CVS Health announced on Wednesday a downward revision of its adjusted profit forecast for 2024, citing a significant increase in medical care expenses, particularly among older adults in the United States. The surge in medical costs during the fourth quarter, primarily driven by outpatient procedures among individuals enrolled in Medicare Advantage plans, prompted the healthcare conglomerate to reassess its financial projections.
According to CVS Health, the rise in medical care utilization, including procedures such as hip and knee surgeries, which were deferred during the pandemic, contributed to the elevated costs. Insurers like Humana and UnitedHealth have reported even higher expenses towards the end of 2023, indicating a broader trend across the healthcare industry.
Aetna Records Slight Beat Despite Rising Healthcare Costs
Aetna, the insurance arm of CVS Health, reported a fourth-quarter medical benefit ratio of 88.5%, narrowly exceeding analysts’ expectations. This ratio, representing the percentage of claims paid to premiums collected, reflects the challenges posed by increased medical expenses. Despite these challenges, CVS Health managed to post a profit of $2.12 per share on an adjusted basis for the quarter ended December 31, surpassing analysts’ estimates of $1.99 per share.
The robust performance was driven by the strength of CVS Health’s drugstores and its pharmacy benefits manager (PBM) unit, which negotiates drug prices between insurers and manufacturers. Revenue from the health services business, which includes the PBM operations, saw a notable 12% increase to $49.15 billion. Growth in specialty pharmacy services and higher branded drug prices contributed to this revenue uptick.
However, the healthcare conglomerate adjusted its profit forecast for 2024 downwards to at least $8.30 per share, compared to the previously projected at least $8.50 per share announced in December. Despite analysts’ expectations of a profit of $8.49 per share, CVS Health anticipates ongoing challenges in managing rising medical costs, necessitating a conservative outlook for the year ahead.
A surge in medical care spurs CVS Health to revise its profit forecast.
The revision underscores the complex dynamics at play in the healthcare industry, where escalating medical expenses pose a significant financial challenge for insurers and healthcare providers alike. CVS Health remains committed to navigating these challenges while maintaining its focus on delivering quality healthcare services to its customers and stakeholders.
CVS has also revised its unadjusted earnings guidance to a minimum of $7.06 per share, down from the previously stated minimum of $7.26 per share. This adjustment follows a comprehensive review of the company’s medical cost trend analysis for the fourth quarter, coupled with an acknowledgment of the potential implications for elevated medical cost trends in 2024. CVS, which owns health insurer Aetna, made this announcement during an earnings call on Wednesday.
“Our guidance prudently assumes that the elevated medical cost trends we observed in the fourth quarter will carry forward into 2024,” stated CVS Chief Financial Officer Tom Cowhey during the earnings call. Similar to CVS, insurers like Humana have experienced a surge in medical costs as a growing number of older adults seek medical treatments that were postponed during the pandemic, such as joint and hip replacements.
