(Reuters) -CVS Health Corp on Wednesday cut its 2024 profit forecast for at least the fourth time due to persistently high medical costs in its business that provides government-backed insurance plans, sending its shares 4% lower before the bell.
The healthcare conglomerate also recorded a sharp decline in its second-quarter profit. It announced a multi-year plan to save $2 billion in costs.
The company’s Aetna insurance unit, along with peers, has been struggling with elevated medical costs since late last year, as older adults catch up on delayed procedures, and lower-than-expected payments from the government for managing healthcare hurt its margins.
CVS said Brian Kane, chief of the health care benefits unit that runs Aetna, is leaving the company effective immediately. Karen Lynch, who was president of Aetna before becoming CVS’s CEO, will assume direct leadership of the unit.
Lynch and CFO Tom Cowhey will oversee the day-to-day management of this business.
CVS’ adjusted profit dropped to $1.83 per share in the quarter ended June 30, from $2.21 a year earlier, but was still ahead of LSEG estimates by 10 cents. The estimates have come down sharply in the past month.
The company’s healthcare benefit ratio – the percentage of premiums spent on medical care – also rose more than 3 percentage points to 89.6%, but was still lower than estimates of 90.5%.
Aetna also offers Medicaid plans for lower income people, where costs have also been high due to sicker patients gaining coverage.
CVS cut its annual profit forecast to a range of $6.40 to $6.65 from at least $7.00 earlier, marking at least its fourth cut of the outlook.
The company recorded total quarterly revenue of $91.2 billion, missing analysts’ estimates of $91.5 billion.
(Reporting by Sriparna Roy and Leroy Leo in Bengaluru; Editing by Shailesh Kuber)
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