Early on Friday, CVS Health Corp.’s stock dropped 10.5% after the healthcare company said it was changing its leadership and lowering its outlook for the fourth time this year. The company said this was because of problems in its health benefits business.
CVS -6.08%, based in Woonsocket, Rhode Island, named longtime leader David Joyner as its new CEO. Joyner will take over for Karen Lynch, who is leaving the company. The company said that current Chairman Roger Farah will become executive chair, which backs up a story that came out in the Wall Street Journal.
CVS also said that it expected adjusted EPS of $1.05 to $1.10 and GAAP EPS of 3 cents to 8 cents per share for the third quarter. FactSet says it should be $1.69, so that’s a lot less than that. On Nov. 6, the business is set to report its earnings.
This year, CVS has cut its forecast several times, which has caused the stock to drop 19% so far and caught the attention of the hedge fund Glenview Capital. As the board looked over its plan, the idea of breaking up the company was brought up.
A charge of $1.1 billion, or 63 cents, is included in the most recent guidance for premium deficiency reserves, or PDRs. These are mostly linked to the company’s Medicare and Individual Exchange businesses in the healthcare benefits segment. The company is taking back the advice it gave on August 7.
“In the third quarter of 2024, the company continued to see medical cost trends that were higher than what it had expected,” the company said in a statement.
The statement said that the Medical Benefit Ratio, also known as the medical loss ratio, for the third quarter is likely to be about 95.2%. This includes a 220 basis point effect from the PDRs.
To become a one-stop health center, CVS Health Corp. has spent billions of dollars on acquisitions over the past 20 years. In 2007, it bought pharmacy benefits manager Caremark Rx. In 2018, it bought health insurance giant Aetna. And last year, it bought Oak Street Health and Signify Health.
However, drugstores are having a hard time because of increased competition, and the Federal Trade Commission is currently cracking down on PBMs. These companies handle plans and help decide who can get what prescriptions and how much they cost.
CVS is also having a hard time with its Medicare health insurance business because medical costs are going up and the federal government is changing how businesses bill for services.
The news comes a day after Elevance Health Inc.’s ELV -2.74% third-quarter profit fell short of expectations due to “unprecedented” problems in the Medicaid business, which were caused by changes in coverage and footprint in some states. States use the redetermination process to make sure that people who are on Medicaid can still get care.
Joyner was head of CVS Caremark and executive vice president of CVS Health before that. The manager has 37 years of experience in the PBM and healthcare business, and they have been on the boards of several healthcare companies backed by private equity.
“The board thinks now is the right time to make a change, and we are sure that David is the right person to lead our company for the good of all stakeholders,” Farah said in prepared remarks. “This includes customers, employees, patients, and shareholders.”
