CVS Health's Strategic Vision and Growth Opportunities Unveiled
2024-01-09
CVS Health recently held a conference call where important business questions were addressed by key participants, including Karen Lynch (President & CEO), Thomas Cowhey (CFO), and Lisa Gill (Conference Call Participant). The conference covered a range of topics related to CVS Health's mission, strategy, financial guidance, and various business segments.
During the conference call, CVS Health emphasized its mission to build a world of health around every consumer. The company's strategy focuses on providing seamless experiences, lowering the total cost of care, and improving overall health outcomes. In December, CVS Health announced a new pharmacy reimbursement model and a new pharmacy benefit manager (PBM) model. The new pharmacy reimbursement model aims to align pharmacy reimbursement to the underlying cost of the business and provide reasonable compensation for the care and value provided by pharmacies.
![Cover photo of the article](https://storage.googleapis.com/shark_public/pictures/p_pharmacy.png)
In terms of financial guidance, CVS Health has a long-term framework that establishes a baseline adjustment for EPS growth of at least 6%, which will accelerate over time. They expect to generate over 7% growth in their Health Services business. CVS Health serves more than 35 million unique members in its Health Care Benefits business and over 90 million members in its Pharmacy Services business. The company also serves over 120 million customers through its Pharmacy & Consumer Wellness business, which has over 9,000 locations.
One of CVS Health's biggest opportunities is their ability to engage customers at multiple touchpoints across all of their businesses. They have grown their digital customers to over 55 million users and are launching a new CVS Health app in 2024. The company is also incorporating responsible artificial intelligence (AI) and making significant progress across each of their businesses to accelerate their progress with AI.
CVS Health has made strategic acquisitions, including Signify and Oak Street, which have brought strong management teams, tech platforms, and experience in value-based care. They plan to leverage these assets to accelerate growth and create synergistic value. The company expects the acquired assets to contribute 3% to 5% of adjusted operating income, driving their growth rate up by 1.5 points.
In terms of their Pharmacy Services business, CVS Health's main goal is to drive down costs and deliver critical specialty pharmacy services to patients in need. They serve over 90 million members in this business. The provider enablement business supports a broad range of provider partners across the country to help them transition to value-based care. The Pharmacy & Consumer Wellness business serves over 120 million customers through over 9,000 locations. The company's biggest opportunity in this business is to enhance customer engagement and lower costs.
CVS Health is also focused on their Medicare Advantage business, which is strategically important to the company. They expect to have at least 800,000 Medicare Advantage members in 2024, with approximately one-third being in duals. The company aims to improve Medicare margins beginning in 2025, which is expected to add 3% to 4% to adjusted EPS growth in 2025.
The company's PCW (Pharmacy & Consumer Wellness) business has seen continued outperformance in the retail sector, driven by the strength of the vaccine franchise, cold and flu season, and good execution by the team. However, their HCB (Health Care Benefits) business has been under pressure. The pressure in the HCB business will offset the outperformance of the PCW business, but the overall performance is expected to beat the upper end of the range.
Aetna, a subsidiary of CVS Health, has a partnership with AbbVie through Cordavis, which allows them to continue having access to AbbVie's product for their members. They are also navigating changes in the risk model within Medicare Advantage, known as V28. The risk model changes will be implemented by averaging and weighting the old model and transitioning to the new model by 2026. CMS focused on specific conditions when making the model changes, correlating coding to costs. Aetna's impact is similar to the overall universe, possibly slightly less due to the demographics of their population. Oak Street, a provider enablement model, may face a bigger headwind due to the risk model changes.
CVS Health has made significant efforts to improve their Stars performance, focusing on improving medication adherence and care management teams. They have built sustainable processes and had the entire company focused on improving service and delivering on HEDIS measures for Stars performance. They have also introduced the CostVantage model to stabilize the pharmacy reimbursement model and provide transparency to consumers by combining pharmacy acquisition cost, markup, and a fee.
The company is committed to implementing a sustainable model in pharmacy to ensure long-term viability and stability. With 80% of costs in the U.S. today attributed to chronic conditions, keeping patients adherent to their medication can help lower costs by reducing the need for additional treatments or hospitalizations. The pharmacy is taking more risk over time for things like adherence or outcomes and is actively engaged in value-based care, being number one in supporting medication adherence. The new pharmacy model will not result in higher prices, as the pharmacy is working to drive down costs and pass those savings on to customers.
The upcoming FTC report on the PBM industry is expected to show consistent savings and improvement in pharmacy costs due to PBMs. CVS Health's focus for capital deployment in 2024 is maintaining a balance and investing in the core business while also deploying capital for shareholders. Karen Lynch, the CEO, hopes that people will appreciate the strong sustainable growth from their businesses, including healthcare delivery, powerful cash flow generation, and balanced capital deployment.
Overall, the conference call covered a wide range of topics related to CVS Health's mission, strategy, financial guidance, business segments, acquisitions, risk models, Stars performance, pharmacy reimbursement, and capital deployment. The participants provided insights into the company's goals, challenges, and opportunities in the healthcare industry.