Aetna president Brian Kane out as CVS Q2 results again show lower earnings outlook
Adjusted operating income for the quarter of $938 million was down year-over-year due to a higher medical benefit ratio, says CFO.
Photo: Mario Tama/Getty Images
In an earnings report released Wednesday, CVS Health dropped the news that Brian Kane, president of CVS subsidiary Aetna, will be departing the company, with CVS Health CEO Karen Lynch overseeing day-to-day operations of the health benefits segment, along with Chief Financial Officer and EVP Tom Cowhey.
"Effective immediately, Brian Kane is leaving the company," Lynch said during the call.
CVS lowered its earnings outlook for the third straight quarter.
Leadership will be further shaken up when CVS VP and Chief Strategy Officer Katerina Guerraz, who has 20 years of experience working for the company, steps in to serve as Aetna's chief operating officer.
WHY THIS MATTERS
CVS said the leadership changes were "based on the current performance and outlook for the Health Care Benefits segment."
Overall, CVS Health reported $1.8 billion in profit and $91.2 billion in revenue during the second quarter, the latter up about 3% from Q2 2023, while the Health Care Benefits segment pulled in $32.5 billion, up about 21% year-over-year.
At the same time, though, the Health Care Benefits segment's adjusted operating income decreased by about 39% year-over-year, landing at $938 million. The company attributed this to the medical benefits ratio reaching about 90%, as compared to 86% a year ago. The medical benefits ratio calculates the share of premiums spent on medical benefits.
The MBR spike, according to CVS Health, is due in part to higher Medicare utilization, higher acuity among Medicaid patients and a poor showing in the 2024 Medicare Advantage Star Ratings.
Despite all that, membership increased by about 200,000 in Q2.
CVS' Health Services business, which encompasses pharmacy benefit manager Caremark, dropped about 9% year-over-year to land at about $42.1 billion, but its Pharmacy and Consumer Wellness business grew 4% over last year, generating $29.8 billion in Q2 revenue. The unit filled more than 420 million prescriptions in the quarter.
Due to underperformance of some of its business segments, CVS Health said it was launching an initiative to save about $2 billion in costs over the coming years. Meanwhile, it lowered its guidance for the year, with the company now anticipating between $4.95 and $5.20 in earnings per share, down from the previously projected $5.64.
THE LARGER TREND
In May, during a Q1 earnings call, Cowhey said that healthcare-benefits medical costs came in approximately $900 million above expectations, primarily due to higher-than-expected Medicare Advantage utilization.
Roughly $500 million was specific to the quarter, including the larger-than-expected impact of seasonal respiratory and RSV costs, Cowhey said, and a return to pre-pandemic inpatient seasonality patterns.
Other Medicare Advantage insurers have also been challenged by higher than expected utilization of services. Humana has struggled with Medicare Advantage costs; despite logging $26.6 billion in revenue for the fourth quarter of 2023, Humana posted a $541 million overall loss in the quarter, which it attributed to MA.
Officials said the cost increases were largely driven by climbing inpatient costs and more spending on outpatient surgeries and supplemental benefits.
In a prepared statement on its financial performance, Humana said it was "disappointed with the impact of the late and unexpected development of higher trends on our 2023 results and 2024 outlook."
Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.
