CVS boasts strong Q4 as it looks to begin rollout of new PBM contracting model in 2019

CVS Health has reached an agreement with two of its Caremark clients for its updated pharmacy benefit management contracting model this year.

During its year-end and fourth-quarter earnings call Tuesday morning, CEO Larry Merlo said the company expects to see more significant uptake in 2020. CVS previously unveiled the Guaranteed Net Cost model, which will pass 100% of savings on to clients and focus on transparency and simplicity.

CVS Caremark plans may still have the ability to offer point-of-sale rebates, CVS said in December. It announced the new approach as policymakers push for an end to the existing rebate system.

"This is a win-win," Merlo said on the call.

Merlo did warn, however, that the Department of Health Human Services' plan to completely eliminate the rebates will lead to higher premiums in Part D plans and could prevent payers from taking advantage of formulary management to drive lower costs.

It's a step back, not forward, on reducing drug prices, Merlo said.

CVS also made a strong finish to 2018, reporting a 12% increase in revenues for the fourth quarter to $54.4 billion. Year-over-year revenues were also up, the company announced (PDF), with a 5% increase to $194.6 billion.

“2018 was a milestone year for CVS Health as we successfully completed our transformational merger with Aetna, began effective implementation of our integration strategy, and took important steps toward building the integrated healthcare model that will bring substantial value to our various stakeholders," Merlo said in the announcement. "We had strong financial performance and delivered on our operating expectations."

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Over the course of 2018, CVS was able to offer 80% of primary care services at its MinuteClinics, Merlo said on the call, and increased home infusion visits by 15%.

Closing its acquisition of Aetna was the largest highlight for CVS in 2018. The $69 billion merger positions CVS both in the health insurance and pharmacy benefit markets as one of the largest players. 

CVS also unveiled its first concept stores earlier this year, and Merlo said the 2018 financials in combination with the launch of those healthcare-focused facilities sets a strong foundation for CVS' future integration goals. It's on track to surpass its near-term synergy target of $750 million, CVS said.

Looking ahead to the rest of this year, Merlo said CVS is "more excited than ever" about future opportunities.

"Maintaining our focus on community-level products and services will drive meaningful value for both consumers and payers, while improving our bottom line and the value we return to shareholders," he said. "Ultimately, our open platform model allows us to meet the needs of all payers with newly created products and services."

CVS' 2019 action plan includes a focus on evaluating its portfolio over the course of the year. It is taking action to mitigate headwinds it expects heading into 2019, including upheaval in the pharmacy supply chain and decreased savings from generic drugs, Merlo said on the call.

CVS expects adjusted operating income of between $14.8 billion and $15.2 billion in the coming year.