CVS Health tapped Aetna President Karen Lynch as its the new CEO on Friday, as the health care company revealed that its benefits segment had a 24.1% year-over-year drop in adjusted operating income for the third quarter despite the results being buoyed by the divestiture of its workers’ compensation insurance business.
Lynch will succeed Larry Merlo, who is retiring in February. Merlo, who started with the company as a community pharmacist more than 40 years ago and has been CEO for a decade, will remain on the board and serve as an advisor through May. Lynch’s appointment is effective Feb. 1. Her successor has not yet been named.
Merlo and other executives at CVS Health, which acquired Aetna in 2018, said during a call with analysts that they are beginning to see a return to normal non-COVID-related health care visits, after a second-quarter drop that the company called “unprecedented” in its previous quarterly earnings call. The trend led to a 140.9% year-over-year increase in adjusted net income in the second quarter, while the more normal utilization helped lead to a third-quarter decline.
But CVS Health’s 24.1% decrease was not as sharp as fellow health insurer Anthem’s, which recently reported an 81% year-to-year decline during the third quarter. CVS Health's decrease was partially offset by the July 31 sale of its workers’ compensation unit, which was formerly part of Aetna, for $850 million. The company saw a $271 million pre-tax gain on the sale.
“Utilization has been steadily rising since April,” Chief Financial Officer Eva Boratto said. “It does vary by segment. We have our commercial segment that is back to almost near-normal levels. Our Medicare business is slightly depressed. Relative to cost categories, we are continuing to see lower utilization in emergency room and in-patient, but above levels in specialty pharmacy, lab and radiology. Obviously, it will vary by product and by geography.”
CVS Health said that it has more than doubled its COVID-19 test sites to more than 4,000 CVS Pharmacy sites nationwide, and that it has administered more than 6 million COVID-19 tests at the pharmacies, representing 70% of testing done in a retail setting. “If we told you a year ago that to date, 6 million people would have gone to their local CVS pharmacy for a diagnostic test related to some virus, it would probably get an eyeball roll,” Merlo said. “The reality is, that’s happened. and it really speaks to the strategy that we’ve talked about in terms of meeting people where they are.”
The company said that it has been selected to administer vaccines at long-term care facilities when a vaccine becomes available. Its earnings release includes a page that details more than two dozen actions it has taken to aid employees, consumers, plan sponsors, providers and communities during the pandemic.
Meanwhile, medical membership decreased by 316,000 from June 30 to Sept. 30, primarily reflecting a decline in commercial products, partially offset by increases in Medicaid and Medicare products, executives said.
Net income was $1.22 billion in the third quarter, a 20.3% decrease from $1.53 billion during the same period last year. The company attributed the decline primarily to its loss on early extinguishment of debt rising to $766 million in Q3 2020, compared with $79 million during the same period last year.
Nonetheless, the company raised its adjusted earnings-per-share guidance range to between $7.35 and $7.45, up from $7.14 to $7.27.
CVS Health also reported a spike in flu vaccinations, with nearly 13 million administered from August through October, a 78% year-over-year increase. However, the amount is expected to drop during the fourth quarter.