Home Health Headwinds lead CVS Health to seek $800M restructuring

Headwinds lead CVS Health to seek $800M restructuring

by News7

CVS Health seeks to reduce expenses by $800 million through restructuring and layoffs to compensate for rising expenses, soft retail performance and Oak Street Health expansion costs, executives told investors Wednesday.

The healthcare conglomerate reported a 37% decline in net income to $1.9 billion, or $1.48 per share, on Wednesday. Revenue increased 10.3% to $88.9 billion. CVS shares opened on the New York Stock Exchange at $72.49 Wednesday, down 2% from the closing price on Tuesday.

CVS Health reduced its earnings guidance for this year by 37 cents to $6.53 to $6.75 per share. The company also downgraded its guidance for 2024 by 50 cents to $8.50 to $8.70 per share and doesn’t expect its $10 per-share guidance for 2025 to hold, Chief Financial Officer Shawn Guertin said during the call with investors. CVS Health will offer more information about its guidance during its annual investor day in December, he said.

This is the second consecutive quarter in which CVS Health sought to temper profit expectations for 2023. During the first quarter, the company lowered its earnings expectations after closing its purchases of home health company Signify Health and primary care chain Oak Street Health ahead of schedule.

Escalating expenses from Medicare Advantage outpatient claims, fewer COVID-19 cases leading to lower retail margins, macroeconomic conditions and planned expansions of Oak Street Health primary care operations spurred CVS Health to embark on a restructuring plan that includes laying off 5,000 employees, or 1.7% of its workforce, Guertin said. They layoffs and some retail closures resulted in a $493 million pre-tax restructuring charge in the second quarter.

CVS Health, which owns the insurer Aetna and the pharmacy benefit manager CVS Caremark along with its CVS Pharmacy retail chain, anticipates a substantial portion of its restructuring will be completed by the end of the year, Guertin said. “The jobs eliminations alone … contributed probably close to $600 million of that benefit,” he said. “But there’s other things we’ve done, like shutting down projects, and obviously there’s been open positions we’re not going to hire for.”

As with other insurers, outpatient surgery, dental and behavioral health expenses came in higher than expected for Aetna’s Medicare Advantage business. CVS Health believes this spike resulted from members seeking care they deferred when the COVID-19 pandemic disrupted the healthcare system.

“If we don’t see an abatement in medical cost trend, we would then be pressured on our bid assumptions for 2024,” Guertin said.

CVS anticipates Medicare Advantage utilization to remain high through the rest of the year, Guertin said. Commercial and Medicaid utilization remains lower than pre-pandemic levels and inpatient hospital visits are lower than normal across all lines of business, he said. Aetna had 25.6 million members in the second quarter, up 4.9% and driven by growth in exchange and Medicare Advantage enrollment.

Aetna is also experiencing the effects of prescriptions for pricey new weight loss drugs Ozempic and Wegovy, CEO Karen Lynch said. “We have seen, consistent with the industry, higher levels of utilization in GLP-1 drugs across each of our businesses,” Lynch said. “While we saw increased utilization, we have priced appropriately for it and feel like the risk is manageable.”

CVS Health expects Aetna Medicare Advantage star ratings to improve, Lynch said. The insurer’s largest plan narrowly missed achieving a four-star rating last year, costing the company $1 billion in bonuses. “We’ll know better in October, but our internal measures are positive,” she said.

Continuing to integrate Oak Street Health into its broader operations should enhance Medicare Advantage enrollees’ experiences and boost quality ratings, Guertin said. CVS Health plans to build as many as 60 new clinics next year and expects to have 300 in operation by 2026. “Our analysis has consistently shown that accelerated clinic growth is the right thing to do in terms of optimizing returns on our investment,” Guertin said.

Source : Modern Healthcare

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