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CVS Health on Wednesday reported that it’s been hit hard by higher medical costs. It led the company to slash its full-year profit outlook.
First-quarter revenue and adjusted earnings also fell short of Wall Street expectations, and shares $CVS of the healthcare giant plummeted by about 17% on Wednesday, its biggest drop in 15 years.
CVS’ Medicare Advantage business, in which the company sells insurance plans for Americans 65 and up through its insurance arm Aetna, was hit especially hard by the medical costs. Aetna’s medical-loss ratio, a measure of the percentage of premiums spent on medical care, was 90.4% in the first quarter, up from 84.6% a year ago.
For CVS, growing its Medicare Advantage business has been a priority since buying Aetna. The company brought on about half a million new members in 2024, pulling in a third of all new Medicare Advantage members as it looks to more directly compete with companies like UnitedHealthcare and Humana. However, it’s growing at a time when healthcare giants have been struggling with the difficulties of selling Medicare Advantage insurance plans over the past few quarters as federal regulators impose more hurdles, and more seniors use their health benefits.
“Put differently, this is already a precarious Medicare Advantage environment and CVS is the worst-positioned out of the major Medicare Advantage carriers near-term,” Leerink analyst Michael Cherny wrote in an analyst note.
Meanwhile, Oak Street Health, a primary care clinic chain CVS acquired for $10.6 billion last year, reported a 20% increase in patients over the same quarter last year with plans to add 50 to 60 more centers throughout the rest of this year. Oak Street’s expansion is a bright spot in retail health after Walmart announced Tuesday it will shut down all 51 of its clinics and stop offering virtual health care.