CVS Health Announces New Leadership for Aetna Business

By Amina Niasse and Sriparna Roy

(Reuters) – CVS Health (NYSE:CVS) on Wednesday appointed Steve Nelson, former head of UnitedHealth (NYSE:UNH) insurance, to lead its Aetna business. This change comes amid rising medical costs that led the company to preannounce an earnings miss last month.

Recently, CVS replaced CEO Karen Lynch with David Joyner due to ongoing cost management issues in the Aetna division, facing pressure from investors, including activist hedge fund Glenview Capital Management, to enhance its cost management.

In the third quarter, CVS reported an adjusted profit of $1.09 per share, significantly less than the $2.21 earned during the same period last year, primarily due to unexpected medical service expenditures within its health insurance unit. This was consistent with previously reported adjusted earnings expectations of $1.05 to $1.10 per share.

CVS’s shares have declined nearly 30% this year, contrasting with the S&P 500’s gain of over 20%. Nelson, who replaces Lynch, begins immediately, following Brian Kane’s departure in August. Additionally, Prem Shah, the chief pharmacy officer, has been named president of the Aetna business.

During the third quarter, CVS incurred a charge of about $1.1 billion concerning expected fourth-quarter losses in its Medicare and individual health plan insurance business. The company's medical benefit ratio increased to 95.2% from 85.7% in the same quarter last year.

CVS confirmed it will incur $1.2 billion in restructuring charges linked to layoffs, store closures, and the discontinuation of certain businesses.

In a company release, Joyner stated, "Our third quarter results reflect strong performance in the Health Services and Pharmacy & Consumer Wellness segments, and also highlight the continued need to work across our enterprise and address macro challenges to the Health Care Benefits segment."

Net income for CVS fell to $87 million, or 7 cents per share, a marked decline from $2.26 billion, or $1.75 per share, in the previous year. Revenue from the health care benefits unit increased by 25.5% to $33 billion, driven by growth in Medicare and commercial health insurance.

However, sales within the health services division, which encompasses pharmacy benefit management, dropped by 6% to $44.13 billion, primarily due to losing a significant client. Revenue from pharmacy and wellness services rose by 12.3% to $32.42 billion, supported by an increase in prescription volume.