CVS Health delivers solid Q2 against pandemic headwinds

CVS Health managed solid growth in the second quarter, even as the COVID-19 pandemic affected store traffic and the number of prescriptions filled in the three months ended June 30. 

For the quarter, the Woonsocket, R.I.-based company posted revenues of $65.3 billion —an increase of 3% over the previous year. The company posted $3 billion in net income, an increase of 54.6% from the prior-year period, which the company attributed to higher operating income. This was partially offset by higher income tax expense associated with the increase in pre-tax income. The company’s GAAP diluted earnings per share for the quarter were $2.26, an increase from $1.49 in the prior year. 

“We’re a health innovation company that is built to meet the evolving needs of the millions we serve every day. That’s been made clear as we continue to navigate the health, social and economic impacts of COVID-19. Our earnings in this environment demonstrate the strength of our strategy and the power of our diversified business model,” CVS Health president and CEO Larry Merlo said.

Revenues in the retail/LTC segment increased 1% to approximately $21.6 billion for the quarter. CVS Health said the increase was primarily due to pharmacy drug mix, growth in retail pharmacy prescription volume and brand inflation. These increases were partially offset by continued reimbursement pressure, the impact of recent generic introductions, decreased long-term care prescription volume and lower front-store revenues, according to the company.

Front-store revenues decreased 4.6% in the quarter compared to the prior year. CVS Health said the decrease was primarily due to reduced customer traffic in the segment’s retail pharmacies due to shelter-in-place orders in response to the COVID-19 pandemic. Similarly, prescriptions filled decreased 1.1% on a 30-day equivalent basis in the quarter compared to the prior year. The decrease was primarily driven by reduced new therapy prescriptions due to lower provider visits in the three months ended June 30 and decreased long-term care prescription volume. This decrease was partially offset by the continued adoption of patient care programs, CVS Health said.

CVS Health reported that the segment’s operating income and adjusted operating income decreased 39.8% and 36.7%, respectively, in the quarter compared to the prior year. The company attributed the decrease to the impact of the COVID-19 pandemic, which resulted in incremental operating expenses associated with the company’s COVID-19 pandemic response efforts, decreased front store volume and reduced new therapy prescriptions, as well as continued reimbursement pressure. These decreases were partially offset by improved generic drug purchasing in the quarter.

Revenues in the pharmacy services segment increased $47 million to approximately $35 billion in the quarter as growth in specialty pharmacy and brand inflation were largely offset by previously disclosed client losses and continued price compression, CVS Health said.

CVS Health noted that pharmacy network claims processed during Q2 increased 3.4% on a 30-day equivalent basis to 505.4 million, compared with 489 million in the same quarter of the prior year. The increase in pharmacy network claim volume was primarily due to new business, and was partially offset by reduced new therapy prescriptions due to lower provider visits in the three months ended June 30, 2020, the company said.

On a 30-day equivalent basis, mail choice claims processed during the quarter increased to 80.3 million, compared to 76.9 million in the same quarter of the prior year.

Looking forward, the company raised its full year 2020 GAAP diluted EPS guidance range to $5.59 to $5.72 from $5.47 to $5.60 and its full year 2020 Adjusted EPS guidance range to $7.14 to $7.27 from $7.04 to $7.17, reflecting an update to its estimated full year effective income tax rate.

The company said that it projects higher utilization in its Health Care Benefits segment in the second half of 2020 than in the first half of 2020 and continued significant COVID-19 related investments, including operating costs, in the remainder of the year.

“We have a strong foundation of clinical expertise, data analytics and digital capabilities, and unmatched consumer and community reach which has allowed us to rapidly bring our strategy to life at an unprecedented time," Merlo said. 'The environment surrounding COVID-19 is accelerating our transformation, giving us new opportunities to demonstrate the power of our integrated offerings and the ability to deliver care to consumers in the community, in the home and in the palm of their hand which has never been more important. We have stayed true to our purpose of helping people on their path to better health, and we remain focused on creating value for all our stakeholders.”