CVS Health Exceeds Quarterly Profit Expectations Amid Decline in Medical Costs

CVS Health recently reported its fourth-quarter earnings, and while profits fell, the drop was not as bad as expected. The company saw its shares rise by over 9% in premarket trading due to this news.

In the first three quarters of 2024, CVS struggled with rising costs, particularly in its Medicare insurance sector. Last year, shares plummeted more than 40%, so this report brings some relief.

For the fourth quarter, CVS posted a profit of $1.19 per share, down from $2.12 the previous year, but beating analyst predictions of 93 cents.

However, CVS’s healthcare benefits division faced challenges. It reported a loss of $439 million, in contrast to a profit of $676 million a year ago. This loss was mainly due to more people using medical services and changes in the quality ratings of its Medicare Advantage plans. Additionally, a rise in sicker members in its Medicaid programs contributed to the situation.

In the third quarter, CVS took a significant charge of about $1.1 billion related to possible future shortfalls in its Medicare business, reflecting ongoing financial pressures.

The company’s medical loss ratio, which indicates what portion of premiums goes towards patient care, rose to 94.8% in the fourth quarter, up from 88.5% a year earlier. This was slightly better than analysts had predicted, who expected a loss ratio of around 95.46%.

To address these issues, CVS has laid out plans to cut costs and recently reorganized its management. New CEO David Joyner is leading these efforts to improve the company’s performance.

On a brighter note, CVS saw revenue in its pharmacy and consumer wellness segment increase by 7.5% to $33.51 billion, thanks to higher sales of prescription drugs. Looking forward, the company estimates full-year profits between $5.75 and $6.00 per share, slightly below analysts’ expected $5.96.

The changes at CVS reflect their commitment to overcoming financial challenges and adapting to a dynamic healthcare environment.

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CVS Health, medical loss ratio, Medicare, pharmacy business