USA — CVS Health has exceeded expectations in its third-quarter performance, largely driven by the growth of its pharmacy benefits management segment.
However, the healthcare giant is approaching the future with a degree of caution.
During the earnings call, Interim Chief Financial Officer Tom Cowhey advised investors to temper their expectations suggesting that adjusted earnings are likely to fall toward the lower end of the anticipated range of US$8.50 to US$8.70 per share, aligning with the company’s full-year earnings forecast for this year.
As one of the nation’s largest drugstore chains, CVS Health operates over 9,000 locations and offers prescription drug plans for significant clients, including insurers and employers, through its expansive pharmacy benefit management business.
Additionally, it provides health insurance coverage for over 25 million individuals through its Aetna arm.
Cowhey shared insights into the upcoming year, noting that CVS Health anticipates growth within its core business in 2024 and the realization of savings stemming from a previously announced cost-cutting initiative.
However, the health insurance sector faces challenges due to declining ratings for Medicare Advantage plans.
These privately run versions of the federal Medicare program have seen increased healthcare utilization, particularly in surgeries and procedures, as the COVID-19 pandemic recedes.
As Edward Jones analyst John Boylan highlights, “Elevated surgery rates won’t last forever, but costs are higher than we thought and could last slightly longer than our original forecast.”
This trend has been observed in other healthcare insurers, such as UnitedHealthcare, earlier this year.
In Q3, CVS reported impressive growth across all product lines, leading to a total quarterly revenue increase of more than 10% to US$89.76 billion, surpassing Wall Street’s expectations.
This was a substantial turnaround from the previous year when CVS reported a loss of over US$3 billion due to setting aside funds for potential opioid litigation.
In the same quarter, the company’s pharmacy benefit management side experienced an 8% growth in revenue, reaching US$46.89 billion.
Additionally, CVS Health witnessed a nearly 6% year-over-year growth in health insurance enrollment, despite experiencing customer losses in the Medicaid plans it manages for states earlier this year.
While CVS Health filled more prescriptions at its drugstores, it saw a decline in sales outside the pharmacy segment.
To address these challenges, the company initiated a cost-cutting program, closing 564 of the 900 locations targeted for closure.
Notably, these results emerge amid a nationwide walkout by pharmacy staff from CVS, Walgreens, and Rite Aid, protesting what they perceive as harsh working conditions endangering employees and patients.
CVS has acknowledged these concerns and is actively engaging with staff to address them directly.
Additionally, CVS has embarked on a transformation journey from a major drugstore chain to a prominent healthcare company.
Over the past year, it made substantial acquisitions, including a US$8 billion investment in healthcare provider Signify Health and a US$10.6 billion deal to acquire Oak Street Health, which operates primary-care clinics for seniors.
Signify Health conducted 655,000 in-home evaluations during the quarter, while Oak Street ended the period with 192 primary-care centers.
The pharmacy and consumer wellness division generated US$28.87 billion in sales, marking a 6% increase from the previous year.
Notably, CVS filled 407.1 million prescriptions during the quarter, with a 3.5% jump in same-store prescription volume, excluding COVID vaccines.
While CVS has administered 8 million vaccines during the quarter, with flu shots accounting for half of those immunizations, it anticipates a peak in vaccinations early in the fourth quarter before a gradual decline next year.
This decline is primarily attributed to the transition of COVID from a pandemic to an endemic phase.
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