CVS Blames Higher Medical Costs for Dragging Down Profit

CVS Health declared higher medical costs are eating into its profit. As claims from its insurance segment continue to increase, the company reduced its 2024 profit outlook and is implementing a significant cost-cutting program to help reverse the downfall.

CVS announced a Q2 2024 net income of $1.77 billion, down from $1.90 billion for the same period last year. Revenue reported was $91.23 billion, which was actually an increase of 2.6% over Q2 2023.

Previously at $7 per share, CVS now expects 2024 adjusted earnings per share to fall between $6.40 and $6.65 per share. Unadjusted earnings projections will likely be in the $4.95 to $5.20 per share range. CVS has lowered 2024 projections twice previously.

“We are disappointed by the current performance and outlook for the health-care benefit segment, and I have decided to make leadership changes effective immediately,” CVS CEO Karen Lynch said on the call with analysts, per CNBC.

During the second quarter, CVS’s insurance division, which includes health insurer Aetna, posted $32.48 billion in revenue, an increase of 21% versus the same period last year. However, adjusted operating income was $938 million, lower than the $962 million analysts were expecting.

CVS claims rising medical costs and unfavorable star ratings for its Medicare Advantage contracted plan are to blame for the lower 2024 projections. Star ratings are used by Medicare patients to compare quality among different Medicare health and drug plans.

As a result of the lower outlook, CVS plans to cut costs by $2 billion. The multi-year plan includes utilizing artificial intelligence as well as taking a closer look at its overall business portfolio. In addition, the company is close to completing its three-year plan to close 900 stores. So far, it has closed 851 locations nationwide, with approximately 50 more likely to be shuttered by year’s end.

Despite the store closings, CVS Health still oversees the largest drugstore chain in the U.S. Over 26 million people have health insurance coverage provided through Aetna.