On November 15, 2021, a person walked through the CVS Pharmacy in Manhattan, New York.
Andrew Kelly | Reuters
CVS Health It reported first-quarter revenue and adjusted earnings on Wednesday that missed expectations and slashed its full-year profit forecast, citing rising medical costs plaguing the U.S. insurance industry.
The company’s shares fell 10% in pre-market trading.
The drugstore chain expects 2024 adjusted earnings per share of at least $7, down from previous guidance of at least $8.30 per share. Analysts polled by LSEG expected full-year adjusted profit of $8.28 per share.
CVS also lowered its unadjusted profit guidance to at least $5.64 per share from at least $7.06 per share.
The company said the new outlook assumes higher medical costs for its insurance business in the first quarter will continue throughout the year. CVS owns health insurance company Aetna.
Still, CVS Chief Executive Karen Lynch said in a statement that “the current environment has not diminished our opportunity, enthusiasm, or our company’s long-term profitability.” She added that the company was confident “we have the tools to address the near-term future.” The Medicare Advantage Challenge.”
Insurance companies such as humana and UnitedHealth Group Medical costs are soaring as more Medicare Advantage patients return to the hospital for surgeries that were postponed during the pandemic, such as joint and hip replacements.
Medicare Advantage, a private health insurance plan contracted by Medicare, has long been a major source of growth and profit for the insurance industry.But investors are increasingly concerned about the runaway costs associated with these plans, including More than half All Medicare beneficiaries.
Here’s how CVS reported first-quarter numbers compared with Wall Street expectations, according to a survey of analysts by London Stock Exchange Group (LSEG):
- Earnings per share: Adjusted $1.31, expected $1.69
- income: $88.44 billion vs. $89.21 billion expected
CVS reported first-quarter net income of $1.12 billion, or 88 cents per share. This compares with net income of $2.14 billion, or $1.65 per share, in the same period last year.
Excluding certain items such as amortization of intangible assets and capital losses, adjusted earnings per share for the quarter were $1.31.
CVS sales this quarter were $88.44 billion, an increase of nearly 4% over the same period last year. The growth was driven by its pharmaceutical business and insurance division.
Meanwhile, CVS said sales at its health services unit, which includes pharmacy benefit manager Caremark, declined during the period. The company pointed out that this was mainly due to the loss of an unnamed large customer.
In January this year, Tyson Foods said it had abandoned CVS’s Caremark and instead selected PBM startup Rightway to manage drug benefits for its 140,000 employees starting this year.A few months ago, Blue Shield of California, one of the most populous states in the United States, also ditched Caremark in favor of Amazon Pharmacy and Mark Cuban’s Cost Plus Drug Company.
The decisions add to the upheaval in the health care industry as startups promising lower costs and transparency challenge the largest PBMs and force them to change their business models.
The first-quarter results come as CVS is trying to transform from a major pharmacy chain into a major health care company. Last year, CVS deepened that effort, spending nearly $8 billion to acquire health care provider Signify Health and spending $10.6 billion to acquire Oak Street Health, which operates primary care clinics for seniors.
Insurance unit pressure
CVS’s health insurance unit had revenue of $32.24 billion in the quarter, up more than 24% from the first quarter of 2023.
Sales for the quarter beat analysts’ expectations of $30.69 billion, according to StreetAccount.
But the insurance division reported first-quarter adjusted operating income of just $732 million. That was well below analysts’ expectations of $1.19 billion, according to FactSet.
The unit’s health benefit ratio, which measures total medical costs paid relative to premiums collected, increased to 90.4% from 84.6% a year ago. A lower ratio usually means the company is charging more in premiums than it’s paying out in benefits, resulting in higher profitability.
Analysts had expected the ratio to be 88.4%, according to FactSet estimates.
CVS said the increase was primarily due to increased Medicare Advantage utilization and an “adverse impact” on the company’s Medicare Advantage star rating.Those ones Ratings Help Medicare patients compare the quality of Medicare health and drug plans.
CVS adds that an extra day is added in 2024 due to a leap year, which also results in higher health benefit rates.
Health services and pharmacy companies are absent
On February 7, 2024, in Miami, Florida, a worker stocked shelves at a CVS Pharmacy.
Joe Reddell | Getty Images
The company’s health services segment generated $40.29 billion in revenue during the quarter, down nearly 10% compared to the same quarter in 2023.
The unit includes CVS Caremark, which negotiates drug discounts with manufacturers on behalf of insurance plans and provides health care services through medical clinics, telemedicine and at home.
Those sales were in line with analysts’ expectations for revenue of $40.29 billion in the period, according to FactSet.
CVS said the decline was due in part to the loss of unnamed customers and “continued price increases for pharmacy customers.” This decline was partially offset by growth in Oak Street Health, Signify Health and specialty pharmacy services, which help patients with complex medical conditions who require specialized treatment.
Medical Services processed 462.9 million drug claims in the quarter, down from 587.3 million in the same period last year.
CVS’s pharmaceutical and consumer health division had first-quarter sales of $28.73 billion, an increase of nearly 3% from the same period last year. The segment dispenses prescriptions at CVS’s more than 9,000 brick-and-mortar retail pharmacies and provides other pharmacy services such as diagnostic testing and vaccinations.
Analysts had expected the unit’s sales to reach $29.5 billion, according to FactSet.
The company said the increase was primarily due to higher prescription volumes, including higher contributions from vaccinations. Pharmacy reimbursement pressure, the launch of new generic drugs and declining store sales weighed on the segment’s sales.
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