CVS Q1 Earnings Take A Hit From Insurance Venture

The volatile consumer healthcare sector showed up big in CVS’ Q1 earnings Wednesday (May 1), with solid revenue from its store operations but a warning about revenue projections due to its foray into the insurance sector.

By the numbers, CVS Health reported first-quarter revenues of approximately $88 billion, marking a 4% increase year-over-year. However, the more concerning figure was the adjusted earnings per share (EPS) of $1.31, well below analysts’ projections of about $1.69, according to the Associated Press. Net income for the quarter was $1.12 billion, or 88 cents a share, down from $2.14 billion, or $1.65 a share, a year ago.

The primary drag on profitability stemmed from the company’s healthcare benefits segment, particularly Medicare Advantage. Increased utilization rates, unexpected in both volume and complexity, necessitated CVS to reserve nearly $500 million for unprocessed claims, roughly half attributed to the Medicare business.

“Clearly, this is a disappointing result for us,” CEO Karen Lynch commented on the company’s earnings call.

These trends were exacerbated by the highly publicized cyberattack on Change Healthcare, which affected visibility and claims processing in the quarter. The company has responded to these challenges by focusing on its operational efficiencies and claims management processes, including the formation of multidisciplinary teams to review claims data and optimize clinical operations.

Lynch emphasized the formation of teams to conduct retrospective reviews and adjust clinical operations to meet current volumes.

“We have a track record of successfully navigating complex industry pressures and will continue to demonstrate our resilience,” she stated.

A Shift Toward Digital

Partially in response to the current healthcare complications, CVS Health is significantly bolstering its digital healthcare services. This shift aims to enhance patient engagement and improve outcomes through technology-driven solutions.

“Our digital initiatives are more than just a response to current challenges; they are about setting a new standard in patient care through innovation,” Lynch remarked.

Consumers, for their part, are highly digitally engaged with healthcare platforms. The PYMNTS Intelligence report “The Digital Platform Promise: What Baby Boomers and Seniors Want From Digital Healthcare Platforms,” created in collaboration with Lynx, found that 72% of consumers had conducted at least one healthcare activity online in the previous 12 months.

Businesses are adapting accordingly. The PYMNTS Intelligence study “Changing Economy Sparks New Priorities for Systems Spending,” a collaboration with Corcentric, revealed that healthcare businesses are increasingly prioritizing digital investments to streamline their performance.

One of the key highlights of the quarter for CVS was the implementation of significant formulary changes on April 1, notably the shift to more cost-effective biosimilar alternatives for popular arthritis medication Humira. This move speaks to CVS Health’s focus on leveraging its digital and operational capabilities to drive efficiencies and patient care improvements.

Lynch added: “In just the first month following our formulary changes, we dispensed more biosimilar prescriptions than the entire U.S. market did in 2023. This achievement underscores the strength of our integrated care model and our digital health strategy.”

Reevaluating Markets

Facing a challenging environment, CVS Health is adjusting its Medicare Advantage plans. Changes include optimizing benefit designs and potentially exiting less profitable markets to safeguard future margins. The company is also accelerating its enterprise productivity initiatives, aiming to align costs more closely with business operations.

The digital health focus is particularly prominent in CVS Health’s pharmacy and consumer wellness segment, which performed strongly in the quarter. Innovative tools and platforms are being employed to enhance service delivery and customer engagement.

CFO Thomas Cowhey highlighted the company’s forward-looking approach: “Our investment in digital health technologies not only supports current operations but also positions us well for future growth and efficiency gains.”

Those digital investments include changes to the company’s loyalty program, an issue that did not come up during the earnings call. Earlier this year, the chain announced a simplified loyalty program, going from four separate programs to a single program with two straightforward tiers. ExtraCare members can save money by accessing sale prices both in-store and online, benefit from accelerated earnings at the pharmacy and receive exclusive deals through email and text messages.