CVS Health reports mixed 2024 earnings as profits decline despite revenue growth

CVS Health Corporation has released its fourth-quarter and full-year 2024 financial results, showcasing strong revenue growth but a significant decline in profitability. While pharmacy and healthcare services contributed to increased revenue, rising medical costs, insurance challenges, and Medicare Advantage reimbursement pressures weakened overall financial performance.

How Did CVS Health Perform Financially in Q4 2024?

In the fourth quarter of 2024, CVS Health earnings showed total revenues of $97.7 billion, marking a 4.2% increase from the previous year’s $93.8 billion. Despite the revenue boost, quarterly financial performance revealed a sharp decline in profitability. Operating income plunged by 29.8% to $2.37 billion, driven by rising healthcare costs and lower Medicare reimbursement rates.

On an earnings-per-share basis, GAAP diluted EPS fell to $1.30, compared to $1.58 in Q4 2023. Adjusted EPS saw a more dramatic decline, dropping from $2.12 to $1.19, reflecting increased utilization costs in Medicare and Medicaid services.

For the full year, total revenues reached $372.8 billion, maintaining the 4.2% growth rate seen in the fourth quarter. However, net income fell to $4.6 billion, a $3.8 billion decline from 2023, signaling deeper structural issues in CVS Health’s insurance and healthcare segments.

CEO David Joyner acknowledged the challenges but remained optimistic about CVS Health’s strategic direction. “Our integrated model is designed to provide simpler, connected healthcare solutions that improve patient experiences while driving operational efficiency. Despite industry-wide headwinds, we are focused on sustainable growth and enhancing consumer outcomes,” he stated.

What Led to CVS Health’s Profit Decline?

The primary drag on CVS Health earnings in 2024 was the Health Care Benefits segment, which includes its insurance business. Although the division reported strong revenue growth, profitability eroded due to a surge in medical costs.

Health Care Benefits Segment Under Pressure

In Q4, the Health Care Benefits division generated $33 billion in revenue, a 23.3% year-over-year increase. However, adjusted operating income fell by $1.1 billion, leading to a $439 million loss in the segment, compared to a $676 million profit in the previous year.

For the full year, revenues climbed to $130.7 billion, but adjusted operating income fell by $5.27 billion due to rising patient utilization rates and unfavorable Medicare Advantage star ratings that impacted reimbursement rates for 2024.

The Medical Benefit Ratio (MBR), a key measure of how much premium revenue is spent on healthcare services, jumped from 88.5% to 94.8% in Q4. This increase indicates that a larger portion of revenue was allocated to patient care costs, reducing profit margins.

Health Services Segment Faces Revenue Decline

CVS Health’s Health Services segment, which includes pharmacy benefit management (PBM), specialty pharmacy, and home healthcare, faced revenue challenges in 2024. Fourth-quarter revenue declined by 4.3% to $47 billion, largely due to the previously announced loss of a major PBM client and increased pricing competition.

On an annual basis, Health Services revenue dropped 7.1% to $173.6 billion, reflecting industry-wide headwinds in pharmacy benefits management. However, CVS Health managed to partially offset revenue losses through growth in specialty pharmacy services and home healthcare solutions, areas the company has been expanding to diversify its business model.

Pharmacy & Consumer Wellness Remains a Growth Driver

Amid challenges in insurance and pharmacy benefit management, pharmacy and healthcare services remained a bright spot for CVS Health. The Pharmacy & Consumer Wellness segment posted 7.5% revenue growth in Q4, reaching $33.5 billion, driven by higher prescription volumes and an improved drug mix.

For the full year, revenues increased to $124.5 billion, reflecting rising demand for prescription medications and vaccination services. However, adjusted operating income declined slightly to $5.77 billion, reflecting ongoing pharmacy reimbursement pressures and lower front-store retail sales.

What Are CVS Health’s Projections for 2025?

Despite the challenges in quarterly financial performance, CVS Health is cautiously optimistic about 2025 earnings projections. The company has issued a GAAP diluted EPS guidance range of $4.58 to $4.83, with adjusted EPS expected between $5.75 and $6.00.

However, operating cash flow is projected to drop to $6.5 billion, down from $9.1 billion in 2024. Analysts have raised concerns that Medicare Advantage reimbursement cuts and higher healthcare utilization rates could continue to weigh on CVS Health earnings in the coming quarters.

The company is focused on expanding home healthcare services, optimizing pharmacy pricing models, and leveraging data-driven healthcare solutions to improve margins. Still, profitability will depend on how effectively CVS Health navigates ongoing challenges in its Health Care Benefits segment and whether pharmacy services continue their upward revenue trajectory.

What Challenges Could Impact CVS Health’s Future Performance?

Industry experts warn that regulatory and reimbursement changes in Medicare Advantage will remain a key risk factor for CVS Health’s financial outlook. The company has also been grappling with higher healthcare costs as more consumers access urgent and chronic care services under their insurance plans.

While pharmacy and healthcare segments continue to expand, pricing pressures from insurers and increased competition in the PBM space pose risks to revenue sustainability. If CVS Health earnings are to recover in 2025, cost control measures and strategic investment in high-margin services like specialty pharmacy and home healthcare will be crucial.

Will CVS Health Overcome These Financial Headwinds?

CVS Health remains a dominant force in pharmacy and healthcare, but its quarterly financial performance reflects ongoing industry-wide turbulence. While revenue growth remains strong, profitability concerns linked to insurance and reimbursement challenges must be addressed.

Moving forward, investors will be watching closely to see whether CVS Health’s strategic initiatives—expanding healthcare services, optimizing pharmacy networks, and strengthening its PBM business—can offset the pressures that have led to declining profits. If the company successfully adapts to shifting healthcare dynamics, it could regain financial stability in 2025 and beyond.