Express Scripts Holding (ESRX) George Paz on Q1 2016 Results - Earnings Call Transcript

| About: Express Scripts, (ESRX)

Express Scripts Holding Co. (NASDAQ:ESRX)

Q1 2016 Earnings Call

April 26, 2016 8:30 am ET

Executives

Benjamin Bier - Vice President-Investor Relations

George Paz - Chairman & Chief Executive Officer

Eric R. Slusser - Chief Financial Officer & Executive Vice President

Timothy C. Wentworth - President & Director

Analysts

Lisa Christine Gill - JPMorgan Securities LLC

Robert Willoughby - Credit Suisse Securities (NYSE:USA) LLC (Broker)

Eric Percher - Barclays Capital, Inc.

Robert Patrick Jones - Goldman Sachs & Co.

Garen Sarafian - Citigroup Global Markets, Inc. (Broker)

John C. Kreger - William Blair & Co. LLC

Charles Rhyee - Cowen & Co. LLC

George R. Hill - Deutsche Bank Securities, Inc.

Ricky Goldwasser - Morgan Stanley & Co. LLC

Brian Gil Tanquilut - Jefferies LLC

David M. Larsen - Leerink Partners LLC

Evan A. Stover - Robert W. Baird & Co., Inc. (Broker)

Operator

Good day, ladies and gentlemen, and welcome to Express Scripts First Quarter 2016 Conference Call. All lines have been placed in listen-only mode until the question-and-answer session period. Today's call is being recorded. If anyone has any objections, you may disconnect.

I would now like to turn the call over to Ben Bier, Vice President of Investor Relations. Sir, you may begin.

Benjamin Bier - Vice President-Investor Relations

Thank you. Before we begin, I need to read the following Safe Harbor statement. Statements or comments made on this conference call may be forward-looking statements and may include financial projections or other statements of the company's plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties. The company's actual results may differ materially from those projected or suggested in any forward-looking statements due to a variety of factors which are discussed in detail in the company's most recent Form 10-K filed with the Securities and Exchange Commission.

We do not undertake any obligation to update or otherwise release publicly any revisions to our forward-looking statements. For clarity purposes all financial numbers, except where indicated that we talk about today, will be on an adjusted basis and are attributable to Express Scripts, excluding non-controlling interest representing the share allocated to members of our consolidated affiliates.

This presentation will be posted on our website and includes an appendix with footnotes and the reconciliations of GAAP to adjusted numbers. Please also refer to tables included in our earnings press release for a reconciliation of GAAP to the adjusted numbers that we will be discussing. The press release is posted on the investor relations section of our website at www.express-scripts.com.

At this point, I will turn the call over to George to review the agenda for this morning.

George Paz - Chairman & Chief Executive Officer

Thank you, Ben, and good morning, everyone. Today Eric will review our financial results and outlook. Tim will highlight our strong business performance and future prospects. Before Eric begins I'd liked to take a minute to talk about our relationship with Anthem. A week ago, we filed a response to Anthem's lawsuit. As I have said before I strongly prefer that we had never reach this point. However, we want to make clear that we are confident that we have negotiated in good faith; are fulfilling our contractual obligations; are providing excellent service to both Anthem and its members.

While it is unfortunate we are in this situation, we believe our legal case is strong. We value Anthem as a client and we very much would like to continue working with them for the long-term. We believe we are Anthem's best PBM option, delivering great care, keeping drug costs in check and helping to grow their business. We are currently collaborating with them to implement solutions and we are proud of the results we are helping Anthem to achieve. We look forward to spending today focusing on the results of our strong financial quarter and sharing our excitement about our future.

I will now turn it over to Eric.

Eric R. Slusser - Chief Financial Officer & Executive Vice President

Thanks, George, and good morning, everyone. This morning I'm happy to report adjusted earnings per share of $1.22, representing growth of 11% over last year. In line with our expectations, we adjudicated approximately 324 million adjusted claims, up 5% year-over-year. We also generated EBITDA of approximately $1.5 billion. The anticipated lower EBITDA and profitability per adjusted claim relative to the first quarter of 2015 was a result of several things, including the expected transition of the Catamaran business at the end of 2015 and into 2016, of which the primary services provided were formulary management and manufacturer rebate services, with no associated claims.

The expected roll-off of the Coventry Medicare business on January 1, 2016, the annual impact attributable to our renewals of which January 1, 2016, was an above average year, and the associated ramp up cost for benefit design changes and 1/1 implementations. And finally and in particular, the renewal of our second-largest client in May 2015, which initially results in lower margin per claim.

In addition, this quarter we issued senior notes consisting of $500 million 3.3% senior notes due 2021, and $1.5 billion 4.5% senior notes due 2026. The proceeds were used to repay debt and to enter into an accelerated share repurchase program, and for other general corporate purposes.

During the quarter we repurchased approximately 46 million shares for roughly $3.4 billion which includes the impacts of settling our 2015 ASR program in January of 2016, and the new 2016 ASR program in late February. We expect the settlement of the 2016 ASR program to occur in the third quarter.

Finally, I want to touch on a change made to amortization of the Anthem intangible assets. In 2009, based on the overall structure and complexity of the agreement and in accordance with generally accepted accounting principles, we assumed a 15-year amortization period for the intangible asset.

In light of Anthem's lawsuit and following accounting guidance, we changed the amortization to end with the current contract in 2019. The effect was to reduce the amortization period by five years. The triggering event for this change took place in March and increased the first quarter intangible asset amortization by $10.5 million. Future quarters will increase by approximately $32 million. This change has no impact on EBITDA, although this was a prudent decision under generally accepted accounting principle requirements, this change does not reflect our commitment to service Anthem's patients or our commitment to renew the contract at the end of the term. We believe we are the best partner to service Anthem's complex business and are well positioned to improve the competitiveness of their offering in the market.

Looking forward, we are pleased with our 2016 earnings guidance. We continue to expect 2016 adjusted EBITDA to be in the range of $7.2 billion to $7.4 billion, representing growth of 3% to 5% over 2015 adjusted EBITDA. While consistent with previous years, the increased profitability in the back half of 2016 is a result of our model of alignment, focus, scale and supply chain strategies expected to drive strong operating and financial results. More specifically, we anticipate mail growth and new generic launches will drive increased volumes as the year progresses. In addition, our digital and productivity initiatives are expected to drive lower fill costs and call volumes in the second half of the year.

We are raising our adjusted earnings per diluted share from a range of $6.10 to $6.28, to a new range of $6.31 to $6.43, representing growth of 14% to 16% over 2015. This increase is attributed to our focus on generating cash flow from operations and managing our capital structure to maximize shareholder returns. We now expect diluted weighted average shares outstanding to be in the range of 635 million to 645 million.

With respect to the second quarter of 2016, we expect adjusted earnings per diluted share to be in the range of $1.55 to $1.59, up 8% to 10% year over year. Consistent with recent years, we anticipate revenues related to a large client contract will be realized in the second quarter due to the structure of the contract.

In summary, we delivered overall financial performance in line with our expectation and expect to deliver solid results for the year. I will now turn the call over to Tim.

Timothy C. Wentworth - President & Director

Thanks, Eric. As Eric noted, our financial results are strong, and we have a great foundation upon which to build. Eric and I and our teams share a steadfast commitment to return on invested capital, rigorous financial discipline and focused expense management. This financial mindset fuels our business model of alignment and our commitment to client and patient care. We are well-positioned to maximize long-term client and shareholder value.

We continue to invest in creating dynamic solutions to help patients and clients. Leveraging our digital assets and engagement strategies, we comprehensively drive better, more cost effective health outcomes. These solutions include an expanding range of programs which combine our deep, specialized approach to patient care with our ability to creatively contract for best cost and care outcomes. As we enhance our core capabilities, we create even more reasons for clients to stay with us and for prospects to choose us.

As I look at the evolving healthcare landscape, it is clear that our powerful collection of assets protect our clients against tomorrow's healthcare challenges while we address today's acute client needs.

In that context we're very pleased in our performance thus far during the selling and renewal season. While it is still early, we anticipate another strong year, with a 2017 retention rate of 95% to 98%, excluding approximately 1% of Coventry scripts that are rolling off due to acquisition. You will recall last year our retention guidance at this point in 2015 was 94% to 97%. We clearly have positive momentum.

That momentum will be on display later this week as we welcome more than 1,000 attendees to our Outcomes Symposium for clients and prospects. They attend because we develop the industry's most effective solutions, deliver the best patient care and drive powerful advocacy to put medicine within reach of those who need it. We will share with our clients and prospects new solutions that build upon the industry-leading clinical programs we have collaborated with them to develop. Simply put, our clients are working with us to create the future of pharmacy.

Speaking of the future, I am excited to take on the role of CEO and lead our company forward. Energized by a singular mission to deliver great care for patients and always align with clients, Express Scripts will continue to change healthcare through relentless innovation and bold actions.

I'll now turn it over to George for his comments.

George Paz - Chairman & Chief Executive Officer

Thank you, Tim. This is my last earnings call as Chairman and CEO, and I want to take a few moments to talk about what we have built at Express Scripts and why I am more excited than ever about the future of our company. The board unanimously agreed that Tim's deep industry expertise, financial discipline and passion for our clients, patients and employees, make him the ideal choice to succeed me as CEO. I am confident Tim and his leadership team will not only continue to deliver on our mission, but innovate to meet the needs of our patients and clients. I look forward to staying on as Chairman as we position Express Scripts for continued growth.

I also want to take a moment and thank all of you for believing in Express Scripts over the years and investing in us so that we can do the important work of controlling healthcare costs and improving patient outcomes. When you invest in Express Scripts, you're investing in the healthcare of 85 million people we service. We have been successful because we focus on doing one thing extremely well, caring for our patients. Our business model alignment achieves better patient health outcomes and helps clients control healthcare costs.

Our mission is to keep our clients ahead of constantly evolving marketplace trends. We accomplish this by continuously developing new, innovative solutions for our clients. This is as critical today as it was in 1998 when I joined Express Scripts. In 18 years we've had dozens of earnings calls, hundreds of investor conferences and thousands of meetings with you. I have always had one clear theme, an independent PBM, fully aligned with clients, can dramatically improve health outcomes. You can measure our success in many ways, but the most important measure is that we have helped millions of people live better lives.

Thank you for your support and guidance. And now we'll take your questions. Operator?

Question-and-Answer Session

Operator

Thank you very much, at this time we are ready to take questions. Our first question comes from Lisa Gill of JPMorgan. Your line is open.

Lisa Christine Gill - JPMorgan Securities LLC

Thanks very much. George, we'll miss you on the conference calls going forward. Thanks, as always, for all your insights. So, let me first start, Tim, just in talking about two components around this year's selling season as well as next year's. So when we think about business that was brought on for 1/1 of 2016, you talked about some incremental costs, you talked about mail and some other programs that will ramp throughout the year.

I'm just curious, as you look back, was there anything unusual about 2016 and the business that you brought on from a pricing perspective? And then as we think about 2017, can you maybe talk about one, the pricing environment? Two, I believe you have a retail relationship that's up for renewal. They recently signed with Optum. What are you seeing in the market around these types of maintenance choice offerings in the marketplace? And do you think that there's an incremental opportunity to work more closely with a company like Walgreens going forward?

George Paz - Chairman & Chief Executive Officer

Sure. Thanks for the questions, Lisa, and good morning. First of all, relating to pricing for the new business in January, I would say we obviously had a strong selling season in terms of winning new business, and as well as our retention as you know. And I would say there was not anything that would've been out of what I would call the ordinary in terms of the pricing environment. So from that standpoint, I would not read through the – what has been the sequencing of EBITDA that I've seen for most of my 18 years in this business, anything different as it relates to that in our first quarter results. It's competitive, there was a lot of business that we were able to bid on and win, and we feel good about that.

As it relates to the products, that are out there regarding the use of 90-day scripts. As you know, we do have actually two different Retail 90 products that we take to market; one of them with Walgreens. And I completely believe that as we drive a more consumer focused model, and as we drive even stronger member interface, that those programs will continue to, for certain clients, and those clients are some of them are ours, some of them aren't ours, to be something that they want. And we see a very strong opportunity to work with partners in retail, to ensure that we deliver not only the best cost outcomes, but look at really, what else can you do in managing the total member and what role can retail play in that.

Lisa Christine Gill - JPMorgan Securities LLC

And what do you see in that? I mean, do you think that you could do that in just a partnership relationship? Do you need deeper ties in some way to really truly manage that patient at retail? And then secondly, you saw a nice growth in mail in the quarter. Are you starting to see where customers are finally realizing the benefit of bringing people back into the mail order business?

George Paz - Chairman & Chief Executive Officer

Our mail numbers were so hard to read through as you know because of client losses over several of the last years. What I would say is when we looked at sort of clients we've kept, our mail volume has actually been good. So same store sales for us has actually not really mirrored what you've seen in the overall numbers. And what you're now seeing based on a better retention year, and our focus on improving experience, is that in fact there are a lot of clients that have always believed in mail, that continue to believe in mail, that are working with us to support mail, and increasingly we're seeing health plans move that direction. And so we've had several large health plans in the last six months with hundreds of thousands of lives in our Select Home Delivery Program. As again, we've got the experience to the point where the consumers are supportive of it, they're supportive of it, they like the cost and clinical outcomes that it has.

As it relates to the kind of relationship that we need to have, I think we have the kind of relationships with the supply chain more broadly, the retailers in particular that will enable us to continue to evolve a strategy that wins as it relates to Retail 90.

Lisa Christine Gill - JPMorgan Securities LLC

Just one last one, Tim. You talk about the 95% to 98% retention having good visibility around that. Can you maybe just talk about what you have up for renewal this year versus last year? I know you said last year was a tough renewal year, you have a lot of renewals. Can you just put that into some level of context for us? And then secondly, can you maybe just size what you think are some of the RFP opportunities in the market this year? Is it consistent with last year? Is it better than last year? How should we think about that?

Timothy C. Wentworth - President & Director

So what I'd say is for us, last year was an extraordinarily large year. We had a number of our health plans renewed which are large, and on whom we focus a great deal. We obviously had our second largest client renewed for the long-term. So last year was a bigger year than you would expect. This year I would call a more normal year, maybe even a slightly light year, but I would call it a normal year for us both in terms of mix of business as well as the size of the book that's out there. As it relates to sort of the way it spreads out, I would say it's pretty normal.

As it relates to the opportunities that are out there right now. I would say it's a bit better than last year, just a bit. We see a little bit more in a couple of spaces, opportunity than we would have seen last year. But it's early. And as you know, the year plays out pretty much for us over the next three to four months, and we will hopefully find ourselves on the good side. We've certainly had some early successes, we're very pleased with that and we've got some business we're already installing for one of 2017, one very significant health plan. But we've got a lot of work left to do.

Lisa Christine Gill - JPMorgan Securities LLC

That's very helpful. Thank you.

Operator

Thank you. Our next question comes from Robert Willoughby of Credit Suisse. Your line is open.

Robert Willoughby - Credit Suisse Securities (USA) LLC (Broker)

Hi. You mentioned supply chain savings as a possible driver of EBITDA in the back half of the year. I presume that's trying to extract more blood from the ABC supply relationship. Is there any way to change that relationship to help you pull more from them?

Timothy C. Wentworth - President & Director

Robert, I wouldn't want to characterize the relationship with ABC as anything other than one that we continue to work with them, they've been a very good partner for us, and we've got very high standards for anyone who works with us in terms of what they deliver in terms of value. ABC had been delivering that value, and I have no reason to believe they won't continue to. And will work closely with them to make sure that happens.

Robert Willoughby - Credit Suisse Securities (USA) LLC (Broker)

Maybe a separate – your visibility on the earnings as a PBM is better than most. What are the significant barriers or variables rather between now and year-end that might prevent you from tightening that EBITDA range?

George Paz - Chairman & Chief Executive Officer

I'll ask actually Eric to take that. Obviously it's something we focus on a great deal. While the sequencing of EBITDA is exactly in line with our expectations and we're right on our plans, obviously helping you understand sort of what's going to happen and how that range is going to be narrowed is something that we decide on. And I'll let Eric take that.

Eric R. Slusser - Chief Financial Officer & Executive Vice President

Yeah, Bob, so I talked about this in my script. Certainly there new drug launches coming out, expected to come out, and as we sit here today and estimate those volumes, if those don't materialize, that's one of the headwinds in the back half of the year. I think everything else for the most part, we have line of sight and visibility into. Obviously utilization has to continue to stay on the same path. No reason to expect that that won't. But those are really the bigger drivers of that.

And then as I talked about in my script, we also have very a significant cost reductions planned around productivity in our digital initiatives. Our digital initiatives are one of the things that's been driving our improvement in our mail volumes. And we think that'll continue, and we'll continue to enhance those digital initiatives to make for a better patient experience. But those are kind of the things that are the bigger drivers of the year.

Robert Willoughby - Credit Suisse Securities (USA) LLC (Broker)

Okay. Thank you.

Operator

Thank you. Our next question comes from Eric Percher of Barclays. Your line is open.

Eric Percher - Barclays Capital, Inc.

Sure. First maybe just a clarification on that last answer. Eric, when you spoke about new drug launches, are you talking about generic launches? Or any new products and formulary decisions that could impact profitability materially?

Eric Percher - Barclays Capital, Inc.

Generic launches, particularly Crestor that comes out here in a month or so.

Eric Percher - Barclays Capital, Inc.

Sure. And maybe a little more macro, we saw the IMS medicine use Report last week highlighted a large delta between gross and net. I think that tells us Pharma is taking increases and that PBMs are offsetting them. But I'd love to get your thoughts on the sustainability of that, gross to net? And what it tells us about how well you're working? And maybe what it tells us about the economics of your business?

George Paz - Chairman & Chief Executive Officer

I'll take that and that's a good question. It was what I heard at JPMorgan. It was the most frequently asked question is this notion. And the reason I think it is, is because it has gotten wide. And it's very clear, those who are willing to take bold actions, those who are caring for patients in a way that enable things to be done, that drive better outcomes even though those things may look challenging, witness what we did in hepatitis C, are going to enjoy the better results as it relates to that gross-to-net spread. They're going to be at the bottom of that cost curve, which is where we have put our clients and how we've worked with them.

And I've got to tell you, it's still early. So, I'm not going to prognosticate as it relates to Pharma inflation for the full year. I don't expected it to be low, let's put it that way. And I believe that the players that are going to create maximum value for patients and for payers, as far out as we look, and this has been true even without the super high inflation we've seen in the last couple of years, has been those that can dramatically affect outcomes that are better for patients.

I think the other piece I would say is it's twofold. It's not just the management of formulary. It is also the management of individual patient choice as we see these new products come out. And so from that standpoint again, the real leverage isn't just gross to net on rebates, it's gross to net on patient cost compared to what the idea would be. And we hold ourselves to a very high standard on both of those. And we see that as a significant differentiator and a significant opportunity for the next three to five years.

Eric Percher - Barclays Capital, Inc.

Would your view be then when gross to net is expanding or high, that it enables your economics? Or do you think it's – or do you think you hold those economics no matter the environment?

: It does enable those economics because we work with clients to ensure that the formularies that are place are things they believe in. It particularly helps our economics with those clients who work with us to put these programs in place, because we – in some cases we take risk on our ability to go out and contract these things. In other cases we work with clients, and they let us share some of the upside, because they want us aligned as it relates to how we create value and take care of patients. And so that's the dynamic that we see.

Eric Percher - Barclays Capital, Inc.

Thank you.

Operator

Thank you. Our next question comes from Robert Jones of Goldman Sachs. Your line is open.

Robert Patrick Jones - Goldman Sachs & Co.

Thanks for the questions. Actually just a couple on pricing. We've seen some declines in the revenue per script over the past few quarters, understanding there's some moving pieces here with things like generic conversions. But I'm curious if you guys could comment on what you're seeing from branded manufacturers in the first few months of this year. Have the price increases from your vantage point been in line with historical averages? Below? Just any kind of context you can provide around that would be helpful.

Eric R. Slusser - Chief Financial Officer & Executive Vice President

Yeah, this is Eric. For the most part, the increases have been in line coming into the first of the year. We're seeing a little change in manufacturers and the timing of some of the increases, but everything we see and expect for the rest of the year should be in line with previous years.

Robert Patrick Jones - Goldman Sachs & Co.

Okay. Might be the same answer but I guess more specifically around specialty. One of your large specialty pharmacy competitors commented recently that price increases they noticed had slowed across the board more than they had expected to date. And just curious if you've seen any changes specifically in the specialty manufacturers' behavior around taking price in the current environment?

Eric R. Slusser - Chief Financial Officer & Executive Vice President

Yeah, we have seen an ever so slight down on the specialty side of the business early in the year. But expect again as the year moderates with what we see now, that to subside.

George Paz - Chairman & Chief Executive Officer

You've also got to remember that revenue on a per claim basis isn't just an output of inflation and filling – it really is impacted by formulary design and what we do. So if certain drugs have a very high cost and increase ratios, our supply chain people working with our formulary management team and our clients go out and try to change the formulary to select better products. Same thing going from retail to mail, if you have to convert three retail scripts to mail script, by definition my revenues come down. When I can convert a branded script to a generic script, by definition my revenues come down. When I convert somebody from a very high cost specialty drug to a lower cost more efficacious specialty drug, my revenues come down.

The beauty of all that is, is that's our model of alignment, and so our patient costs go down, our client costs go down and our shareholder value goes up, and that's what we're all about.

Robert Patrick Jones - Goldman Sachs & Co.

That's helpful and I guess just, George, on that topic, as we think about new drugs coming to market, when you look at the pipeline for this year, can you maybe help us contextualize the opportunity relative to past years? As we think about hep C and the work you guys did there, PCSK9s and the programs you have in place there. Any major categories? I mean there's been so many you guys have talked about. But any major categories or products that you guys would want to call out as being in focus from this year's pipeline?

George Paz - Chairman & Chief Executive Officer

Just to reiterate on your point. That's what you've seen in the hepatitis space as we've tried to bring prices down for our patients so that as we've said over the years, that access is just as an important component of healthcare outcomes as anything else. So if you can't afford to get to the drug it doesn't do you any good to have a drug.

So it's really important to focus on making sure access is there. PCSK9s, as you know we've been very diligent in making sure that where appropriate when needed, the patient gets it, and where not, they don't. And making sure that we still prefer the statins and where it's appropriate and do what we need to do. As far as the future I'll let Tim talk to that.

Timothy C. Wentworth - President & Director

Yeah, what I would see a couple of things to be specific. Obviously in hep C we've had a new product come in that's significant, and we've got another one that we believe is coming. So as we look at the formulary for 2017, we have some interesting dynamics that we're working through. PCSK9s not a lot new this year, but we know that we are preparing for the possible next steps as it relates to broader indications there.

Shorter-term, in the inflammatory case, we're watching and working very closely in that area and actually going to be talking with our clients about some ideas as it relates to that, because that's the space that's got quite a bit going on right now.

And then there's someone off stuff that you just have to constantly keep your eyes on. A product that comes out that has a terrific outcome for a set of patients, something like dermatitis, needs to be managed appropriately, not just priced appropriately. We think we can get the manufacturers to price things in a really rational way, but that doesn't mean that we can't, we shouldn't, work with the physicians and so forth to make sure that it's prescribed appropriately. And so we've got a lot of work to do as we look at the pipeline moving forward. And that's not even to speak about over the next 18 months, the possibility of bioequivalence and how we may be able to play a role there.

Robert Patrick Jones - Goldman Sachs & Co.

Thanks for all the comments.

Operator

Thank you. Our next question comes from Garen Sarafian of Citigroup. Your line is open.

Garen Sarafian - Citigroup Global Markets, Inc. (Broker)

Good morning. And George, echoing an earlier comment, thank you for all your time and patience in dealing with us. Hope to hear from you even if it's at less frequent intervals.

Garen Sarafian - Citigroup Global Markets, Inc. (Broker)

Tim, your first-time client retention rate guidance of 95% to 98% is now back at more normal levels, which confirms what we've been hearing as well. But could you maybe speak to the quality of the new client opportunities for this year? Because the past say 12 to 18 months or so has had a fair share of unique circumstances that besides your own included competitor being acquired, upcoming managed care consolidation opportunities, so wondering if maybe this is – this year even if the dollar amounts are there, if there are unique characteristics trickling into the selling cycle this year as well? So maybe high retention rates or any other trends that you're seeing?

Timothy C. Wentworth - President & Director

I wouldn't say, – thanks for the question, Garen. I would not say that I see anything dramatically different as it relates to sort of the mix of what's out in the market for a possible bid right now. I think it tracks pretty well with what we've seen in prior years. As I said, maybe a little bit bigger. As in every year there are always a couple of sort of unusual ones that are out there, unusual for different reasons, and this is no different than that.

So I would not tell you that there's any read-through to some dramatic shift in the quality of opportunities. Obviously, we've got a lot of work to do to try to bring some of those in house here. We take each one of them individually. We love it when we can start with their data and understand their unique challenges. I mean for example I saw a prospect deck yesterday where we looked at their 8,000 diabetes patients, and 4,000 of those patients were not an ACB or ARB, despite being at the age where they should be. Look, those are the kind of conversations we want have with prospects. And so we start with their data and we find ways to create value based on their unique strategies and circumstances. And that's no different this year than any other year.

Garen Sarafian - Citigroup Global Markets, Inc. (Broker)

Got it. So I guess the clients, where their contracts are up for renewal, they put an RFP out, they're just as willing to switch PBMs, given the recent news events of various sorts, similar to prior years?

Timothy C. Wentworth - President & Director

I think that's right. I think that – you know what? The bottom line is that the PBM is servicing the client really well and driving down their costs and sharing that with the clients in ways the clients are completely aligned with, it's a pretty sticky business still, and we don't see any results of any kind of the new stuff you've seen at all as it relates to that. It's not that we don't have conversations. It's not that we don't explain ourselves. It's not that we don't appoint folks to things that they can read and draw their own conclusions, but as we've done that, what I can tell you is the conversation very quickly turns back to what are we doing to drive down costs? What are we doing to drive up patient access? How have we performed in the past year? How is our service for patients, which is very strong? What's our digital member engagement strategy? The conversation moves back to that, because that's where these plans really need to focus, and the other stuff is noise.

Garen Sarafian - Citigroup Global Markets, Inc. (Broker)

Okay. And then my follow-up is more of a clarification question. On Coventry, when it was with Medco, I thought the two contracts awarded were more evenly split, but the 1% headwind versus this year's near 3% obviously suggests otherwise. So I guess probably for Tim, could you elaborate on that a little bit? Was it always more of a 75% to 25% split? Or if it wasn't, could you just maybe shed more light on how the contracts evolved to reconcile to the present?

George Paz - Chairman & Chief Executive Officer

Sure. Just to be clarified and get into the facts, the Coventry contract was a component of Medco business. When we bought Medco Express Scripts inherited that contract, and when they got bought there was a process by which they roll off of our book of business. And what you're seeing is the Medicare business is now rolling off, and that's what you're seeing in those numbers. So that's the whole story.

Timothy C. Wentworth - President & Director

The only other thing you would see is that over the time period they've had various lines of business grow and shrink. And that's what you would probably see in the numbers based on what you would've assumed from say five years ago.

Garen Sarafian - Citigroup Global Markets, Inc. (Broker)

Okay. That helps. Great, thank you.

Operator

Thank you. Our next question comes from John Kreger of William Blair. Your line is open.

John C. Kreger - William Blair & Co. LLC

Hi. Thanks very much. A question about formulary management and rebates. What is the percent of your client book at this point that's following your exclusionary formulary recommendations?

George Paz - Chairman & Chief Executive Officer

I think we said somewhere around 27 million, 28 million lives are in that, and I would tell you that's pretty close, it's probably if anything gone up a couple of million. I don't have the exact number at hand, but we've had literally almost zero folks go the other way and step out of it, and we continue to have plans come into it. We increasingly also are seeing health plans looking to potentially clone it.

John C. Kreger - William Blair & Co. LLC

Got it. Thank you. And then, Tim, in the release you mentioned data insights as one of the key things that makes Express unique. Can you just talk a little bit about what those data insights are and how you're using them to compete for incremental business at this point?

Timothy C. Wentworth - President & Director

Sure. I gave you one little bit of an example just now when I talked about our prospect deck, and that was one of half-a-dozen things we showed that prospect using their own data. But we've invested quietly but significantly in the ability to manage large amounts of data in very complex ways. And so when you look at fraud, waste and abuse, and what we've been able to do, not only – compounds was not a one and done. If you take a look, that is a daily battle for us to stay ahead of a marketplace that's constantly "innovating" as it relates to ways to take our clients' money without creating value. And so we use great amounts of that data to not only in our own book run fraud, waste and abuse, but increasingly, for our health plan clients to help power their programs, power their provider networks, power their payment mechanisms by virtue of being able to have a very complete look at prescribing patterns, at patient outcomes and so forth.

Another example around that is opioids. And so we actually as part of our product suite is in fact a predictive model as it relates to patients who potentially could become addicted to opioids based on a whole series of factors we're able to take from the data that we would have around those individuals, their prescribers, their conditions and so forth. And again, that's a very significant piece. I've heard Steve Miller say and Glen Stettin say, that the epidemic that occurred in Indiana, we would've actually picked it up as it relates to the AIDS coming back because of used needles. We would've picked that up much more quickly in our data than actually the actual experience picked up.

So you take that, and then if you overlay that with the ability to manage patients and predict their outcomes at the individual level around adherence. Again, we've become very, very good at predicting and intervening ahead of when a patient becomes non-adherent based on factors that we're aware of. And so all of that is – it's certain examples of how we're able to use this.

I think the last piece is, as we look forward, things like prior authorizations and how we can work with physicians to make those more streamlined, make them more intuitive. If we have something in the patient's history, even if they weren't our patient at the time, that we're able to get and understand, those are things that we're able to do as well.

John C. Kreger - William Blair & Co. LLC

Thanks very much.

Operator

Thank you. Our next question comes from the line Charles Rhyee of Cowen & Company. Your line is open.

Charles Rhyee - Cowen & Co. LLC

Yeah, thanks for taking the question. I wanted to just go back to some early comments; you talked about engaging members more and you used the phrase digital initiatives a number of times. Can you elaborate on what those initiatives are? And how that will be incorporated into a plan or plans that benefit design? Is it like a separate app that someone has to download and use separately? Or is it integrated into whatever plan that they're currently under?

Timothy C. Wentworth - President & Director

So the answer is a little bit of both. We have to start with the client's benefit design and the patient's – therefore what they have access to. But where we've been investing, and continue to invest, is – you may have heard me say this in the past. Back a couple of years ago, or I guess it was a year and a half ago, when we began the search for someone to really drive our mail franchise forward, we ultimately concluded that it wasn't about driving mail franchise, it was about driving member experience in an environment that's increasingly omni-channel.

And once you define that as your challenge, and you define the clinical advantages of mail for the patients for whom that's right, and you look at the Acute Care that you can deliver through a strong retail network, and you look at the other things you can do to deliver star ratings to health plans and other things, that then informs a strategy that cuts across our entire organization. And so while it manifests itself, yes, in our digital app, which if you follow it, has evolved several iterations in the last year, and is now a four plus star app on the App Store – it was two when we started.

In terms of how the website presents opportunities for patients which has doubled our daily retail to mail conversions, and continues to for those patients where that's a benefit and where the plans save money. But it also then moves all the way across the platform to our patient care advocates who have better tools, more intuitive information put right in front of them by virtue of those same algorithms that are driving our digital strategy for the member-facing piece.

And so end-to-end, when you look at what we're doing on member engagement, it really fuels the first – I think the first inning still of a game where we can believe we can be transformative in helping members or their caregivers make the best decisions.

Charles Rhyee - Cowen & Co. LLC

Okay, that's helpful. If I could just switch gears for a second, I know George, that you had made some comments around Anthem at the beginning. My question is really more about what's the process from here? Obviously, they filed a claim. You had a response. What's the timing of – does Anthem have another chance to respond? Who's taking a look at this then to make a decision whether – I mean is it a decision to make whether our case goes forward? If you could elaborate maybe on process for us and then timing? That will be helpful. Thank you.

George Paz - Chairman & Chief Executive Officer

Well, unfortunately the situation has evolved into a lawsuit. And like I said in my prepared comments, that's really – we did not want to see it get here. We believe we've lived up to our contractual obligations. We offer the best levels of service to the patients, and we do everything we can to help drive their economics in the right direction. At the end of the day, a lawsuit was filed; we countered, and now it's in that process. So this is probably going to be quite a long, drawn out situation.

The reality is, at any point we're always open to conversations. If they want to come in and have a conversation that's reasonable in nature, nothing to do with $3 billion – that's pretty ludicrous; you've heard me say that before. We're open to that. Going forward, obviously this isn't just – this really has the totally undivided attention of our entire board. I will continue on as Chairman of the Board. And so all of us on the board will continue to be involved. This will really be up to Tim and his team to position the company well. The pledge is to continue to service the members, to continue to service the client with information and the data they need to do their job. We'll continue to bring them cost-saving opportunities to them, and as they look forward to the future, hopefully they'll continue to implement those ideas. And we'll try to come to a resolution. But at the end of the day, we're in a legal process now.

Charles Rhyee - Cowen & Co. LLC

Great. Thank you. If I could just follow up lastly for Tim? Your retention rate guidance obviously implies you're not really seeing any type of impact from the overhang really of the Anthem. Does it come up in discussion at all?

Timothy C. Wentworth - President & Director

Sure it does. I wouldn't say it comes up in the majority of the cases. It probably comes up in what I'll call is a small to medium minority of the cases. And we have taken great pains to make sure that our account teams understand why we're here. Because our core is around aligning around clients and patients, and so this is the sort of the thing that really, as you can imagine is a leader helping our folks understand that we're going to service the heck out of Anthem. We have nothing but intention to continue to do a great job for them, to position ourselves well to be a choice that they want to make at some period of time in the future when we get this behind us.

And so what we've done is made it very, very clear to our team how to keep this isolated, how to focus on the things that actually our clients need us to focus on. And the bottom line is, while it has been I'd say a minority of conversations, it's been a very short conversation, and folks pretty quickly move on.

George Paz - Chairman & Chief Executive Officer

But Charles there's also a difference. When you're dealing with the – our account teams are dealing with the pharmacy management teams and our clients, this may come up. It's really one of the questions in trying to understand that gets press. There's a lot written about it and what have you. So there's always going to be conversation. I don't think it's really a distraction though, because it's what we deliver, it's what we do.

But if you go to the other side of that, I've been CEO here for quite some time, CFO before that. I've been in this business for a long time. I was in other businesses before this one. What you don't typically see is public hearing of a situation. And I think that's what really strikes most CEOs. I still have a lot of conversations with CEOs. Tim has taken over those relationships, he's building on them. Tim and I have been out to a lot of clients over the last several months. And when you do that, obviously when you're sitting with another CEO that often has disputes with their partners and vendors, it never gets to this level. And so I think there's an inquisitive mind at the other end of the table that says what's going on?

And unfortunately for us, we scratch our heads with that, because we would have liked to have all of this done in the back room and figured out how to solve these things and how to go forward on a mutually agreeable basis. But unfortunately it didn't come out that way. So at the CEO level, those conversations do take place, but not from a hurt the business, or it puts us at risk, or it hurts our ability to sell. But instead it's really just a little bit of head scratching going on in the conversation.

Charles Rhyee - Cowen & Co. LLC

Great. Thanks a lot, guys.

Operator

Thank you. Our next question comes from George Hill of Deutsche Bank. Your line is open.

George R. Hill - Deutsche Bank Securities, Inc.

Good morning, guys. I appreciate you taking the question. I think most of the topics that I wanted to touch on have been hit, but George or Tim, I wanted to talk a little bit about M&A, where we've seen over the last six months or so, a bunch of interesting assets trade in the specialty space, some of them focused on medical or oncology where I thought that you guys might have been more aggressive. You've chosen to more aggressively buy back stock. I guess could you walk us through the rationale on M&A? And maybe why not be more aggressive as some of these assets come to market?

Timothy C. Wentworth - President & Director

Sure. Thanks for the question. I'll take it. So, let me be really clear, we – and we've said this I know, are very actively and we'll continue to be very active in looking at all the sorts of things. As you can appreciate given our size and where we sit in the market place, we have an awful lot of stuff that we get to take a look at. But let me be clear, anything that we think can help our clients, or help our patients, can drive better outcomes, can expand or extend our model, or otherwise be complimentary; we're interested in if it adds shareholders value, if it makes sense from both a financial standpoint and a strategic standpoint.

It also has to compete against what could we do without the asset? And so when we've looked at any number of things, I'm not going to go into any specific examples, I'm familiar with obviously some of what has traded and some of what will, and I understand why those who bought it bought it. But let me be clear, we will be aggressive where we can draw a line to those three things shareholder value, helping our clients and helping our patients. We will not be aggressive where it doesn't make sense, where we see other ways to achieve a similar result using our capital more efficiently.

So the last thing I'd say is I wouldn't want you to think it's either or. I would not want you to think that because we are buying stock back we therefore were not strongly and deeply looking at any number of opportunities that are in the marketplace. We are big enough and hopefully disciplined enough, I believe disciplined enough, we certainly have had a history of it and I intend to carry that forward, to be able to do both of those things really, really well.

George R. Hill - Deutsche Bank Securities, Inc.

Okay. And then I appreciate that commentary. And then maybe one more follow-up kind of on the selling season. On the 95% to 98% retention, I guess can we talk about what is driving the churn, and who might be leaving it? Is it a mix of people who may want to be more price sensitive, or is there any of the legacy foundation 14 dissatisfaction that's driving churn? I guess just when people are leaving ESI, why are they leaving?

George Paz - Chairman & Chief Executive Officer

Sure, I mean it's always, as you can imagine, you'd love to at one level think everybody loves you and would never leave you. The flip side is if we price to keep 100% of everything, we've always said we don't 100% retention, because there're sometimes you're just not going to get it exactly right and somebody is going to come in and be a little bit more aggressive than us, and that level of sensitivity at the client level will be something that causes them to move.

What I'd say is, our book of business – and I looked at this over about five, six years ago, Express Scripts book of business in particular has a nice middle-market element to it. There's a more natural churn there with brokers and so forth, and so some of that – when you look at the churn, it's not anyone reason. You've got a couple of different market segments.

Typically the other thing that happens is if we drop the ball on service, it goes into play. And now we really have to chase our tail. And thankfully we're strong on service right now. We saw two or three years ago where it looks like when in fact we were trying to catch up on service. And so what I'd tell you is there's no one thing that drives it. 95% to 98% is something we feel good about. We target the high end of that range, as you can appreciate. I've told people I won't be very satisfied at the low end of that range. And that suggests to me that there's a pretty minor amount of churn in the grand scheme of things.

George R. Hill - Deutsche Bank Securities, Inc.

Okay. I appreciate the color. Thanks, guys. And, George, well wishes.

George Paz - Chairman & Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Ricky Goldwasser of Morgan Stanley. Your line is open.

Ricky Goldwasser - Morgan Stanley & Co. LLC

Yeah, hi. Good morning. And, George, enjoyed working with you over the years and my best wishes for your next phase. I have a few follow-up questions here. First of all, if we can start with the productivity enhancements that you talked about, as a driver of EBITDA in the second half. So can you maybe walk us through the opportunity areas where you can save cost, and maybe quantify the cost savings goals, and over what time period?

Eric R. Slusser - Chief Financial Officer & Executive Vice President

Yes. So, Ricky, this is Eric. More specifically, we're very focused on our fulfillment process, constantly looking at ways to improve that and bring costs down in that process, and no different than past years. We have some initiatives we're putting in place to improve and reduce those costs that are more oriented to the second half of this year.

The other thing, we're looking at call volumes and with our digital transformation, we're seeing reductions in those call volumes and so we're going to continue to invest in that, and as a result, bring down the costs we incur around call volumes. Again, a lot of those initiatives are in process and will have an impact now, but a much greater impact as we significantly take those down in the last half of the year.

And then no different than we've had, SG&A reduction initiatives going on throughout our business. It's something we focused on in past years. I've been heavily focused on it since I got here. So every day, we're looking at how we are more efficient across this whole business. Those just happened to be two of the bigger initiatives that are going to drive the second half.

Ricky Goldwasser - Morgan Stanley & Co. LLC

Okay. And can you help maybe quantify those savings?

Eric R. Slusser - Chief Financial Officer & Executive Vice President

No, we're not going to get into that specific detail.

Ricky Goldwasser - Morgan Stanley & Co. LLC

Okay. And then my next question is for Tim. One of the questions you alluded to kind of at the (52:07), and obviously the pricing structure is different from what we've seen in the past and from competitors, around really the dynamics of list price versus size of rebate. So do you think that this is like just one specific drug or example, do you think this is something that could potentially be an indicator of potential changes, coming to how drug manufacturers are thinking of pricing drugs and negotiating rebates?

Timothy C. Wentworth - President & Director

It's so hard to pick one example and extrapolate from it, Ricky, as you can appreciate. Because the dynamics in a therapeutic class, the number of additional manufacturers already there, the number of things in the pipeline in front of it, the inflation over the last two years in that class. All these things kind of come to bear as the manufacturers make their decision. What I would say is, we've been very pleased to see a increasing number of manufacturers looking to be what I would call creative and responsible on pricing and you've heard several of them say that the missing piece for them has been what we can bring to the table which is the capture of data, and the use of data in such a way as to help them be confident that the way that their pricing the product is actually finding its way into the hands of patients and into the support of clients.

And so we've been encouraged by it. I don't know that any one drug is a harbinger of things to come. I think it's a harbinger though at a macro level that we have changed the dialogue with Pharma over the last two to three years, and we will continue to work very hard to create access for their products at fair prices for the patients who should be on them. And the Pharma companies that want to work with us on that basis are coming to the table and making great choices, and we hope that continues.

Ricky Goldwasser - Morgan Stanley & Co. LLC

Okay. And then, lastly, on the selling season. I know there's been a lot of talk on this call about kind of like retention rates. I think that last couple of years you're talking about really putting a lot of focus on existing book and retention. When you think about this selling season, how do you think about (54:23) emphasis on retention or are you also kind of like aggressively in the marking, looking at opportunities to bring in new business?

Timothy C. Wentworth - President & Director

Sure. All I'd say at this point is, there is nothing more important to us than retention in any year, and that includes this year. Obviously we'd love to win new cases, we love the fact that we've got a large number of prospects this week joining us in Orlando. But I will tell you that at the end of the day, we hold ourselves to a high standard, we've got a lot of work to this year but it starts with retention, Ricky.

Ricky Goldwasser - Morgan Stanley & Co. LLC

Okay. Thank you.

Operator

Thank you. Our next question comes from Brian Tanquilut of Jefferies. Your line is open.

Brian Gil Tanquilut - Jefferies LLC

Hey. Good morning, guys. A question for George and Tim. Every now and then, we still get asked questions by investors. As Pharma sees some pricing pressure, and they bring down prices, how did that impact Express in this environment today? And to those people who asked the question of why do we still need an independent PBM, how would you address those two questions?

George Paz - Chairman & Chief Executive Officer

I'll start, and then Tim can certainly chime in. Having a lot of years of experience, first of all Pharma typically raised prices, and so the question is how much worse would that be if you didn't have an independent PBM? And I think that actually our mission is not to be constrained by any other ideas except it's in the best interest of our patients our clients to control costs while improving health outcomes. And without the tools we bring to the market, I'm not, in my opinion, you'd see much higher costs, much higher run rates. And it goes back to the conversation we had earlier about net and gross. And the reason those spreads continue to open and widen is because of the tools we put in place to help our clients control costs. Tim?

Timothy C. Wentworth - President & Director

I completely agree. I mean, the thing I love about this business and why I'm so excited about it when I got forward is one, we've got really robust competitors. It forces us to say innovative and smart, and in our case I believe that our differentiating story resonates strongly. It lets us focus 100% of our resources on solving the challenges that patients and clients face today. And I cannot imagine a better place to be.

Brian Gil Tanquilut - Jefferies LLC

And then just a follow-up for Eric. As we think about the revenue per claim and the Catamaran business rolling off, how should we think about those statistics, revenue per claim and then from a margin perspective, if you pull out the Catamaran impact? Are you seeing same-store margin expansion?

Eric R. Slusser - Chief Financial Officer & Executive Vice President

Yeah, we're not going to quantify. We quantified at the beginning of the year the impacts overall from the loss of Catamaran and Coventry, but I don't want to get into any further specific impacts around Catamaran. We typically don't talk about client specifics. We only did in this instance because that was such a large impact from those two, which were a result of acquisitions, not a result of losing a client per se. But beyond that, we just don't want to get into any further specifics around that.

George Paz - Chairman & Chief Executive Officer

When you look at the data, you've got to always remember that every year if you take out our two biggest clients, roughly, just speaking in generalities, roughly a third of the business comes due every year. A third of that book re-prices every year. So what you're facing is the challenge of that.

When you look at this year in particular we had our second-largest client re-price in May. We've said than in our prepared comments. So when you're lapping the year, you're facing the impact of your second-largest client having re-priced, plus you're looking at the impact of the normal trends that occur, and you build up a lot of costs. Think about all the plan designs. Which plans don't change, co-pays don't change, formulary management don't change. Every plan we have has numerous changes, plus the impact of Medicare changes that come in, Medicaid changes that occur. You've got millions of changes that come in – that all get initiated on January 1.

Our call-center people have to be prepared for that. Our account management teams have to work with our clients on it. The ramp up in cost attributable January 1 is always a big factor for us. So the first quarter run rate is a lot higher in both PPC and SG&A. And through the course of the year we get those monies back as we – things become normalized again. That's a cycle that we visit every year. And if you look at our trends over the last years, you'll see that profitability ramps up in the back half of the year, and that's not going to change.

Brian Gil Tanquilut - Jefferies LLC

I appreciate that. Thanks, George.

Operator

Thank you. Our next question comes from David Larsen of Leerink Swann. Your line is open.

David M. Larsen - Leerink Partners LLC

So, George, congratulations on building a great business over the past 18 years. You've obviously done a lot for the Company, clients, as well as investors. So the one question I had was, for the 2Q payment that you mentioned in the press report, did you disclose if that's from Anthem or not? And is that potentially at risk given the litigation?

George Paz - Chairman & Chief Executive Officer

We've never disclosed that and we feel comfortable that that should still run its course. There is always a little bit of an issue. We hedge a little, because it could fall back to the third quarter. And so that's the only softness, is if it doesn't occur in the second quarter, it would occur in the third quarter. But historically it's happened in the second quarter and we don't get into specifics around it. I appreciate your comments as well. Thank you very much.

David M. Larsen - Leerink Partners LLC

Of course. Well deserved obviously. And then just one more. In the public documents regarding your relationship with Anthem, why haven't they accepted any of your proposals? It sounds – our checks indicate that Express is pretty fair when negotiating with clients, and are typically pretty responsive to client's needs, and it sounds like you've put forth some pretty good proposals to Anthem. Just any general sense as to why those haven't been accepted?

George Paz - Chairman & Chief Executive Officer

Well, I'd say that's the magic question of the day, isn't it? We believe – there was a lot of conversation for some period, and you've heard them all, about $500 million and $700 million. And we feel like we need them to grow as well and be competitive, and we stepped up and met that. Now, we also know there was a lot they were leaving on the table just purely by plan design and opportunities. We also believe that it wasn't – that if we do it right, if we could in fact better help them manage their formularies and their networks and plan designs and going to market, helping them grow their business, our economies of scale grow as their economies of scale grow, and we're willing to share that.

And so it wasn't just the money we were putting on the table, some of which we're hopeful we get back with scale and size. But in addition, it's really aligning their products with the marketplace and that could have been worth billions of dollars. So when you put those two together, we think we've been more than fair in offering a very good offering. And again, we'll see how this all plays out, but it is a head scratcher.

David M. Larsen - Leerink Partners LLC

Okay, great. Thank you.

George Paz - Chairman & Chief Executive Officer

Why don't we just take one more? I believe it's the last question in the queue.

Operator

Thank you. Our last question comes from Evan Stover of Robert Baird. Your line is open.

Evan A. Stover - Robert W. Baird & Co., Inc. (Broker)

Hi. Thank you for taking my questions. A lot of other topics have been addressed, so I thought I'd take the opportunity to hit on a business that I don't hear you guys discuss very often, the Other segment. I ask because there was 30% revenue growth there this quarter, obviously very impressive. I'm wondering specifically if that's a couple of key launches going through CuraScript Specialty Distribution or if it is another item. And the second part of that question would be, as it relates to CuraScript, obviously there's new Part B pilot programs out there. I was wondering what Express Scripts' stance is on the potential for those to lower costs? And maybe more discretely, what type of impact that might have on that business, as we look out later this year and into 2017?

Timothy C. Wentworth - President & Director

Well, thanks for calling it out. We obviously, and it's another explanation as it relates to how our EBITDA sequentially grows because these core set of businesses which aren't huge, but they are mighty in terms of – and they don't create any scripts for all practical purposes – have continued to grow at very, very nice rates and solve problems for other sorts of clients that they serve. We've had some new client growth, we've had some new products come to market, and so all of those fuel both our – especially distribution business as well as our UBC business as it relates to that.

I would also call out our Canadian business is really doing a great job and continues to grow clients as well, and has moved into new product lines, including Specialty. And so when you take a look at that collection of businesses, again, with the exception of Canada that doesn't produce scripts, we like a lot. That becomes an area of us to focus to potentially do M&A as well as just organically right now. The leadership of those businesses are doing a terrific job addressing their client's challenges.

As it relates to part B, I think it's a little bit early to call. And so really don't have a lot of great depth of commentary for you there other than to say obviously for us, we see a lot of opportunity on the medical side generally across a number of ways to get at that spend and manage it, as well as supplying some of the folks that are actually delivering care. And so – and it's something we're deeply looking at and thinking through, but in the short term our assets are really, really good.

George Paz - Chairman & Chief Executive Officer

I want to take this time to thank all of you for joining us on this call today. We appreciate your investment in Express Scripts. I think we are better positioned than ever. The marketplace, as it continues to evolve, our challenges are mighty and our solutions are great and I think we've got a great leadership team to take us to that whole next level of performance and meeting your needs as investors. So thank you very much, and look forward to talking to you at a future date. Thank you. Bye-bye.

Operator

Thank you. And this does conclude today's conference. Thank you all for your participation. You may disconnect at this time.

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