CVS details future of health care

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CVS details future of health care

By Gina Acosta - 11/06/2018
CVS expects to close its $69 billion purchase of Aetna at the end of this month.

CVS has revealed plans to pilot stores that prioritize treatment for five chronic conditions including diabetes, cardiovascular disease, hypertension, asthma and behavioral health.

Each unit also will expand the scope of services available at CVS MinuteClinics in an effort to reduce hospital admissions through the integration of Aetna’s clinical programs. More complex chronic conditions like kidney disease also will be managed onsite.

CVS made the announcement on the same day it reported an 8.2 percent rise in quarterly profit, helped by higher sales of prescription drugs at its stores and a smaller tax bill.

The company posted $47.3 billion in revenue and $1.73 in earnings per share during its third quarter and ahead of the expected close of its acquisition of Aetna. The revenue represents year-over-year growth of 2.4%, as its same-store prescriptions grew 9.2% and its pharmacy services segment claims increased 5.7% for the quarter ended Sept. 30.

Year-to-date, the company said it has generated $6.4 billion in cash flow from operations and free cash flow of roughly $4.9 billion.

CVS expects to close its $69 billion purchase of Aetna at the end of this month.

“Strong revenue and adjusted EPS, along with significant cash flow year-to-date, demonstrate our success in driving value,” said CVS Health president and CEO Larry Merlo. “Our year-to-date results continue to validate our confidence in the strength of our model. As we approach the closing of our transformative acquisition of Aetna, our integration teams are making great progress to assure that once final approvals are obtained, we can begin to execute on our integration plans.”

Net income for the quarter was $1.4 billion — up 8.2% ($105 million) year-over-year. CVS Health cited a $268 million decline in its income tax provision, offset by a decline in pre-tax income, as the primary driver of the increase. Its $163 million decrease in pre-tax income was attributed to the net interest expense on financing associated with the Aetna transaction.

Consolidated operating profit for the quarter declined $146 million, or roughly 5.8%, to $2.4 billion. The company said this was driven by a $64 million increase in costs related to the Aetna acquisition, as well as an increase in operated expenses from investing tax cut savings into wages and benefits, and an increase in operating expenses. Gross profit in its business segments helped offset the decline, the company said.

The company’s retail/long-term-care segment saw revenues increase 6.4% to $20.9 billion in the quarter. Much of this growth was attributed to same-store prescription growth, which increased 9.2% year-over-year on a 30-day equivalent basis. CVS Health cited adoption of its patient care programs, PBM and health plan alliances and inclusion in various Medicare Part D networks — as well as brand inflation — as the primary drivers, though they were offset slightly by reimbursement pressure.

Same-store sales increased 6.7%, with pharmacy same-store sales up 8.7% in the quarter. CVS Health noted that recent generic introductions had a negative impact of 190 basis points on growth. Its generic dispensing rate for the quarter was 87.3% in the retail/LTC segment, up roughly 10 basis points. Front-store sales increased 0.8% for the quarter, which CVS Health attributed to health and beauty care category sales.

Revenue for the quarter from its pharmacy service segment increased 2.6% year-over-year to $33.8 billion. The company said this growth was driven by pharmacy network and mail choice claim volume growth, as well as brand inflation — all offset by price compression. The company processed 394.5 million claims on a 30-day equivalent basis for the quarter, marking a 5.4% increase over the year-ago period. Mail choice claims increased 7.4% to 71.8 million on a 30-day equivalent basis. Generic dispensing rate for the segment increased 20 basis points to 87.2%.

Looking forward, CVS Health affirmed its standalone guidance, continuing to expect a decline in GAAP consolidated operating profit of between 39% and 41%, reflecting a Q2 goodwill impairment. It expects adjusted EPS of between $6.98 and $7.08 for the full-year. Its cash flow from operations is expected to be roughly $9 billion, with $7 billion in

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