CVS Health posts Q2 loss amid strong script volume growth
CVS Health has posted its second-quarter results for the three months ended June 30, bringing in revenues of $46.7 billion — an increase of 2.2% over the previous year. Despite being buoyed by same-store prescription growth of 9.5% in the retail/long-term care segment and 5.9% in its pharmacy services segment, the company still swung to a net loss of $2.6 billion, compared with $1.1 billion in net income in the prior-year period. The company ‘s earnings per share for the quarter, based on generally accepted accounting principles hit a $2.52 loss, compared with $1.07 earnings in the prior-year period with an adjusted EPS of $1.69 — up from $1.33 in the prior-year period.
“Our solid performance both in the quarter and year-to-date demonstrates our ability to drive value. It also builds upon a strong foundation for a seamless integration of CVS and Aetna with one goal: to transform the consumer health care experience and, by doing so, deliver long-term profitable growth for shareholders,” CVS Health president and CEO Larry Merlo said.
CVS Health said the net loss was largely the result of financing related to the Aetna acquisition. CVS Health noted that it also was due to a $3.9 billion consolidated operating loss that included an LTC impairment charge and $39 million in costs related to its proposed acquisition of Aetna.
“The strong revenue, adjusted EPS, gross and operating margins, along with cash flow generated in the quarter were the direct result of our team’s ability to increase prescription growth by expanding relationships with PBMs and health plans as well as our ongoing streamlining efforts and innovation. The genuine enthusiasm and the depth of talent throughout the CVS and Aetna organizations will be key assets as we focus on realizing the potential of our combination,” Merlo said.
Revenues in the retail/LTC segment increased 5.7% to approximately $20.7 billion for the quarter. CVS Health said the increase was primarily due to an increase in same-store prescription volume of 9.5%, on a 30-day equivalent basis, due to continued adoption of Patient Care Programs, alliances with PBMs and health plans, inclusion in a number of additional Medicare Part D networks this year, and brand inflation. This increase was partially offset by continued reimbursement pressure and the impact of recent generic introductions, according to CVS Health.
Same-store sales increased 5.9% and pharmacy same-store sales increased 8.3% in Q2. The increase in pharmacy same-store sales was principally driven by the increase in pharmacy same store prescription volumes described above, partially offset by continued reimbursement pressure and a negative impact of approximately 275 basis points due to recent generic introductions.
Front-store same-store sales declined 1% in the quarter compared to the same quarter of the prior year. The decrease in front-store same-store sales was driven by an unfavorable impact of approximately 90 basis points as a result of the shift of sales associated with the Easter holiday from the second quarter of 2017 to the first quarter of 2018, as well as softer customer traffic, partially offset by an increase in basket size, the company said.
Revenues in the pharmacy services segment increased 2.8% to approximately $33.2 billion in the quarter. CVS Health attributed the increase to growth in pharmacy network and mail choice claim volume as well as brand inflation, partially offset by continued price compression and increased generic dispensing.
CVS Health noted that pharmacy network claims processed during Q2 increased 5.9% on a 30-day equivalent basis to 398.2 million, compared with 376.0 million in the same quarter of the prior year. The increase in pharmacy network claim volume was primarily due to an increase in net new business.
On a 30-day equivalent basis, mail choice claims processed during the quarter increased 9.5% to 71.9 million, compared to 65.6 million in the same quarter of the prior year. The increase in mail choice claim volume was driven by the continued adoption of the company’s Maintenance Choice offerings and an increase in specialty pharmacy claims, the company said.
For the quarter, the generic dispensing rate increased approximately 40 basis points to 87.6% in CVS Health’s pharmacy services segment and increased approximately 45 basis points to 88.1% in its retail/LTC Segment, compared with the same quarter in the prior year.
CVS Health reported that its LTC business has continued to experience challenges that have impacted its ability to grow the business at the rate that was originally estimated when the company acquired Omnicare in 2015.
“These challenges include lower client retention rates, lower occupancy rates in skilled nursing facilities, the deteriorating financial health of numerous skilled nursing facility customers, and continued facility reimbursement pressures,” said CVS Health.
Adjusted operating profit for the quarter was $2.4 billion, an increase of $105 million, or 4.6%, compared with the prior-year period. The increase in adjusted operating profit compared with the prior year was driven by improvement in pharmacy gross profit dollars in the retail/LTC Segment. The increase in pharmacy gross profit dollars was driven by the increased prescription volume, improved purchasing economics and the impact of generic introductions, partially offset by continued reimbursement pressure, CVS Health said.
Adjusted income before tax for Q2 was $2.3 billion, up from the $2.3 billion adjusted income before tax it saw a year ago.
Looking forward, the company said it expects full-year GAAP operating profit to be down 39.25% to 40.75%, from down 0.25% to up 2.75%. CVS Health also revised its full-year GAAP diluted EPS from continuing operations to $1.40 to $1.50, including the goodwill impairment charge, from $5.11 to $5.32.
The company narrowed adjusted operating profit growth to down 0.75% to up 0.75% from down 1.5% to up 1.5% and narrowed and raised the mid-point of the range for full-year adjusted EPS guidance to $6.98 to $7.08 from $6.87 to $7.08.
CVS Health said the previously announced acquisition of Aetna by CVS Health was approved by shareholders of both companies on March 13, and it expects the transaction to close during the third quarter or the early part of the fourth quarter of 2018.
MinuteClinic launches telehealth Video Visits
MinuteClinic, CVS Health’s retail clinic arm, is introducing a new virtual health care offering for patients with minor illnesses and injuries, skin conditions and other wellness needs. Dubbed MinuteClinic Video Visits, the telehealth offering announced Wednesday will provide patients with access to healthcare services 24 hours a day, seven days a week from their mobile device, the company said.
“We’re excited to be able to bring this innovative care option to patients,” CVS Health executive vice president and chief medical officer Troyen Brennan said. “At CVS Health, we’re committed to delivering high-quality care when and where our patients need it and at prices they can afford. Through this new telehealth offering, patients now have an additional option for seeking care that is even more convenient for them.”
MinuteClinic has been testing telehealth in recent years. During the initial phase of testing, a CVS Health study found that 95% of patients who opted to receive a telehealth visit were highly satisfied with the quality of care they received, and 95% of patients were satisfied with the convenience of using the telehealth service and the overall telehealth experience.
Working with virtual care company Teladoc and using Teladoc’s technology platform, CVS Health said patients ages 2 years old and older can receive care via a MinuteClinic Video Visit that they can initiate through the CVS Pharmacy app. Patients who fill out a health questionnaire are matched to a board-certified health care provider licensed in their state, who will review the questionnaire with the patient’s medical history, and go on to conduct a virtual visit.
“As we continue to move the capabilities of virtual care forward, this is an exciting advancement,” said Teladoc CEO Jason Gorevic. “CVS Health’s expansion of their health care model to include video visits brings even more care delivery options to patients and Teladoc is proud to work with them on this offering.”
During a MinuteClinic Video Visit, the provider will assess the patient’s condition and determine the appropriate course of treatment following evidence-based clinical care guidelines. For patients whose treatment plans require a prescription, the provider will submit the prescription to the patient’s preferred pharmacy. The provider also can recommend a patient to a local healthcare provider if they determine the patient should be seen in person or requires follow-up care or testing.
The fee for a MinuteClinic Video Visit is $59. Credit card or debit card payments are accepted and CVS Health said insurance coverage is expected in the coming months.
The service currently is available in nine states — Arizona, California, Florida, Idaho, Maine, Maryland, Mississippi, New Hampshire and Virginia — and Washington, D.C., and is expected to be available nationwide, where allowed, by the end of 2018.
Walmart pilots automated tech to fill online orders faster
Walmart is adding a new member to its online grocery fulfillment team — but it’s not an associate.
Walmart is set to launch a pilot, in collaboration with start-up Alert Innovation, that uses “first-of-its-kind” automated technology to help associates fill online grocery orders faster than ever before. The system, called “Alphabot,” — developed specifically for the chain — will automatically bring items from storage to associates who will consolidate the items in the order.
The technology, which will launch by the end of the year, will be tested at a Walmart supercenter in Salem, New Hampshire, coinciding with the store’s re-grand opening. A 20,000-sq.-ft. extension connected to the store will house the system, and also include a dedicated grocery pickup point with drive-thru lanes for customers.
Once Alphabot has finished picking merchandise, automated mobile carts will retrieve the items, which will be stored warehouse-style in the store’s new extended space, and deliver them to associates at one of four pick stations. Walmart personal shoppers will then pick, assemble and deliver orders to customers.
“The vast majority of grocery products we offer in-store will be fulfilled through this system, though our personal shoppers will still handpick produce and other fresh items,” stated Mark Ibbotson, executive VP of central operations, Walmart U.S., in a blog on the company’s website.
The robotic system will reduce the time associates spend walking the store aisles in search of products and fulfilling orders, Walmart said.
“With the aid of Alphabot, our associates will have more time to focus on service and selling, the two things they often tell us are the most enjoyable part of the job, while the technology handles the more mundane, repeatable tasks,” Ibbotson said. “Although this is a small pilot, we expect big things from it.”
In addition to Alphabot, other new technology will be implemented in the remodeled store, including the chain’s pick-up tower for online orders and an automated shelf-scanner that helps identify out-of-stock items, incorrect pricing and missing labels.
Alphabot is not Walmart’s first foray into robotics. The discount giant is using a shelf-scanning robot at store-level to detect out-of-stock items, incorrect prices and wrong or missing labels.