Elevance Health, Inc. (ELV) Earnings Call Transcript & Summary

Hi, and welcome, everybody. I hope everyone is enjoying our 37th Annual Strategic Decision Conference. We're about to begin the fireside chat with Anthem, with Gail Boudreaux, CEO of Anthem. Let me just do some house keeping at the front end of this for questions during the session, you can submit those during -- through Pigeonhole, which is on your screens. And if you have any difficulty with that, please just send me e-mails at lance.wilkes@bernstein.com with your questions, and we'll get those added in here. What I was going to do is hand it over to Gail for a kind of introduction. And again, to give some perspective and context on the company, and then we'll start our fireside chat. So Gail, thanks so much for attending. And let me kick it over to you to kind of introduce yourself and the company.

Good morning, and thanks for having me, Lance. I really appreciate the opportunity to provide a few remarks regarding the key elements of our strategy before we begin our fireside chat. As most of you know, at our recent Investor Day, we shared with you our vision to extend our role from a partner and health benefits to a lifetime trusted partner in health. Leveraging our growing suites of digital capabilities, we will build upon our broad Anthem portfolio of medical, pharmacy, behavioral, clinical and countless care assets and algorithms to better serve our consumers at all stages of their lives across our commercial and government businesses, with an unwavering focus on improving affordability, quality and access and delivering integrated whole person health solutions, which is core to our strategy. We're doing this in part by providing a growing suite of best-in-class health care services. That complement our core benefits business to IngenioRx and the diversified business group. They allow Anthem to grow earnings inwardly, as we've described, by increasingly serving our health plans and outwardly by serving third-party payers, including other Blues, as we focus on the addressing and addressing a growing proportion of the overall health care dollar. Across all of our businesses, we're focused on optimizing that performance in large part by leveraging the latest and available technologies. Ours is a business that benefits from technological innovation, and we're investing heavily against it to transform for the digital age. We have one of the country's largest integrated health care databases. As you think about that, it links claims data from over 70 million lives, clinical data from over 13 million lives and lab data from 15 million individuals. This is an immense data foundation, and it doubles roughly every 70 to 80 days. That allows us to translate that data and is core to our strategy. Translating the data to insights, those insights into actions and then no solutions or what power the digital platform for help that we've talked about, and they help us improve at every turn. So we think about that platform for our consumers, our brokers, our care providers, and it's part of every interaction. It's also part of how we expect to improve our overall core operating performance. So as we leverage that growing suite of digital capabilities, we're going to build upon our broad Anthem portfolio of medical pharmacy, behavioral clinical and complex care assets and algorithms to really deliver the integrated whole person health solutions that we've talked about that's going to drive the quality and access that consumers demand. So over the next 5 years, we expect each 1 of our 4 primary businesses to grow considerably. Our commercial and specialty businesses maintain a steadfast focus on doing more for our fee-based members in partnership with IngenioRx and the DBG group. That is going to narrow the earnings gap between our risk and fee-based commercial members. Pete and his team have gotten really surgical in their approach to the market, identifying [ worthwhile ] membership growth opportunities in submarkets where we've historically been under-penetrated and see a clear growth path. We also know we have clear advantages for over our competition in those subsegments. Our sales have been strong, and our retention is up. And as you know, we've led the sector in commercial enrollment growth over the past 2 years. On the Government business division side, we've been taking share in Medicare Advantage, and we expect to continue to do so with the ample opportunity inside of our own Blue states to support double-digit enrollment growth for years to come. Our Medicaid business is the second largest in the country and has enjoyed one of the industry's strongest RFP rates over a long period of time. It's highly complementary to our commercial presence, and it allows Anthem overall membership to grow in any economic environment, showing the resilience of our book of business. IngenioRx is firmly focused on growing pharmacy penetration, and it's mostly in our fee-based medical members. This opportunity, when you think about it, coupled with the growth in Anthem's core benefit businesses, supports double-digit revenue growth for the segment. As Anthem's own health plans continue to generate substantial savings from working with Ingenio. The proof points we have help demonstrate the advantages of carving in pharmacy as part of our whole health strategy. And finally, our diversified business group is growing organically in 2 ways: by scaling up its existing businesses across more of the Anthem health plan members, and by signing new contracts with third-party payers, including the vast majority of non-Anthem Blue Cross Blue Shield plans. And there's ample opportunity to add capabilities via M&A. The division is expected to post the fastest growth albeit off a relatively smaller base over time, but we see the potential for DBG to manage a meaningful percentage of Anthem's consolidated benefits expense on an at-risk basis, helping us to improve our outcomes for our members while lowering our overall costs. Finally, in support of our growth across all of our businesses, we're accelerating our approach to M&A with a preference for high growth businesses. That allow us to better address whole person care, grow our clinical and payment management capabilities and deepen our presence in key geographies, while allowing us to address a growing proportion of the total health care dollar. We have a preference for companies that have served Anthem's health plans well with solutions that can be scaled meaningfully across our own core benefits businesses as well as third-party payers. MMM and myNEXUS are really good examples of the kind of acquisitions that you can expect to see more of. So in closing, Anthem today is a very different company than it was just 2 years ago. We've transformed our culture, deepened our talent, refined our strategy and honed in on a diverse set of opportunities for growth. Today, we're a growth company at scale. Grounded in our mission and guided by our commitment to deliver better health, and we're intensely focused on execution and delivering against our commitments. We're also confident in our ability to achieve our target of growing adjusted earnings per share of 12% to 15% annually over the long term, with operating gain driven approximately 2/3 with operating gain driving approximately 2/3 of that growth and the remaining coming from capital deployment. So with that, Lance, I'll be glad to take your questions.

Yes. And I think again, is a fascinating story to me. And so let's start off at sort of the highest level. As you're thinking about vision for the company over the next longer period of time, 5 years and 10 years out. Just be interested in both how you see the growth and the change in composition amongst those 4 businesses and then if there are particular areas that you think are more likely to be capital deployment opportunities and kind of [indiscernible] to be growing at a much larger rate because of that.

Yes. Great question, Lance. And I think it very much ties to my opening comments. And if you think about where we were even at the end of 2020, we've built an incredibly resilient large benefits business. And thinking about just the metrics of that business. Over 3 million lives were added over those 2 years, 32% revenue growth and adjusted EPS growth annually of 19%. And you think -- as I think about my vision for this company, we are truly transforming ourselves from a partner in health benefits to a trusted lifetime partner and health. So what does that mean? That means serving consumers across the continuum and also having a digitally enabled platform that really is a series of tech-enabled businesses that accelerate the performance of Anthem in our core benefits business, but also in our services business. Let me take it down to priorities, more specifically to your question. As I see our true growth priorities over the next 5 years. First and foremost is the MA market. As you know, MA, both demographically is a great market. We've been growing at double digits. But we have a lot of runway in that marketplace. Particularly, we have 5 states that we serve that were in the top 3 position, and one of those is a non-Blue state. If you look at our commercial presence, we're in a top 3 or one, 2 position in every state. So as we think of the opportunity in MA, it's to get deeper and broader in states where we can leverage our brand, our relationships with care providers. We have some room to work on our stars. We know that we're putting an intense amount of work into improving our overall Stars performance, but we see that as a significant runway. It's a great business for us. We think we can get much deeper and we can get deeper with our partnerships. Our second opportunity is still our Commercial business. And while many people focus on the risk-based part of our Commercial business, we've been able to grow that. We still think there are opportunities. And as I shared in the opening remarks, some of those subsegments are areas we've grown quite well at. The PEO market, the union market, the student business. But the real opportunity for accelerated growth is in moving from the strategy of increasing profitability in our fee-based business. And that business, as we shared, was starkly at a 5:1 profit ratio to risk-based business with a goal to get to a 3:1. We're firmly going to be at the 4:1 this year. Our goal would have been to be there last year, but because of COVID, there was a slowdown in just decision-making. The biggest driver there is the pull-through of IngenioRx into the fee-based business for us. And again, there, we have less than -- roughly 20% penetration of the Rx business and our fee-based business. We would expect to increase that to nearly or over 30%. So that's a big runway for us. And then we also look at our other Diversified business opportunities in our clinical programs. We think Beacon, again, offers another opportunity for our fee-based customers in the mental health space. Our clinical programs have sold very well Star plus. So again, those are significant and real, very tangible opportunities that we've executed, and we see that as a strong growth pipeline. And I'll round this out with really the Diversified business group. So that's the really the third area. And when I talk about growing inward and outward, what I mean by that is the capabilities that we're bringing to DBG, and myNEXUS really comes to mind is a great opportunity where we are one of their largest clients in the Medicare Advantage space. We're already integrated with them. So we can then apply them across our broader book of business, grow with them and then, obviously, have the profit [ pool ] apply to our services business. So we see an opportunity inside of the Anthem business to really pull-through the majority of those DBG services and also then sell them to others. We have a strong relationship with many of our Blue brethren across the country, 27 different relationships now. We expect that to be 29 by the end of the year. So again, we see a pathway for significant growth, but in order, Medicare Advantage, Commercial fee business and then really the expansion of services, all of those digitally enabled through technology and AI to really accelerate performance. And then we're using M&A, I think, quite strategically for areas that we think fill in our portfolio of services. And again, share in my opening comments, I won't go back through them, but we do see M&A as an accelerator, and you'll see us much more active in the marketplace as you have over this last year.

Got you. So could you talk on the 5:1 to 3:1, the improvements in earnings in that self-insured business, I think you nicely lined out the sort of products and our cross-sells that are on the important drivers. Can you talk a little bit about how you go about doing that? How much of these are cross-sold products versus bundling? Or are there other strategies that you go about doing to kind of accomplish those sort of goals?

Yes. I think it's a combination of all of them. And I would say -- I'm not sure there's a big mystery. We have a whole health strategy. So we have done whole case underwriting, which also helps. So that's part of your bundling. But there's also a discipline across our sales force, which is incentives tied to selling across our specialty products, our specialty services. And I think we have gotten much more granular, much more disciplined. We're working more closely with our distribution channels as well. We've technologically enabled them to be able to put these benefits and packages more seamlessly. We're looking to combined our underwriting function so that we're looking at the in unique product segments, but across the continuum. And I'd say, so we have specialized sales forces, for example, in IngenioRx, but they collaborate very closely with Pete Haytaian's Commercial business. And I would say this is a lot about blocking and tackling, improving our technology, improving our quoting and ensuring that we can offer a much more seamless and easy experience for our brokers who are very central to our distribution channels. And again, a lot of this comes on a focus. We've set this as a strategic priority. We set our goals, we incent for it. And then we've built product, too. We built product that integrates it. We've been really trying to make sure we understand the market, so we understand the features of that. So all of that comes together. And I guess, to me, as I think about that, that's really just great execution and blocking and tackling and a focus of the enterprise to get that time.

Got you. Shifting over a little bit to the Diversified Business group. You gave a nice outline of both expectations there and some of the recent capability additions like Beacon. Can you talk a little bit about maybe as we look for growth in that space, what are sort of the existing penetrations in either other Blues or in the market broadly across some of those products. So we understand maybe where the -- where more growth can come over the next 3 to 5 years.

Sure. So I think, first and foremost, for all of the Diversified Business group services, it's a sell into Anthem first. And there's a lot of runway in all of them, including IngenioRx, and we see a lot of the growth coming from there. But outside of that, as I mentioned, we have 27, soon to be 29 relationships with Blues already. The goal is to obviously offer more products, not all of them have all of the Diversified Business group products. So that's a big opportunity for us. And we've organized our sales force to ensure that we can manage them similar to how we manage our national accounts. Clients, very similar type of things as they buy the needs that they have. We obviously understand many of those needs because we have them in our own book of business. And I think the best proof point is the results that those services are driving for Anthem inside of Anthem. Secondarily, we have a lot of other partnerships with Blues as part of our benefits business. And a great example, we have 10 different relationships in Medicaid 6 in the duals market. And that's a wonderful opportunity for us to pull through some of those services. And a recent example would be the North Carolina Medicaid contract, where we're in partnership the Blue Cross Blue Shield of North Carolina. In that partnership that will offer IngenioRx. So that's part of the pharmacy benefit. And then Caremore will also have clinics supporting the members as part of the more chronic members in that population. So you can see a bundling beginning to occur similar to Blue Cross Blue Shield, Louisiana, where we've been in partnership in Medicaid for a number of years with them. And most recently, over the last few years, added the duals eligible population to the partnership. So we see an opportunity, certainly for downstream services for what we do with them already with AIM, but we're also going at risk more. So what you're going to see in the DBG revenue side is really much more at risk revenue where we know that we're very confident in the capabilities, and then we can truly manage the overall bottom line and cost of care. And so that will be a significant driver for their performance as well.

That's great. I want to shift to some strategic views on value-based care and value-based care delivery. But before we get into what you're going to do there for Anthem, does value-based care enablement or any aspects of value-based care present an opportunity for DBG and kind of enabling other Blues partners or other health plan partners?

Yes. No, I think it's a great question. I think it's tied to value-based care. I mean, you really -- value-based care standing alone doesn't work with that true enablement and enablement is a long pole in the tent. I'll go actually back to why we're investing heavily in the transformation and digital capabilities. One of those capabilities is our Health OS platform. And so what is the Health OS platform? It essentially aims to connect all of the provider data elements and give them information at their fingertips at point of service so that the patient and they can have close gaps in care and have more robust information, whether it's through only Anthem information, but also now we've connected to EMRs, sign announcement we made recently that we're bringing EMR data into that relationship. And we built it as an open system. So our goal is to have it as the core platform. We know already that providers, 1 in 8 patients they see as an Anthem patient even more so in some of our more dense markets. And same would be the case of Blues. And we see as a core enablement. So the front door for us for our member is the Sydney Health Platform, the front door for the care provider is our Health OS platform. And our goal is to ensure that those are connected. That data is flowing seamlessly. The member owns their data, but the care practitioner has it at real time, and that's a big part of enablement, closing gaps in care, understanding practice patterns. And so that's really what we're building and connecting. Going to your broader question of value-based care, we have roughly 60% of our relationship acquisitions in value-based care. To me, that's not the relevant number. However, the relevant number is enablement and moving them up the continuum of more risk-based value-based care. And so we have been on a continuous ride to do that. And I think are that we're giving, the information we're sharing with them. And quite frankly, the investments we're making in groups like Privia is a really good example of -- we have a partnership first mindset at primary care. We don't need to own primary care, doesn't mean that we won't own some integrated care we do with CareMore and HealthSun and now MMM in markets where it makes sense, and we're going to manage the most significant the most, I guess, the hardest to manage most chronic and acute patients. But when you think of core primary care, our goal is to be a partner to value-based -- participate in value-based care. And then to pull through our services, whether they're Beacon, whether that's Aspire, whether it's myNEXUS for home care, and we see the participating in the value creation there. And letting primary care physicians do what they do best in letting groups who are really focused on managing them and have the skills do that. So our strategy is, I think, quite different than others. And I do think there's an opportunity. We've been working with other Blues on the high-performance networks. I think that's a really good example of Blues collaborating. In January of this year, we introduced across our system, a continuum of high-performance networks. Covering roughly 56% of the U.S. population, really around 56 different markets, and Anthem, is about 22 of those. We're going to continue to expand those. As we think about the performance of those networks, and we've committed to a minimum 10% improvement in overall cost of care. What you see is all of the things I'm talking about, enablement, value-based care, really are underpinnings of our ability to continue to evolve those and have an even bigger impact. So that was a very long, probably winded answer to your question about, yes, we do see a real opportunity, but it's not just sitting in one area. We think there's opportunities for enablement in DBG, but also how we work in our partnerships with other Blues through Medicare and Medicaid, as well as other things we're doing on the group Medicare side and our partnerships there. So it's a little embedded in everything we're doing. But yes, we see a big opportunity to help expand that for the rest of the system as well.

That's great. Again, for the audience, I appreciate the question. We're getting a number of questions coming in, so I appreciate that, but anybody can continue to submit questions. Let me just follow-up on the value-based care strategy. I think you gave some nice clarity there on kind of where you intend to partner and in some of the areas you intend to own in. Can you talk a little bit about the logic and the strategies associated with relationships with companies like or Privia or CareMax or others that are out there. Is that something where you're looking to have specific clinics tied to you? Is it something where you're just looking to enable those markets a little more? What's the underlying strategy?

Yes. I think the underlying strategy is a little bit where we see needs and think we have growth opportunities and where we think that there's an opportunity to take primary care that isn't far down on value-based care continuum. We may already have contracts and relationships, but we'll go back to that enablement part. Enablement is a long path. We probably see the most of it in the Medicare Advantage business, but it also applies to the commercial and Medicaid business. And we see those relationships at companies where we can participate, we can be much more integrated with them by taking a stake in them. And we can participate, obviously, in the downside with our DBG services down-type services. So things outside of primary care with our DBG services. But we also recognize that these groups require intense help to get up the curve. And we see these organizations as an opportunity to do that. And some are -- a lot of them are in areas, obviously, where the primary care has not had a historic relationship of taking value-based care and feel they want to, but they're concerned. So they have to go up a continuum, they need the support, they need at the time and there are also areas where we think we have significant growth. Either we already have a good presence. We want to continue to grow that. So we want capacity or areas where we think we can improve overall cost performance because they're not as organized or is far down the continuum. So it's a little bit of both, Lance, but we see it really targeted to areas that, again, think of our Medicare Advantage business. Only 5 or top 3. We got a lot of room in those other states, 11 states to become a top 3 player, and this is part of the enablement strategy for us to really grow our MA by having a really strong performing primary care network that lines with our benefits are designed. We're embedding social determinants of health. We're going to feed them that data. So it's beyond just basic blocking and tackling medical care. We're really looking at all of the things that impact people's health, improve Stars performance. That's another primary driver for us is we believe that primary care is critical to the improvement of Stars performance. We wrap that around our home-based nursing services. We can capture the data. We put it in our pharmacy. I think all of those things give us much greater visibility into overall insights of where gaps and our ability to close them. So that's really the core.

Yes. There's a couple of questions that are coming through, I'll get to in a moment on digital investments you guys have made in companies, competitors and other disruptions and kind of digital areas, including telehealth. But before that, maybe if you can just frame for us obviously, you've been talking a lot about digital over the past investor days and earnings calls. Can you talk to us a little bit about what digital means for you and a digital strategy? And we're actually doing some of the [ PrimEra ] next week, just focusing on their digital-first product offering. So if you could maybe differentiate between digital as an enabler, any sort of digital-first products or things like that you have?

Yes. So as you think about digital for us, it didn't just come out at Investor Day, and I think that's really important. We've been building this for the last 3 years, 4 years and even before that. And we've built a set of teams and brought in talent, hired new individuals who come from outside of our space that are expert from Google and Apple and like all the tech players, we've built a capability in several locations across the U.S. and I think part of this was always to transform our business. And it's not just -- we talked about being a digitally first company, but we really are trying to build a platform under which our businesses are tech-enabled and connected. And what is -- that sounds like a lot of words and what does that really mean? It means it powers digital and AI and informatics power our businesses inside of Medicare, Medicaid and Commercial. In Medicare, it's simple. I mean we've built AI-enabled Stars tool that helps us identify gaps in care early in the process and helps us understand where we are in closing them real time. It informs our field clinicians about areas where we think we might have higher incidences of acuity. So we are using our AI and embedding it. We've taken some of our clinicians who worked in the digital space and paired them with our clinicians who historically worked in the regular UM space to reinvade it and reinvent our processes. So we see the platform is really the interconnectivity, the front door are the tools, right? The -- how you enter us and how we change the consumer experience, how we get data. But a couple of things that we shared at Investor Day that I think are worth sharing. About 60% of our actions -- interactions today are digitally enabled. Our goal is to be 90% by 2025. We are looking to build a touchless. We're in the process of building touchless claims process of reconfiguring everything that's done on the UM processes by using, again, AI to understand ahead of time and get rid of the administrative burden. So that's a lot of what I'll call the administrative process of health care. We're also using that to help us better understand these interventions. So you talked a little bit about where does telehealth make a difference. How do we use it? How do we embed it in the practice? Importantly, how do we get data, this data that doubles every 70, 80 days, which is an incredible resource, how are we really converting that into useful, actionable insights for care practitioners and members. And again, we're trying to connect both the health operating system platform, the Health OS platform we're building, which is for care providers, with Sydney, which is the front door for consumers so that, that's a virtuous cycle. And it's not all connected yet. We still have some work to, and that's part of the transformation and sort of how we see accelerating growth inside of our business. It's embedded in our goal to get to CPI and the commercial cost trend over the next 5 years, as Pete shared. So that's the core of what it means to us. It's really not a side thing. It's not a project. It's embedded in who we are and who we're becoming. And I think it will enable our future businesses. And as you see, our businesses, they will use technology, digital-first and AI as the core of how processes and decision-making occurs. In terms of your other question about digital projects, products, we're also working on those. We had an announcement recently with K health and Blackstone around launching a virtual care product. We're really -- it's all virtually connected very different really to track predominantly the individual uninsured market at very attractive price points for people who really want to engage that way. You're going to see us doing more and digitally enabled products as we learn more about those. And I think -- I think it's a big opportunity. So I think digital is both an enabler about who we are. It's enable for achieving our cost structure targets. It's going to make us smarter with AI about how we make decisions and how we deploy people. And I just think it fundamentally transforms our business. That's why we think of it as a platform. And then we will have products as well. And you'll see those continuously rolling out and embedded in both the commercial and in some elements of our Government-based products as well because I think we can make our experiences much simpler for our consumers by doing that.

Makes a lot of sense. So let me start to pepper in some of the questions that are coming in online here, digitally. And so the first of them is the question is, philosophically, why is -- well, why not another vote? Why [indiscernible] is the best owner of the digital front door? What percentage of members use your app regularly? How long is the average member with Anthem? And maybe you can tuck-in mine there. Obviously, we're talking about kind of like your apps and things like that. Like what is it that you need to own and brand versus find a best-in-class solution?

Yes. So to answer your question, I mean, we're building an open architecture, first and foremost. So we don't have to own everything, but what we do have to own is the consumer experience and the how the data is used because we have very strict requirements around the data, around the consumer owns that and how we operate. So we are maniacal, I guess, I would say about that. But I think we have to on the consumer experience. We're trying to create an integrated seamless experience. We don't have to own everything. We've worked with a lot of partners. We've invested in a number of partners. But it has to be on an API basis, it has to be interconnected to our systems. And it can't look like a bunch of things. You go to an app and you go on, you have to navigate. We're trying a very seamless. So it comes together. Sydney is the front door. So if you think about the front door for health care. We don't need to own telehealth would be a great example. We have great partners on virtual care that we can work with. We don't necessarily believe that, that's an asset that will generate where we think the true value is for us. So we can embed it. We have great partners, we can embed it into our benefit design, et cetera. So I think those are examples of we're open minded. We're not -- we don't have a build everything mindset. We have a build and use our data, protect that, have a seamless experience and that from there out. And we run a ton of different work with our technology teams and small companies, too. We're obviously careful, though, because we want to protect the experience of our members, but there's a lot of great ideas out there. And that's why we invest in some of these companies. We try to help them scale inside of our business and others. And -- but overall, those core elements of the consumer experience we're going to own, and we're going to own the core elements of the care provider experience as well. But there are some things that are utilities that are fine. We have a partnership with Availity which also includes some of our competitors, that's fine. We see that as a utility. No one has to differentiate. That's not the area of differentiation. That's a scale play. So I think that gives you some sense of things that makes sense. In our PBM, a great example, we built an incredibly efficient PBM by leveraging contracts of a partner, and we're really focused on the consumer experience component. How do we make a difference in some of the other elements of specialty care, how do we integrate it with our whole health strategy. So we want to really focus on those value-added and not necessarily own each of the pieces.

Got you. Let me turn to Ingenio for a moment, and I've got some questions that have come in there and some more questions and thoughts there. The first would be, as you're sitting there with Ingenio, you're looking at your vision for that company, 5 in 5-plus years out, what do you see as the opportunity there, again, recognizing some other big competitors in the space? And then also, have there any changes with the new leadership you put in place?