CVS Health's Earnings Call

By Amina Niasse
NEW YORK (Reuters) – David Joyner, the new CEO of CVS Health (NYSE:CVS), will address rising patient costs in Medicare during his first earnings call on Wednesday. His predecessor, Karen Lynch, resigned after CVS withdrew its 2024 earnings forecast and issued a disappointing third-quarter profit outlook due to increased medical spending in its insurance sector.

CVS shares have dropped 30% this year, and investors, including hedge fund Glenview Capital Management, are pressuring the company to improve shareholder value. CVS announced a strategic review, resulting in layoffs, write-downs, and plans to close 271 retail stores.

Having acquired Aetna, one of the largest pharmacy chains and pharmacy benefit managers, CVS has continually missed financial targets, particularly concerning costs in Medicare Advantage plans for seniors and disabled individuals. Analyst Brian Tranquilut notes that CVS faced challenges from high patient enrollment growth, leading to increased medical service usage.

According to KFF, CVS’s Medicare Advantage enrollment rose 7% to 4.1 million this year, the highest percentage increase in the sector. Unfortunately, lower government quality ratings hurt their bonus payments for 2024. The company anticipates increased reimbursements in those plans by 2025, as nearly 90% of its Medicare Advantage enrollees are in high-performance plans.

The COVID-19 pandemic led to higher costs for insurers managing Medicare and Medicaid due to shifts in enrollment patterns and increased medical service utilization. Dan Jones, from the Alliance of Community Health Plans, highlighted that many patients have recently been diagnosed with higher health risks after seeking medical attention more frequently.

CVS's October earnings estimation ranged between $1.05 to $1.10 per share, falling short of analysts’ expected $1.58 per share. Competitors like Centene (NYSE:CNC) and Humana (NYSE:HUM) managed costs and surpassed earnings expectations in the third quarter.

CVS’s strategy for 2025 includes boosting healthcare services revenue by directing patients to its retail pharmacies. However, Morningstar analyst Julie Utterback mentioned that this might need significant store investments, with CVS having closed 900 retail locations in recent years. The company has leveraged MinuteClinic for healthcare services since acquiring it in 2006, and it recently named it as a primary care provider for Aetna members.

Former CEO Lynch indicated that Aetna Medicare Advantage members utilizing Oak Street Health for primary care should see growth with new co-branded health plans. Yet, the limited scale of CVS's healthcare services through its retail stores may hinder overcoming ongoing challenges in government-sponsored insurance plans.