CVS spotlights its government plans as it eyes growth in 2020

CVS pharmacy
CVS Health released its second-quarter earnings on Wednesday morning. (Mike Mozart/CC BY 2.0)

CVS Health is putting a focus on growing and differentiating its business segments heading into 2020. One area where it sees substantial opportunity: its government health plans, executives said Wednesday.

CEO Larry Merlo said on the company's second-quarter earnings call that expanding the reach of its Medicare products in the next plan year will allow it to reach about 80% of Medicare lives. Aetna, the company's health benefits arm, will also be working to convert members from its prescription drug plans to its Medicare Advantage plans, he said.

"We continue to see opportunities to further grow our Medicare products," Merlo said. "We see an opportunity to accelerate PDP to MA conversions to provide our members with incremental value from an integrated medical pharmacy benefit."

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The healthcare giant beat Wall Street's second-quarter expectations for both earnings and revenue by a wide margin, a boost it attributes largely to its acquisition of Aetna late last year and continuing strong performance in its retail segment.

CVS reported $63.4 billion in revenue for the quarter, a 35% increase year over year. It also reported adjusted earnings per share of $1.89. Financial analysts had projected about $62.6 billion in revenue and $1.69 EPS.

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Merlo touted CVS' growth of its HealthHUB stores as a key factor and noted that it intends to expand these concept locations to three additional metropolitan areas by the end of the year. He also noted that CVS and Anthem's partnership on IngenioRx, the newly-launched pharmacy benefit manager, has been running smoothly.

Migrating Anthem's members to the new PBM has "gone flawlessly," Merlo said.

In addition, he said that CVS is putting a spotlight on its chronic kidney care program. That platform is aligned with the Trump administration's plans to shake up kidney care, Merlo said.

Adjusted operating income for the quarter was $4 billion, up 55% from about $2.6 billion in the second quarter of 2018. Net income increased 175% year over year to $1.9 billion after CVS posted a net income loss in the second quarter of 2018.

"These results demonstrate our ability to execute on our strategic priorities to accelerate enterprise growth as we seek to fundamentally transform the consumer health experience," Merlo said in a statement.

“We made meaningful advancements on each of the priorities we outlined at our Investor Day in early June to differentiate, transform and modernize the delivery of care," Merlo said. "While still early, we remain confident that we will be able to realize the potential of our innovative and powerful new business model to deliver enhanced value to our clients and the consumers we serve.”

As a result of the company's second-quarter performance, CVS raised its 2019 outlook to between $6.89 and $7 in adjusted earnings per share from between $6.75 and $6.90. It also slightly raised its operating income guidance to between $15.2 billion and $15.4 billion from between $15 billion and $15.2 billion.

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