CVS Health's 2023 Performance and 2024 Outlook
2024-02-08
CVS Health recently held its Q4 2023 earnings results call, which was hosted by Larry McGrath, Senior Vice President of Business Development and Investor Relations. The call included key participants such as Karen Lynch, President and Chief Executive Officer, and Tom Cowhey, Chief Financial Officer. The company's press release and slide presentation can be accessed on its website, along with a cautionary statement regarding forward-looking statements and risk factors in its Form 10-K filed with the SEC.
During the call, CVS Health reported adjusted operating income of $4.2 billion and adjusted EPS of $2.12 for the fourth quarter of 2023. The company's total revenue for the full year of 2023 amounted to $358 billion, representing an 11% increase compared to the previous year. Additionally, CVS Health generated $13.4 billion of operating cash flow.
One of the topics discussed during the earnings call was CVS Health's cautious stance on the outlook for Medicare Advantage utilization, which was attributed to industrywide trends. The company also emphasized its targeted margin for Medicare Advantage, aiming for a range of 4% to 5%. It was noted that more than 55 million CVS Health customers engage with at least two of the company's offerings.
CVS Health highlighted its CostVantage model, which proactively addresses reimbursement pressures in the retail pharmacy industry and creates a more durable and transparent pharmacy business. The company also mentioned its Caremark TrueCost model, which offers pricing reflecting the true net cost of prescription drugs, along with continued client visibility into administrative fees.
The role of Cordavis, CVS Health's subsidiary, in reducing drug costs was also emphasized. Cordavis plays a vital role by offering a co-branded Humira product and ensuring a consistent supply of affordable, high-quality biosimilars.
CVS Health outlined its goals in healthcare, which include expanding access to care, lowering costs, improving health outcomes, deepening patient engagement, and increasing loyalty. The company believes that engaging members in more than one CVS Health business can unlock up to three to four times more enterprise value.
The healthcare benefits segment of CVS Health performed well in the quarter, with revenues growing to nearly $27 billion, representing an increase of over 16%. The segment also delivered adjusted operating income of $676 million and saw an increase of 1.3 million members. Medicare Advantage was highlighted as integral to CVS Health's strategy, with expectations to add at least 800,000 new members in 2024.
The health services segment, which includes CVS Healthspire, experienced revenue growth to more than $49 billion, an increase of over 12%. Adjusted operating income also grew by more than 4% to nearly $1.9 billion.
CVS Health's pharmacy and consumer wellness segments saw revenue growth driven by factors such as pharmacy drug mix, increased prescription volume, brand inflation, and increased contributions from vaccinations. However, the segments also faced challenges, including recent generic introductions, reimbursement pressure, and a decrease in store counts.
In terms of outlook, CVS Health provided revised guidance for adjusted EPS and cash flow from operations for 2024. The company projected adjusted operating income of at least $5.4 billion for the healthcare benefits segment in 2024, while the pharmacy and consumer wellness segment were projected to have at least $5.6 billion in adjusted operating income. The health services segment was projected to have at least $7.4 billion in adjusted operating income. The projected Medicare Advantage MBR for 2024 was 87.7%.
Looking ahead to 2025, CVS Health aims for low double-digit growth in adjusted EPS based on the updated 2024 guidance. The target margin range for Medicare Advantage remains at 4% to 5%.
Overall, CVS Health's Q4 2023 earnings call covered a range of important business topics, including financial performance, strategic goals, healthcare benefits, pharmacy services, and the outlook for the future. The company remains focused on improving health outcomes, creating transparency, and delivering value to its customers.