The cost struggles with Medicare Advantage persist

Fox Business

CVS Health missed first-quarter expectations and chopped its 2024 outlook more than a dollar below Wall Street’s forecast.
Shares of the health care giant plunged Wednesday after the company said it was still struggling with rising costs from care use in its Medicare Advantage business.
CVS Health had already scaled back 2024 expectations earlier this year as it worked to understand why costs keep rising from Medicare Advantage, the privately run version of Medicare, the government’s program which is for people age 65 and older.
Company leaders said Wednesday they aren’t seeing the same pressure from its commercial insurance business, which includes plans sold to employers and on individual insurance exchanges.
CVS Health said it now expects adjusted earnings for 2024 to be at least $7, down its previous forecast of at least $8.30.
CVS Health Corp. runs one of the nation’s largest drugstore chains and a huge pharmacy benefit management business that operates prescription drug coverage for big clients like insurers and employers.
It also covers more than 26 million people with health insurance through its Aetna arm.
That includes the Medicare Advantage business.

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CVS Health reported first-quarter results below expectations and reduced its 2024 outlook by more than a dollar compared to Wall Street’s estimate.

The healthcare behemoth’s stock fell sharply on Wednesday following the company’s admission that it was still having trouble keeping up with growing care costs in its Medicare Advantage division.

Company executives informed analysts that they were still coping with an increase in the use of supplemental benefits and outpatient care. Additionally, inpatient care put some additional strain on the business.

CEO Karen Lynch claimed that the cyberattack on Change Healthcare, a subsidiary of competitor UnitedHealth Group, interfered with the company’s ability to see trends throughout the quarter. Change offers the technology needed to file and handle insurance claims for a number of different insurance companies.

Earlier this year, as part of its efforts to comprehend why costs from Medicare Advantage—the privately run version of the government program for those 65 and older—keep going up, CVS Health had already lowered its expectations for 2024.

The company’s executives stated on Wednesday that they aren’t feeling the same pressure from its commercial insurance division, which offers plans to individual insurance exchanges as well as plans sold to employers.

After lowering its initial prediction of at least $8.30, CVS Health said that it now projects adjusted earnings for 2024 to be at least $7.

According to FactSet, analysts had been projecting earnings per share of $8.27.

The reduction in guidance was far more significant than anticipated, according to Michael Cherny, an analyst with Leerink. In a research note, he stated that it begs the question of how the company will go about achieving its previously declared objective of double-digit growth in earnings per share the following year.

At $1.11 billion, CVS Health’s net income fell by 48% in the first quarter. With a total revenue of $88.4 billion, it reported adjusted earnings of $1.31 per share.

For the first quarter, analysts predicted earnings per share of $1.16 on revenue of $89,33 billion.

CVS Health Inc. operates a pharmacy benefit management company that provides prescription drug coverage for large clients like employers and insurers, as well as one of the biggest drugstore chains in the country. Through its Aetna division, it provides health insurance to over 26 million people. Medicare Advantage is a part of that.

At the end of afternoon trading, the Woonsocket, Rhode Island-based company’s shares had dropped by almost 17% to $55.29.

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