Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CVS Health Corp (CVS, Financial) reported a revenue increase of approximately 4% year-over-year in the first quarter, reaching about $88 billion.
- The Pharmacy & Consumer Wellness segment showed strong performance, with revenue growth of nearly 3% compared to the previous year, driven by increased prescription volume and contributions from vaccinations.
- CVS Health Corp (CVS) implemented significant formulary changes related to Humira, successfully dispensing more biosimilar Humira prescriptions in the first month than the entire U.S. market in 2023, highlighting the strength of CVS Caremark, CVS Specialty, and Cordavis businesses.
- The company has seen strong enrollment growth in Medicare, Individual Exchange, and Commercial group products, with medical membership increasing by 1.1 million members sequentially to 26.8 million.
- CVS Health Corp (CVS) has been actively engaged in enterprise productivity initiatives to streamline and optimize operations, aiming to align costs with business operations and conditions.
Negative Points
- CVS Health Corp (CVS) experienced utilization pressures in Medicare Advantage, significantly impacting the Health Care Benefits segment and leading to a lowered full-year 2024 guidance for adjusted EPS.
- The first quarter adjusted EPS of $1.31 fell short of expectations, prompting a revision of the full-year earnings outlook.
- Medicare Advantage trends were notably above expected levels, exacerbated by a cyberattack on Change Healthcare, leading to a reserve of nearly $500 million for estimated unreceived claims.
- The Health Services segment saw a revenue decrease of nearly 10% year-over-year, primarily due to the loss of a large client and ongoing pharmacy client price improvements.
- CVS Health Corp (CVS) faces challenges in the Medicare Advantage market, including insufficient rate notices and changes prescribed by the Inflation Reduction Act, which may disrupt benefit levels and choices for seniors.
Q & A Highlights
Q: Can you provide more detail on the $500 million that you said is in Q1 that's not going to reoccur?
A: (Thomas Francis Cowhey, Executive VP & CFO) The largest impact within the quarter is the seasonality adjustment on inpatient. Our April authorization data supports our updated seasonality projection. We experienced some negative prior year development in the quarter, which is part of the $500 million. This was really in some of our inpatient categories where the trends restated negatively. We also had some provider liabilities that were settled inside the quarter, policy liberalizations that took place inside the quarter, and initial reserve build for some of our new membership growth that would be incorporated inside that $500 million.
Q: How much improvement in Medicare Advantage margins do you think is material to get back that trajectory to the over 3 to 4 years?
A: (Thomas Francis Cowhey, Executive VP & CFO) As you think about Medicare Advantage, it's a $65 billion to $70 billion revenue portfolio today. Our goal for next year is that we would get about 200 basis points of margin improvement in that business or up to that amount. We haven't finalized our bids yet. You're in probably the right ZIP code as you think about what the margin is on the -- or implied margin is on the Medicare business.
Q: Can you talk about the scaling dynamics of your purchasing capabilities and how that's ramping into Cordavis as you've launched that?
A: (Thomas Francis Cowhey, Executive VP & CFO) There is a contribution from Cordavis that's embedded in our Health Services guidance. The adoption there has been fabulous. The client reception has been fabulous. (J. David Joyner, EVP & President of CVS Caremark) We've been able to migrate more than 90% of the volume in the first month. We're delivering a 50% savings on the [22] run rate for this drug. We've had clients adopt what we would call an intelligent benefit design, we've been able to have 80% of the members with a $0 out of pocket.
Q: Can you talk about care management tools and their impact on '24? And any changes you're making in '24 that you think will have an impact as we think about the 2025 results for HCB?
A: (Brian Andrew Kane, Executive VP & President of Aetna) Care management is an important tool that we use to engage our members. We spend a lot of time segmenting who our high-risk members are, who are the members who would benefit most from care management. We're actually using a lot of really advanced AI tools to identify those members. We really think we have excellent analytics to be able to pinpoint who those members are and how are we best able to engage with them or the types of things that will get them to engage with us, and then also make it easier for our care management nurses at the point of care to be able to provide the level of advice and support that a member needs.
Q: You talked about pharmacy services. There were some pressure on mix and also your inability to make prior guarantees. Can you just elaborate on both comments?
A: (Thomas Francis Cowhey, Executive VP & CFO) It's not a diabetes issue. Think of it as the -- we have to have projections about what the mix looks like to ensure that we appropriately hit all of our client guarantees. And with the changing mix inside the quarter, given some of the disruptions that we saw not only with the loss of a large client, but with the in-sourcing of another client's business and some of the disruptions in the marketplace in terms of volumes, specifically GLP-1s was part of that, we were -- we missed our guarantees by a little bit.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
