CVS Health's pandemic strategy pays off as Q4, full-year results beat expectations
Amid the pandemic, CVS Health’s fourth-quarter and full year results brought increased revenue. The Woonsocket, R.I.-based company saw fourth-quarter revenues of $69.5 billion and $1.30 in earnings per share. The full-year revenue increased to $268.7 billion, which represents year-over-year growth of 4.6%.
Net income decreased 44.1% for the quarter. The company attributed the decrease primarily to lower operating income and a loss on early extinguishment of debt of $674 million in the quarter, which was partially offset by lower income tax expense primarily driven by the decrease in pre-tax income.
Net income increased 8.5% for the year compared to the prior year which the company said was primarily due to the higher operating income and lower interest expense primarily due to lower average debt in 2020. This was partially offset by an increase in the loss on early extinguishment of debt to $1.4 billion in 2020, compared to $79 million in 2019 and higher income tax expense primarily driven by the increase in pre-tax income.
“The COVID-19 pandemic presented unique challenges to our business and to the entire health care industry,” said CVS Health president and CEO Karen Lynch. “We utilized the full depth and breadth of our capabilities and our presence in local communities across the country, to play a leadership role in COVID-19 testing and vaccine administration. Our ability to deliver 2020 full-year results above expectations is a testament to the strength of our strategy and the flexibility of our diversified health services model.
Lynch continued, “We are proud to be a trusted health partner to more than 100 million customers through our Pharmacy and Health Care businesses and to be able to support millions of Americans in our local communities, many in underserved and remote areas."
Revenue from CVS Health’s retail/long-term care increased by 6.6% in the quarter and 5.3% for the year compared with the prior year. CVS Health said this growth was primarily driven by increased prescription volume, COVID-19 diagnostic testing and brand inflation, and was partially offset by continued reimbursement pressure and the impact of recent generic introductions.
Front-store revenues decreased 1.6% for the quarter year over year, primarily due to decreased customer traffic and reduced volume in cough and cold product sales largely as a result of the COVID-19 pandemic. Front-store revenues increased 1.2% for the year compared with the prior year, which CVS Health said was primarily due to increases in consumer health and general merchandise sales.
Total prescription volume grew 2% and 3.4%, on a 30-day equivalent basis, for the quarter and full year, respectively, compared with the prior year. The company attributed the increases primarily to the continued adoption of patient care programs. The increase was partially offset by reduced new therapy prescriptions, including lower seasonal flu prescriptions, as a result of the COVID-19 pandemic as well as decreased long-term care prescription volume, CVS Health noted.
Lynch said the company is grateful for the dedication of its nearly 300,000 colleagues, many serving on the frontlines, who demonstrated an unwavering commitment to our fellow Americans. "Our goal is to make health care more accessible, more affordable and simpler. In order to do this, we will accelerate the pace of our progress through targeted investments in key areas that will drive our consumer-focused strategy. We believe that solving consumer health needs will deliver better health outcomes and lower costs while creating future economic benefit for CVS Health and its shareholders,” she said.
Revenues from the pharmacy services segment decreased 1.9% for the quarter, over the prior year primarily driven by continued price compression and changes in net new business mix. This was partially offset by growth in specialty pharmacy and brand inflation. Total revenues in the segment increased 0.3% for the year, primarily driven by growth in specialty pharmacy and brand inflation. This was partially offset by continued price compression and changes in net new business mix, according to CVS Health.
Total pharmacy claims processed increased 0.7% and 4.9%, on a 30-day equivalent basis, for the three months and year, respectively, compared with the prior periods, primarily driven by net new business.
The pharmacy services segment's operating income and adjusted operating income increased 11.6% and 7.9%, respectively, for the quarter. Operating income and adjusted operating income increased 15.2% and 10.9%, respectively, for the year, compared with a year ago. The increase in operating income and adjusted operating income in both periods was primarily driven by improved purchasing economics and growth in specialty pharmacy, partially offset by continued price compression. The increase in operating income in both periods also was driven by lower amortization expense in the three months and year, CVS Health said.
Revenues from the health care benefits segment increased 11.4% and 8.4% year over year for the three months and year, respectively, primarily driven by membership growth in the Health Care Benefits segment’s Government products, the favorable impact of the reinstatement of the HIF for 2020 and the receipt of $313 million owed to the company under the ACA’s risk corridor program. These increases were partially offset by the divestitures of Aetna’s standalone Medicare Part D prescription drug plans (which the company retained the financial results of through 2019) and Workers’ Compensation business, membership declines in the segment’s Commercial products and planned COVID-19 related investments benefiting customers in the three months and year ended Dec. 31, 2020.
The health care benefits segment’s operating income and adjusted operating income decreased 85.5% for the quarter and 80.4% for year, compared with the prior year. The decrease in both operating income and adjusted operating income was primarily driven by COVID-19 related investments, testing and treatment costs, as well as the divestitures of Aetna’s standalone Medicare Part D prescription drug plans and Workers’ Compensation business. Operating income also includes pre-tax income of $307 million associated with the receipt of amounts owed to the company under the ACA’s risk corridor program in the quarter.
Operating income and adjusted operating income from the health care benefits segment increased 42.0% and 19.0%, respectively, for the year, compared to the prior year. The increases were primarily driven by the impact of the COVID-19 pandemic, partially offset by the divestitures of Aetna’s standalone PDPs and Workers’ Compensation business. The COVID-19 pandemic resulted in reduced benefit costs due to the deferral of elective procedures and other discretionary utilization, partially offset by COVID-19 related investments, testing and treatment costs. Operating income also includes pre-tax income of $307 million associated with the receipt of amounts owed to the Company under the ACA’s risk corridor program and the $269 million pre-tax gain on the sale of the Workers’ Compensation business in the year ended Dec, 31, 2020.
CVS Health’s full-year 2021 GAAP diluted EPS from continuing operations is projected to be in the range of $6.06 to $6.22, and full year 2021 Adjusted EPS is projected to be in the range of $7.39 to $7.55. The company’s full year 2021 cash flow from operations is projected to be in the range of $12 billion to $12.5 billion