CVS Health Navigates Regulatory Changes in Pharmacy Benefits and Medicare Advantage
During a recent investor call, CVS Health leadership addressed the impact of new regulations on their pharmacy benefit manager (PBM) operations and expressed concerns regarding the Medicare Advantage (MA) rate notice from the Centers for Medicare & Medicaid Services (CMS). This highlights the ongoing challenges of regulatory compliance requirements and their effects on industry dynamics.
Financial Performance and Growth
CVS Health announced financial results consistent with expectations, reporting a 7.8% increase in revenue for 2025, reaching $402.1 billion. Aetna, the company's health insurance arm, saw a 9.7% revenue increase with a medical benefit ratio improvement from 92.5% to 91.2%. Adjusted operating income rose by over $2.6 billion from the previous year, signaling a focus on recovering margins and efficient risk management.
Within the pharmacy and consumer services segment, revenue increased by 9%, although adjusted operating income saw a modest decline of 1.3%. CVS executives are keen on enhancing financial performance in this division, which includes CVS Caremark, one of the leading PBMs in the U.S. market—a crucial player in payer-provider negotiations.
Challenges with Medicare Advantage Rate Adjustments
CVS Health voiced concerns about the 2027 MA rate notification from CMS, with President and CEO David Joyner noting that the proposed rate fails to align with observed medical cost trends. CVS Health is actively engaging with CMS to address these discrepancies, aiming for rates that better support program stability and accessibility amidst shifting underwriting and claims landscapes.
Despite pressures from rate adjustments, the company remains confident in their trajectory toward target margins in the MA sector by 2028. Steven Nelson, Aetna’s Executive VP, emphasized ongoing efforts with CMS to ensure rates reflect current cost dynamics and regulatory frameworks.
Regulatory Compliance and Competitive Pricing
In line with the spending package legislation signed in early 2026, which mandates greater transparency and the passing of rebates to plan sponsors, CVS Caremark is adjusting its operations to align with industry changes. Since announcing their TrueCost model in 2023, CVS has been advancing towards transparent pricing strategies focused on cost-based reimbursement, enhancing their regulatory compliance alignment.
Joyner emphasized the role of PBMs in enhancing competitive pricing within the pharmaceutical sector. CVS Caremark's negotiations contribute to substantial savings for clients and members. The introduction of private label biosimilars, such as a low-cost alternative to Humira, supports these strategies by reducing costs for consumers, showcasing effective risk management practices.
Looking forward, CVS Health projects a flat revenue trajectory for 2026, with anticipated earnings per share ranging from $7.00 to $7.20. The MA segment is expected to see continued margin enhancement, guided by disciplined pricing strategies across individual, group, and PDP offerings. The retail pharmacy sector targets stable earnings growth from 2026 onward, driven by strategic investments.
CVS Health’s strategic adjustments illustrate their agility and commitment to navigating regulatory changes while sustaining and enhancing their market position within the healthcare and insurance industries. This approach underscores the importance of compliance in fostering stability and growth in a competitive industry environment.