Dive Brief:
- CVS Health raised its full year revenue and earnings guidance Wednesday after performance in the healthcare behemoth’s Aetna insurance unit improved in the first quarter.
- The company now expects adjusted earnings per share from $7.30 to $7.50 in 2026, up from CVS’ previous estimate of $7 to $7.20. Revenue should reach at least $405 billion this year, increasing from the healthcare giant’s previous guide of at least $400 billion.
- The improved outlook comes after Aetna — which has struggled in recent years with heightened medical costs — saw revenue rise more than 3% in the first quarter. “Our performance reflects a substantial improvement from the prior-year quarter as we continue to execute on our margin recovery plans at Aetna,” CFO Brian Newman said on a call with investors.
Dive Insight:
CVS isn’t the only payer showing improvement in the first quarter. UnitedHealth boosted its profit outlook after reporting first-quarter results last month, and Elevance raised its earnings guidance after posting better-than-expected results. Cigna and Centene raised their outlooks too.
Overall, CVS beat investor expectations on earnings and revenue in the first quarter. The healthcare behemoth reported $100.4 billion in revenue, up from $94.6 billion last year. Net income reached $2.96 billion, compared with $1.78 billion during the prior-year period.
The company saw revenue growth across all its operating segments — including health benefits, health services and pharmacy and consumer wellness — but its growing operating income was driven by its insurance unit, executives said on the call Wednesday.
That’s likely a relief for investors. Aetna, which provides health insurance coverage to 26 million people, has battled increased medical spending in the wake of the COVID-19 pandemic, especially in privatized Medicare Advantage plans.
The segment reported revenue of $35.97 billion in the first quarter, increasing from $34.81 billion during the same period last year. The insurance unit’s adjusted operating income soared by nearly 53%, driven by improved performance in government plans and the end of a $448 million premium deficiency reserve recorded last year.
The segment’s medical loss ratio — a key marker of spending on patient care — fell to 84.6% in the first quarter from 87.3% during the prior-year period, also driven by improvement in government insurance.
But the unit saw strong performance across all lines of business, including through disciplined pricing and retention in commercial plans and improved payment rates in Medicaid, Aetna President Steve Nelson said in the call.
CVS is also pleased with the higher rates in MA for next year than initially proposed. Last month, the CMS finalized an average rate hike of 2.48% for 2027, a significant jump from the nearly flat increase the agency had considered earlier this year.
Insurers had decried the proposal, arguing the small rate bump would force payers to cut benefits and result in higher cost for enrollees. But Nelson acknowledged a “strong partnership” with the CMS, which listened to CVS’ concerns about the flat rate increase.
Still, the payment rates aren’t high enough, CVS CEO David Joyner said on the call.
“The final rate notice that came out in April represented a step in the right direction towards greater sustainability, but it remains insufficient to offset underlying medical cost trends,” he said. “These trends remain above historical levels, and for the past several years have pressured the entire industry.”
Meanwhile, CVS’ health services segment, which includes its healthcare delivery assets and the Caremark pharmacy benefit manager, saw revenue increase 11% in the first quarter. The unit reported adjusted operating income of $1.49 billion, down over 7% and driven by pharmacy client price improvements.
Overall, performance in the health services unit “modestly exceeded” the company’s expectations, Newman said.
The results come as CVS — and other healthcare firms with large PBMs — are facing increased regulatory pressure. Earlier this spring, CVS reached a proposed settlement with the Federal Trade Commission in the agency’s case accusing major PBMs of inflating the price of insulin.
And in February, President Donald Trump signed government funding legislation that included PBM reform, like transparency requirements for the drug middlemen and a prohibition on linking their pay to drug manufacturers’ list prices in Medicare Part D.
However, CVS knew policy changes were coming, which largely motivated the firm to launch its TrueCost drug pricing model more than two years ago, Joyner said.
“We see both the [funding law] as well as the work we’re doing trying to reach a settlement with the FTC — there is now going to be clarity in terms of the rules that we’re going to operate under,” he said. “So I think the good news is that the industry will now have a new set of rules.”
