CVS expecting $2B revenue hit from star ratings decline, loss of Centene pharmacy contract 

CVS Health executives told investors Nov. 2 the company is expecting a $2 billion decline in 2024 revenues because of its lower Medicare Advantage star ratings in 2023 and the loss of its pharmacy benefits contract with Centene.

"That would leave a headwind of about $1 billion or $0.55 a share for 2024," CFO Shawn Guertin said. "The amount of repurchases required to combat that headwind could be up to $10 billion."

Average CMS star ratings saw a decline industry-wide, but now payers are facing lower revenues in 2024 after missing out on federal bonuses tied to the quality ratings. For 2023, CVS' plans fell to 3.5 stars after sitting at 4 stars for a decade.

"Our intent is to mitigate some of the financial impact of lower Star Ratings in 2024 through our ongoing contract diversification efforts, combined with a variety of operational initiatives as we work to find additional efficiencies," CEO Karen Lynch said.

CMS awards financial bonuses to plans that earn four stars or above. In 2022, CVS received $1.2 billion in bonuses, according to a KFF analysis.

On Oct. 25, Centene awarded a $35 billion PBM contract to Cigna for 2024, thereby dropping CVS Caremark.

"While we hope to continue our relationship with Centene and bid to do so, we also maintained our pricing discipline," CEO Karen Lynch said. "For the remainder of the contract, we will work with Centene to facilitate a seamless transition for members."

In the third quarter, CVS boosted year over year revenues by 10 percent and expects adjusted EPS to rise to $8.55-$8.65.

"We delivered another outstanding quarter, and have raised full-year guidance as a result. We continue to execute on our strategy with a focus on expanding capabilities in health care delivery, and the announced acquisition of Signify Health will further strengthen our engagement with consumers," Ms. Lynch said.

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