CVS Health Wednesday reported first quarter profits were cut almost in half to $1.1 billion compared ... [+]
CVS Health reported first quarter profits were cut almost in half to $1.1 billion compared to the year-ago period thanks to higher costs to treat patients insured by Medicare plans the company sells.
CVS, which owns the large health insurer Aetna, said seniors in the health plans it runs were using medical services at a higher rate than previous quarters, triggering a decline in operating earnings in the company’s health benefits segment.
“Adjusted operating income decreased 59.9% for the three months (to $732 million) ended March 31, 2024 compared to ($1.8 billion) the prior year primarily driven by increased Medicare utilization, the unfavorable impact of the previously disclosed decline in the company’s 2024 Medicare Advantage star ratings, as well as an unfavorable year-over-year impact of prior-year development,” CVS said in its earnings report released Wednesday. “These decreases were partially offset by increased volume due to growth in the Medicare and commercial product lines, an increase in net investment income and improved fixed cost leverage across the business due to membership growth.”
That contributed to total company net income falling nearly 50% to $1.1 billion, or 88 cents a share, compared to $2.1 billion, or $1.66 per share, in the first quarter of 2023. The Medicare Advantage business also figured in CVS’ decision to cut its 2024 profit outlook for full-year adjusted earnings per share to "at least $7" from "at least $8.30."
Total company revenues increased 3.7% to $88.4 billion thanks to what the company described as “strong growth in the health care benefits and pharmacy & consumer wellness segments, partially offset by a decline in our health services segment.”
CVS executives vowed to improve the Medicare Advantage business, which is growing and becoming a more popular choice among seniors generally with record numbers of Americans signing up for such coverage.
CVS’ total medical membership in its health plans jumped by 1.1 million to 26.8 million as of March 31 of this year compared to Dec. 31, 2023 driven by the company’s Medicare and commercial health insurance businesses. CVS now has more than 4.2 million seniors enrolled in its Medicare Advantage plans compared to 3.4 million as of the end of last year.
“The current environment does not diminish our opportunities, enthusiasm, or the long-term earnings power of our company,” CVS chief executive Karen Lynch said. “We are confident we have a pathway to address our near-term Medicare Advantage challenges. We remain committed to our strategy and believe that we have the right assets in place to deliver value to our customers, members, patients, and shareholders.”
CVS last year acquired Oak Street for $10.6 billion in cash, adding a large network of doctor-staffed clinics primarily used by seniors. Oak Street has more than 200 medical centers across 25 states and CVS plans to open dozens more.
CVS’ health services segment, which includes its pharmacy benefit management company, lost a “large client” that contributed to 9.7% decline in revenues to $40.2 billion, CVS said. But that decline was offset “by pharmacy drug mix, growth in specialty pharmacy and the acquisitions of Oak Street Health and Signify Health.” Meanwhile, CVS revenues in the pharmacy and wellness segment, which includes the company’s drugstores, increased 2.9% to $28 billion as the company processed more prescriptions compared to the year ago period.
