(Bloomberg) -- CVS Health Corp. edged up its 2022 profit forecast as its insurance unit helped the health-care company beat analysts’ expectations for third-quarter profit and the company reached a $5 billion settlement for litigation over its alleged involvement in the opioid crisis.  

Adjusted earnings for the year will be $8.55 to $8.65 a share, up from an earlier forecast range of $8.40 to $8.60, CVS said Wednesday in a statement, and cash flow from operations will top out as high as $14.5 billion, up from as much as $13.5 billion. The shares rose as much 5.1% as of 1:50 pm in New York, the most intraday in three months, after falling 8.3% this year through Tuesday’s close.

Chief Executive Officer Karen Lynch is pushing CVS further beyond its roots as a drugstore chain into primary care and insurance, and the challenge has become getting all the company’s units to perform in increasingly complex and competitive markets. Lower Medicare star ratings that help determine reimbursement from the US health-care program from the elderly along with the impending loss of a pharmacy benefits contract from Centene Corp. will hurt 2024 revenue, the company said. 

The combined impact of the lost stars and PBM contract will be approximately $2 billion in 2024 “on an unmitigated basis,” CVS Chief Financial Officer Shawn Guertin said on the call. The company plans to repurchase shares to “address our 2024 earnings headwinds,” he said. 

While the company did modestly better than expectations across each of the units, the outlook for the years beyond is “in question, given all the moving pieces,” according to Bloomberg Intelligence analyst Jonathan Palmer.

Among Lynch’s moves to widen CVS’s scope is a September agreement to buy home-health and technology services provider Signify Health Inc. for about $8 billion. Also, Bloomberg reported a month ago that CVS was in exclusive talks to buy Cano Health Inc., which operates primary care facilities and supports medical practices. 

“We are still evaluating our options on primary care,” Lynch said in a telephone interview, declining to comment on any potential deals. “It’s important that we get the right asset at the right time.” 

CVS’s health-insurance business recorded quarterly sales of $22.5 billion, a 9.9% increase from the year earlier. The medical benefit ratio, the percentage of premiums devoted to patient care, decreased from a year ago, suggesting the business became more profitable. 

Actions in Place

However, a national plan within CVS’s Aetna unit with more than 1.9 million members was rated at 3.5 out of 5 stars on Medicare’s quality scale for 2023, down from a previous rating of 4.5 given last year.  The company is disappointed about the drop, Lynch said on the call, and improving the rating is a top priority. 

“We have the right actions in place to improve our star rating with our ongoing quality and experience efforts,” she said.

Despite falling demand of Covid-19 diagnostic testing and vaccinations, the chain’s retail sales were boosted by more people coming into stores for prescriptions and over-the-counter Covid test kits. Pharmacy sales were driven by increased pharmacy claims volume, and growth in specialty pharmacy and brand inflation.

Profit for the quarter was $2.09 a share, handily beating analysts’ average estimate of $1.99. Revenue for the period was $81.2 billion; Wall Street had expected $76.8 billion.

CVS agreed in principle to pay $5 billion over the next 10 years beginning in 2023 as part of a settlement over its alleged failure to properly monitor prescriptions of opioid painkillers, according to a separate statement. The pharmacy chain is one of a group of companies that faced almost 4,000 opioid lawsuits filed by states, local governments and Native American tribes involving the drugs that have been blamed for thousands of US deaths. The company didn’t admit liability or wrongdoing.

The settlement “will help put a decade’s old issue behind us as we continue to focus on delivering a superior health experience for the millions of consumers who rely on us,” Lynch said.

 

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