CVS Health has announced record revenue for the third quarter, simultaneously raising its full-year earnings forecast. However, the company did report one-time charges amounting to $5.7 billion related to its healthcare delivery reporting unit and its network of primary care providers. While health insurers have faced challenges throughout 2024, CVS Health demonstrated a notable recovery in 2025, with year-to-date growth exceeding 80%.
Megan Fitzgerald, a private equity investor at Grey Ghost Capital and board member at Tenet Healthcare, provided her insights on CVS’s latest results during a discussion about the broader healthcare sector. Fitzgerald remarked on the difficult environment for managed care, noting that this has been one of the worst periods in the last 15 years. Typically, managed care companies trade at a 10% discount to the S&P 500, but currently, they are seeing discounts as high as 45%. In light of these conditions, CVS’s performance was particularly noteworthy, as they exceeded expectations at a time of sector concern.
One significant area of contention for CVS has been its Oak Street operation, which focuses on primary care clinics for seniors. Fitzgerald identified that many primary care providers face the challenge of serving patients with more complex health issues, compounded by constrained reimbursement rates. A significant aspect of CVS’s business is its widespread presence, with 85% of Americans living within ten miles of a CVS location. Historically, consumers have associated CVS with pharmacy services rather than primary care, posing a strategic challenge for Oak Street’s integration into the CVS model.
In addressing the insurance side of the business, Fitzgerald noted that CVS reported a medical loss ratio (MLR) of 92.8% for the quarter. This figure surpassed expectations but remains higher than that of competitors such as UnitedHealth, which reported an MLR below 90%. While there has been some improvement in MLRs across the industry, they have remained relatively sticky. According to Fitzgerald, this outcome is positive for CVS as it allows the company to retain more revenue and enhances its star ratings, crucial for long-term sustainability and profitability.
Overall, CVS appears to be making progress in improving its metrics, but Fitzgerald indicated that the company will likely focus on refining these areas as it approaches the year’s end, emphasizing that maintaining lower MLRs can significantly improve financial performance.
