By Leroy Leo and Mariam Sunny
(Reuters) -CVS Health Corp tempered its forecast for 2024 earnings on Wednesday to account for potentially higher medical costs at its insurance unit as older adults increasingly avail healthcare services deferred during the pandemic, sending its shares down 3%.
The company said investors should focus on the lower half of its 2024 earnings forecast of $8.50-$8.70 per share made in August as it was uncertain about utilization of services by members of government-supported Medicare insurance plans.
Mizuho analyst Ann Hynes said this was the third time the company had cut its 2024 forecast, disappointing Wall Street.
The healthcare conglomerate, which also operates insurance business Aetna, also reiterated its 2023 adjusted earnings per share forecast of $8.50 to $8.70 due to uncertainty over medical costs.
Rival Humana (NYSE:HUM) on Wednesday reported a better-than-expected performance in its government-backed insurance plan but kept its forecast unchanged.
CVS' health insurance business reported better-than-expected premiums of $24.66 billion in the third quarter, but its medical costs were high, reflecting the increased utilization of services under government-supported plans for older adults seen across the industry this year.
CVS' medical benefit ratio, or the percentage of claims paid compared to premiums collected, was 85.7% in the third quarter, compared with analysts' estimates of 85.1%, according to LSEG data.
The company's third-quarter profit of $2.21 per share beat Wall Street estimates of $2.13 per share on strength in its drugstores and pharmacy benefit management (PBM) business.
CVS operates one of the largest U.S. PBMs, CVS Caremark, which negotiates drug prices between insurers and manufacturers.
Revenue at its health services business, under which CVS operates the PBM, rose 8% to $46.89 billion, partly driven by growth in specialty pharmacy and higher prices of branded drugs.
PBMs have come under heightened scrutiny over their role in surging healthcare costs in the United States, with several bills in the works that would require them to make their business dealings public. The Federal Trade Commission is also investigating their practices.
CVS' pharmacy and consumer wellness segment recorded 6% revenue growth to $28.87 billion, boosted by higher drug prices and prescription volume.
The earnings come on the final day of a three-day walkout dubbed "Pharmageddon" by some CVS and Walgreens pharmacy staff over "grossly understaffed" stores.