By Amina Niasse and Sriparna Roy
(Reuters) - CVS Health (CVS) reported a smaller-than-expected drop in fourth-quarter profit on Wednesday as the pace of medical cost increases slowed at the healthcare conglomerate and revenues jumped in its pharmacy business, sending its shares up more than 9% in premarket trading.
The company missed earnings targets for the first three quarters of 2024 as it was among the worst hit by surging costs in the Medicare insurance business for people aged 65 and older or who are disabled. Shares had slumped more than 40% last year.
On an adjusted basis, CVS reported a fourth-quarter profit of $1.19 per share, down from $2.12 a year earlier, but above analysts' average estimate of 93 cents.
The company's healthcare benefits division posted a quarterly loss of $439 million, compared to a profit of $676 million in the prior year.
The swing to a loss was driven by increased use of medical services, a change in "Star" or quality ratings for its Medicare Advantage plans and an increase in sicker members enrolled in its Medicaid plans for lower income people.
CVS recorded a charge of about $1.1 billion in the third quarter in connection with premium deficiency reserve in its Medicare business, which is a liability that an insurer may need to cover if future premiums are not enough to pay for anticipated claims and expenses.
The company's medical loss ratio, or percent of premiums spent on patient care, rose to 94.8% in the fourth quarter from 88.5% in the same period a year earlier. It had hit a record-high of 95.2% in the prior quarter.
Analysts expected the company to report a loss ratio of 95.46%, according to consensus estimates compiled by brokerage Deutsche Bank.
CVS laid out major plans for cost cutting in November and underwent a top management reshuffle as part of new CEO David Joyner's efforts to turn around the company.
Revenue in its pharmacy and consumer wellness segment rose 7.5% to $33.51 billion, helped by higher volumes of prescription drugs.
The company expects its full-year profit to be between $5.75 and $6.00 per share, compared with estimates of $5.96, according to data compiled by LSEG.
(Reporting by Amina Niasse in New York, Sriparna Roy and Sneha S K in Bengaluru)
