By Sriparna Roy and Leroy Leo
(Reuters) -CVS Health lowered its adjusted profit forecast for 2024 on Wednesday after an increase in medical procedures among older adults in the United States fueled costs in its insurance business in the fourth quarter.
The company beat Wall Street estimates for fourth-quarter profit, however, on strength in its drugstores and its pharmacy benefits management (PBM) unit, which negotiates drug prices between insurers and manufacturers. Its shares rose over 3% to $76.26 in morning trading.
The healthcare conglomerate, like rival Humana (NYSE:HUM) earlier, cited a late-year rise in medical care due to outpatient procedures among those enrolled in Medicare Advantage plans. Under those plans, the government pays insurers to manage healthcare for people 65 and older, or those with disabilities.
A rise in hip and knee surgeries, medical services related to the eyes, dental work and vaccinations including the RSV shot, drove up costs in CVS's Aetna Medicare Advantage plans, Chief Financial Officer Thomas Cowhey said in a conference call with analysts.
The CVS unit that houses Aetna recorded a medical benefit ratio - the percentage of premiums spent on medical care - of 88.5% in the fourth quarter ended Dec. 31, from 85.8% a year ago.
Last month, Humana cut its 2024 and 2025 profit forecasts because of increased costs. CVS's stock has fallen about 4% since then, up to the last close.
CEO Karen Lynch said the company was taking a "cautious stance" in the forecast until there was clarity on these industry-wide trends.
Investors might be relieved that CVS's 2024 outlook was trimmed rather than cut substantially like Humana's, said Morningstar analyst Julie Utterback. She said this was probably because CVS was more diversified than Medicare-focused Humana.
The new forecast of at least $8.30 per share, from at least $8.50 per share it had forecast in December, factors in the potential for medical costs being elevated in 2024, CVS said.
The company is targeting low double-digit percentage growth in adjusted earnings per share in 2025 over its updated 2024 forecast.
It earned $2.12 per share on an adjusted basis in the fourth quarter, beating Wall Street estimates of $1.99 per share.