By Leroy Leo and Nandhini Srinivasan
(Reuters) -CVS Health Corp on Wednesday forecast a 2023 profit below Wall Street estimates and said it hoped to mitigate the hit from a performance rating decline for its most popular Medicare plan by encouraging members to shift to other plans.
The company also announced it agreed to pay about $5 billion over 10 years to resolve thousands of lawsuits accusing its pharmacy chain of mishandling opioid painkillers. CVS took a pre-tax charge of $5.2 billion in the third quarter related to the settlement.
The settlement price, which was below investor expectations, according to Evercore ISI analyst Elizabeth Anderson, and other measures announced by the company helped lift CVS Health shares nearly 5%.
In its insurance business, CVS said it is trying to move members out of Aetna's National PPO plan, which currently accounts for 59% of its Medicare Advantage plan members.
"We do recognize that we've had a concentration of members in one contract. That's largely a result of our own success in using that high-quality popular contract for expansion efforts," Daniel Finke, president of CVS' Aetna unit, said on a conference call with analysts. He said the company was working on "contract diversification."
CVS' largest health insurance plan for Medicare recipients received a lower performance rating from the U.S. Centers for Medicare and Medicaid Services, which in turn could affect payments from the government for 2024, the company said last month.
CVS said the ratings decline and its loss of Centene's pharmacy benefit management (PBM) contract is expected to reduce 2024 revenue by $2 billion, although that figure could come down with company mitigation strategies.
The diversified healthcare company said it is considering "strategic alternatives" for its Omnicare long-term care business, after last month announcing it will sell its bswift insurance software developer.
The company recorded a $2.5 billion charge related to Omnicare in the quarter.
CVS said it will repurchase shares to meet the 2024 earnings target it set last year.
"At our current valuation, an M&A deal is likely less accretive than share repurchase," said Chief Financial Officer Shawn Guertin, while leaving open the door to deals.
CVS forecast adjusted 2023 earnings of $8.70 to $8.90 per share, below Wall Street expectations of $9.06, according to Refinitiv data.
"While financial engineering is not the strongest way to meet its previously laid out plans, CVS shareholders will likely appreciate that double-digit earnings growth ... is still possible in 2024 and beyond," Morningstar analyst Julie Utterback said in a note.
CVS raised its 2022 profit forecast to $8.55 to $8.65 per share from it prior outlook of $8.40 to $8.60 on the strong performance of its health insurance and PBM business.
CVS' health insurance business as well as peers Elevance Health and UnitedHealth have benefited from a slow recovery in elective procedures and a fall in COVID cases that has kept costs in check.
(Reporting by Leroy Leo and Nandhini Srinivasan in Bengaluru;Editing by Vinay Dwivedi and Bill Berkrot)