Centene Corporation (CNC) Earnings Call Transcript & Summary

What I would love to do is -- so first, thanks for being here, Sarah, Drew, Jen, I really appreciate it. And hopefully, we can do this in person next year, but great to have you there live. Are you both in St. Louis?

We are.

Yes, it looks like you're in the office, grinding away, God bless you. So I thought what we do is give Saran and Drew a second here to kind of give us a quick state of the union on how they see the world kind of coming out of 3Q and into 2022 and then we'll kick off Q&A. [Operator Instructions] So we'll try to save some time at the end for our client questions. So with that, I'll throw it over to Sarah. Thanks again for being here, Sarah.

Yes. Great. Thanks, Justin. Thank you for having us, and thanks to the whole Wolfe team for a great conference. We had a bunch of really nice meetings this morning, which got us all warmed up for this conversation. But just a quick sort of state of the state, as you said, we're coming off of Q3 earnings. We had really solid results. And I think that really demonstrated the strength of the underlying business and our ability to manage through what has been a really choppy 1.5 years, quite frankly, with the pandemic. I think it also has illustrated the value of the work that we've done as an organization to get to a size and scale where we have the ability to navigate what in health care can be an incredibly variable landscape. And I think, in addition, as we look ahead, have the ability to balance across the portfolio and start thinking about how to disrupt how we want to see health care moving going forward. So we're now in a position of being at that size and scale. We are #1 in Medicaid. We are #1 in the marketplace, and we are one of the fastest-growing providers of Medicare Advantage. And we are currently serving 26.5 million Americans. So I think we've gotten to a place where we are really excellent at delivering high quality, low cost and local government-sponsored health care to our members. And that has always been a core focus for Centene and will continue to be the core focus going forward. But as you heard from us coming into June Investor Day, now that we are -- have reached that size and scale, which again, I think is critically important in this industry, we are shifting to focus on how to leverage that size and scale to really unlock value. And so we announced a 2024 margin target of at least 3.3% at our Investor Day in June. And that focus of really how do we deliver value, how do we strategically position the company long term has been the #1 focus of management and all our core leaders over the last couple of months. So we've made some great progress in that direction. We've established a value creation office so that we have the infrastructure to run these initiatives, and they sit within the value creation framework that Drew laid out in June. So we've got 3 pillars. We've got SG&A. We've got medical management, and then we have strategic capital deployment. And we've lined up a number of initiatives against each of those. And the plan is to provide a lot more detail around for a fulsome view of those use cases. We've talked a little bit about pharmacy, but we also, at our Investor Day in December -- it looks like we have a surprise, special guest.

You got it, Sarah. You got it.

The man himself.

Yes.

I'm here to listen. Go ahead.

So our Investor Day in December, we'll go into a little bit more into each of those buckets, so quantify those against our target, but also give investors a view to some of these initiatives. So again, we've talked a little bit about pharmacy. There are some other enterprise-wide initiatives that I think really nicely illustrate how we're thinking about standardization and operating model changes as well as really taking a disciplined view of portfolio rationalization. So we've talked a little bit about looking at our -- quite frankly, looking at our entire portfolio, but really focused on our noncore assets and asking ourselves the question of how do they contribute to our value creation goal, how do they contribute to the margin or fit the margin profile, how do they play into short or long-term strategy because, again, this is not just cost-cutting. This is about what's the right sort of strategic positioning. And then ultimately, are we the best owner. And so an early win in that process as we announced 2 weeks ago with the majority divestiture of USMM. And I think that was a great example of actually hitting all 3 of those pillars, right? So USMM, by positioning them independently, we get margin relief. We also allowed them to have access in a more payer-agnostic disposition to a broader pool of patients that will make their economic engine more efficient and therefore, allow them to serve our medical management initiatives around our frail, elderly and homebound patients in Medicare and Medicaid at a lower cost. They are under leadership of arguably one of the sort of best visionaries in the home care space. So we expect them to be able to innovate and have access to capital to do that. That's not Centene Capital because we felt the highest and best use of the next dollar for us is really being able to harvest dollars out of that asset in the short term. And as we said, that will allow us to pull forward some of the work that we were going to do around material share repurchase program. So it was a really nice sort of prefer, if you will. But I think it also speaks to the fact that as we go through this process, it's not just about cost-cutting, we think of value as what's the right strategic positioning. And so for those assets, it's not just keep or sell. It's what's the right strategic position where we can extract the most value for Centene. And that's the lens that we're taking to all of that portfolio review. So we're making great progress. We're going to talk a lot more about that in just a couple of weeks at the Investor Day. But happy to answer questions here and look forward to sharing more and taking shareholders with us along that journey. So with that, I will turn it back over to you.

Thanks, Sarah. That's certainly comprehensive. And let's jump off. You mentioned the Investor Day, so let's start there. To your point, you've given us a lot of the end targets and the broader strokes of how you're going to get there on this margin expansion. What do you think we get at the Investor Day? Can you give us a little preview in terms of specific -- potentially specific examples of where cost-cutting might come from? And also, you've got a number -- I think Drew has always has done a great job of kind of setting expectations for 2022. I know you haven't given official guidance yet, but I think you've given us rains to kind of understand the earnings power of the business next year. And let's just say that's in the low $5 range, and you've got an endpoint down 2024, that's pretty significant, right, in terms of probably north of $7 of earnings power. So do you think you'll be able to help us understand the ramp from '22 to '23, right? We got the 2 end points. Can we get -- do you think you'll be able to help us understand how 2023 is going to look as well?

I'll just add I think , I think you're going to see very specific steps that are being taken. And I'll let Sarah finish it, but the only thing we're saying is everything we do has to be sustainable. So we're really focused on not just flash in the pan. I cut this so I did that. But what are the sustainable actions we're taking to move around. Sarah, you might want to add to that.

Yes. I think 2 pieces, both of which Justin, you touched on. One is the intent to provide more quantification around each of the 3 buckets and how we see the contribution from those buckets. But then exactly, as you said, really getting into specific examples. And some of that is -- again, we've talked about pharmacy as an example, that -- there are other examples that we're -- again, we want to give sort of a 3-dimensional view. So you get kind of a visceral understanding of what we mean when we talk about structural changes. So pharmacy is a great example. Again, we've mentioned this before, where we've got, obviously, the RFP, which we've talked a lot about, that's a big impact. But we also have a whole bunch of opportunity around platform consolidation. We've got some really interesting opportunity around standardization and automation. And then we have structural opportunity in terms of how we organize our resources there between a center of excellence and the plans. So actually stepping through in more detail, each one of those pieces and even quantifying those pieces is how we intend to approach the use cases that we'll go through in December. And part of that is because as we've talked about, while it's not a hockey stick, it is sort of a ramp where the P&L impact of this work will hit more in '23 and '24 than in '22. So we also want to give you all a chance to, like I said, come along with us on the journey and have some milestones in '22 that we can report out on. So you understand that we are, in fact, making progress against these initiatives that will then accrue in the out years of the time line.

Got it. Now that's incredibly helpful. And so you would expect to be able to say to us here is the margin in '22, show us a margin kind of improving to that 3.3% target in '23. And right now, consensus seems to assume it's a -- like you said, it's not a hockey stick, but clearly, you're starting from a lower point in '22. And it kind of expects to kind of get halfway there in '23 and then all the way there in '24. Is that a reasonable way to think about it? Or should we expect more or less of that in '23?

Drew, I think you're on mute, but we are going to let you take this one. Please.

As Michael said, we are going to do some of the quantification for you at Investor Day, especially with respect to 2024. And then, as Sarah mentioned, value some of those big boulders, those buckets and give you some specific opportunities because we know there's a thirst for more examples and sort of more of a path as well as I want to give you the confidence that as we execute in 2022, as Sarah said, bring investors along the journey with us, so that you know we're making progress towards that end goal.

Got it.

And I think it should be clear. I think really, it should be clear that these are the steps. And yes, they are achieving it. And we always like to kind of under-promise, over-deliver a little bit so that people can see what the back progression is. If you look at the last time we gave you a chart, there were some pretty good examples on it. Now it's a matter of fleshing out even more.

That's good to hear. I know there's a lot of anticipation there. So looking forward to seeing you all there. So maybe we can talk a little bit about the strategic view of assets and Sarah, you talked about doing a fresh look and thinking strategically about what makes sense and what doesn't. Can you tell us, one, the -- what are the parameters of those assets? I mean, I think, Drew, you and I talked after the third quarter call, and it sounded like the Medicaid, Medicare commercial insurance assets are core. So what else is there that you might be able to flesh out for us in terms of just understanding what else -- what is the opportunity set that you are going to review in terms of maybe just putting some revenue and earnings numbers around it? And then, Sarah, you spoke specifically about the ability to start doing material share repurchases. So maybe you can help us flesh out what the word material means in terms of quantifying how big a share repurchase program will be thinking about here and over what time frame?

Yes. So I'll start with the question about non-core assets. I think you're right to do in your delineation of what we see as core. And that book of business in totality is about 94% of our revenue, so just to give you a sense of magnitude. If you think about the other pools of assets that we have, we have the companies that are sitting within health care enterprises. We have a number of specialty companies to think about our Prison Health business, vision, dental as well as international. So that -- I would say those are sort of the boulders in that pool and all of those will go through sort of this rigorous examination. And like I said, the answer is not necessarily sell or keep, it's really what's the right positioning and where might we actually want to invest more. So a great example of that is Community Medical Group, which we own in South Florida, which sits in health care enterprises has actually been a really valuable partner for us as we think about innovative products in that market for Marketplace and RM better product, right, and being competitive, given the dynamics that we saw last year. So that's one where we would think about actually deploying additional capital rather than the opposite. And then your question about share repurchase, we're authorized up to $1 billion as we've talked about, and Drew mentioned, right, the commitment to do that no later than 2022. Given the commitments we already have with Magellan and PBM that I think was originally more of a back half of '22 effort, but part of the logic of the portfolio review of the opportunity of the portfolio review, which USMM obviously kind of amplifies that where we have opportunity to harvest capital, we can use that to pull forward that program. And it's our intention to do that.

2022 shows some pretty good cash flow.

Right. That's helpful. So the -- if I think out to next year, Drew, you've talked about the Medicaid business being a place where earnings have been better than expected. So I was hoping you could give us some color in terms of where margins sit today versus kind of a reasonable and what you think a reasonable target range is on Medicaid and how you expect that to progress into 2022?

Sure. On the progression, think about a few factors going from '21 to '22. We've got a couple of pharmacy carve-outs. Those are not insignificant, including California, effect of 1/1/22. So that sort of is a pressure point on HBR. We've got redeterminations that will be kicking in sometime this summer, sort of the zone is -- the CBO in July was estimating 9 1, the house bill has an April reference, which would be a 5 1 commencement. So there's going to be a sloping of redeterminations at some point where actually we're well positioned with our product. We've also got sort of the return of more normalized trend, which has been occurring throughout this year, and we expect -- we've got forward estimates of how that will come into 2022, but then also the sunsetting of a number of the COVID era risk corridors and other governors on Medicaid performance that sort of go into that equation. So when we look at all of that and we think about what 2022 might look like, the HBR Medicaid is expected to be sort of higher next year. That's factored into our modest adjusted EPS growth for next year. We've got the tailwind then of an improving Marketplace margin going into next year as sort of one of the offsets. So yes, as we thought about sort of that opportunity for modest adjusted EPS growth next year, those are some of the things we thought about in terms of Medicaid.

And I think also, when you think about it, some of the competition that we're racing to the bottom on pricing, I think, the world seen how well they've done.

Right. Right. Yes. That's been -- it's been pretty ugly on the exchanges for some of these start-ups. That might be an interesting kind of segue to -- you would expect it to be able to grow, I believe, in the exchanges in 2022 after a tougher 2021. Doesn't look like there's been a lot of price abatement yet from these folks. Do you still feel like after getting a better look at the competitive landscape and during open enrollment year that you still think that growth is a reasonable target?

Yes. I think we're going to show our strategy, not joining the race to the bottom is going to pay off in more ways than one. And well, I'm not going to front run the quarter or the numbers, but let's -- by the time we get to Investor Day, we should have some insights as to how the enrollment is going

It's good to hear. Michael, again, I can't thank you enough for joining us. I'm glad to see you're feeling better. I know you're a little under the weather last week. So I think this is your first opportunity to talk to investors since we had an activist take a position in the stock. So I'd love to -- I've been doing this 20 years. You don't see this too often. So I'd love to hear your view kind of one, what have you heard from the activist, how have you or have you not engaged? And then maybe any kind of early views on what you're hearing from shareholders as it starts to kind of take shape?

We've kind of taken a point of view of not talking much about it. We have a business around running it. It's been clear to everybody, we've been refreshing the Board. We've added 4 directors in the past 2, 3 years. And then it's more in line coming on board. So a lot of things that we're talking about have already been in place. The value creation was in place long before we heard from any of them. So from my point of view, it's off to the side. We have a team that works on those kinds of things. And from my perspective and the people on this call is that's business as usual, let's keep the business going, it's in good shape and it's getting stronger. I'd like to leave it there.

That's totally reasonable. I appreciate the comments. The one thing that we do hear a lot about, and this was certainly previously is the potential for succession right? And obviously, you've done a great job in building up the management team, Drew, exceptional Sarah. I think everybody's gotten to know her a lot better. You've done a great job of getting people out there beside yourself in terms of showing the depth of management and setting up the office of the President, all of this, right, I think it moves in that direction. So as I've gone and look back, historically, it's been -- as your contract, I know your CEO contract, at least is up -- And I think it's at the annual meeting in '23, right? So that's about 18 months from now, a little bit less. And typically, as I look back the last 3 contracts, 12 to 18 months before that, there had been some announcement on a renewal. So we're kind of in that time frame, Michael, that 12- to 18-month time frame, where typically, there would be some kind of announcement. So curious, is that -- should we expect the kind of similar time frame in terms of any kind of whether you are going to sign up for another few years or maybe start thinking about changes?

I think it should be pretty clear that we have any officer, President and Sarah and Brent some very capable people. And the whole is sending up the 2 of them in that office was people get a sense that we have a hell of a team there that can take this company forward. And so I tell people just how you exit that how you enter. And there is a time when I -- so I don't look for any renewal anytime soon.

Okay. And Michael, if there isn't a renewal and we're kind of counting down that time frame to 2023, should we expect something to be announced there within that 12- to 18-month time frame? Or is it just over the next 18 months?

Nobody in my position ever sets himself off to be a big [indiscernible]. If I did that, you have to see what's the matter with him, okay?

Got it.

So I tend to say people stay tuned. I mean we put Brent and Sarah in the office of the President so people could see there's a couple of very qualified people. And if I walk in for the enormous wagon tomorrow that are capable of stepping in.

Got it. No, that's helpful, and I appreciate all the comments, Michael. I know everyone will appreciate it. Maybe for Sarah, there's been a relative dearth of new Medicaid outsourcing opportunities recently, right, for the industry. And we all know that, that's probably due to -- at least a significant portion of that's due to COVID, right, kind of probably putting back the time frames of some of the state outsourcing. So I was curious in terms of can you give us an update on what you think of the pipeline there? And are you having conversations with states that maybe have put this off and are looking to come forward? One in particular, California, I know is going to do -- is going to be running a big RFP over the next couple of years. So I'd love a comment on that in terms of how you think of a framework and the opportunity for Centene and then just overall.

Yes. So he's not on this call, but I know Brent would kick me if I talk too much about the pipelines because we don't want to sort of over send signal. But as you said, there are some states that where we have visibility around reprocurement, California is obviously out with a draft. And then I think part of what RFP team and our business development team does just exceptionally well is continuously have active dialogue, both with states that have yet to move to a Managed Medicaid disposition and talk about the value of being able to deliver higher quality, low-cost care, but also help to socialize within states where we have terrific relationships where there might be other opportunities to expose the population to that management model. So we're always in very active conversation about that, but I don't want to go too much into detail because we would never want to front run our state partners.

Got it. Well, California has announced something already. So maybe you could tell us a little bit about your footprint there and whether you see this as an opportunity. It does look like they're -- they might be looking to expand the number of plants or frankly, shrink them. I know California is a pretty unique environment in terms of they've got a lot of kind of local provider-based players that are not for profit. Do you think they could start to go to a broader model where like a lot of states have kind of narrowed the 3 to 5 players and simplified Medicaid delivery? Or do you think they kind of stick with the model they have?

It's a good question. I think some of the pieces are still kind of shaking out. And I think in California, it really varies by geography. So we're tracking that through the draft that got released and expecting to have the formal RFP come out later in 2022. So we're just watching that really carefully and trying to make sure that we have the most positive relationships and position each of the geographies so that wherever they land, we're best positioned to maximize impact.

Got it. Maybe we could talk a little bit about there's been a ton of coverage expansion over the last couple of years between COVID and what the Democrats have done in terms of the Recovery Act. So I thought you got -- you gave a couple of interesting data points last week. One that about -- I think you said about 7% of your enrollment came during this -- from the special enrollment periods. So I'm curious in terms of if those do get turned off for 2022, how do you see that enrollment in terms of attrition relative to kind of typical attrition in the individual loan?

Well, the enhanced APTCs will carry through 2022. The 7% you mentioned -- and maybe even beyond that based upon what's being considered in the house bill, which would be great. Great opportunity to expand coverage for that 100% to 150% FPL population and even have some subsidies above and beyond that. The 7% was that early SCP. That was a pre-May where you didn't need a change in coverage or life status to make a move, but you didn't yet have the enhanced APTCs to encourage a more balanced risk pool like we did maybe on. So that was the point there. It's only 7% of our population. And with anyone who joins intra-year, you have -- you don't have the same risk adjustment opportunity and the clinical engagement opportunity that we'll have with those populations for a full year in 2022.

But that 7% is the -- do you think they attrite a little bit quicker? Or do you see them kind of being sticky into 2022? right? I'm really asking us more for the general kind of coverage population at Centene itself. I know it's not a huge percentage of your membership. Would just...

No, we're assuming those continue. I mean there's a typical cycle, right, additional roll rate in the industry 2% to 3% a month. So they would be subject to that same dynamic, but don't expect any mass exodus of that very small cohort.

Got it. And Michael, while we have you here, you're always pretty well plugged in, in terms of what's going on in D.C. And I know they're talking about a big reconciliation bill that would have some really meaningful coverage expansion on the exchanges in some important states for you like Florida and Texas. Curious in terms of what you're hearing there and what you think the probability is that something like that gets passed before kind of the next, let's call it, the next election cycle.

I would say we're seeing more than we've ever seen a movable feast where it's moving around for a moment to moment. What the house is thinking about, what the Senate is thinking about is very different. I do have a sense of confidence that they want to ensure continuity of coverage. And so I am cautiously optimistic that we will see some things that will help to ensure that access last year is still there. And we're talking a lot about that we need workers in this country. We know what the shortage is. And yes, it would be healthy to work. And so I think there's an emphasis on that. But the politics where the margins are so thin, one vote in the house -- 4 in a house, one in the Senate. I think Biden said, everybody is a President right now. So I think that's the movable piece. I mean it's just -- it's very hard but I do believe that the staffs and others are working to try and protect that continuity of care.

And Michael, how about Medicare Advantage? I thought it was really interesting that there was some concern that MA and specifically risk adjustment, could be a place where they could look for a pay for on that budget reconciliation bill. Bunch of senators, even on the Democratic side, came in with a letter supporting to the administration, right, stability in Medicare Advantage rates. So if we assume there's not going to be anything in the bill, then it would be more administrative. So how have the conversations gone with CMS? I know they're looking at risk adjustment as well. Do you feel like that's -- they're hearing that message of stability, especially in tough times like this? Or do you feel like there's a little bit of uncertainty there?

On the Medicare, I know some of the other players are very concerned. I said going into an election in '22, I don't think anybody is going to mess too much with Medicare. I mean there's a all those things that are talking about, what can we do to expand and on other coverage. I'm not sure how much of that will happen from the cost. But I don't see any of that maturity affects the program as it is today. If they do anything, they may strengthen it in some small way.

Got it. No, that's helpful.

By the way, my guess is as good as yours.

Your guess is always better than mine, Michael. Don't be modest. So Drew, maybe you can -- we could stay on Medicare Advantage for a minute. And can we talk a little bit about both how you bid for 2022, right? You had one of the biggest success stories, I think, of the integration between Centene and WellCare Group has been the Medicare Advantage growth you've had in 2021. It's led the industry. Michael, I know you talked a few years ago about Medicare Advantage as being a real growth pipeline. It's going to represent a significant portion of the kind of future growth. And -- It looks like the Centene or I should say, the WellCare transaction was the certainly an accelerate there. So Drew, can you talk a little bit about -- I know you didn't get in to the CFO role in time to affect the bids for '22. And I know you've talked about it as a place where you'd like to probably move a little bit towards the margin side. So can you talk about '22 and how you're positioned? I've heard from some brokers that it looks like you're taking share, and you've got some pretty competitive benefits out there for '22. And then talk about '23 and '24 and how you see the potential for margins to improve there.

Sure. No, you're right to recognize 2021, a remarkable accomplishment of growing. We're pushing 30% now. Organic growth on a meaningful base, so that has a big accomplishment. And quite frankly, that gives us more earnings power as we look at '23 and '24 sort of balancing. We want to continue to grow this business. It's -- by nature, it's a growth business, Medicare Advantage, the penetration opportunity, the value proposition for seniors. But we're going to sort of pull on those levers in the value creation plan '23, '24 to look for margin opportunities almost as a microcosm of the company, reaching a size and scale and then looking at what opportunities are there to drive margin and harvest margin in our businesses.

Got it. Got it. So in terms of 2022, are you getting similar feedback that I am in terms of where your -- how you're competitively positioned? Like one of the things I've heard is -- and I've actually went and looked at this a little bit this morning, your over-the-counter benefits are pretty material in terms of dollars, in terms on OTC that a member gets to spend quarterly. It looked like they're kind of ahead of the curve there. So one is, do you feel like you're competitively positioned to have outsized growth again? And then two, I'm curious on these OTC benefits. Do you feel like that's a place where you can titrate up and down easier without disrupting the member if, for instance, we do have a tough 23% rate season or you do want to improve margins a bit? Is that a place that's easier to go to so you put your parks and dollars there, and then you can pull it back easier than on copays and deductibles and some of the other historical benefits?

We don't want to give away all of our benefit design strategies looking ahead. But yes, that OTC, over-the-counter feature has been a welcome addition. This is not our first year of having that. Members seem to like that. But yes, the whole construct will look at going into '23 and '24 bid cycles, what benefits our most valuable for seniors and then what margin targets do we have to get to an expanded margin to contribute to the overall company goals.

Got it. And do you feel like your competitive positioning is differentiated again for 2022, like it was for 2021?

We like our positioning. We expanded our footprint. We went from -- we added a few states off of the 33 states that was our baseline for 2021, and you saw the number of counties we increased into. So we like our positioning. Once again, we're going to have a larger sort of base to then look at margin expansion opportunity and sort of that earnings power with a larger base given the growth in 2021 and expected continued growth in 2022.

Got it. And then maybe we could talk a little bit of -- go back to Medicaid margins for a second. I know, again, you talked about the margins moderating a bit. You talked about some of the PBM stuff there. The -- can you talk about reverifications and how you see that playing out from a margin perspective? I asked one of your peers this morning, are they having conversations -- are you having conversations with the states in terms of the last time reverifications happened materially, right, we saw the risk pool deteriorate and margins were pressured at a number of your peers, right? I think you didn't see it as significantly as, let's say, at them in United did, but it did feel like there was some pressure there. Are you kind of on are you assuming that within the guidance? And do you think that maybe this time could be different given you're going to have a decent amount of lead time and you kind of know how it worked last time.

Well, it's not just lead time. There's also the ramping, which will be different state by state. And Sarah was actually most recently talking to a Medicaid Director of one of our larger states. I'll let her give some insights.

Yes. I mean it was actually interesting because the team there was very focused on the redetermination effort, right? And I think there's very -- some of the things you're seeing in the proposed legislation suggest that there is an acknowledgment that the administrative burden of this is going to be material, right? And there's also a real consistency across the board in the desire for continuity. But what's interesting is I would say there's a higher degree of variability in terms of how wide folks have set the aperture, right? So if you think about managing the administration of the redetermination, there's also the question of folks who fall off, right, the ability to pick them up on the exchange. That's something that like at the Governor's office, they're paying attention to, right? But in the Medicaid, department, they may not be paying as much attention to. So we are having very active conversations around policies and just administrative practices that would help ease that transition and achieve the goal of coverage continuity, but then also making sure, to your point, that as we think about some of these populations that are going to be shifting around and potentially opened up as part of legislation that we have the right risk guardrails in the pools so that we have as much protection as possible as we manage through some of those changes.

Great. Well, yes, I do have 2 questions here that I'd like to squeeze in from investors before I let you go for the day. The first one is, Sarah, I mean, we give this one to you, going to be with the strategic review you're doing, you've made a couple of acquisitions -- or you made one, which is the U.K. provider business. And then two, you're going to be closing on another that is Magellan. Maybe you can talk specifically about those -- because both of them like the U.K. business, you had already kind of entered into an agreement that you were going to purchase the rest of that, right? That was kind of contractual before you started the strategic review. Same thing with Magellan, right? That was announced before you started this strategic review. So maybe you can give us an update in terms of your thoughts on those 2 businesses and how they fit strategically.

Yes. So I will -- let me talk about Magellan because I think as we, again, going back to kind of what's the right strategic positioning for the overall business. We see behavioral health as a huge and underserved opportunity across all of our lines of business. And so the promise of being able to leverage the expertise of that organization to kind of expand and enhance the work that we're doing. And also just think about -- I mean, as we look forward to what's the right provider strategy to help enhance, market by market, our overall growth. I think the sort of behavioral lens of that is important and unique. But I would say -- I guess the one thing I would say, and this is not necessarily specific to either of those 2 assets, but just a general discipline is we are looking at every asset with clear eyes regardless of when they showed up in the portfolio. Because at the end of the day, value creation and margin target is the most important thing. And as you overlay the strategic lens, we have to have the discipline to be able to look at all of those and say, does this still make sense? And again, I think Magellan and the behavioral piece, from what I can tell you from a strategic perspective, I think is hugely important. But it's just good hygiene to go through that process with everything.

Got it. I appreciate that. And then the last one is maybe for Drew. Within the 3.3% margin target, you've talked about the opportunity to rebid your PBM within that time frame, right? So you talked about $30 billion of spend. Is there an assumption within that 3.3% margin through that you get some benefit there -- there from that kind of accrues to investors or margins. from that improved PBM pricing. If so, any way to kind of ballpark that or maybe you'll be able to ballpark it at the Investor Day?

The answer to your question is yes, and we are going to -- well, we're not going to we -- probably won't give any specific number on that initiative because we don't want to sell ourselves short in the RFP process. It will be a contributor to one of the buckets that we frame and quantify for investors at Investor Day. And you're right, we get value every year with market checks, with clinical initiatives, working with our external PBM partner, but there's nothing like an RFP to really see what else is out there in terms of cost structure availability, quality and then operational execution. So we look forward to that endeavor over the next couple of years.

And keep in mind that we are -- the pharmaceutical purchases are growing as the business as well.

Sure.

So it's not a stagnant number.

Yes, that $30 billion will be bigger by the time you're actually bidding the contract. That's absolutely right, Michael. Before I say goodbye and thank you for your time, Michael, you weren't here to kind of during the kickoff, anything you want to share with investors before we let you go for the day?

No, I'll just say we're in a -- the company is in a strong position. It's a strong management team. And we're looking forward to Investor Day, so people further understand the success we're having and how great the future really is.

Well, I think we're all looking forward to that, Michael. Thanks for being with us. Sarah, Drew. I really appreciate the time today. Jen, thanks for setting this up. Great, as always. Everybody, have a great day and look forward to the rest of the conference. Take care.

Thanks so much.