Aetna underperforms, plans recovery as CVS Health logs $95.4B in revenue

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CVS Health saw revenues climb 6.3% as compared to last year, posting $95.4 billion in revenue for the third quarter, even as its health benefits segment underperformed, due principally to high utilization.

The company has generated year-to-date cash flow from operations of $7.2 billion, and announced Q3 GAAP diluted EPS of $0.07 and Adjusted EPS of $1.09. But on an earnings call Wednesday morning, CVS Health president and CEO David Joyner, who took leadership of the organization last month, said the health benefits segment, led by Aetna, "remains challenged."

Aetna's revenues hit $33 billion in Q3, up from $26.3 billion in Q3 2023. But it posted an adjusted operating income loss of $924 million this year. Its Medical Benefits Ratio was 95.2% in the quarter, compared to 85.7% in the same period last year.

Joyner put much of the onus on the poor performance on elevated utilization coming out of the COVID-19 pandemic, as well as higher acuity. Also, with what he described as "disappointing" star ratings coming into this year, Joyner said the health benefits segment began the year with a temporary reimbursement challenge. 

"When we priced Medicare Advantage plans for 2024, we underestimated medical costs," said Joyner. "Rich benefits exacerbated utilization pressures and grew membership rapidly. There were also some disappointing risk adjustment updates which significantly burdened Aetna's current results. This performance is unacceptable."

Due in part to Aetna's performance, CVS Health officials said they were not providing a formal outlook, though Joyner said he was optimistic about the segment's recovery prospects, particularly with the announcement that Steve Nelson, a former UnitedHealth Group insurance leader, to run Aetna.

"The work at Aetna is underway, and we're confident we're taking the right steps to address the underlying issues," said Joyner.

Despite the performance, CVS Health Chief Financial Officer Tom Cowhey said revenues in the health benefits segment increased 25%, with medical membership growing to 271 million.

"Medical costs remain elevated, with the pressure attributable to inpatient, outpatient, supplemental and pharmacy, and also the unfavorable development of medical costs," said Cowhey. "It's adversely impacting the trend outlook for the rest of the year."

WHAT'S THE IMPACT?

CVS' health services segment saw revenues decrease 5.9% in the quarter, driven by the loss of a "large client" and continued improvements to pharmacy client prices. Pharmacy claims processed decreased 16.5% on a 30-day equivalent basis compared to Q3 2023.

Total revenues for the pharmacy and consumer wellness segment increased 12.3%, driven by increased prescription volume, including increased contributions from vaccinations, and pharmacy drug mix. These increases, according to CVS, were partially offset by continued pharmacy reimbursement pressure, the impact of recent generic introductions and decreased front store volume.

Prescriptions filled increased 6%, and same-store prescription volume increased 9.1%.

THE LARGER TREND

In addition to appointing Nelson as head of Aetna, CVS Health also named Chief Pharmacy Officer Prem Shah as its group president. Shah will oversee operational performance for CVS Pharmacy, pharmacy benefit manager CVS Caremark, and CVS' healthcare delivery businesses.

Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.