CVS Health’s Mixed 2nd Quarter Earnings

CVS Health’s total revenue for both the second quarter and the first six months of the 2024 increased. But it’s a complicated picture within the company, with different pressures on each of the company’s core businesses.

In the quarter, total revenue increased to $91.2 billion, up 2.6% compared with the second quarter of 2023. This was primarily driven by growth in the healthcare benefits and pharmacy segments. For the first six months of 2024, total revenue increased to $179.7 billion, up 3.1% from last year.

But revenue within CVS’s Health Services segment — which includes the PBM CVS Caremark — is down, which company executives said was the result of losing the PBM business of Tyson Foods.

Within the Healthcare Benefit business — which includes Aetna and provides insurance to the commercial market, Medicare/Medicaid beneficiaries and individual exchange plans — medical cost trend is increasing, and the company warned it may have to increase medical reserves.

Thomas F. Cowhey

“First half results remain largely in line with our prior expectations, although they have developed differently than we previously projected,” Thomas F. Cowhey, executive vice president and chief financial officer of CVS Health, said in an investor call. “Medical cost trends remained elevated in the second quarter. However, early indicators for July suggest we may see incremental pressure.”

As a result, CVS Health is lowering its outlook for the full year 2024. The company has revised its adjusted earnings per share guidance to a range of $6.40 to $6.65 from at least $7.00.

“Our updated guidance range now reflect that trends in the second half of 2024 that could be higher than levels seen in the first,” Cowhey said. “It is worth noting that if trends persist at an elevated level, we may be required to take a 2024 premium deficiency reserve in our Medicare program.”

Healthcare Benefit Segment

Revenue in the healthcare benefits segment for the second quarter of 2024 increased to $32 billion, up 21.4% compared with the second quarter last year. Medical membership as of June 30, 2024, was 27 million, which was an increase of 200,000 members compared with March 31, 2024. This increase is primarily from the Medicare and Medicaid product lines, officials said.

But the medical benefit ratio has also increased — from 82.2% in the second quarter last year to 89.6% this year. The company said this was the result of increased utilization, a decline in star ratings in Medicare plans, higher acuity patients requiring higher levels of care in Medicaid programs, and a change in the risk for the healthcare exchange business.

Karen S. Lynch

“Utilization in our Medicare business remained at elevated levels, but was largely in line with expectations. Following the close of the second quarter, we saw indications of potential trend acceleration, which we have contemplated in our revised guidance range,” Karen S. Lynch, CVS Health president and CEO, said in an investor call.

Within the Medicaid business, there was a disconnect between the number of medical acuity patients, who require higher levels of care, and rate levels, Lynch said. “We will continue working closely with our state partners to advocate for rates that more closely align with changes in acuity within the quarter.”

Cowhey said during the investor call that medical cost trend is increasing, and the company may add to medical reserves.

This has led CVS Healthcare to lower its outlook for the remainder of the year. “Full year medical benefit ratio could be in a range of 90.6% to 90.8%,” he said. “Following the close of the quarter, we have seen some evidence of an acceleration of trends in these same categories, which informed our view of risk for the remainder of 2024. We were disappointed to see such a large change in the final update. We believe this change was in part driven by the significant growth and disruption in the market, particularly late in 2023.”

Related: CVS CEO Karen Lynch Takes over Day-to-Day Management of Aetna

As a result, Aetna president Brian Kane is out at CVS Health after less than a year at the company, and Lynch will assume direct leadership of the healthcare business.

“We are committed to returning healthcare benefits to its rightful place and will drive execution and address the challenges facing this business,” Lynch said during the call.

Going forward into 2025, however, the company expects to loss about 5% to 10% from its Medicare Advantage membership. Lynch said this is because the company has ended programs that were not performing well. “We will refile with a new product with a different set of benefits that we would not have been able to achieve by just changing our existing benefit structure,” she said. “We believe we’ve been fairly prudent, given the level of disruption that is likely in the marketplace next year.”

Health Services Segment

The company's Health Services division includes several businesses, including CVS Caremark and CVS Specialty. Also included in this division are Cordavis (its private label biosimilar company), Oak Street Health, Signify Health and MinuteClinic.

For the second quarter of 2024, total revenue for Health Services was $42.2 billion, a decrease of 8.8% from the year before. For the first six months of this year, revenue was $82.5 billion, down 9.2% for the first half of last year. Company officials said this was driven by loss a large client and continued pharmacy client price improvements.

Last year, Tyson Foods had announced that it had replaced CVS Caremark with Rightway for its PBM business for 2024. Going forward, CVS is preparing for the loss of another significant client. Blue Shield of California also made the decision to drop CVS Caremark as its PBM in January 2025 and replace it with Prime Therapeutics. CVS Caremark will continue to provide specialty pharmacy services to both Tyson and Blue Shield of California.

Lynch said in the investor call that the moving forward with two new programs for 2025 that aim to add transparency to drug pricing. CVS CostVantage is a pharmacy reimbursement model that will define the drug cost and related reimbursement using a formula built on the cost of the drug, a set markup and a fee that reflects the value of pharmacy services. CVS Caremark TrueCost is a model that offers client pricing that reflects what the company says is the true net cost of prescription drugs, with visibility into administrative fees.

So far, the company has signed agreements for the CVS CostVantage program with eight PBMs, including CVS Caremark. These make up more than 50% of the company commercial prescriptions, Lynch said during the investor call.

Company officials said their intention is move all of their commercial business to CostVantage beginning January 2025.

Additionally, she said, the TrueCost program is “is resonating with commercial clients as they strive to ensure pricing, simplicity and transparency for their members. We firmly believe that true cost will reshape the future of pricing for every drug, every condition and every member.”

David Joyner

David Joyner, executive vice president, CVS Health, and president of CVS Caremark said during the call that the TrueCost program has already launched for its own employees beginning June 1, 2024.

“There's clearly recognition that there are pain points in today’s price model,” he said. “CVS CostVantage is solving for those on the retail side, and our TrueCost model is solving that for our clients. We're hitting what I believe are the issues head on by trying to drive a new price model that both serves our customers in eliminating the price variability and creating more simplicity and transparency at the member or the consumer level.”

During the call, Lynch also said that the Cordavis line of private label biosimilars has begun to show savings for clients. This year, CVS Caremark removed the branded Humira (adalimumab) from its national commercial template formularies, and began offering a its own private label version of adalimumab.

“We have processed approximately 100,000 Cordavis biosimilar prescriptions since we launched our formulary change on April 1, which has contributed to nearly $400 million in net savings for our clients and their members,” Lynch said. “We will continue to expand our offerings and drive greater access and savings for our customers.”

Going forward, Cowhey said, the company expects to return to strong performance in the second half of the year. “We are encouraged by our deliberate efforts to strengthen our outlook and generate meaningful momentum for 2025 and beyond,” he said.