CVS (CVS) disappointed Wall Street on Wednesday by missing its revenue estimates and lowering its 2024 forecast and expects to raise insurance plan prices in the coming year as it adjusts for Medicare reimbursement reductions.
The healthcare giant reported first-quarter revenue of $88.4 billion, up 3.7% year-over-year, but missed Wall Street expectations of $89 billion .
Higher healthcare utilization, meaning more insurance dollars spent, has weighed on the company in addition to reductions in Medicare reimbursement rates that will continue to pressure the company for the rest of the year. ‘year.
As a result, CVS said it expects earnings per share (EPS) and operating cash flow to decline for 2024, with adjusted EPS expected around $7, down from $8.30 previously. and a revised cash flow of at least $10.5 billion, up from $12 previously. estimate in billions.
CVS stock was trading down more than 13% on Wednesday, hitting its lowest level since 2009.
Following the results, Mizuho healthcare industry expert Jared Holz wrote in a note to clients: “I didn’t even believe the CVS numbers when they were released and anticipated a lot of pressure on the shares given the extent of this negative financial revision. »
Margins on membership
To right-size its balance sheet in the face of new Medicare reimbursement cuts expected in 2025 and changes to Part D benefits outlined in the Inflation Reduction Act, company executives said they would increase pricing and design of plans and benefits for older people.
Chief Financial Officer Tom Cowhey told investors during Wednesday’s earnings call that the Centers for Medicare and Medicaid Services’ (CMS) 2025 rate setting was “disappointing.”
“Obviously when we look at our trends, the market trends, we don’t think the rates sufficiently reflect that,” he said, pointing to the increased use of health services and the financial burden that comes with that. results for insurers.
For years, Medicare Advantage (MA) has attracted growing interest from insurers – this attraction coming from the profits generated by the rates offered by the government. KFF data shows that the gross margin per MA enrolled member was $1,730 in 2021, while the same margin for a commercially insured person was closer to $689 per person. Gross margin is the difference between premiums collected and claims paid.
Brian Kane, president of CVS’ Aetna insurance brand, said the company is considering a number of options to combat Medicare headwinds and is not alone in doing so.
“I imagine there will be a lot of discussion in the industry, certainly here at Aetna, about what product will ultimately be viable,” Kane said.
“We are very focused on margin versus membership,” he added.
Kane outlined a number of actions CVS could take to help improve its profits, such as exiting certain counties, reducing benefits – including flexible spending cards – and increasing premiums, which would lead to a drop in membership. Kane added that all competitors are likely to take similar steps, putting CVS on a level playing field when enrollees consider plan options next year.
“We think there’s going to be some disruption, we think it’s going to require premium increases, and that’s why there’s so much uncertainty about where the industry is going from a MA in terms of membership,” he said.
“The Power of Business”
CVS CEO Karen Lynch said during Wednesday’s earnings conference call that the company is focused on headwinds, but that investors should “not lose sight of the strength of the company.”
She added that the company is confident in its ability to meet the challenges of Medicare Advantage and return the company to a 4% to 5% profit margin over the next three years.
As other major healthcare retail players exit the market, including rival Walgreens (WBA) and more recently Walmart (WMT), CVS is committed to growing its healthcare services through the Oak Street primary care business — which will open up to 60 more locations this year, Lynch said.
To that end, market competition for Humira from AbbVie (ABBV), which faced at least five new biosimilar entrants last year – including Hyrimoz from CVS with partner Sandoz (NVS) – has benefited, Lynch said.
Like other pharmacy benefit managers, CVS has chosen to keep Humira in the same formulary tier as biosimilars, giving the brand a level playing field. But since April 1, CVS has promoted biosimilars rather than brand name and has seen success in adopting lower-priced drugs, executives said Wednesday.
Anjalee Khemlani is the senior healthcare reporter at Yahoo Finance, covering all things pharmaceutical, insurance, healthcare, digital health, PBMs, and healthcare politics and policy. Follow Anjalee on all social media platforms @AnjKhem.
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