CVS Health Corporation cut its 2024 profit forecast for at least the fourth time due to persistently high medical costs in its business, according to Reuters.
The healthcare conglomerate, which also recorded a sharp decline in its second-quarter profit, announced a multi-year plan to save $2 billion in costs and made some leadership changes in its insurance business.
CVS’s Aetna insurance unit, like other insurers, has been struggling with rising medical costs since late last year as older people catch up on delayed procedures. Furthermore, lower-than-expected payments from the government for managing health care are depressing the company’s profits.
Costs for Medicaid plans for low-income people were also high due to sicker patients getting coverage. CVS reported that Brian Kane, head of the health insurance division that runs Aetna, is leaving the company immediately, with CEO Karen Lynch, a former president of Aetna, taking over the division. James Harlow, senior vice president at Novare Capital Management, which owns 101,522 shares of CVS, said:
It’s another frustrating quarter. The fact that they have to cut their outlook yet again really damages [the] management’s credibility.
The company’s adjusted earnings fell to $1.83 per share in the second quarter ended June 30 compared with $2.21 a year earlier. The health care ratio – the percentage of premiums spent on health care – also rose more than 3 percentage points to 89.6 per cent, but came in below estimates of 90.5 per cent.
