CVS Health chief executive Larry Merlo said 2019 will be a year of product launches with the addition of Aetna while grappling with some serious prescription reimbursement pressures as U.S. drug pricing evolves.
CVS is integrating its $70 billion acquisition of Aetna, the nation’s third-largest health insurer that ended 2018 with 22 million members. The deal offers opportunities Merlo said will include offering new products to existing health plan enrollees as well as other insurers and employer clients by via an “open platform model” CVS will unveil in the 2021 selling season.
“We view 2019 as a bridge to the future,” CVS CEO Merlo told analysts on a 78-minute call to discuss the company’s fourth quarter 2018 earnings call Wednesday morning.
In the meantime, however, CVS expects some “headwinds” including the introduction of new generics, uncertainty surrounding rebates and an underperforming Omnicare long-term care business. The Trump administration is implementing regulations expected to bring an end to rebates, a controversial approach drug makers have used to keep drugs on PBM and health plan preferred lists known as formularies.
PBMs operated by CVS Health and other companies have been the subject of scrutiny by consumers and policymakers with the Trump administration last month announcing proposed new regulations for Medicare drug plans that would change how prescription discounts are negotiated. The PBM’s share of rebates, which is the portion of the drug returned by the seller to the buyer, has turned into a nationwide controversy and drawn the attention of Congress as well.
The changes in regulations of prescription drugs and potential loss of rebates come as CVS is digesting Aetna, which will eat into the combined company’s earnings this year. CVS expects its 2019 earnings to be in the range of $6.68 to $6.88 a share, which is lower than analysts expected .
In the fourth quarter, CVS’ Omnicare business, which provides drugs to nursing homes and other long-term-care facilities was a drag on earnings. CVS suffered an operating loss in the fourth quarter and full year 2018 thanks to “goodwill impairment charges of $2.2 billion and $6.1 billion, respectively, related to the (long-term-care) reporting unit,” the company disclosed Wednesday.
Looking ahead, CVS said the company is investing hundreds of millions of dollars in new technology and services that will be offered to government health programs, employer clients and consumers. The company stressed its ability to leverage the buying power of the nation’s largest PBM and the newly acquired Aetna health insurance business.
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