CVS Health Corporation (CVS) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Performance in Health Services and Pharmacy

  Adjusted operating income of $3.7 billion for the quarter, with total revenues over $91 billion. Health services and pharmacy businesses exceeded expectations.

• Significant Cash Flow Generation

  Generated $8 billion of operating cash flow in the first half of the year.

• Expansion of Consumer Access

  Expanded the number of consumers accessing two or more CVS Health offerings to 57.7 million, an increase of nearly 2.5 million consumers.

• Leadership in Pharmacy Share and Innovation

  Grew pharmacy share to a record high of approximately 27.2%. Leading the industry with innovative pharmacy models like CVS CostVantage and CVS Caremark TrueCost.

• Biosimilar Success

  Processed approximately 100,000 Cordavis biosimilar prescriptions since launch, contributing to nearly $400 million in net savings for clients and members.

Pessimistic Highlights

• Pressure in Healthcare Benefits Business

  Disappointment in the current performance and outlook for the healthcare benefits segment, leading to leadership changes.

• Revised Full Year 2024 Guidance

  Adjusted EPS guidance updated to a range of $6.40 to $6.55, reflecting continued pressure in healthcare benefits.

• Challenges in Medicare and Medicaid

  Elevated utilization levels in Medicare and dislocation between Medicaid acuity levels and rates.

• Risk Adjustment Update Impact

  Increased risk adjustment accrual for the individual exchange business by approximately $225 million, affecting margins.

Company Outlook

• Positive Momentum Towards 2025

  Confident in building positive momentum with disciplined Medicare Advantage pricing, innovative pharmacy model, and biosimilar strategy. Expect savings from productivity initiatives to create opportunities for outperformance.

• Commitment to Margin Recovery

  Actions taken expected to drive 100 to 200 basis points of margin recovery in 2025 for Medicare Advantage, with a target margin of 4% to 5%.

Q & A Highlights

• Q: Can you talk about the level of visibility for cost trends going into the back half of the year and what was included in the 2025 bids? (Lisa Gill, JP Morgan)

  A: High degree of confidence in catching the trend for 2025 bids with a prudent approach. Utilization in the quarter and outlook incorporates elevated trends. (Karen Lynch and Tom Cowhey)

• Q: Is double-digit EPS growth still the target off your updated estimates for 2025? (Justin Lake, Wolfe Research)

  A: Goal is double digits, striving to achieve that. Will provide more detailed guidance later in the year. (Karen Lynch and Tom Cowhey)

• Q: Can you talk about the expected MA margin improvement of 100 to 200 basis points? (Stephen Baxter, Wells Fargo)

  A: Range of outcomes for MA margin improvement is based on how trends manifest. 200 basis points improvement is achievable depending on trends. (Tom Cowhey)

• Q: Can you give an update on negotiations with the last two PBMs for CVS CostVantage? (Ann Hynes, Mizuho)

  A: Active, productive discussions ongoing. Expectation to move all commercial contracts to CVS CostVantage by January 1, 2025. (Karen Lynch and Prem Shah)

• Q: Does the Part D demo help to de-risk the marketplace? (Eric Percher, Nephron Research)

  A: Pleased with CMS's Part D program to stabilize premiums. Applied for the demonstration and looking forward to working out details. (Karen Lynch)

• Q: Seeing nice traction on CostVantage, is there an intention to have a dual reimbursement structure on the commercial side? (Michael Cherny, Leerink Partners)

  A: Intention to move all commercial contracts to CostVantage. Will still have a dual market with Medicare and Medicaid contracts. (Tom Cowhey)

• Q: Is your expectation for those commercial contracts moved over for 1/1/25 that those would have flat margins versus 2024? (Elizabeth Anderson, Evercore ISI)

  A: CVS CostVantage aims to flatten out reimbursement pressures over time. Haven't provided 2025 guidance yet. (Tom Cowhey and David Joyner)

• Q: Is your expectation for Stars still the same as it had been for 2025? (Kevin Caliendo, UBS)

  A: Nothing has changed regarding Stars expectations. Positive momentum going into 2025. (Karen Lynch and Tom Cowhey)

• Q: Can you talk about the leadership changes for Aetna and the expected impact? (Lance Wilkes, Bernstein)

  A: Financial performance of Aetna was not meeting expectations, leading to leadership changes. Priorities include establishing strong management processes and driving improved performance. (Karen Lynch and Tom Cowhey)

• Q: What is CVS doing to amplify the message of the PBM industry's role in lowering drug prices? (Charles Rhyee, TD Cowen)

  A: Aggressive approach to educating Congress on the role of PBMs. Innovating business models like TrueCost for greater transparency and simplicity. (Karen Lynch and David Joyner)

• Q: How confident are you in the revised guidance and what are the trends in in-patient you saw in July? (Brian Tanquilut, Jefferies)

  A: Guidance incorporates prudent assumptions based on first-half performance and early indicators. Broad-based in-patient pressures observed. (Tom Cowhey)