Q1 2024 Earnings Summary
- Significant success in biosimilars strategy: CVS Health has demonstrated strong performance with its Cordavis business by effectively launching the Humira biosimilar. In just three weeks since April 1, they surpassed all of 2023's biosimilar volume, achieving over 90% conversion and delivering a 50% cost savings on the 2022 run rate for the drug. This highlights their leadership in specialty pharmacy and positions them for growth in the $100 billion biosimilars market by 2030.
- Commitment to improving Medicare Advantage margins: CVS is taking decisive actions to enhance profitability in its Medicare Advantage business, including adjusting pricing, benefits, and potentially exiting certain markets. They are focusing on margin over membership, aiming to return to target margins of 4% to 5% over the next three to four years. This strategic focus is expected to drive significant earnings improvement.
- Leveraging AI and integrated care management tools: CVS is investing in advanced AI capabilities to enhance care management programs, better engage members, and improve health outcomes. By integrating resources from acquisitions like Signify Health and Oak Street Health, they expect to differentiate themselves and positively impact medical cost trends over time.
- CVS Health lowered its full-year 2024 adjusted EPS guidance to at least $7, down from previous expectations, due to utilization pressures in Medicare Advantage, resulting in significant losses; the company anticipates a 3 to 4-year journey to return to target margins of 4% to 5% in this business.
- CVS faced pressures in its Health Services segment driven by loss of a large client, in-sourcing by another client, supply shortages, and delays in the biosimilar product launch, impacting earnings and the ability to meet performance guarantees.
- The company is considering exiting certain counties in its Medicare Advantage business to prioritize margins over membership, potentially reducing future growth opportunities in this segment.
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Medicare Advantage Margin Improvement
Q: How much will MA margins improve in 2025?
A: CVS aims for up to 200 basis points of margin improvement in Medicare Advantage in 2025. They plan to achieve this through pricing actions, benefit adjustments, and exiting certain service areas. A $700 million Stars rating tailwind is expected, assuming stabilized membership. -
Focus on Margin Over Membership
Q: Will pricing changes lead to MA membership loss?
A: CVS is focused on margin over membership and is willing to lose some Medicare Advantage members due to pricing actions and benefit reductions. While they aim for membership stability, they acknowledge that significant pricing actions may result in a membership decline. -
Q1 Cost Trends and $500M Non-Recurring Costs
Q: What caused the $500M non-recurring costs in Q1?
A: The $500 million in non-recurring costs in Q1 was driven by seasonality adjustments on inpatient costs, negative prior year developments, provider liability settlements, policy liberalizations, and initial reserve builds for new membership growth. These costs are not expected to recur. -
Health Services Guidance Reduction
Q: How much of the $400M reduction is Oak Street?
A: Of the $400 million reduction in Health Services guidance, the majority is from Health Care Delivery, with unfavorability on CVS Accountable Care being the largest driver. The remaining portion is related to Oak Street. -
Pharmacy Services and GLP-1 Impact
Q: What's pressuring pharmacy services mix?
A: Changes in mix and challenges in managing the GLP-1 category led to missing some guarantees in pharmacy services. The unprecedented demand and high price of GLP-1 drugs are causing significant costs for clients and increased expenses for CVS. -
Care Management Tools Impact
Q: How are care management tools affecting results?
A: CVS is using advanced AI tools to enhance care management, identifying high-risk members and improving engagement. These efforts are expected to have modest impacts in 2024 and become a differentiator over time. -
Cordavis Launch and Biosimilars
Q: How is Cordavis performing with biosimilars?
A: After launching the biosimilar to Humira on April 1, CVS achieved over 90% volume migration in the first month, surpassing all 2023 biosimilar volume in just 3 weeks. They are delivering 50% savings on prior run rates, with 80% of members experiencing $0 out-of-pocket costs.