CVS Health cut its 2023 profit expectations after closing acquisitions of primary care operator Oak Street Health and home health company Signify Health earlier than expected, the company announced Wednesday.
Transaction and integration costs related to the deals will impact CVS Health’s finances in 2023, sooner than anticipated, company executives said during a call with investors. CVS Health had expected to close its $10.6 billion purchase of the Chicago-based Oak Street Health later in the year.
CVS Health reduced its earnings per share guidance to $6.90-$7.12 per share, down from $7.73-$7.93.
First quarter net income fell 8.7% to $2.1 billion, or $1.65 per share, CVS Health reported. The decline was primarily driven by $68 million in acquisition costs, the prospective sale of its Omnicare long-term care business and higher utilization, Chief Financial Officer Shawn Guertin said during the call. Revenue increased 11% to $85.3 billion, mainly because health insurance subsidiary Aetna’s commercial membership grew, he said.
Aetna added a net 1 million policyholders and covered 25.5 million members in the first quarter. Health insurance exchange enrollments increased 20.2% to 3.9 million. The insurer has added 900,000 exchange customers so far this year, CVS Health CEO Karen Lynch said during the call.
Medicare Advantage membership grew 6.8% to 3.3 million, below the industry average of 8%. Aetna expects Medicare Advantage enrollment to rise 12% this year after inking two large group contracts, Lynch said. The insurer is also diversifying its Medicare Advantage contracts and seeks improved customer experiences to improve its star ratings. The majority of Aetna members are consolidated in a single contract that earned a 3.5 out of five stars last year, narrowly missing the four-star bonus threshold. Lynch said she is encouraged by internal metrics on the progress in raising scores for 2024.
Within Dallas-based Signify Health, CVS Health is building a Medicare Advantage stars enablement tool that Aetna and other insurers would use to navigate the federal quality ratings program, Lynch said. Aetna is focused on linking more Medicare Advantage members to Oak Street Health clinics, she said. Oak Street Health currently operates 170 clinics across 21 states and CVS Health plans to expand to 300 in the coming years.
Analysts projected the Centers for Medicare and Medicaid Services decision to tighten how it audits Medicare Advantage carriers to disproportionately pinch finances at risk-bearing providers such as Oak Street Health. The primary care chain is well-positioned to adapt, Oak Street Health CEO Mike Pykosz said during the call. “The consistency of our approach really enables us to rapidly change as we need to,” he said.
CVS Health does not anticipate additional acquisitions in the short term, Lynch said. “Over time, we will look at what other assets we need. But right now, we need to focus on the execution of assets we just acquired,” she said. “Longer term, around the corner, there may be additional opportunities in the home or health service technology kinds of things.”
CVS Health has closed more than 100 retail pharmacies so far this year, and remains on track to shut down 300 by year-end and 900 by the close of 2024, Lynch said.