CVS (CVS) disappointed Wall Street on Wednesday by missing revenue forecasts and lowering its 2024 guidance, saying it expects to adjust Medicare reimbursement cuts and raise the prices of its insurance plans next year. .
The healthcare giant reported first-quarter sales of $88.4 billion, up 3.7% from a year earlier, but missed Wall Street’s expectations of $89 billion.
In addition to lower Medicare reimbursement rates, the company is likely to continue to be weighed down by higher utilization rates for health care services, which means more premiums to be paid.
As a result, CVS expects earnings per share (EPS) and operating cash flow to decline in 2024, with adjusted EPS expected to be approximately $7.00, down from $8.30 previously, and adjusted cash flow expected to decline from the previous He said he expects it to rise from $12 to at least $10.5 billion. Estimate of 100 million.
CVS stock fell more than 13% on Wednesday, hitting its lowest level since 2009.
In response to the results, Jared Holtz, a Mizuho healthcare sector expert, wrote in a note to clients: “I couldn’t believe CVS’s numbers when they were announced, and given the magnitude of this negative financial revision, I think the stock price will have a significant impact.” “I expected there to be pressure,” he said.
Margin for membership
In an effort to right-size its balance sheet in the face of further Medicare reimbursement cuts expected in 2025 and changes to Part D benefits outlined in the Inflation Control Act, company executives are adjusting plan and benefit pricing. He said he would improve the design. Seniors.
CFO Tom Cowhey told investors on Wednesday’s earnings call that the Centers for Medicare and Medicaid Services (CMS)’s 2025 interest rate setting was “unfortunate.”
“It’s clear from what we’re doing and what the market is doing, but we don’t think our rates fully reflect that,” he said, pointing to the increased use of medical services and the resulting cost burden on insurers. did.
Over the years, we have seen increased interest from insurance companies in Medicare Advantage (MA). This is due to the profits earned from the interest rates offered by the government. KFF data shows that The gross profit per MA member in 2021 was $1,730, while the same profit for commercially insured members was closer to $689 per member. Gross profit is the difference between premiums collected and claims paid.
Brian Cain, president of CVS’ insurance brand Aetna, said the company is considering a number of options to combat headwinds from Medicare and is not alone in doing so.
“There’s going to be a lot of discussion within the industry, and certainly here at Aetna, about what the final product could be,” Cain said.
“We care more about margins than membership numbers,” he added.
Cain outlined a number of steps CVS could take to improve its bottom line, including withdrawing from certain counties, cutting benefits, including Flex Spend Cards, and raising premiums, all of which This will lead to a decrease in the number of members. Kane added that all competitors are likely to take similar actions, so he puts CVS on a level playing field as enrollees consider plan options next year.
“We think there will be disruption and we think there will be a need for premium increases. So there is a lot of uncertainty as to where the ultimate industry is going from a membership standpoint, from an MA standpoint. It’s very expensive,” he said.
“The power of business”
CVS CEO Karen Lynch said on Wednesday’s earnings call that while the company is focused on headwinds, investors “must not lose sight of the strength of the company.”
He added that he is confident in the company’s ability to meet Medicare Advantage challenges and return margins to 4% to 5% over the next three years.
CVS is focused on growing its healthcare services through its Oak Street primary care business as other large healthcare retailers, including competitors Walgreens (WBA) and more recently Walmart (WMT), exit the market. As a result, up to 60 stores will be opened. Lynch said more locations will be set up this year.
To this end, market competition for AbbVie’s (ABBV) Humira has faced and benefited from at least five biosyller new entrants (including CVS’ Hyrimoz and partner Sandoz (NVS)) in the last year. said Lynch.
Like other pharmacy benefit management companies, CVS has chosen to keep Humira at the same formulation level as biosimilars, giving the brand a level playing field. However, from April 1st, CVS promoted biosimilars more than brands Executives on Wednesday said they were successful in promoting low-cost drugs.
Anjali Khemrani She is a senior health reporter for Yahoo Finance, covering all areas of pharmaceuticals, insurance, care services, digital health, PBMs, and health policy and politics.Follow Anjali on all social media platforms @AjKhem.
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