CVS Medicare issues taking longer than planned, profit up
(Reuters) - CVS Caremark Corp (CVS.N) expects to lose about 10 percent of patients enrolled in one of its Medicare prescription drug plans because of a government marketing ban but does not expect the decrease to have a significant impact on its long-term results.
In January, the Centers for Medicare and Medicaid Services said CVS could not market to or enroll new members in its SilverScript drug plan for seniors because of service issues.
But CVS still sees "significant opportunity" to grow its Medicare prescription business over time, Chief Executive Larry Merlo said on Tuesday on a conference call.
"The impact will be relatively muted," said Edward Jones analyst Judson Clark, who still rates CVS shares a "buy."
CVS posted second-quarter profits that rose slightly more than Wall Street expected, as growth at its pharmacy benefits management unit outpaced its drugstores.
The company narrowed its 2013 earnings per share forecast, bringing the bottom of the range up by a penny and the top down by 4 cents, citing share repurchases largely coming in the second half of the year and its results so far.
Its shares fell 2.4 percent to $60.15.
MEDICARE PART D ISSUE
The CMS ban on certain Medicare Part D plan activity arose in January after CVS converted to a new enrollment system, which led to service issues such as an increase in calls and issues processing claims that included, in some instances, not being able to have patients' claims processed at the pharmacy.
CVS' goal had been to fix those issues in time to participate in the 2014 enrollment period, which begins on October 15. But it no longer expects it will be able to do so.
The company said it is taking longer than expected to develop a remedy for the issues, saying it found additional complexity, though it would not say exactly what it is doing to resolve the problems.
The company now expects to complete the process sometime near the end of the year. After that, CMS must do a review before it could lift its sanction.
CVS estimated that it could lose roughly 350,000 Part D Plan members, leaving it with about 3.1 million enrollees in the SilverScript plan by the end of January 2014.
The company's SilverScript Part D plan has about 3.4 million enrollees out of a total of about 6.8 million on its Medicare Part D plans. The CMS sanction does not affect CVS' Medicare Part D business through health plans. CVS is still allowed to enroll newly eligible retirees in certain existing plans.
CVS earned $1.12 billion, or 91 cents per share, in the quarter, up from $966 million, or 75 cents per share, a year earlier.
Adjusted earnings per share from continuing operations rose to 97 cents from 81 cents. That topped analysts' average estimate of 96 cents, according to Thomson Reuters I/B/E/S.
New generic drugs helped profits but weighed on sales. Generic drugs sell for less than branded ones but are more profitable.
Operating profit jumped 32 percent in the pharmacy benefits management business, near the high end of the company's forecast for 26.5 percent to 32.5 percent growth. Operating profit rose 9 percent in the retail business, meeting the high end of the company's forecast of 7.25 percent to 9 percent.
Revenue was up 1.7 percent to $31.25 billion.
Sales at stores open at least a year, or same-store sales, rose 0.4 percent, in line with analysts' expectations.
CVS expects adjusted earnings of $3.90 to $3.96 per share this year, with a profit of $1 to $1.03 in the current third quarter. Analysts look for full-year profit of $3.98, and 97 cents per share this quarter.
CVS suspended share repurchases during part of the quarter while it negotiated with the U.S. Securities and Exchange Commission over an agreement in principle. On Friday, CVS said it plans to pay a $20 million civil penalty to resolve an SEC investigation of 2009 comments and staff securities transactions and accounting for an acquisition.
The company said it has repurchased $748 million of its shares so far and still plans to buy back $4 billion in stock this year.
(Reporting by Jessica Wohl in Chicago; Editing by Gerald E. McCormick, Jeffrey Benkoe and Dan Grebler)
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