CVS cuts profit forecast due to higher health care costs, says top Aetna exec to leave – NBC Connecticut

• CVS Health reported second-quarter financial results that beat expectations but cut its full-year profit forecast, citing higher health care costs that are hurting the U.S. insurance industry.
• The drugstore chain expects adjusted earnings for 2024 to be between $6.50 and $6.65 per share, down from its previous forecast of at least $7 per share.
• This is the third consecutive quarter in which the company has lowered its profit forecast for 2024.

CVS Health on Wednesday reported second-quarter financial results that beat expectations but cut its full-year profit forecast, citing higher health care costs that are hurting the U.S. insurance industry.

The drugstore retailer also said Aetna CEO Brian Kane, the most senior executive in CVS’s insurance division, will leave the company effective immediately due to the segment’s current performance and outlook.

CVS CEO Karen Lynch will take over management of the business, and CFO Thomas Cowhey will also help oversee it. Katerina Guerraz, CVS Health’s chief strategy officer and corporate officer, will also become chief operating officer of the insurance unit.

CVS shares fell more than 2% in premarket trading on Wednesday.

The company now expects adjusted earnings per share in 2024 to be between $6.40 and $6.65, down from its previous guidance of at least $7. per share. Analysts surveyed by LSEG had expected full-year adjusted profit of $6.97 per share.

CVS also lowered its unadjusted earnings forecast to a range of $4.95 to $5.20 per share, from at least $5.64 per share.

This is the third consecutive quarter in which the company has lowered its profit forecast for 2024.

CVS said its new outlook reflects continued pressure on its health insurance business, which has seen rising medical costs and an “adverse impact” from the company’s Medicare Advantage star ratings, which help Medicare patients compare the quality of Medicare health plans and drugs.

CVS owns health insurer Aetna. The company’s insurance division includes Aetna’s Affordable Care Act, Medicare Advantage and Medicaid plans, as well as dental and vision.

Insurers such as UnitedHealth Group, Humana and Elevance Health have seen health care costs rise as more Medicare Advantage patients return to hospitals for procedures they had put off because of the pandemic, such as joint and hip replacements.

Medicare Advantage, the private health insurance plan contracted by the federal Medicare program, has long been a growth and profit engine for the insurance industry. But Wall Street is increasingly concerned about the runaway costs associated with these plans, which cover more than half of all Medicare beneficiaries.

Here are CVS’ second-quarter earnings results compared to Wall Street expectations, based on an analyst survey by LSEG:

• Earnings per share: $1.83 revised vs. $1.73 expected
• Income: $91.23 billion vs. $91.5 billion expected

The company reported net income of $1.77 billion, or $1.41 per share, for the second quarter. That compares with net income of $1.90 billion, or $1.48 per share, for the same period a year earlier.

Excluding certain items such as amortization of intangible assets and capital losses, adjusted earnings per share for the quarter was $1.83.

CVS reported sales of $91.23 billion for the quarter, up 2.6% from the same period a year earlier, driven by growth in its pharmaceutical and insurance businesses.

The company noted that sales in its health services segment, which includes its pharmacy benefits manager Caremark, fell in the second quarter. CVS cited improved pricing for pharmacy customers and the loss of a large, anonymous customer.

Caremark negotiates drug discounts with manufacturers on behalf of insurance plans and creates lists of drugs — or formularies — covered by insurance, and reimburses pharmacies for filling the prescriptions.

In January, Tyson Foods said it was ditching CVS Caremark and instead choosing PBM startup Rightway to manage pharmacy benefits for 140,000 employees starting in 2024. Months earlier, Blue Shield of California, one of the largest insurers in the most populous U.S. state, also dropped Caremark in favor of Amazon Pharmacy and Mark Cuban’s Cost Plus Drugs.

The decisions spell even more turmoil for the health care industry as startups and the government seek to increase transparency and lower costs for U.S. patients.

Pressure on the insurance unit

CVS’s insurance segment generated revenue of $32.48 billion in the quarter, up more than 21% compared to the second quarter of 2023.

Sales during the period were in line with analyst estimates of $32.37 billion, according to StreetAccount.

But the division reported adjusted operating income of just $938 million for the second quarter. That was below analysts’ expectations of $962 million for the period, StreetAccount said.

The insurance unit’s medical benefit ratio — a measure of total medical expenses incurred relative to premiums collected — rose to 89.6% from 86.2% a year earlier. A lower ratio typically means the company collected more premiums than it paid out in benefits, resulting in higher profitability.

According to StreetAccount, this figure was lower than the 90.1% that analysts expected.

CVS’s healthcare services segment generated revenue of $42.17 billion in the quarter, down nearly 9% from the same quarter in 2023.

Those sales topped analyst estimates for the period of $41.25 billion, according to StreetAccount data.

The Health Services division processed 471.2 million pharmacy claims during the quarter, compared to 576.6 million during the same period last year.

CVS’s consumer pharmacy and wellness business reported $29.84 billion in sales in the first quarter, up more than 3% from the same period a year earlier. The unit dispenses prescriptions at more than 9,000 CVS retail pharmacies and provides other pharmacy services, such as immunizations and diagnostic testing.

Analysts had expected the division to post sales of $30.22 billion, according to StreetAccount.

The increase was partly due to an increase in prescriptions, CVS said. Pressure on drug reimbursement at pharmacies, the introduction of new generic drugs and a reduction in the number of drugs in retail stores, among other factors, weighed on the unit’s sales.