CVS Health surpasses expectations in Q4, reaffirms 2022 outlook

CVS Health posted fourth-quarter revenues of $76.6 billion and reported a net income decrease of 11.7% for the quarter and 5.2% for the year.

Sandra Levy

2/9/2022

CVS Health’s fourth-quarter 2021 results brought increased revenue.

The Woonsocket, R.I.-based company saw fourth-quarter revenues of $76.6 billion. GAAP diluted earnings per share for the quarter was .98 cents and adjusted EPS was $1.98. The full-year revenue, which increased to $292.1 billion, represents year-over-year growth of 8.7%.

For the three months and year ended Dec. 31, 2021, total revenues increased 10.1% and 8.7%, respectively, which CVS Health said was driven by growth across all segments.

“We’re engaging millions of customers across our businesses and in our community health destinations, becoming an even bigger part of their everyday health. That’s clearly reflected in our performance, but more importantly in our potential,” Karen Lynch, CVS Health president and CEO, said.

Net income decreased 11.7% for the quarter and 5.2% for the year, both of which ended Dec. 31, 2021. The company attributed the decrease to a store impairment charge of approximately $1.4 billion recorded in the fourth quarter of 2021 related to the write-down of operating lease right-of-use assets and property and equipment in connection with planned retail store closures over the next three years, as well as the absence of pre-tax income of $307 million associated with the receipt of amounts owed to the company under the ACA risk corridor program during the fourth quarter of 2020.

CVS Health said the decrease in operating income for the year also was driven by a $431 million goodwill impairment charge associated with the long-term care business in the retail and long-term care segment recorded during the third quarter. The decreases in both periods were partially offset by the increases in adjusted operating income and lower acquisition-related integration costs compared to the prior year.

In the pharmacy services segment, revenue increased 8.2% and 7.8% for the quarter and full year, respectively, compared to the prior year. The company said this growth was driven by increased pharmacy claims volume and growth in specialty pharmacy and brand inflation, and also was partially offset by continued price compression, the company said.

In addition, operating income in the segment increased 16.8% and 20.6% for the quarter and year, respectively, compared to the prior year. The increase was driven by improved purchasing economics which reflected increased contributions from the products and services of the company’s group purchasing organization and specialty pharmacy. This included pharmacy and/or administrative services for providers and 340 B-covered entities, and was partially offset by continued price compression.

Total pharmacy claims processed increased 8.2% and 6.2%, on a 30-day equivalent basis, for the three months and year, respectively, compared to the prior year. These increases were driven by net new business and COVID-19 vaccinations, as well as increased new therapy prescriptions, which were adversely impacted by the COVID-19 pandemic during the quarter and year.

Excluding the impact of COVID-19 vaccinations, total pharmacy claims processed increased 5.4% and 4.2%, on a 30-day equivalent basis, for the quarter and year, respectively, compared to the prior year.

In CVS Health’s retail/LTC segment, revenues increased 12.7% and 9.8% for the quarter and the year, respectively, compared to the prior year. These increases were driven by increased prescription and front store volume, the administration of COVID-19 vaccinations and diagnostic testing, as well as brand inflation, the company said.

Increases also were partially offset by continued pharmacy reimbursement pressure and the impact of recent generic introductions. COVID-19 vaccinations, diagnostic testing and over-the-counter test kit sales contributed approximately 40% and 45% of the increase in the segment’s revenues for the three months and year, respectively, compared to the prior year.

The prior year reflected the ongoing expansion of the company’s diagnostic testing program which began in April 2020, an immaterial impact from COVID-19 vaccinations which began in December 2020 and did not include over-the-counter test kit sales.

The company’s retail/LTC segment's operating income increased 38.4% and 24.0% for the quarter and year, respectively, compared to the prior year. The increases were driven by the administration of COVID-19 vaccinations, the increased prescription and front store volume, improved generic drug purchasing, as well as gains from anti-trust legal settlements of $106 million and $231 million recorded in the quarter and year, respectively.

The increase in adjusted operating income in the year also was driven by the administration of diagnostic testing. These increases were partially offset by continued pharmacy reimbursement pressure and increased investments in the segment’s capabilities and colleague compensation and benefits. COVID-19 vaccinations, diagnostic testing and OTC test kit sales contributed approximately 35% and 30% of the segment’s adjusted operating income for the quarter and year, respectively, the company said.

With the healthcare benefits segment, revenues increased 8.4% and 8.9% for the quarter and year respectfully, compared to the prior year. Increases were attributed the increases to growth in the government services business, which was driven by lower COVID-19 related investments compared to the prior year, as well as partially offset by the unfavorable impact of the repeal of the HIF for 2021 and the absence of the ACA risk corridor receipt.

The healthcare benefits segment's operating income increased $357 million for the quarter compared to the prior year. The company attributed the increase to lower COVID-19 related investments and improved underlying performance. This was partially offset by higher medical costs related to COVID-19 in the quarter, compared to the prior year.

The healthcare benefits segment's adjusted operating income decreased 19.% for the year compared to the prior year. The decrease was primarily driven by the net impact of the COVID-19 pandemic, which reflected higher COVID-19 related costs in the year compared to the prior year, including the impact of the deferral of elective procedures and other discretionary utilization in response to the COVID-19 pandemic during the year. The decrease was partially offset by improved performance in the underlying government services business and higher favorable development of prior-years’ healthcare cost estimates in the year, compared to the prior year, the company said.

CVS Health confirmed its full-year outlook for 2022, in which it expects adjusted EPS of between $8.10 and $8.30 for the full year, and cash flow from operations is expected to be between $12 billion and $13 billion.

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