CVS Health predicts a loss in pharmaceutical contracts with Centene and Medicare Advantage quality review program bonuses will result in a $2 billion revenue decline by 2024, the executive said in a statement. the company’s third-quarter earnings call on Wednesday.
The company did not give a specific figure for each loss. But CVS subsidiary Aetna experienced the second-largest drop in the number of Medicare Advantage stars this year after Centene. Aetna focuses most of its members on a single plan, which ranks just below the federal threshold for bonuses through its quality improvement program.
The Centers for Medicare and Medicaid Services distribute bonuses to plans that score at least four stars on a five-point scale.
The Aetna National PPO has dropped to 3.5 stars this year. More than 1.9 million people join the plan, which is 59% of Aetna’s Medicare Advantage membership. The proportion of patients in Aetna Medicare Advantage plans who score four or more stars will plummet from 87% this year to 21% next year.
“Across the industry, everyone is challenged with the stars and we are extremely disappointed in our 3.5-star rated plan,” Chief Executive Officer Karen Lynch said on the call.
CVS has moved more than 200 prescription drugs to the lower tier for Medicare Advantage enrollees and is investing in drug compliance and member experience programs, Aetna President Dan Finke said on the call. Aetna is also working to diversify its contracts so that the majority of its members won’t sign up for a single plan, he said.
Chief Financial Officer Shawn Guertin said CVS will rely on share buybacks to hedge its losses. The company could buy up to $10 billion in stock next year, which should generate $1 billion in revenue by 2024, he said.
“Even with success, given the intensity of this headwind, assuming these efforts alone, while potentially important, will not close the entire gap,” Guertin said. . “The recent loss of the Centene contract puts further pressure on the 2024 outlook.”
CVS is also scrutinizing its portfolio of businesses. “We have made a lot of progress in streamlining our portfolio to focus on the areas of our business that will drive the most growth for our business over the long term,” said Guertin.
The company divested spending account provider Payflex, software company Bswift and part of Aetna’s international operations this year. It is now exploring the sale of its Omnicare specialty pharmacy business, Guertin said. CVS paid $10.4 billion to acquire Omnicare in 2015. The company reported a loss of $2.5 billion in Q3 related to future subsidiary sales.
This divestment will generate revenue gains of up to $0.08 in adjusted earnings per share next year if Omnicare sells, Guertin said.
CVS also incurred a $5.2 billion charge during the quarter to settle state and local lawsuits alleging the chain improperly distributed prescription painkillers and contributed to the opioid crisis. The company began mediation with the state attorney general to resolve these complaints last month and kept an agreement in principle with officials, Lynch said.
If approved by the plaintiffs, CVS will distribute settlement dollars over 10 years from 2023. “All the AGs were at the table during this settlement period, so we have a degree of coverage. high confidence in settlement,” Lynch said.
Omnicare’s losses and opioid payments pushed CVS’s net loss to $3.4 billion, compared with $3 billion in net income in the same period last year. Revenue rose 10.7% to $81.2 billion. Aetna membership increased 2.4% to 24.2 million.
CVS is entering the primary care property market and hired Dr Amar Desai last month as president of the company’s nascent healthcare delivery business.
In September, the company announced plans to acquire home healthcare provider Signify Health for nearly $8 billion. CVS expects to close that merger in the first half of next year, Lynch said. The Justice Department has requested more information about the deal.
The company has “the same neighborhood” in terms of capital for mergers and acquisitions next year, Guertin said.
“We will continue to evaluate our options for primary care and we believe we need to do an M&A,” Lynch said.
