CVS Health's Q4 2024: Unraveling Contradictions in Medicare Advantage Membership and CostVantage Strategies

These are the key contradictions discussed in CVS Health's latest 2024Q4 earnings call, specifically including: Medicare Advantage membership expectations, pharmacy trends and CostVantage implementation, CostVantage implementation and timing, and Medicare Advantage margin expectations:



Revenue and Earnings Performance:
- CVS Health reported fourth quarter adjusted operating income of $2.7 billion with revenue of nearly $98 billion, an increase of over 4% over the prior year quarter.
- The growth was driven by strong performance across multiple lines of business, including healthcare benefits and pharmacy services.

Medicare Advantage Challenges and Recovery:
- CVS Health's healthcare benefits segment experienced elevated medical trends, particularly in Medicare Advantage, with a medical benefit ratio of 94.8%, up by 630 basis points from the prior year.
- This was attributed to higher utilization, the premium impact of lower star ratings, and increased acuity in Medicaid, but the company expects improvement through operational enhancements and rate advocacy efforts.

Aetna Financial Recovery:
- The company announced initial full year 2025 guidance for adjusted EPS in the range of $5.75 to $6.00, indicating expectations of meaningful recovery in the Aetna business, especially in Medicare Advantage.
- This recovery is expected due to improved star ratings, disciplined benefit plan design, and strategic focus on returning the business to target margins.

Pharmacy Reimbursement Model Transformation:
- CVS Pharmacy achieved full adoption of the CostVantage model across its commercial scripts, aligning reimbursement with acquisition costs.
- The transition aims to increase transparency, simplify pricing models, and enhance long-term financial stability, though there may be initial costs in the first year of implementation.