Lower healthcare utilization bolsters CVS Health Q2 profit

A dramatic drop in healthcare utilization among Aetna members during the COVID-19 crisis bolstered CVS Health’s bottom line in the second quarter of 2020.

The company said the deferral of non-urgent healthcare services during the pandemic contributed an estimated $1.8 billion to $2.1 billion to its healthcare benefits segment’s operating income. That unit comprises the Aetna business that CVS bought in late 2018. That business reported adjusted operating income of $3.1 billion for the three months ended June 30, an increase of nearly 188.7%.

The deferral of those healthcare services also dramatically lowered Aetna’s medical loss ratio to 70.3% from 84% in the second quarter of 2019. Under the Affordable Care Act, insurers must maintain a MLR of at least 80%, meaning they must spend at least 80 cents of every dollar in premiums on medical care. Aetna’s lower MLR suggests it may have to refund a portion of its premiums in the form of customer rebates.

The health insurance business’ results helped boost CVS’ net income across all its segments 54.6% to $3 billion compared with the same quarter a year ago. Revenue grew 3% to $65.3 billion, in part because Aetna grew Medicare Advantage and Medicaid membership. CVS raised its full year earnings guidance to reflect a lower tax rate.

CVS’ other segments didn’t react as well to COVID-19 as the insurance business did. CVS made substantial investments in its retail stores during the quarter, at a time when consumers were shopping less. Because people weren’t going to the doctor, they filled fewer new prescriptions. As a result, operating income in the retail and long-term care segment fell 39.8% to $1.1 billion. Revenues increased slightly by 1%.

Meanwhile, in the pharmacy services segment, which provides pharmacy benefit management services to employers and health plans, COVID-19 lowered operating income by $50 million because of higher costs and fewer new therapy prescriptions. Still, the PBM reported operating income of $1.3 billion, an increase of 6.2%, driven by growth in specialty pharmacy and “improved purchasing economics,” according to the company. Revenues in that business were flat.

CVS has been a major player in COVID-19 testing. During a quarterly earnings call on Wednesday, CVS CEO Larry Merlo said the company now offers community coronavirus testing sites at 1,800 drive thru locations across the country. Through the end of July, CVS administered about 2 million COVID tests.

CVS also recently launched a program to help employers transition workers back to the office safely through onsite symptom checking, temperature and testing. The company said 40 employers have enrolled in the program and there’s a pipeline of 1,000 more.

The company is gearing up for the flu season. Merlo said he expects the company to administer 18 million flu vaccines in the fall, which is “more than what we have administered in the last few years.”

Source: modernhealthcare.com

Tags: covid-19, pandemic

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