Facing the wrath of upset investors following its first quarter earnings, CVS Health has promised to value margins over members going forward.
First apologizing for last quarter’s earnings, which were plagued by higher-than-expected Medicare Advantage (MA) utilization, CFO Thomas Cowhey told the Bank of America Securities 2024 Health Care Conference crowd that CVS remains a big believer in MA, but noted it will take “a couple years to get back on track."
“We’re going to start that process with our 2025 bids that go in in just a few weeks,” he said.
Cowhey was tasked with reassuring investors the company would improve margin at any cost, but he didn't pass up the opportunity to say he believes the recent MA rate cut by CMS is limiting the business. Starting in 2023 and into 2025, core utilization trends are projected to remain higher than CVS is accustomed to seeing pre-pandemic, limiting growth potential to no more than 200 basis points of margin improvement.
“The goal next year is margin over membership,” he explained. “Could we lose up to 10% of our existing Medicare members? It’s entirely possible. And that’s okay, because we need to get this business back on track.”
The company was $900 million short of its health care benefits estimates on its medical cost line. Within that $900 million, about $400 million was attributed to high utilization among outpatient services, outpatient pharmacy and behavioral mental health.
CVS drew criticism for a separate $250 million of the $900 million, where Cowhey said the company incorrectly forecast seasonality. Diving deeper, inpatient services for respiratory illnesses were much higher than CVS anticipated, mirroring similar levels in 2018 and 2019, he said. They expect seasonal respiratory illnesses should subside in upcoming quarters.
Cowhey said the company is reevaluating vision, dental, OTC and flex cards, fitness and transportation benefits for its members. CVS may also look to exit markets, he added. The company is in negotiation with plan sponsors for its group business segment.
CVS lowered its full-year earnings outlook to $7 per share, $1.30 below what was previously announced. The company does not plan on doing more stock repurchases in 2024, Cowhey said.