CVS Lowers 2024 Profit Forecast Amid High Medical Costs

CVS Lowers 2024 Profit Forecast Amid High Medical Costs

CVS Health Corp has announced a reduction in its annual profit forecast for 2024, lowering its per-share earnings estimate from $8.30 to $7.00. This revision comes as the company experiences higher medical costs within its health insurance business, largely due to a rise in demand for non-urgent medical procedures. Shares of CVS Health dropped by 9.7% to $61.15 during premarket trading following the news.

The company's health care benefits segment, which includes the health insurer Aetna, reported a medical cost ratio of 90.4% for the first quarter, surpassing the average analyst estimate of 88.43%. The increase in medical procedures is expected to continue, potentially affecting the company's profitability. Furthermore, CVS Health has expressed concerns about the impact of the government's anticipated 2025 reimbursement rates for Medicare Advantage health plans, which could put additional pressure on margins.

Despite a 4% year-over-year increase in revenue for the first quarter to $88.4 billion, the company's Health Services segment experienced a decline, with a 10% drop in revenue to $40.3 billion due to the loss of a significant client. However, the Health Care Benefits and Pharmacy & Consumer Wellness segments performed better, contributing $33.2 billion and $28.7 billion to the total revenue, respectively. Adjusted earnings per share reached $1.31, which is a 41% decrease from the previous year, as adjusted operating income fell by 32%. CVS attributed the increase in medical benefit ratio to higher Medicare utilization and the adverse effects of its 2024 Medicare Advantage star ratings.


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