CVS Health chief executive Karen S. Lynch is taking over “day-to-day management” of the company’s Aetna health insurance business after its latest poor performance.
Lynch, who successfully ran Aetna for several years before she was promoted to become CVS president and chief executive in 2021, will oversee the nation’s third-largest health insurer with CVS Health chief financial officer Tom Cowhey. Prior to becoming CVS Health’s CEO, Lynch was executive vice president and president of Aetna, which was acquired by CVS for nearly $70 billion in 2018, merging one of the nation’s largest drugstore chains and pharmacy benefit operators with one of the country’s largest health insurers.
Leaving CVS is Brian Kane, who was hired last year as Executive Vice President and President at Aetna following a stint consulting to private equity firms focused on healthcare services and working as health insurer Humana’s chief financial officer before that.
“Based on the current performance and outlook for the Health Care Benefits segment, the Company has decided to make leadership changes effective immediately,” CVS said Wednesday in announcing the management changes in the company’s second-quarter earnings report.
CVS reported net income fell nearly 9% to $1.77 billion, or $1.41 per share, in the second quarter compared to $1.9 billion, or $1.48, in the year-ago period thanks largely to a nearly 40% decrease in adjusted operating income in the company’s health care benefits segment that includes Aetna and has 27 million health plan members across Medicaid, Medicare and commercial insurance lines of business. Total revenues rose 2.6% to $91.2 billion.
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Adjusted operating income in the health care benefits segment was just $938 million in the second quarter compared to $1.5 billion in the year-ago period. CVS blamed the poor performance on “increased utilization and the unfavorable impact of the previously disclosed decline in the company’s Medicare Advantage star ratings for the 2024 payment year within the Medicare product line, higher acuity in Medicaid primarily attributable to the resumption of redeterminations, as well as a change in estimate related to the individual exchange business risk adjustment accrual for the 2023 plan year recorded in the second quarter of 2024.”
Star ratings are critical to health insurers in the Medicare Advantage business, which sells privatized health coverage to seniors. Stars help health insurers differentiate their quality and service from other plans.
The poor performing healthcare benefits segment contributed to a company decision to lower diluted earnings-per-share guidance to a range of “$4.95 to $5.20 from at least $5.64” and reduce adjusted earnings-per-share guidance to a range of “$6.40 to $6.65 from at least $7.” Meanwhile CVS also lowered its projection on “cash flow from operations” to “approximately $9 billion from at least $10.5 billion.”
It was the second quarter in a row that CVS lowered its earnings-per-share guidance after disclosing problems in its health insurance businesses, particularly Medicare Advantage, which has seen higher costs from increased utilization of services from seniors.
To help turn things around, CVS said it will initiate a “a multi-year expense management opportunity to deliver $2 billion in savings” that will include “streamlining and optimizing operations and processes.” Executives also plan to accelerate the use of artificial intelligence and automation across the company’s businesses.
“We are taking action today to ensure we make the most of our many opportunities, including leadership changes in the Health Care Benefits segment,” Lynch said in a statement accompanying CVS’ second quarter earnings report.
“We have many points of differentiation that position us to win now and into the future,” Lynch added. “Our innovation is accelerating more transparent pharmacy reimbursem*nt models, increasing the use of biosimilars, and providing better patient outcomes through our connected health care delivery assets. Our integrated model and our strategy are enabling us to execute in a challenging environment and we are delivering the value our customers demand.”
CVS, which is also in the business of providing medical care, reported a 1.1% increase in adjusted operating income to $1.9 billion thanks in part to the company’s “healthcare delivery assets” that include Oak Street Health’s senior-focused centers and the homecare business, Signify Health. CVS spent more than $20 billion last year on Oak Street and Signify.
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Although revenues dropped nearly 9% in the second quarter to $42.1 billion from $46.2 billion in the year-ago quarter due largely to the loss of a large pharmacy benefit management client, the “decreases were partially offset by pharmacy drug mix, increased contributions from the company’s healthcare delivery assets and growth in specialty pharmacy.”
Also helping offset the performance in CVS’ Aetna health care benefits segment was $1.2 billion in adjusted operating income in the company’s pharmacy and consumer wellness segment, which reported a 4% increase in revenue to $29.8 billion.
