CVS Health’s Star Ratings Data ‘a Surprise’ By Investing.com


© Reuters. CVS Health’s (CVS) Star Ratings Data ‘a Surprise’

By Sam Boughedda

On Thursday, the Centers for Medicare & Medicaid Services released annual star rating data, which impacts the 2024 plan year and will be visible to seniors as they look for coverage during upcoming open enrollment for the 2023 plan year.

CVS Health (NYSE:) shares are down more than 9% Friday following the ratings data release. Analysts across the board released notes reacting to the data:

Wells Fargo said CVS was one of the most impacted companies, experiencing “significant decreases.”

“Membership in 4 star or better plans estimated to decrease to 20% from 85%, which is closely aligned to CVS’s release. We understand that CVS already had work streams in progress to diversify membership across other contracts given the concentration risk presented under the current mix, as well as to improve underlying star performance further,” Wells Fargo analysts said. “With 59% of contract H5521 made up of Group Med Adv members, it appears that a little more than half of the impacted membership could in theory be mitigated.”

Morgan Stanley analysts said: We estimate CVS -4.4% headwind to 2024E EPS (vs. our -0.6% projection).”

“Per this scenario, we estimate CVS may see an EPS tailwind of +$0.12 in 2023 more than offset by a ($0.44) headwind in 2024. The company issued a press release promptly after Star ratings were announced. The company attributes the primary source of decline to the change in Star rating methodology more heavily weighting Consumer Assessment of Healthcare Provider and Systems scoring (CAHPS) which we estimate now represents ~32% weighting (now quadruple weighted),” added the analysts.

BofA stated: “CVS released an update on 2023 Star ratings, reporting a substantial decline in the number of 4+ Star CVS plans, with 21% of plans rated 4+ vs. 87% in the prior year.”

“The company noted that the decline in its star ratings was primarily driven by Consumer Assessment of Healthcare Providers and Systems (CAHPS) scoring on its Aetna National PPO plan. The press release suggests that survey results were from a relatively small sample, with internal member surveys showing better results,” wrote BofA analysts. “The drop in Stars scores will likely cause a rate impact of ~3.5%, with further details to come on the investments to be made in 2023 to address this situation. We think the dynamic of these mitigation factors will drive the eventual EPS impact relative to the cut in bonuses, although our expectation would be that the company is more likely to look to alternative products and cost offsets (as well as buyback as mentioned above) rather than cut benefits.”

Lastly, UBS analysts told investors that, as expected, there was a decline in star ratings across the board. The analysts added that the 2023 star scores suggest a risk to CVS’ 2024 income. “CVS’ decline came as a surprise with just 20% of plans in 4 stars or higher, down from 84% last year,” they wrote.

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