2027 Medicare Advantage rate notice seen as inadequate, but margin recovery commitment unchanged
CVS reported strong Q4 and FY2025 results, beating initial EPS expectations and reaffirming FY2026 guidance despite concerns about the 2027 Medicare Advantage rate notice. Management emphasized operational improvements across all segments, highlighted the resilience of its PBM model under regulatory pressure, and showcased progress in technology and cost-based reimbursement transitions. FY2025 adjusted EPS of $6.75 and operating cash flow of $10.6B both exceeded initial expectations by ~15% and meaningfully respectively.
Buzzberg read2027 Medicare Advantage rate notice seen as inadequate, but margin recovery commitment unchangedCVS reported strong Q4 and FY2025 results, beating initial EPS expectations and reaffirming FY2026 guidance despite concerns about the 2027 Medicare Advantage rate notice. Management emphasized operational improvements across all segments, highlighted the resilience of its PBM model under regulatory pressure, and showcased progress in technology and cost-based reimbursement transitions. FY2025 adjusted EPS of $6.75 and operating cash flow of $10.6B both exceeded initial expectations by ~15% and meaningfully respectively.Read full analysisCollapse analysis
CVS reported strong Q4 and FY2025 results, beating initial EPS expectations and reaffirming FY2026 guidance despite concerns about the 2027 Medicare Advantage rate notice. Management emphasized operational improvements across all segments, highlighted the resilience of its PBM model under regulatory pressure, and showcased progress in technology and cost-based reimbursement transitions. FY2025 adjusted EPS of $6.75 and operating cash flow of $10.6B both exceeded initial expectations by ~15% and meaningfully respectively.
FY2026 adjusted EPS guidance reaffirmed at $7.00-$7.20, and operating cash flow guidance set at 'at least $9 billion'.
Q4 MBR came in at 94.8%, a 20 bps headwind to FY MBR due to itemized items like Medicaid pass-throughs and flu provisions, but medical cost trends were in line with expectations.
Management described the proposed 2027 Medicare Advantage rates as 'disappointing' and not matching medical cost trends but reaffirmed its commitment to margin recovery by 2028.
Revenue$105.693B
reported
EPS$1.09
reported
Gross margin12.84%
reported
Op margin2%
reported
What changed this quarter
01
Margins
2027 Medicare Advantage rate notice seen as inadequate, but margin recovery commitment unchanged
Reported gross margin was 12.84%, reinforcing the quarter's better-than-guided profitability.
02
Regulation
PBM regulatory changes called manageable and aligned with TrueCost
FY2025 adjusted EPS of $6.75 and operating cash flow of $10.6B both exceeded initial expectations by ~15% and meaningfully respectively.
03
Guidance
2026 EPS and revenue guidance reaffirmed, cash flow outlook updated
Guidance tone
04
Pharmacy
Pharmacy completed cost-based reimbursement transition, expects at least flat earnings
Q4 MBR came in at 94.8%, a 20 bps headwind to FY MBR due to itemized items like Medicaid pass-throughs and flu provisions, but medical cost trends were in line with expectations.
AI, capex & demand read
AI
Platform & monetization
Management said AI is being utilized across the enterprise to reimagine the healthcare experience, drive cost and growth goals, and invest in the open engagement platform. They see an 'incredible amount of opportunity' and expect to announce new product launches and partnerships in 2026.
Demand
Bookings & conversion
Aetna commercial membership at highest level in a decade. Management emphasized strong 2025 progress, reaffirmed 2026 guidance, and said they are 'excited about where we're headed,' even while calling the Medicare Advantage rate notice disappointing.
Capex
Investment and capacity
No explicit capex guidance was quantified. Management highlighted ongoing, intentional investments in colleagues, technology, and AI to support consumer experience and operational efficiency, with a continued focus on tech-enabled capabilities rather than a discrete capex program.
Tone · Confident
Management emphasized strong 2025 progress, reaffirmed 2026 guidance, and said they are 'excited about where we're headed,' even while calling the Medicare Advantage rate notice disappointing.
Supply-chain alpha
A1
2026 EPS guidance reaffirmed at $7.00-$7.20, despite management calling the proposed 2027 Medicare Advantage rates 'disappointing', suggesting they see levers to offset the impact.
CVS expects 2026 MBR to increase approximately 850 basis points from Q1 to Q4, a steeper seasonal curve than 2025, indicating higher expectations for medical cost trends in the first half of the year.
“As a reminder, we expect the increase between first quarter and fourth quarter MBR to be approximately 850 basis points in 2026, which is slightly steeper than the initial expectations we provided for 2025.”
CVS sees biosimilar adoption, particularly of Humira biosimilars, as a key cost-saving lever, with 96% adoption and $1.5B in savings, creating pressure on brand-name drug manufacturers.
“Our Humira biosimilar strategy allows us to drive 96% adoption of a low-list price biosimilar, with more than 80% of the members paying $0 out-of-pocket. This ultimately created more than $1.5 billion in savings for our clients and their m…”
CVS's 2025 results benefited from the Rite Aid asset acquisition, boosting prescription volume and store count, continuing to reshape the retail pharmacy landscape.
“These increases were partially offset by continued pharmacy reimbursement pressure and the impact of recent generic drug introductions. On a same-store basis, total revenues increased 16% in the quarter, Same store pharmacy sales grew over”
… driven by patient growth at Oak Street Health. Our pharmacy and consumer wellness segment delivered another strong quarter to close out a strong year. We generated revenues of nearly $38 billion. an increase of over 12% versus the prior year quarter, primarily driven by pharmacy drug mix and increased prescription volume, including incremental volume resulting from the Rite Aid transaction. These increases were partially offset by continued pharmacy reimbursement pressure and the impact of recent generic drug introductions. On a same-store basis, total revenues increased 16% in the quarter, Same store pharmacy sales grew over 19% compared to the prior year quarter, driven by pharmacy drug mix and a nearly 10% increase in same store prescription volumes. Same store front store sales increased 50 basis points versus the prior year quarter. Our retail pharmacy script share in the quarter increased grew to over 29%, supported by our continued focus on delivering superior customer experiences, which drove organic growth, as well as the contribution from the Rite Aid transaction. We generated adjusted operating income of over $1.9 billion, an increase of nearly 9% from the …
CVS expects 2026 MBR to increase approximately 850 basis points from Q1 to Q4, a steeper seasonal curve than 2025, indicating higher expectations for medical cost trends in the first half of the year. — This signals a potentially slower start to 2026 for CVS and could indicate broader managed care industry trends of elevated costs into the new year.
… colleagues work hard every day to make it better and to realize our ambition of becoming America's most trusted healthcare company. I'm also proud of our progress, strengthening our operations and driving improved financial performance. This morning, we are pleased to once again report another quarter of strong results. In the fourth quarter, we delivered adjusted operating income of $2.6 billion and adjusted earnings per share of $1.09. We are also reaffirming our full year 2026 adjusted EPS guidance range of $7 to $7.20, that we shared at our investor day in December. For full year 2025, we delivered adjusted earnings per share of $6.75 and operating cash flow of $10.6 billion, exceeding our initial expectations coming into the year for adjusted EPS by approximately 15% and meaningfully outperforming our expectations on cash flow. We still have an incredible amount of earnings power to unlock across our diversified business, but our progress to date has been impressive. In our Aetna business, we dramatically improved our financial results, delivering a year-over-year adjusted operating income improvement of over $2.6 billion. We refreshed our leadership team, improved our …
CVS sees biosimilar adoption, particularly of Humira biosimilars, as a key cost-saving lever, with 96% adoption and $1.5B in savings, creating pressure on brand-name drug manufacturers. — CVS's aggressive biosimilar strategy is a major force driving down pharmaceutical prices and challenging brand-name drug pricing power.
“Our Humira biosimilar strategy allows us to drive 96% adoption of a low-list price biosimilar, with more than 80% of the members paying $0 out-of-pocket. This ultimately created more than $1.5 billion in savings for our clients and their”
… deliver better experiences and improve health outcomes at lower cost. Aetna members who have a combined medical and pharmacy offering have lower medical costs. Adetna members who consistently use CVS Pharmacy have higher medication adherence and lower ER utilization. Through the combination of Cordovus, Caremark, and CVS specialty, we are able to seamlessly transition share to low-cost biosimilars. Our Humira biosimilar strategy allows us to drive 96% adoption of a low-list price biosimilar, with more than 80% of the members paying $0 out-of-pocket. This ultimately created more than $1.5 billion in savings for our clients and their members. These are strong examples of the value we can deliver with the power of our combined enterprise. We continue to focus on improving connectivity between our businesses, using technology to support greater interoperability, and facilitate a common experience which will ultimately make healthcare easier to navigate. By creating consumer engagement points and greater connections across our unique and impactful collection of capabilities, we can help improve consumer trust, lower costs for members and clients, and better support the professionals …
2026 EPS guidance reaffirmed at $7.00-$7.20, despite management calling the proposed 2027 Medicare Advantage rates 'disappointing', suggesting they see levers to offset the impact.
… colleagues work hard every day to make it better and to realize our ambition of becoming America's most trusted healthcare company. I'm also proud of our progress, strengthening our operations and driving improved financial performance. This morning, we are pleased to once again report another quarter of strong results. In the fourth quarter, we delivered adjusted operating income of $2.6 billion and adjusted earnings per share of $1.09. We are also reaffirming our full year 2026 adjusted EPS guidance range of $7 to $7.20, that we shared at our investor day in December. For full year 2025, we delivered adjusted earnings per share of $6.75 and operating cash flow of $10.6 billion, exceeding our initial expectations coming into the year for adjusted EPS by approximately 15% and meaningfully outperforming our expectations on cash flow. We still have an incredible amount of earnings power to unlock across our diversified business, but our progress to date has been impressive. In our Aetna business, we dramatically improved our financial results, delivering a year-over-year adjusted operating income improvement of over $2.6 billion. We refreshed our leadership team, improved our …
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