states like Texas and Florida become red. I describe the capacity problem that Massachusetts already faces. The situation in states like Texas may become even worse. There are as many currently uninsured people in Texas as there are people in Massachusetts. We are positioning MinuteClinic sites in these states to help address these needs. We believe the MinuteClinic model of care can be an important part of the solution. MinuteClinic is the largest retail clinic chain in the country. We operate over 650 clinics in CVS/pharmacy locations in 25 states and the District of Columbia.
I am proud to announce this morning that our 1,800 nurse practitioners and physician assistants have now seen over 11 million patients since our inception in 2000, and over 10 million in the last 5 years. Our leadership team is made up of experienced healthcare executives recruited from leading health systems and seasoned retail executives. We provide walk-in care 7 days a week without appointment, including evenings and holidays, providing tremendous convenience for patients. Our practitioners closely adhere to evidence-based guidelines that are part of our electronic medical records. At MinuteClinic, the care practiced for a particular condition in California is the same as the care practiced in Connecticut.
If patients are overly complicated or do not meet our rigorous guidelines, we refer them to higher levels of care. 80% of our patients use their third-party coverage for services. For those without insurance, and for the growing population of patients with high deductible health plans and other forms of cost sharing, our prices are low and transparently posted at our clinics. We believe strongly in the medical home model. But we also see a large segment of patients, at least 50% as confirmed by a Rand study in Health Affairs, who do not have a physician and are effectively medically homeless. For them, we serve as an important point of entry and access to the healthcare system. We also provide lists of physicians in their areas who are taking new patients for follow-up.
We continue to expand the scale of our practice. This year, we have added 100 new MinuteClinic sites to reach 657 clinics in total. We added to over half of our existing markets and established several new markets. We expect to continue adding clinics over the next 5 years. We will expand to more than 1,000 full-time clinics in 2016. Among our current total, we also operate 104 seasonal clinics. We will be bringing some of these to full-time status.
We feel passionately about clinical quality and patient satisfaction at MinuteClinic. We're accredited by the Joint Commission, the certifying body for major healthcare organizations, and we meet the same rigorous quality and safety standards as other hospital and healthcare ambulatory departments. We are collaborating with the National Patient Safety Foundation on medical literacy. On the patient satisfaction front, we have achieved 94% ratings for overall satisfaction, with equally high ratings of our providers. Net promoter score is a measure of recommendation to family and friends. Our score is 80%, 82% in the most recent quarter. On a par with some of the best-known brands like Apple Computer and Amazon.com, and above other healthcare providers.
We closely follow evidence-based clinical guidelines in our care. For example, this is publicly available data from Minnesota, our founding state and one of our largest markets. The data measures avoidance of antibiotics in the treatment of adults with acute bronchitis. Antibiotics are often unnecessary for these patients. Higher scores are desirable in keeping with evidence-based guidelines. MinuteClinic has one of the highest scores of any provider group, avoiding the use of antibiotics when not clinically indicated.
We are continuing to expand the scope of services we provide. Non-acute care is our fastest growing segment. We expect non-acute visits and non-flu vaccinations to reach 25% of our services over the next 5 years. These services include chronic disease monitoring for diabetes, hypertension, high cholesterol and asthma with associated point of care testing. We also perform physical exams for camps, sports and other administrative purposes.
Why are these non-acute services important for MinuteClinic? Well firstly, the chronic diseases are the leading causes of morbidity and mortality. And with the PCP shortage, our clinicians can help to provide some of this care. Secondly, many of these services for chronic disease are not affected by seasonality. In the case of a summer camp physical or a spring sports physical, the services are countercyclical to the traditional winter flu season. Some of these services are priced below $50, representing a tremendous value to our patients. All clinical information is shared with patients physicians by fax. This will increasingly be done electronically in the future.
MinuteClinic volume and revenue have been growing at a compound annual growth rate above 40% for the past 5 years. We will reach breakeven on an all-in basis by the end of this month. For next year, we expect standalone MinuteClinic revenue between $180 million and $190 million, and to more than double that number by the end of 2016. MinuteClinic helps lower healthcare costs. This is 2010 data from a subset of CVS Caremark employees who used healthcare services. It compares MinuteClinic users to non-MinuteClinic users. The groups are matched for age, sex, health status, health seeking behavior and chronic disease. MinuteClinic users had 8% lower overall health care costs. Emergency department expenses were 12% lower. We found similar results in 2008 and 2009. Now there may be many factors at play here, some difficult to measure despite careful matching. However, we believe MinuteClinic use is both replacing higher cost sites of care for appropriate services and also meeting unmet needs for access to primary care providers, both help to hold down overall healthcare costs.
High-quality and low-cost at MinuteClinic were also confirmed in a Rand study published in the Annals of Internal Medicine. Retail clinics using almost exclusively MinuteClinic data were compared to physician office, urgent care and emergency rooms for the type of patients that we see. On comparisons of objective quality measures, MinuteClinic was as good, if not better, than the other sites of care. This finding is consistent with 2 decades of research confirming the excellent quality of care provided by nurse practitioners and physician assistants. The cost at MinuteClinic was 40% to 80% lower than the other sites of care. Pharmaceutical costs at MinuteClinic were the same or lower than the other sites of care. This confirms tight adherence to evidence-based practice, and the overall value that MinuteClinic can provide.
MinuteClinic is collaborating with Caremark clients to provide high-quality, cost-effective solutions. Providing access to both acute and chronic care for the 60 million Caremark members is an important integration sweet spot for our company. To facilitate this care, Caremark is now offering an exciting new program where clients have the opportunity to change their benefit structure to substantially reduce and, in some cases, completely eliminate co-pays at MinuteClinic in order to lower overall healthcare costs. MinuteClinic also offers flu vaccination programs, biometric screening campaigns, wellness programs and on-site employer-based clinics for Caremark clients. We can play a critical role in keeping Caremark members healthy. We believe easy access to primary care services, in coordination with a patient's primary care medical home, is a way to provide better outcomes and lower overall costs.
MinuteClinic has established formal affiliations with many of the nation's leading health systems. This map illustrates the affiliations we have developed and announced. These are with the Cleveland Clinic; Henry Ford Health System; Emory Healthcare; Advocate Health Care, the largest medical home practice in Illinois; Allina Hospitals & Clinics; OhioHealth; Indiana University Health System; Inova Health System; and many others. On Friday, we announced Carolinas Health System in Charlotte. Later this week, we expect to announce UMass Memorial Health Care in Central New England. These are some of the largest and most prominent medical delivery organizations in the country. Many are led by physicians and medical groups. Taken together, these 14 health systems represent over 100 hospitals and more than 30,000 physicians, and we are far along with numerous other affiliation discussions you will be hearing of shortly.
Why are we forming these affiliations? Well, in order to best address the primary care shortage, MinuteClinic and CVS Caremark more generally will play a collaborative, coordinated and complementary role to the nation's health systems. And in the future, accountable care organizations. These health system affiliations include both clinical and information system collaboration. In many of the relationships, health system physicians become some of the 200 MinuteClinic physician directors. The physicians collaborate with our clinicians and provide quality oversight, teaching and backup. Collaborative clinical and pharmacy care programs are under development.
For example, the work we are doing with One Health System on hypertension, where we provide blood pressure checks and medication adjustments in coordination with the patient's primary care medical home at the health system. We will collaborate with these health systems on various types of both MinuteClinic and CVS Caremark programs to assist in managing patient's medical and pharmacy care needs.
We are also working on integration of electronic medical records to facilitate bi-directional flow of information, such as the work we're doing in Northern Ohio with a Cleveland clinic. This is a computer screenshot from an affiliated health system physician record. Through the integration of electronic medical records, the physician can access clinical notes from MinuteClinic providers, with the patient's permission of course. This facilitates the smooth flow of information. It will lead to the type of collaborative and efficient practice that can provide the best care at the lowest overall cost.
We have also achieved the reverse flow of information to our clinics from a health system medical record to facilitate care at MinuteClinic. We believe these capabilities will allow for development of a broader medical home. They will allow us to help address the shortage of primary care physicians and make best use of our clinics to provide access and lower costs.
MinuteClinic has an important overall role in CVS Caremark. We provide integrated, cost effective solutions in many spheres, many sweet spots. These include chronic disease management, wellness, vaccination programs, biometric screening, injection training and work-site clinics.
We also help provide access and cost effective care for our own CVS Caremark employees. But it is probably best to also hear about MinuteClinic from one of our many wonderful nurse practitioners.
In summary, MinuteClinic is helping to reinvent pharmacy. We provide access to high-quality, low-cost care, that helps people on their path to better health. Our focus is on our core values of innovation, collaboration and especially, on caring.
We plan to grow to over 1,000 clinics by 2016. Our revenue and volume are also growing robustly. Our care is significantly less expensive than alternative sites and very high in quality. We are focused on enhancing access and value for our Caremark clients. And we are establishing collaborative clinical and pharmacy care relationships with the nations major health systems and in the future, accountable care organizations, all to take really great care of our patients.
Thank you very much for your attention. It's now my pleasure to introduce my colleague, Dr. Troy Brennan.
Troyen A. Brennan
Okay. Today, I'd like to just make 4 points about pharmacy care. Better use of medication substantially improves quality, and thereby lowers healthcare costs. Our unique assets deliver unmatched results. We can rigorously quantify the savings for our clients and we have really a host of new ideas for reinventing pharmacy.
As Larry mentioned, the healthcare landscape is rapidly changing. I'll draw on the second of these 4 major policy issues, insufficient focus on what the healthcare system needs, low-cost solutions for chronic disease. The point I want to make is that we are developing solutions for our clients that can improve care for chronic disease and lower their costs in ways our competitors cannot. We'll show you that our solutions are cost effective.
Cost-effective care produces the outcome of good health for less. The best measure of good health is the concept of a quality adjusted life year, or QALY. Cost-effective care produces a quality adjusted life year for a low price. Ineffective care carries a much higher price tag.
For example, a left ventricular assist device for congestive heart failure. Implanting one of these entails spending nearly $1 million per quality adjusted life year gained. It's an expensive solution.
Other things we do produce quality adjusted life years for less. For example, using CT scans to screen for lung cancer will cost us about $100,000 per quality adjusted life year. It's a more cost-effective technology than the a ventricular assist device, but it's still quite expensive.
Using medications in chronic disease is a very cost-effective intervention. For example, lowering the LDL cholesterol in patients with heart disease using statin medications yields a cost of less than $40,000 per QALY. Controlling the blood sugar levels in people with diabetes is just slightly more.
But these estimates were calculated using brand-name drugs. There are generic alternatives available now and in a paper we just published in Health Affairs, we showed that with use of generic medications the cost effectiveness is much more impressive, note the red bars, they're tiny, less than $10,000 per QALY for cholesterol-lowering and those with heart disease. And only about $1,000 per QALY for blood sugar control.
What this means is that for the same cost that we can produce one quality adjusted life year using a left ventricular assist device, we could produce 1,000 quality adjusted life years by controlling blood sugar in people with diabetes.
In a healthcare system that's overwhelmed by cost pressure, it's these kinds of interventions we need, generic medications for chronic disease.
We have 2 approaches to pharmacy care based on our unique assets. The first addresses bad trend, what we call bad trend. It is the traditional PBM approach, where you try to get patients off of unnecessary medications, or move them from unnecessarily expensive medications to generic equivalent medications.
Bad trend programs lower the pharmacy trend, the rate of growth of pharmacy expenditures. What's new in pharmacy care is the good trend focus. That is getting patients on the right medications, so that we can lower overall medical costs.
We know that people do not always take the medications they are prescribed, they are poorly adherent, both Per and Mark talked about that. In general, at 6 months, about 1/2 the people are taking the medications they were prescribed.
We also know that doctors do not always prescribe the medications that patients should be taking for their illness. Rand Corporation and others have estimated these gaps in care to occur nearly 50% of the time in chronic disease. So pharmacy care, good trend addressing adherence in gaps in care, has tremendous potential to improve care and to lower costs as we will see.
Using both medical and pharmacy claims data, we analyzed how much healthcare costs for adherent patients as opposed to non-adherent patients. Others have done similar work in the past, but they didn't use the sophisticated econometric techniques that we did, the editors of Health Affairs agreed, when we published this paper this past January in Health Affairs.
Essentially, we found that adherent patients with these common conditions, high, cholesterol, diabetes and hypertension, had higher pharmacy costs compared to matched non-adherent patients, the green bars. But look at how much lower their healthcare costs were, the blue bars, the return on investment using medications is anywhere from 3:1 to as high as 10:1.
There are even more savings, however, remember that people who are taking their medicine remain well and go to work. So there are savings associated with lower cost of disability and absenteeism.
A study we're doing with Thomson Reuters right now quantifies these savings. The results are striking, shown with the red bars, adding even more net savings from employers. This research shows that pharmacy care is a real healthcare sweet spot, better care that lowers overall costs.
We have applied these insights from our research which will -- we call a pharmacy care economic model. A model which allows us to calculate the financial value of improved adherence, closing gaps in care and better functional status. To develop the model, we surveyed the medical literature on improvements in health outcomes that result from better pharmacy care. The data we collected enables us to estimate overall savings from improvement in adherence and from closing gaps in care. It also allows us to help develop our priorities for interventions.
This table shows the example of heart disease in the pharmacy care economic model. We look at a standard 100,000 member case. We then estimate that prevalence of heart disease, the percent of people not adherent, the number of people with gaps, the financial savings and lower healthcare costs from better adherence and closure of gaps, and finally, the savings from productivity improvements. This leads to the conclusion that if we move to optimal adherence, to medication position ratio of 80%, and close gaps in care, we can save this employer with 100,000 employees, $2.4 million in costs associated with coronary disease alone.
But note as well, it's not all just money. We estimate, we are eliminating 16 heart attacks, 5 strokes and 7 deaths, that's presenting a lot of human suffering.
Putting this together for the 13 chronic diseases that we target in the pharmacy care economic model allows us to demonstrate what better pharmacy care really means for our clients.
Consider the same employer with 100,000 beneficiaries that we just discussed. Their overall healthcare spend is going to be in the neighborhood of $500 million, with about $90 million to spend in maintenance medications. Looking at better adherence, closing gaps in care and increased productivity, we estimate a total of $53.6 million in cost can be saved. This puts a potential for good trend programs in perspective.
The combination of our assets defines our sweet spots, but we have to recognize that individually, each asset has been performing extremely well. On this slide, which is a repeat of one that Mark showed, we see the increasing number of adherence interventions our retail team has been developing over the last 3 years. And it has led to real outcomes. Mark stressed our retail team now performs better in all major chronic disease medication categories than the second place retailer.
A lot of this is attributable to hard work that our retail pharmacy team has accomplished, but to a certain extent, it also represents the cross-fertilization that comes from being a pharmacy care company. Understanding the impact of adherence on healthcare cost helps motivate the retail team's efforts to improve.
The Caremark PBM has been working hard too. This most recent data on how we compare to competitors with regard to adherence shows that. For diabetes, cholesterol medications and antihypertensives we handily beat the competition. The Caremark team has launched no fewer than 6 major programs to improve adherence over the last 4 years. Per alluded to a number of them. We believe we are best in class at retail and at the PBM, but our new programs, taking advantage of the range of our assets, is what we really want to talk about today.
As Larry discussed, our critical advantage is the synergy of our various assets, CVS, retail, Caremark and MinuteClinic. This is certainly true with regard to our clinical efforts to improve pharmacy care, especially on the good trend side. As permitted by privacy law, we use data from our PBM to identify real-time intervention opportunities that we can use in call centers, and especially at the pharmacy counter. We access this data through our Consumer Engagement Engine, which gives each of our healthcare providers the identical view of the patient.
These study results make the case about the critical advantage that face-to-face counseling has over telephonic messaging and how important the voice of the pharmacist is to the patient. For this research, which we published in the American Journal of Managed Care, we reviewed over 60 studies on the effectiveness of different types of communication to help people with heart disease in the meta-analysis, what we found was that the pharmacists at pharmacy communications were much more effective in bringing about change in behavior than other approaches, indeed 2x to 3x more effective.
This makes sense. Pharmacists are highly trusted. Someone in the pharmacy is activated to listen about better healthcare, and a face-to-face consultation is much more impactful than a text message or a phone call.
These kinds of insights led to the construction of our leading sweet spot initiative, Pharmacy Advisor, which Mark and Per have mentioned. Pharmacy Advisor is our condition-based program to go deeper with patients providing advice at each touch point. It's based on sophisticated algorithm driven interrogation of our PBM database to identify patients with specific diseases -- as you know, we started with diabetes -- and provide critical messaging for patients.
On the first level, it is coordinated communications with the patient, these include letters, IVR, web-based messaging, and clinician support on inbound calls. At the next level, we signal the pharmacist at retail our PBM at the time of prescribing. This then leads to direct consultation with the patient about adherence. If there is a gap in care, we talk to the patient and with her permission, the pharmacist contacts the doctor's office. We also provide messaging from the insurers disease manager for the patient.
Finally, for the most complex recently discharged patient, we can provide in-home consultation and support. The Pharmacy Advisor program, intermixing retail and PBM, is a much more powerful approach to pharmacy care and a very good example of how we are reinventing pharmacy.
We can make these claims because we have carefully studied the Pharmacy Advisor program. We did a large -- very large pilot, which we finished towards the end of 2010, to evaluate the program. The results were gratifying.
As you can see from this graph, we matched our intervention group to control patients, all were initiated on medications 6 months before the intervention started. Adherence deteriorates over time at both groups, as a literature would suggest and as you can see on the graph. But then we start the Pharmacy Advisor program and adherence improves dramatically during the to 6 months that we run the program.
Once the program is stopped, adherence drops back to baseline again. We have not seen improvements of this sort before, even though as we outlined earlier we are Best in Class individually in retail and PBM. This is the point, the synergy between our assets really delivers for our clients. We will publish this data in Health Affairs this January.
One more point, this was a program for patients with diabetes. The average patient with diabetes in our store -- is in our store 8x to 10x per month. Our contact with the patient is much broader than other contacts that the patients have with the healthcare system.
Pilot studies were all well and good, but you want to know how the program is performing in real life. We have evidence on that as well. As we rolled out the Pharmacy Advisor program last year at this time we thought that perhaps clients with 1 to 3 million members would be interested, it was a new program and all, but on April 1, as Larry mentioned, we started with nearly 12 million members and have been tracking results since.
In that population of 12 million members, there are approximately 700,000 diabetics. And in that just over 6 months enrollment, we have delivered over a million interventions, the overwhelming number of them at the retail stores. In turn, these have led to over 470,000 communications about gaps in care and more than 110,000 changes in medications. No other PBM can match this. Nor can any of our retail competitors. It gives us a fantastic advantage with clients.
All these interventions are making a difference. We have been following the Pharmacy Advisor cohort in a set of matched controls who are not signed up for the program. We've looked to see whether they have a gap in care, medication they should be taking, but are not. The Pharmacy Advisor program, as we discussed, is intended to identify those gaps in real time and counsel the patient, then contact the doctor to fill the gap.
Looking at the prevalence of gaps in January of 2011 and again at the end of September, we find that in a control population the number of gaps is increasing. Meanwhile, the patients who are in the Pharmacy Advisor program are having consultation with their pharmacists, allowing us to contact their doctor, and getting the gaps filled. For them, the rate of gaps is decreasing substantially, 7.2%, 7.6%. These differences are overwhelmingly statistically significant.
We expect our other programs to be synergistic with Pharmacy Advisor. And this turns out to be the case, Per talked about some detail about Maintenance Choice. These programs increased the number of members obtaining maintenance medication at CVS pharmacy. Once there, Pharmacy Advisor will have natural appeal for these patients.
These data on adherence show that synergy is indeed the case. For each of these medications, antihypertensives, statins to lower cholesterol and oral medications to lower blood sugar, we find the boost in adherence, here measured in increased in percent optimally adherent, is greater when the patient also has the Maintenance Choice program.
Our programs are designed to be interlocking in this manner, but it is great to see the prospect for mutual reinforcement actually proven in the data. So when our clients adopt multiple programs like Pharmacy Advisor and Maintenance Choice, the results are tremendous, the best we've seen on literature on pharmacy improvements.
As Mark mentioned, Pharmacy Advisor is a condition specific program. Using the pharmacy care economic model we can target the conditions that will have the most impact on patient health and their employer or insurer's healthcare spend. We started with diabetes.
In April 2012, as Mark mentioned, our team will roll out the cardiovascular package, consisting of hyperlipidemia, hypertension, coronary artery disease and congestive heart failure. Then by the end of the year, we'll have programs in asthma, COPD, depression, cancer, and osteoporosis.
In 2013, we'll roll out G.I. disorders, hematuria arthritis, multiple sclerosis and chronic kidney disease. Thus Pharmacy Advisor 3.0 will be a very comprehensive program, built on the best clinical information, and in our sweet spot philosophy.
You may be wondering, have we not forgotten one of our assets, MinuteClinic? The answer is, not at all. Andy just told you about the work his team is doing to outreach to integrated systems and to prepare for care of chronic disease. This all fits hand in glove with Pharmacy Advisor. The core conditions will be hypertension, hyperlipidemia, diabetes, asthma and depression.
At first, MinuteClinic will screen and monitor and integrate with wellness programs. They will also do lab testing and biometric analytics, which are critical to these disease states. Then working with strategic partners in integrated systems, ACOs and medical homes, we will share care doing the basic blocking and tackling and treatment of chronic disease that the healthcare system really needs. All of this will be aligned with the Pharmacy Advisor program through the Consumer Engagement Engine.
MinuteClinic deepens our ability to promote good pharmacy care and it is clearly something that our competitors cannot match. Our competitor PBMs lack the ability to analyze comprehensive data and drive tailored interventions in a coordinated manner through multiple consumer touch points. With these assets, we have limitless opportunities to improve pharmacy care. I would illustrate this with just one more point.
This is a pie chart we developed to demonstrate pharmacy care on our 13 key conditions, this is in a commercial population. The spend on maintenance medications for these conditions in the pharmacy benefit is about $68 million. Now see how it changes as we shift to a Medicare population. The conditions and the spend changed dramatically. Total spend increases from $68 million to $154 million.
As we consider that silver tsunami that Larry talked about, we have to be preparing new interventions and programs. Our assets give us the unmatched chassis to do so.
Most of this presentation has been pretty theoretical. Let me illustrate how it boils down for our client. This is an image of our pharmacy care calculator, it provides a profile of the client and current programs, as well as current results. Using our research and the models we have built, we can tell them, if you add these programs, no Pharmacy Advisor and Maintenance Choice for example, then you will improve adherence and reduce gaps in care. These improvements in turn lead to substantial healthcare savings. We are clear. You will spend more money on medications for these programs, but that spend will be far offset by your healthcare savings. Because they do not have our assets, our competitors can't produce similar savings.
In summary, we're designing highly cost-effective interventions that improve care and lower cost through better pharmacy care. We're using our unique channels in a coordinated fashion to have the maximum effect. Other companies don't have these resources and can't produce similar results for patient and clients. And building on these assets, we're able to continue to reinvent pharmacy care.
Let me stop there, and I guess invite Larry and our colleagues up for question-and-answer.
Larry J. Merlo
So let me thank Per, Mark, Andy and Troy for their presentations and I'm going to ask them to join me up on stage for Q&A. While they're coming up, just a couple wrap-up comments.
This morning we outlined the opportunities and the challenges that we face as an organization and, most important, how we plan to address the challenges and capitalize on the opportunities. So I hope you share our management team's confidence in our industry, our business model, and certainly our ability to achieve the goals that we outlined today and, as a result, drive shareholder value.
So with that, lets open it up for Q&A. A little different than in years past, we actually will be able to take questions from those that have been listening in on the webcast, so we'll weave those in throughout the Q&A. So Lisa?
Lisa C Gill - JP Morgan Chase & Co, Research Division
Lisa Gill, JPMorgan. I have a question for Per. Per, if we look at this and we listened to what you had to say today, and listened to what everyone has had to say. It appears to all of us that -- or most of us that you have a better mousetrap than many others by having the integrated model. However, if we look at the margin profiled next year and as we think about margins going forward, at what point do you think you can turn that around and you can actually charge more for some of the services that you provide?
Per G. H. Lofberg
Well, first of all, the one thing I should say is that the margin is sort of a composite of a lot of different segment movements. So you have to kind of take into account that the margin trend to a large extent is driven by the growth of certain segments that may have lower margin and the disappearance of I would say groups that may have had higher margins. So that's one factor. And I do think that from our perspective, the primary thing we're trying to focus on with respect to sort of shareholder value is really growing our EBIT over time as opposed to focusing specifically on the margin. So it's a growth in EBIT, but at the end of the day, to me, it is the, sort of, the primary measurement, if you will, in terms of how we're adding value to shareholders.
Larry J. Merlo
Lisa, at the same time, it was only a few years ago that we were selling the belief that we could do all this. And I hope you got a very good sense this morning that today, we're selling the results. And I think as we go forward, you can see some of these programs being a component of our core offering. And some of these programs being an upsell or step up beyond the core offering because of the results that they're producing.
Lisa C Gill - JP Morgan Chase & Co, Research Division
And Larry, I guess that's just my second question, how do you upsell these programs? So when we think about how competitive that the PBM marketplace is and you've done well in the last couple of years of winning business, but how do you increase that margin whether you talk about expert advisers or Maintenance Choice 2.0, is it just that it's more profitable because you're getting that person in your store, or can you actually charge the customer more over time?
Larry J. Merlo
Well, I think Lisa the answer to that is going to be, it may be a different answer for each of the programs. As we've talked with Maintenance Choice, the economics of that are tied to share shifts that we see. I think it will be a different story with Pharmacy Advisor.
Per G. H. Lofberg
The more you can basically quantify and validate the outcomes of these programs, like Troy illustrated, the greater your chances are of really capturing that value in pricing one way or another. So it may be captured in a fee, it may be captured in a risk selling arrangement, it may be captured in the overall package of services that you provide to the customer.
Larry J. Merlo
Just let me add one more point to something that Per acknowledged, that when you talk about -- I know there's been a huge focus in years past on EBITDA per script. And we've been talking for the last several months about the fact that we don't believe that, that is a healthy measure of productivity and we would prefer to look at operating profit growth. And the reasons behind that is you get false positives and false negatives. So you can have -- and we've seen that happen, you can have a health plan that has a thinner margin, migrate away from a PBM, and the EBITDA per script within that PBM may go up, even though there's going to be less profit on the P&L. The flip side, we've talked a lot about the growth in Medicare Part D and the fact that, that is a thinner margin, but yet we are seeing those dollars flow through on the P&L, even though it compresses EBITDA per script. So we ask you to keep that in mind, it's reflecting many of the things that we talked about this morning. We saw a question behind you there?
Ross Muken - Deutsche Bank AG, Research Division
It's Ross Muken from Deutsche Bank. So one of the key things we've seen the last few years is sort of the plethora of differentiated service offerings, and Lisa talked about it before. I mean as we think about going forward, so the next few years, you obviously have the secular trend of generics which helps just manage cost. And you laid out a lot of hard numbers on potential savings you can drive to the client. I guess, is the view that you sort of build this comprehensive care organization and, over time, you can layer in different profit models that are linked to some of these additional offerings so that post the generic wave, you could still continue to drive solid trend to your customers and have a larger role in the pie even if the secular shift is maybe not as powerful? I mean, is that sort of the concept, generally, of what you're sort of trying to put together?
Larry J. Merlo
Yes, Ross, I think that's a good way to describe it. Acknowledging that we have got to bring solutions to, what you saw on several slides and throughout the presentations this morning, how are we going to focus on access quality and cost? And you can't just focus on one without addressing the other 2. And we see through our integrated assets that we can bring solutions to all 3 of those elements.
Ross Muken - Deutsche Bank AG, Research Division
So I guess my real question is, so as we get through this, so obviously there's the natural financial benefit of generics and specialty and that mixed shift, but at some point that starts to asymptote out. I guess, how do you take the great sort of statistical analysis that you're doing and all of this powerful data and keep putting it in front of the customer to make sure you can monetize that at some point to show, Look, we can actually influence this trend on a much broader basis and change it away from just the traditional means of which you've made money with these customers to get paid on a broader level. How is that sort of conversation changed the last few years now that you have harder data. And how do you really get them to believe that if they adopt some of these more aggressive plans, holistically, there's a lot of dollars for them to enjoy on the table?
Larry J. Merlo
I'll ask Per and probably Troy to address that because they've had an awful lot of experience of having those conversations directly in front of the clients in engaging in exactly what you're asking.
Per G. H. Lofberg
That is indeed the job of our organization. So we spend a huge amount of effort, really, continually being in front of customers to sort of analyze the results of their plans to try to project results of various programs. And Troy gave you one example on a slide there, that is exactly what the work is that we're doing. And that's sort of an ongoing process, the more evidence we can bring to the table, the more successful those conversations are. So over time, I fully expect that we can kind of move the needle towards sort of capturing an increasing portion of value from these types of outcomes that we now have growing confidence in.
Troyen A. Brennan
I will only add Don Berwick, who just stepped down as CMS administrator, estimated that 30% of U.S. healthcare is waste. So in 2 years, that'll be $3 trillion, 30% is about $1 trillion of waste. The stuff that we're doing is basically designed to take waste out, make people healthier and keep them from going in the hospital or having poor outcomes. So people will pay for solutions that take that waste out. That waste is worth a lot of potential EBIT for us.
Yes, I had a couple of questions I think for Mark, although you're the new guy on the block. One, one of your charts mentioned in the remodels that you got a 12% lift in terms of trip. If you could talk about how much of a lift you've got on sales. And then the second question was relative to -- for anybody that came out of Macy's and Sears, you know the importance of cross-sell to retail profitability. If you could talk about the levels you're getting now from either back of the store, front of the store, and how that's changed over time?
Mark S. Cosby
The first one is that data that was in there for that convenience piece was from Nielsen data, which is trip data, so there was a sales increase in there, obviously, not to that magnitude over that timeframe. Your second question was evolved around how we move people between the front and the back?
Yes, and what kind of metrics you've been getting there. If it has improved in terms of cross-sell?
Mark S. Cosby
Yes. I think it's definitely an opportunity for us that we think we'll go forward, both to move people who -- I think it's going to end up being more moving people who are script folks today, who are working on the back, how do we get them to convert more into the front. I think we convert -- we talked a little earlier about a number, but our goal is to increase that number. ESI being one example, but there are many opportunities we think by better converting folks to the front of the store. And we have some ideas on how we might do that.
Larry J. Merlo
And I think that, yes, that's one of the benefits of the clustering initiative where as Mark showed, we have terrific results from the urban layout, which changed to some degree the look and feel of the store, the product mix. And as Mark mentioned, we're going to conduct a number of pilots this year around the -- I'll call them attributes that he outlined, with a similar goal. How can we change the look and feel of the store, the product offering, perhaps to some degree, to create a better shopping experience and a better outcome.
Mark Wiltamuth - Morgan Stanley, Research Division
Mark Wiltamuth from Morgan Stanley. A few years ago, the drug store part of the pitch was kind of viewed as a distraction to the PBM customers. And then you reverted back to a more conventional PBM pitch where you focused on costs. Now that you've got some date with generic dispensing rates and your adherence numbers, how much is that getting back into the PBM pitch to the clients now?
Per G. H. Lofberg
It's a growing part of the pitch, I would say. And I think what customers are primarily interested in, the PBM customers, very interested in, are they going to save money on their health benefits and on their drug programs and so on. So I think we're in a better position today than we've ever been on really showing how the retail component can help drive those results. And so we're not really talking about the goal, per se, of driving patients into CVS retail, it's more how our retail and MinuteClinic components can help satisfy the goals of our customers, which is to lower healthcare costs and control drug cost. And I think it's -- the story is much more compelling today than it was 2 years ago.
Larry J. Merlo
And Mark, a lot of that goes back to, as I mentioned earlier, we're not selling the belief today, we're selling the results. And it reflects the work of the organization over the last couple of years. We, during the point in time when you were recalling that story, we were talking about we're going to build a Consumer Engagement Engine that allows us to have a common view of the customer across the various distribution points in the CVS Caremark enterprise. We didn't talk about that today because that becomes a key enabler in executing what we did talk about today behind the scenes.
Mark Wiltamuth - Morgan Stanley, Research Division
And then to switch over on retail industry consolidation, if you look at the reimbursement rate pressure coming to traditional pharmacy, how long does it really take before some of the independent pharmacies really start to fall by the wayside and seed some market share?
Larry J. Merlo
Mark, I think we've seen that occurring probably for the last 10 or 10-plus years where the number of independents, while they still represent I think 18,000, or 18,000, 20,000, that is down from what it was some time ago. And this year, we'll purchase, in the ballpark, about 200 independent operators and consolidate the prescription files into existing CVS/pharmacy stores. And I know we're not the only retailer that has a program of that nature. Question over here?
Yes, I was wondering if you could talk about the exchanges a little bit more in 2014, and how you think it's going from a macro perspective to affect both of your 2 businesses? And then secondarily, given your assumptions that you laid out on that slide, it didn't seem like you're expecting too much of employers dumping employees onto the exchanges who currently provide health insurance. What happens if you see a greater rate of employers moving their employees onto the exchange? How do you think about that for, again, both of your 2 businesses?
Larry J. Merlo
Yes. Let me ask Troy to talk about -- a little bit about the exchanges, and then we'll pick up on his second question.
Troyen A. Brennan
Yes. Well there's a lot of numbers out there, I mean, going from about sort of 5% of the employer insured to 40% of the employer insured being dumped into the exchanges in 2014. But we feel like we're well-placed to sort of deal with it. On the one hand, obviously, PBM is going to be dealing with people who get their drug benefit through the employer, but we've also developed this series, as Per talked about, a whole series -- a range of approaches for the more retail purchaser, as well. At least when the exchanges started in Massachusetts, CVS/pharmacy was sort of well-placed to advise people about what was going on in the exchange. Most of that exchange-base work would be basically run through existing insurers, and we've got a lot of business with those existing insurers, and we're working with a lot of them in terms of the ways in which they would deal with people who'd be basically buying individual policies through the exchanges. So we think we're pretty well placed for that right now. And we think that with this sort of a retail history of the company, we're going to have a lot better understanding about what the retail customer needs than a lot of our competitors will.
Per G. H. Lofberg
So I think the -- for us, it's primarily a sort of an extension of what we do with our health plan clients. The exchanges, the way they're being configured in the current legislation, really is sort of limited to kind of comprehensive medical and drug program. So it won't be kind of the carve out drug-only type of programs that we have seen in the large part of the employee business. But I think this is -- this would be a sort of a design and collaborative program with our healthcare clients, some of them are already gearing up substantially for this world. And when you get to individual products that are chosen by individual people, I think odds are that the things that people are focused on is, a, what's the premium; 2, what's the co-pay; and 3, what's the coverage. So limited products with limited retail networks with limited formularies and so on that sort of carry lower premium, I think, will be very frequent in that environment. And that's the world I think we're heading into.
Steven Valiquette - UBS Investment Bank, Research Division
It's Steve Valiquette with UBS. Just to come back to the slides at the beginning on the generics. You guys talked about the generics being more profitable when there's 3 or more suppliers. We've all been kind of trained to recognize that for the PBM business model, but I think for the retail model, sometimes the opposite may hold true where they're more profitable at the beginning. So I'm just trying to get a better sense for the slide you showed, is that trying to blend the 2 businesses? Or if we just isolate, let's say just retail for a moment. Are you saying that the more suppliers there are, the more profitable it is for generics in the retail side as well? Again, I'm just trying to get more color around the message there.
Larry J. Merlo
Steve, I'll start, then Dave will probably want to jump in as well. But we have -- I'll speak to the retail side. Because of our purchasing scale, we, as we've been saying, we maximize our profitability when we have 3 or more suppliers in the marketplace. Which would be in the case of a Lipitor as an example, because of the exclusivity period, we will see that kick in, in -- on day 181. Dave, I don't know if you want to add anything?
David M. Denton
Yes, I'd say that generally speaking, those trends or those behaviors, as economics behave the same way in retail and the PBM, I'd encourage you that there's not one, I guess, steadfast rule of thumb, because each generic behaves a little differently based on the reimbursement for that generic and the cost of that generic. But those -- they are not inconsistent between those 2 segments.
Larry J. Merlo
Robin, question in second row.
Ricky Goldwasser - Morgan Stanley, Research Division
Ricky Goldwasser with Morgan Stanley. Per, you talked earlier about the continued focus on operating profit dollars rather than the margins. But when we look at your long-term guidance and now with the 2012 data points being known, implies that between 2013 to 2015, you will show some healthy margin expansion. So is this assessment accurate, and what's the key driver for it?
Per G. H. Lofberg
Yes, we expect on, from a PBM perspective, that there'll be some stabilization of margins in that business. That's a correct assessment.
Ricky Goldwasser - Morgan Stanley, Research Division
And does that also apply for the entire company?
David M. Denton
Yes, it does.
Ricky Goldwasser - Morgan Stanley, Research Division
Okay. And then secondly, you showcased a new Maintenance Choice offering and the seamless view between retail and mail for the consumer. So will the pharmacies at the point-of-sale have similar tools to deploy?
Per G. H. Lofberg
Yes, that's the plan.
Ricky Goldwasser - Morgan Stanley, Research Division
And when will that be in effect?
Per G. H. Lofberg
Well, we're going to basically put -- start to put this in place in 2012. I think it will probably take until 2013 before it really becomes a broadly -- a broadly-offered program, but it'll begin this coming year.
Larry J. Merlo
It will be a component of this current selling season that we've just begun.
This is Dan [ph] from the Macquire Group. Just going back to Dave's slide on the increase in returns on capital going forward. I think there is a 40 basis point improvement expected for 2012, accelerating to 50 to 80 basis points yearly through 2015. Just trying to understand if we tease out the generic contribution from that, the fundamental drivers for the business. And then the out years, is there an expectation to another large cost restructuring program that's going to drive that efficiency?
David M. Denton
I guess from a -- taking the last comment first around a large kind of cost program, we don't really see that. We've been very diligent in our cost structure, so we -- unlike others in, probably, in our space, we've been very focused on updating our technology and making sure our fleet of stores and that the technology deployed across our business are very efficient. So we don't see a big project or a big effort to go after that. Having said that, from a returns perspective, clearly generics are a big powerful force for us for the next several years, but by the same token the fact that we're going to grow share, we're going to put more, let's say, scripts through our fixed cost, be it either the mail centers or the CVS/pharmacy locations, will help us drive returns and improve productivity through our business. And then finally, the one thing that we've talked about a bunch is that from a working capital perspective, we have a big opportunity. We're not exactly where we need to be. We've made some great steps this year, we have more work to do, and that will be a big driver of returns for us over the long-term.
Larry J. Merlo
Also keep in mind, as Per mentioned, we won't achieve our run rate savings on the streamlining initiative until 2014. And we've talked about the benefit in the past of $225 million to $275 million a year.
And then just one follow-up for Mark on the Retail segment. In terms of the upsell to beauty opportunity, which is $1.5 billion, I think you pointed out, what are the margins like on the new Nuance line versus private versus brand?
Mark S. Cosby
They are, on the margin line for the Nuance line, it's actually in line with our store brand margins.
I was wondering if you could talk a little bit about the availability of nurse practitioners. We've talked a lot about the shortage of primary care physicians, but what about nurse practitioners?
David M. Denton
There are over 100,000 nurse practitioners in the country, and we employ about 2,000 of them. I can say in the first quarter of the year, we had over 900 applications to work at MinuteClinic. Our nurse practitioners are excited about our model, seeing it as a great opportunity. We're closely connected to many of the schools and have relationships with them, and we anticipate continuing to be able to recruit really terrific clinicians.
I have a question for Per about specialty. You've just introduced, I think, you're testing the medical management program. Can you talk at all about just the very initial stages, what the response has been to taking over managing the specialty pharmacy that goes through the medical side of the benefit?
Per G. H. Lofberg
Well, it's still very early days, but I can tell you that, I think, the customers, basically, they really sort of endorse the basic idea that we're trying to put in place. And it's based on 2 kind of components. One is to keep the buy and bill model in place, where physicians today for some of these very expensive injectable meds, they actually receive a portion of their income from the markup on those drugs, so that they buy the drugs and then they bill them to the insurance company with the markup. That's an important income contributor for the physicians, so our goal is to keep that in place. What we're trying to do is, basically, to realign the incentives so that the incentives are better sort of aligned with the plans. And the physician isn't sort of automatically incentivized to prescribe the most expensive medication. So the physicians can still earn a decent income, but only if they pursue the kind of the optimal treatment protocols, and that's sort of the goal that, I think, everyone recognizes, is worth pursuing. And keeping the buy and bill model in place is less disruptive than sort of taking away these drugs from the physicians and dispensing the model out of the pharmacy and then just paying the physicians a fee to administer the drug. So I kind of feel we're really on the right track with this program. And hopefully in the course of this coming year, we'll have more direct sort of evidence to really kind of evaluate the success of it.
And I just have a final question for Mark. We've talked -- you guys talked about the importance of the pharmacist, the attitude of the pharmacist. What about technicians, as a shopper at CVS, somebody uses the pharmacy, my experience has been least good with the technicians. I live in Manhattan, maybe that doesn't help. But are they on board, and what about training and keeping them in place, the turnover, that kind of thing?
Mark S. Cosby
So the technicians -- it's probably not as favorable as it is for the pharmacist in terms of engagement, but it's still very, very good. I mean, better than you would see in other places, better than you would see in normal engagement survey. I think you do call out an opportunity that we will work to address. And as you saw on the chart, we have improved our service level significantly in the pharmacy world over the last 5 years. But there's still an opportunity in front of us to take that to another level, which we will address.
David Larsen - Leerink Swann LLC, Research Division
Dave Larsen with Leerink Swann. Has the nature of your relationship with Express Scripts changed at all given the Walgreens dispute that they're in? And then also, Per, could you maybe talk about the 2013 selling season. Is Walgreens a big piece of those discussions, or is it just still pretty early in the season?
Larry J. Merlo
Yes, let me take the first part of that, Dave, and then I'll ask Per to address your second question. On the retail side of our business, one of our guiding principles for several years now has been to establish what I would call stable, long-term relationships, with all of the major PBMs. And our retail team does a very good job of working very hard around that, recognizing that there are sometimes, oftentimes, there are tough discussions that need to take place. And to their credit and to the credit of the folks sitting on the other side of the table at whatever PBM that happens to be, we have been able to find the mutual ground. And that's what we'll look forward to continuing to do.
Per G. H. Lofberg
So on the -- in terms of the 2013 selling season, I can't say that it has become a significant factor just yet. And we're -- there are maybe -- maybe there are sort of 3 seasons to the selling season. Right now, what's going on is primarily regional health plans that are kind of complex clients that start early in the process because they need a lot of lead time to make a transition, so that's sort of what's going on right now. Most of those are regional, so kind of the nationwide sort of pharmacy networks is not really that much of an issue. The big employers, the big nationwide, Fortune 100 type employers, they will get active in the first quarter and beginning of second quarter, because that's sort of when that season kicks in. And I suspect, as we said earlier, that there will be a lot of discussion at that point about what the relative savings and disruption might be from different pharmacy configurations. And if some PBMs are out with more limited networks, others will come up with competitive offerings and people will have a sort of chance to evaluate the trade-offs between cost savings and sort of access to their employees. So I do expect it to be a important topic of discussion this upcoming season, but it hasn't really started yet in a significant way.
Okay, we'll take one more question. So up here in the middle?
Edward J. Kelly - Crédit Suisse AG, Research Division
Ed Kelly, Credit Suisse again. Larry, I think it's interesting, right, the market's essentially kind of come full circle on your acquisition of Caremark. Some have suggested even less than a year ago that a break up might make sense. I can't help but wonder, actually, what your presentation today would look like if you were just a pure-play drugstore. So my question for you is, what do you think the outlook is for the pure-play drugstore model? How difficult will it be for them to provide some differentiation, and the marketplace that you're -- you've been talking about that we'll see over the next few years? And then second question, which is really for Dave, is what's your in plan expectation for the front-end comp next year, and does it improve -- does it assume any improvement in the economy?
Larry J. Merlo
Ed, I'll take, actually, both of those questions. In terms of the front-end comp, we are not expecting any improvement in the economy. And we would expect to see low single-digit comps in the front end...
...people that work for them and all of our employees across the enterprise. And everyone is very proud of the work that's been done and the execution of the plan that we talked about earlier. These 2 companies were put together 4 years ago because, again, as we talked about today, when you think about some challenges and the goals that we see around health care reform, I think it's very difficult for a standalone PBM or a standalone pharmacy retailer to bring solutions to the marketplace like we talked about today. And I think that as we've said a couple times, we're not talking about the belief in what we can do, we're talking about the quantified results of what we're doing. And I think that's the difference in terms of what you're seeing today versus what you may have seen a year ago or 2 years ago. Because quite frankly, a lot of the work needed to be done and we're at a point in time when we can talk about that.
So with that, thank you, again, for your time. We know, as we mentioned earlier, it's a very busy time of the year, but we certainly appreciate you joining us this morning. And I hope you and your families have a great holiday. Thanks.
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