CVS Health agreed on Wednesday to pay $5 billion to settle almost all opioid-related lawsuits and claims the company been battling over the past decade that alleged it mishandled prescriptions of the painkillers.
If the deal is finalized, CVS will pay $4.9 billion to states and political entities such as counties and cities, and $130 million to U.S. tribes.
The payments, which depend partially on the number of government entities that agree to join the settlement, will be spread out over the next 10 years beginning in 2023.
CVS announced the settlement in tandem with its third-quarter financials, which came in above analyst estimates. Despite posting a net loss in the quarter the company attributed to opioid litigation charges, CVS’ shares advanced in early morning trading on Wednesday. The company increased its full-year forecast on the results.
Cities, counties and states have filed more than 3,000 lawsuits against drugmakers, distributors and pharmacies for their role in perpetrating the opioid epidemic in the U.S. According to government data, three-fourths of the 92,000 drug overdose deaths in 2020 involved an opioid.
Walgreens and Walmart also have reached deals to settle opioid-related claims, Reuters reported, citing people familiar with the matter. Walgreens will pay $5.7 billion over 15 years and Walmart will pay $3.1 billion, mostly up front, according to the report.
If the settlements from the three companies, which are the largest retail pharmacies in the U.S., become final, it may end much of the yearslong litigation over opioids. Cases still are pending against smaller pharmacies such as Rite Aid.
The deals follow some victories for plaintiffs against the chains.
In August, a judge ruled that CVS, Walgreens and Walmart had to pay a combined $651 million to two Ohio counties after they were found liable for furthering the opioid epidemic. They also follow a settlement reached by three major medical distributors earlier this year to resolve the vast majority of opioid-related lawsuits that totaled more than $19 billion.
CVS said the deal is “not an admission of any liability or wrongdoing,” and that it will continue to defend against any litigation the agreement doesn’t resolve. The company began mediation discussions with state attorneys general in late October.
In a call with investors on Wednesday, CVS management said the deal provides clarity on a longstanding issue for the company and the payment timeline will allow it to continue investing in the business.
“The timing of the cash settlement payments spread over multiple years results is an annual impact to cash flows that allows us to continue to invest in our strategic priorities,” CFO Shawn Guertin said.
A $5.2 billion pretax opioid litigation charge contributed to CVS posting a $3.4 billion net loss in the third quarter, compared to a profit of $1.6 billion a year earlier.
CVS’ adjusted earnings per share and total sales beat estimates by analysts at Zachs Equity Research. The company’s total revenue rose in the period climbed 10% to $81.2 billion, while earnings per shares advanced to $2.09 from $1.97 a year earlier.
Its healthcare benefits segment, which includes payer arm Aetna, brought in $22.5 billion in revenue, an increase of 10% from a year earlier, helped by membership growth and a more favorable COVID-19 cost impact.
The payer reported a medical loss ratio of 83.5%, compared to 85.8% in the year-earlier quarter.
CVS was one of a handful of large payers that had their Medicare Advantage star ratings fall for 2024, which will pressure future earnings. CEO Karen Lynch said on the investor call that the company is “disappointed” in the drop and that improving its ratings is a top priority.
Guertin said the projected financial impact of the stars decrease and Centene moving its $35 billion prescription drug contract from Caremark to competitor Express Scripts will be about $2 billion in 2024. CVS expects to mitigate about half of that internally and undergo stock repurchases to combat the remaining impingement, which could total as much as $10 billion.
“This is an amount that we have the cash and balance sheet capacity to handle and stay within our leverage metrics for 2023,” Guertin said.
Following its recent acquisition of home health provider Signify for $8 billion, CVS said it’s continuing to look at M&A in the primary care space. The update follows reports last month that it had tabled merger discussions with primary care provider Cano Health.
“We will continue to evaluate our options on primary care, and as I said we believe that we need to do M&A and we continue to evaluate those options in the marketplace," Lynch said on the call.
CVS shares rose 3.9% to $98.27 in morning trading.