CVS Health’s recent earnings report reveals a downward revision in its 2024 outlook due to increased medical costs in the fourth quarter. Despite this challenge, the company witnessed significant profit and revenue growth in 2023. Key segments such as healthcare benefits, health services, and retail experienced double-digit revenue increases. CEO Karen Lynch highlighted concerns regarding funding levels and emphasized the importance of additional funding to cover comprehensive member benefits. The company aims to address rising pharmacy costs through initiatives such as leveraging biosimilars. Additionally, Lynch underscored the need for transparency in legislative efforts to reform pharmacy benefit managers.
CVS Health, a prominent player in the healthcare industry, recently announced a downward revision in its 2024 outlook following higher medical costs in the fourth quarter. This development underscores the challenges faced by healthcare providers amidst evolving market dynamics. Despite these headwinds, CVS Health demonstrated robust performance in 2023, with substantial profit and revenue growth across key segments. As the company navigates these challenges, CEO Karen Lynch emphasizes the importance of addressing funding gaps and implementing strategic initiatives to mitigate rising pharmacy costs. This paper delves into CVS Health’s recent financial performance, examines the factors contributing to its outlook revision, and explores its strategic responses to prevailing industry challenges.
The company now anticipates earnings per share of at least $8.30 for the year, a decrease from its previous estimate of at least $8.50. This adjustment comes as CVS reported a fourth-quarter medical loss ratio of 88.5%, up from 85.8%. This trend aligns with similar challenges faced by other healthcare payers in the fourth quarter, with some, like Humana, feeling the impact more severely than others.
According to the company’s report, this guidance revision follows a thorough review of its recently finalized analysis of medical cost trends for the fourth quarter of 2023 and the potential implications for heightened medical cost trends in 2024.
During the earnings call, CFO Tom Cowhey attributed continued utilization pressure to several factors highlighted in the previous quarter, including outpatient and supplemental benefits such as dental and vision. Additionally, an increase in costs related to seasonal immunizations, including the newly launched RSV vaccine, contributed to the challenges faced by the company.
Despite these challenges, CVS Health’s profits nearly doubled in 2023 compared to the previous year, reaching $8.3 billion, up from $4.3 billion in 2022. The company’s revenue for the year also saw a significant increase, reaching $357.8 billion in 2023, marking a growth of over 10.9% compared to the previous year.
In the fourth quarter of 2023, CVS Health reported total revenue of $93.8 billion, representing an 11.9% increase from the $83.8 billion reported in 2022. The company also reported $2.05 billion in profits for the quarter, exceeding Wall Street’s expectations.
The healthcare benefits segment, Aetna, experienced double-digit revenue growth, with fourth-quarter revenues reaching $26.7 billion, up from $23 billion in the same quarter of the previous year. For the full year 2023, Aetna’s revenue totaled $105.6 billion, a significant increase from $91.4 billion in 2022.
Similarly, the health services segment, which includes the pharmacy benefit manager Caremark and CVS’ care delivery businesses, reported double-digit revenue growth. Fourth-quarter revenue for this segment reached $49.1 billion, up 12.3% from the fourth quarter of 2022.
While revenue growth in the retail segment was not in the double digits, CVS Pharmacy still saw an increase, reporting $31.2 billion in revenue for the quarter, compared to $28.7 billion in the same quarter of 2022. The retail arm contributed $116.8 billion in revenue for the full year 2023, up from over $108.1 billion in 2022.
At the end of the year, medical membership stood at 25.7 million, up from 24.4 million in 2022. CEO Karen Lynch announced expectations to add 800,000 Medicare Advantage enrollees in the coming year, but the company anticipates adjustments due to the rate notice for 2025.
Lynch highlighted concerns about funding levels, stating that they are insufficient to cover current medical costs, especially in light of changes to Part D resulting from the Inflation Reduction Act. She emphasized the need for additional funding to cover comprehensive member benefits and increased risks associated with plan redesign.
In response to proposed payment cuts, Lynch expressed a desire to provide feedback to the Centers for Medicare & Medicaid Services, with final 2025 rates expected to be set by April 1. She echoed sentiments from other payer leaders, criticizing the proposed rates as inadequate given concurrent changes to risk adjustment methodology.
Furthermore, Lynch discussed the Caremark division’s focus on leveraging biosimilars to reduce pharmacy costs. Initiatives such as replacing Humira with biosimilar products on commercial formularies starting April 1 are seen as pivotal in delivering value to clients and members.
Regarding legislative efforts to reform pharmacy benefit managers (PBMs), Lynch emphasized the importance of transparency, suggesting that any forthcoming legislation would likely prioritize this aspect.
Overall, CVS Health’s downward revision of its 2024 outlook highlights the impact of rising medical costs on the healthcare industry. Despite this setback, the company’s strong performance in 2023 reflects its resilience and strategic positioning in the market. By focusing on key segments such as healthcare benefits, health services, and retail, CVS Health has demonstrated its ability to drive revenue growth amidst challenging circumstances. Moving forward, the company remains committed to addressing funding gaps and leveraging initiatives such as biosimilars to manage pharmacy costs effectively. Furthermore, CVS Health advocates for transparency in legislative efforts aimed at reforming pharmacy benefit managers, underscoring its dedication to ensuring sustainable and equitable healthcare solutions for all stakeholders.
