CVS' bottom line sags after Aetna takeover
CVS Health reported fourth-quarter and full-year 2018 earnings on Wednesday—the first period with some contribution from its newly acquired health insurer Aetna.
While a federal judge previously had warned the companies to stay apart until he gave final approval to the merger, CVS' financial report shows the two companies, which officially closed their merger on Nov. 28, are very much together.
In a statement, CVS CEO Larry Merlo said "2018 was a milestone year for CVS Health as we successfully completed our transformational merger with Aetna, began effective implementation of our integration strategy, and took important steps toward building the integrated healthcare model that will bring substantial value to our various stakeholders."
Compared with the year-ago periods, CVS's revenue rose 12.5% to $54.4 billion in the three months ended Dec. 31 and 5.3% to 194.6 billion for the year. The revenue increase was driven by a rise in pharmacy claims in its pharmacy benefit management business, higher prescription volume in CVS' retail pharmacies, and the addition of Aetna's business.
But CVS' bottom line sagged: It reported a net loss of $421 million in the fourth quarter and $596 million for the full year 2018, driven by goodwill impairment charges in its long-term care business, Omnicare, as well as an increase in interest expense from financing the Aetna deal. To contrast, CVS' fourth-quarter 2017 net income totaled $3.3 billion, while it's full-year 2017 net income was $6.6 billion.
Revenue in the PBM segment rose 2.2% in the fourth quarter as CVS experienced more pharmacy claims, although the increase was partially offset by "client pricing pressures." More prescription fills and inflating branded drug prices boosted revenue in the retail pharmacy and long-term care segment by 5.4% in the fourth quarter, despite CVS dispensing more generic drugs.
CVS said its total prescription volume grew 8.6% in the fourth quarter of 2018 compared with the year-ago period.
Meanwhile, CVS reported Aetna's results as a stand-alone business with revenue of $5.5 billion and operating income of $276 million from Nov. 28 to year-end. Aetna maintained membership of 22.1 million, on par with its third-quarter results and down slightly from 22.2 million in the fourth quarter of 2017.
At the J.P. Morgan Healthcare Conference in January, Merlo said CVS expects to see benefits from its acquisition of Aetna start to accrue in the first quarter of this year. Merlo said the combined company would benefit in the first half of the year by fetching "the most effective prices" on goods and services thanks to a newly combined purchasing organization. He also said CVS expected to see medical cost savings from the combination by the end of 2019.
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