'Well positioned' for changes in health care, CVS Caremark delivers strong Q2

WOONSOCKET, R.I. — During Tuesday morning’s second-quarter conference call with analysts, CVS Caremark executives said they were pleased with the “strong” operating results enterprise-wide and expressed optimism looking ahead as it continues to position itself along the front lines of health care and leverage the upcoming changes under health reform.

“We are very pleased with our strong operating results enterprise-wide in the second quarter. Operating profit increased 15%, overall, with the PBM growing about 32%, and the retail business growing nearly 9%,” said Larry Merlo, president and CEO of CVS Caremark. “… Considering our strong operating results to date and all other factors affecting our outlook for the remainder of the year, we are narrowing our earnings guidance for 2013.”

Under its revised guidance, full-year adjusted EPS is expected to be between $3.90 and $3.96 compared with its previous range of $3.89 to $4.

For the second quarter, net revenues totaled increased 1.7%, or $534 million, to $31.2 billion. Income from continuing operations attributable to CVS Caremark increased 15.9% to $1.1 billion.

In looking at how its PBM business performed during the quarter ended June 30 and the 2014 selling season, Merlo told analysts that the PBM model continues to resonate well in the marketplace and the company is pleased with the results to date.

During the quarter, revenues in the PBM segment rose 2%, or $377 million.

For 2014, gross wins are $4.4 billion to date, while net new business stands at $1.7 billion. Merlo shared with analysts what clients have been focused on during the selling season: managing specialty spend across the pharmacy and medical benefits, and the upcoming changes due to health reform.

“As a result, we are seeing interest across our entire suite of specialty capabilities. … We believe our differentiated approach to specialty is driving lower overall costs while improving health and providing value for both payers and patients,” said Merlo, who noted that specialty revenues rose 19% during the quarter.

In addition to managing specialty costs, clients also are focused on the changes resulting from the Patient Protection and Affordable Care Act.

“We continue to believe that Medicaid expansion and individual, small group coverage in the public Exchanges will be a long-term secular growth trend resulting in a significant amount of new coverage for people who have previously been uninsured,” Merlo said.

While details around the Exchanges, such as plan designs and rates continue to emerge, Merlo said that the company is “well-positioned” given its retail footprint and existing relationships with health plans and managed Medicaid plans.

“We have had a lot of dialogue with health plans about collaborating with us on innovative programs that support their overall Exchange strategy and these discussions also encompass how they can partner with us across our retail touch points, while tapping into our direct-to-consumer marketing expertise to attract and retain members,” Merlo said. “We also discuss how MinuteClinic can support care management and wellness programs for the newly insured.”

“We believe all of the activity around the Exchanges will serve as a catalyst for broader collaboration opportunities with our health plans,” Merlo added.

Before shifting to its retail segment, Merlo provided an update on the sanctions imposed earlier this year by CMS on its SilverScript Medicare Part D prescription drug plan, which prevents the company from marketing SilverScript or enrolling new members.

As previously reported by Drug Store News, CVS Caremark is working to resolve service issues related to its SilverScript Medicare Part D prescription drug plan. Issues with SilverScript enrollment processing resulted from an enrollment system conversion and brought about an increase in call volume and issues related to claims processing, including, in some instances, not being able to have claims adjudicated at the pharmacy.

“We have revised our plan and expanded the timeline for remediation. Based on our latest estimate, we now expect our remediation efforts will be completed sometime near the end of the year,” Merlo told analysts. “… Given this current timeline, we do not expect that we will be able to participate in the 2014 annual enrollment period when it begins in October. In addition, until the sanction is lifted, we do not expect to receive new auto-assigns from CMS for 2014 in the regions where we qualify.”

Retail

Revenues in the retail segment rose 1.9% during the quarter. Same-store sales increased 0.4% with pharmacy same-store sales increasing 0.8%. However, it was the 0.4% dip in front-end same-store sales that caught much of the attention.

Merlo did indicate that the shift in the Easter holiday negatively impacted (by 65 basis points) the front end, and noted that front-store margins “expanded nicely in the quarter.” The company also is increasingly focusing on personalization to drive more profitable sales.

“We continue to focus on driving more profitable sales through the targeted promotions we offer to ExtraCare card holders, and we are focused on increased personalization to accomplish this,” Merlo said. He added that the company continues to expand its personalized offers that are delivered at the point of sale. In fact, in the second quarter alone, the company issued more than 3 billion of such offers. The company also has significantly expanded its personalized offers that are delivered via email.

MinuteClinic

Once again, its MinuteClinic reported impressive revenue growth with sales up 32% compared with the year-ago period.

The company ended the quarter with 684 clinics in 25 states and District of Columbia. Expansion plans call for the opening of 150 clinics this year, and to end 2013 with nearly 800 clinics with about 30% expansion in new markets.

“Our long-term goal is to create a national, primary care platform to provide integrated, high-quality care that is convenient, accessible and affordable, and new services will continue to be developed to address the shortage of primary care physicians and to support patients impacted by the epidemic of chronic disease,” Merlo said.

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