- Aetna once again drove CVS Health's quarterly earnings, though all three of its major businesses — healthcare benefits, retail and long-term care and pharmacy services — performed in-line or above company expectations. The Woonsocket, Rhode Island-based healthcare behemoth beat Wall Street earnings and revenue estimates in the third quarter, causing it to raise its full-year earnings guidance and sending its stock up almost 5% Wednesday morning.
- CVS reported revenue of $64.8 billion for the three months ended Sept. 30, up almost 37% year over year, and profit was up 10% year over year to $1.5 billion.
- However, company executives warned the first three quarters of 2019 had the highest year-over-year earnings growth due to the Aetna acquisition, and that was unlikely to run into the fourth quarter as it won't include the full impact of share dilution and interest expense from the transaction.
CVS' first anniversary as an integrated company with Aetna is fast approaching at the end of this month. The megamerger, which received the final seal of approval from a federal judge in September, has spurred CVS to unprecedented year-over-year growth and revenue in its healthcare benefits business.
Adjusted earnings of $1.84 per share exceeded the high end of the company's guidance.
CVS, which has about 9,900 retail stores and 1,100 MinuteClinics, had $2.9 billion in operating cash flow in the quarter. The company used free cash to pay down $2.9 billion in debt in the third quarter, bringing its debt repaid total to $8 billion since the Aetna acquisition in a bid to alleviate shareholder concerns about debt assumption and execution risk from the deal.
CVS expects the Aetna integration to create $400 million in savings this year alone. For example, CVS is designing Aetna plans to incentivize beneficiaries to receive care in lower cost settings and leveraging data in its pharmacies so pharmacists can prod consumers to actions for their specific health profile.
Another prong of this integrated strategy is CVS' new wellness-centered stores, called HealthHUBs, which made their market debut eight months ago in Houston. The stores, which devote at least 20% of floor space to health products and services, continue to outperform control stores in terms of front of store sales, prescriptions filled, traffic and margins, CVS executives said on the third quarter call.
Two health plan clients of CVS' pharmacy benefit manager, Caremark, are currently running pilots with the HealthHUBs as well, according to Derica Rice, Caremark's president.
The company plans to scale out the offerings, expecting to have 50 stores operational by year's end, roughly 600 to 650 stores by the end of 2020 and 1,500 by the end of 2021.
Both CVS' PBM and retail segments saw increased volume and brand name drug price inflation in the quarter, which boosted revenue, though that was offset somewhat by continued price compression in pharmacy services, reimbursement pressure in retail and an increased generic dispensing rate. Pharmacy services saw revenue increase 6.4% in the quarter to $36 billion and the retail/LTC business saw revenue jump almost 3% to $21.5 billion.
CVS closed 75 retail pharmacies in the quarter, CVS CFO Eva Borrato said.
Medicare Part D plans brought in revenue of $17.2 billion in the quarter and saw a medical loss ratio — a marker of funds spent on healthcare as opposed to administration and profits — of 83.3% for the almost 23 million combined members.
Membership remained steady year over year, as slight declines in commercially covered lives were offset by increases in Medicare and Medicaid. Aetna recently netted two new Medicaid contracts in Texas and West Virginia.
CVS also announced its joint replacement pilot would be incorporated into Medicare Advantage plans in select geographies next year; the first phase of its chronic kidney care pilot was rolled out to Aetna clients for early disease detection and would soon be expanded to include face-to-face counseling about dialysis options; its oncology pilot was launched in 11 states; and its hemodialysis device clinical trial was progressing on schedule with two sites active.
Based off its third quarter performance, CVS raised and narrowed its full year guidance. The company expects revenue of $251.6 billion to $254.2 billion and adjusted earnings per share of $6.97 to $7.05