CVS’ Healthcare Delivery Buys Maintain Their Momentum
CVS Health Corp.’s big healthcare delivery acquisitions from 2023 were a bright spot for the Rhode Island-based holding company in the third quarter, when its Aetna insurance division delivered a big loss.
In the three months ended Sept. 30, CVS posted a net profit of just $71 million, down from more than $2.2 billion in the same period of 2023. Operating income fell to $832 million from nearly $3.7 billion as Aetna incurred an operating loss of $1.2 billion due to costs spiking because of a rise in use by patients, particularly those on Medicare Advantage plans—something other insurers also have had to deal with this year.
New President and CEO David Joyner told analysts Nov. 6 his team has made organizational and operational changes to return the business to profitability. Key to that, he noted, will be a trimming of Medicare Advantage benefits with the aim of reducing utilization in 2025 and after.
On a different trajectory this summer were Oak Street Health, which runs primary-care clinics for Medicare patients, and home-based risk assessment venture Signify Health. Those businesses, CFO Tom Cowhey said Nov. 6, posted revenue growth of 36 percent and 37 percent, respectively, during the third quarter compared to a year earlier. That helped CVS’ health services segment (which also includes the Caremark pharmacy benefit manager) grow its sales of services during the quarter to $2.9 billion versus $1.9 billion.
“The fact is the model works and it works in underserved markets specifically for the population that’s important to this business,” Joyner said about Oak Street, which has done a better job than Aetna in managing costs even though it’s not immune to today’s Medicare challenges.
The number of Aetna members using Oak Street clinics has grown fourfold since CVS’ acquisition about 18 months ago. (Oak Street’s clinic network totaled 233 locations at the end of September, up from 177 in mid-2023.) At Signify, the number of Aetna enrollees has doubled over the past year and Joyner told analysts the business “is a platform which we can certainly build beyond just the in-home assessment.”
“That will be the message and the focus of the business: To continue to serve people both in the care delivery setting as well as in the home,” he said. “We believe we have the appropriate assets to be able to execute that.”
Getting the Aetna referral channel to click has been a key goal for CVS executives since former President and CEO Karen Lynch oversaw the spending last year of nearly $17 billion to snap up Oak Street and Signify. Nearly a year ago, the CVS team said the goal is to grow revenues from healthcare delivery—which also includes the MinuteClinic in-store chain—by two-thirds to $10 billion by 2028.
As part of their earnings report, CVS leaders also said they’ve recruited Steve Nelson to be president of Aetna. Nelson was most recently CEO of primary-care venture ChenMed for about two years and before that led Duly Health and Care. Extra relevant to Aetna: He spent more than a dozen years at UnitedHealth Group Inc. and was co-CEO or CEO of its UnitedHealthcare division for more than three years in the second half of last decade.
Shares of CVS (Ticker: CVS) took part in the broader market’s big lift after the presidential election last week but have since given up nearly all those gains. They closed Nov. 11 at $55.81, up less than 1 percent from last Tuesday afternoon. At that level, CVS’ market capitalization is about $70 billion, roughly 25 percent lower than late last year.
