- CVS CEO Karen Lynch is projecting confidence that health insurance arm Aetna will have improved its Medicare Advantage star ratings when federal regulators release the results next month.
- When asked about the star ratings at Morgan Stanley’s healthcare conference on Tuesday, Lynch said she is “optimistic about where we will land relative to our stars performance based on the internal indicators that I have.”
- Lynch also called into question the $500 million in savings Blue Shield of California expects from kicking CVS’ pharmacy benefit manager to the curb last month. Shares in the company rose 3% over Tuesday’s trade following the comments.
A drop in MA stars for 2023 pressured CVS’ earnings, but the payer expects to turn that around for 2024, according to the remarks issued weeks before the CMS is expected to release stars results.
Star ratings are used to determine two parts of a plan’s MA outlook: whether a plan receives a bonus and a plan’s ability to bid against a higher benchmark rate.
Plans that receive four stars or above receive a 5% quality bonus adjustment for the following year and have their benchmark increased. Bidding against a higher benchmark rate and higher rebate percentages give plans a competitive advantage with respect to benefit offerings and plan value.
MA is a key growth market for CVS. But CVS’ largest MA plan, Aetna National PPO, dropped from 4.5 to 3.5 stars for the 2023 plan year. The plan — one of the largest in the U.S. with more than 1.9 million members — was no longer eligible for quality bonus payments.
CVS disclosed in May that its operating income for 2024 could fall by $800 million to $1 billion as a result of lost bonus payments from the drop.
CVS leadership has said the company has focused on contract diversification and investing in improving the clinical and member experience to improve its ratings. In a call with investors in May, CEO Karen Lynch said she was “encouraged” by the payer’s progress relative to stars performance.
On Monday, research firm Wolfe Research said the “probability is high” that the Aetna National PPO contract will return to 4 stars for next year.
Payers are apprehensive that the CMS has become stingier in handing out star ratings, cutting into profits in the lucrative Medicare program. MA plans saw a huge bump in their star ratings in 2021 due to COVID-19 disaster relief provisions that sunset last year, spurring the star ratings decline.
Watchdogs and policymakers have raised concerns that the MA quality bonus program isn’t a useful indicator of plan quality and is driving increased spending in the cash-strapped Medicare program.
Star bonuses reached almost $13 billion in 2023, according to KFF.
CVS’ stock has fallen 30% over the past 12 months as the Woonsocket, Rhode Island-based company struggles with higher medical and business integration costs.
In August, CVS’ pharmacy benefit manager Caremark lost a major client when Blue Shield of California opted to unbundle the PBM’s services and turn to other vendors for everything but specialty drugs.
Lynch said the reaction to the contract loss was “overblown” on Tuesday.
“I think people thought the Blue Shield contract is disruptive. What I would say is, it is really an unbundling of PBM services,” Lynch said. “The $500 million in savings that they said they would have... I actually don’t know. We’re not earning that kind of money on the account. So I think there’s some questions that are still out there.”