A sharp rise in Medicare Advantage members’ use of the healthcare system put a big dent in CVS Health Corp.’s first-quarter results, leading the company’s leaders to significantly lower their 2024 forecast.

CVS’ healthcare delivery portfolio, which features recent acquisitions Oak Street Health and Signify Health, was a relative bright spot in the quarter—but also couldn’t avoid the impact of higher MA utilization. The medical benefits ratio in the company’s Aetna insurance division popped to 90.4 percent from 84.6 percent in early 2023 and the company’s total medical costs for the first three months of this year came in about $900 million above expectations. Executives expect around $400 million of those expenses will persist in each remaining quarter of 2024 as insurance plan members continue to tap their benefits.

In all, President and CEO Karen Lynch and her team lowered their full-year outlook for Rhode Island-based CVS’ adjusted operating profits by more than $2.1 billion to at least $14.75 billion. Lynch told analysts on a May 1 conference call that plan members’ use of outpatient services and supplemental benefits topped CVS’ projections—extending a trend that began late last year—while inpatient and pharmacy emerged as new pressure points for the company. CVS leaders are ramping up cost-savings efforts in response and pledged to put profitability over insurance plan membership growth.

“We are implementing these actions with speed and urgency, utilizing the broad resources and experience across CVS Health,” Lynch said, adding that April appeared to bring some moderation in inpatient authorizations and admissions. “We have a track record of successfully navigating complex industry pressure, and we’ll continue to demonstrate our resilience.”

CVS executives also have lowered their operating profit forecasts for the company’s healthcare services division by $400 million, a figure CFO Tom Cowhey said is mainly attributable to its accountable care business but which also accounts for “some modest utilization pressure at Oak Street” from Medicare Advantage members. Cowhey noted that Oak Street’s primary-care clinics had a “reasonably good” quarter as it looks to connect its business to more Aetna members.

The other side of the dynamics CVS is facing showed up in the recent Q1 reports from hospital and surgery center owners HCA Healthcare Inc. and Tenet Healthcare Corp. The leaders of both companies, which combined run about 240 hospitals and more than 2,900 other care sites, cited strong inpatient admissions growth as well as “favorable payer mix” as key to them putting up strong numbers to start 2024.

At Dallas-based Tenet, same-hospital inpatient admissions climbed 4.2 percent from early 2023 while revenue per adjusted admission popped 8.8 percent. The leaders of Nashville-based HCA, meanwhile, said inpatient revenue per admission rose 6.6 percent at hospitals it has owned for more than a year.

Not surprisingly, shares of CVS (Ticker: CVS) were pummeled on the big guidance reduction: After falling 17 percent on May 1, they were down another 3.5 percent to about $54.40 the day after. The fall has taken the stock to a five-year low and cut the company’s market value to about $68 billion.


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