CVS' stock tumbles as Medicare Advantage pressures drag Q1 results

UPDATED on May 1 at 12:23 p.m. ET

CVS' stock took a massive tumble in early trading on Wednesday following its earning report that outlined some significant challenges in Medicare Advantage during the quarter.

The company posted a 90.4% medical loss ratio in the quarter, in line with its peers that have substantial business in the Medicare Advantage market. That MLR hike is largely due to an ongoing spike in utilization in MA that has been felt across the industry, Chief Financial Officer Tom Cowhey told investors on the company's earnings call.

Shares in the company dropped by 18% in the morning and are still trading a low not seen in more than three years, according to data from Yahoo Finance.

Cowhey said that utilization increase continue to be felt in key areas outlined earlier this year, such as outpatient surgery. However, he also noted that inpatient care was up year-over-year and Aetna felt additional pressures from pharmacy benefits as well as respiratory syncytial virus (RSV) vaccinations.

UnitedHealth Group previously noted an uptick in RSV vaccines in the fourth quarter of 2023 but said those seasonal pressures eased in Q1.

"While a portion of this increase was anticipated because of the implementation of the two-midnight rule, this result meaningfully exceeded our expectations for the quarter as inpatient seasonality returned to patterns we have not seen since the start of the pandemic," Cowhey said.

He said that health benefits costs came in at about $900 million higher than was anticipated, due in large part to MA. Cowhey added that the company projects that MA will add between $65 billion and $70 billion in revenue for the year, but it "will experience significant losses."

CVS is putting a focus on improving MA margins by 2025, and is planning a "three to four year journey" to return to ideal margins of 4% to 5%, Cowhey said.


CVS Health is lowering its guidance for the year after a first-quarter miss on both profit and revenue.

The company posted $1.1 billion in profit for the quarter as well as $88.4 billion in revenue. Both fell short of Wall Street analysts' expectations, according to Zacks Investment Research.

Revenue was up slightly from the prior-year quarter, when CVS reported $85.3 billion. However, profits were down year over year compared to the $2.1 billion the company posted in the first quarter of 2023.

Due to the first-quarter results, CVS said it will lower its earnings outlook for the full year to $7 per share from the previously announced $8.30 per share.

A major factor in the quarter was Medicare Advantage, according to the company's earnings report. CVS' Aetna division reported a 90.4% medical loss ratio, echoing its peers in the space that saw continued heightened utilization in Medicare in the first quarter.

CVS also said a decline in its 2024 star ratings performance contributed to the higher MLR for the quarter.

“The current environment does not diminish our opportunities, enthusiasm, or the long-term earnings power of our company," CEO Karen Lynch said in the press release. "We are confident we have a pathway to address our near-term Medicare Advantage challenges."

"We remain committed to our strategy and believe that we have the right assets in place to deliver value to our customers, members, patients, and shareholders," she added.

Membership at Aetna did grow by about 1.3 million year over year, reaching 26.8 million. CVS said that reflects growth in both Medicare and the commercial segment, according to the report.

Despite the heightened MLR, revenues for the health benefits segment were up by 24.6% year over year, reaching $32.2 billion, the company said.

Revenues at the health services segment, meanwhile, disappointed, according to the report. This unit, which houses the pharmacy benefit manager Caremark as well as CVS' health clinics and home health services, posted $40.3 billion in revenue, down 9.7% from the $44.6 billion reported in the prior-year quarter.

The company noted that it lost a large client in Centene in the first quarter, as the government insurance giant made the switch to Express Scripts. Specialty pharmacy growth and its Signify Health and Oak Street Health acquisitions helped offset that loss, according to the report.

Revenues increased by 2.9% in the pharmacy and consumer wellness segment for the prior quarter, which CVS also said helped offset the declines in health services revenue. The pharmacy division posted $28.7 billion in revenue.