Does the FTC proposal hinder negotiation? Is PBM legislation making transparency the default? What's the long-term margin outlook for PBM given headwinds?

Management states the PBM's value in creating competition against rising drug prices remains intact. They cannot comment on FTC specifics but see PBM legislation aligning with their TrueCost model, potentially accelerating its adoption. They expect the long-term margin profile for the PBM to remain similar, as the industry has historically adapted to market dynamics. “The PBM industry is a dynamic market and profit pools, not only have evolved over time, but we certainly expect they will evolve in the future. And we ultimately believe the margin profile will be similar and underlying growth for Caremark remains unchanged. We're excited about the shift to greater transparency and believe this recent legislation will accelerate adoption of TrueCost.”

How does CVS plan to gain share in PCW with CostVantage and Rite Aid scripts, and what's its competitive positioning?

PCW delivered strong results in 2025, driven by high service levels, market disruption (Rite Aid acquisition bringing 9 million new patients and 3,500 new colleagues), and successful cost-based reimbursement transition. The strategy for 2026 focuses on consumer experience, localized assortment, loyalty programs, and technology/AI to drive operational efficiencies and continued script growth. “We successfully welcomed 9 million new patients into our stores and welcomed over 3,500 new colleagues from Rite Aid into CVS Health. And the transaction allowed us to serve patients who were left without a community pharmacy while also expanding our coast-to-coast footprint.”

Why was medical membership revised up despite consistent AEP expectations? What are expectations for commercial group/ASO membership and rebate implications?

Commercial membership is at a decade-high of 18 million members, growing due to better retention and innovative products resonating with sophisticated purchasers. Growth in the self-funded business has more than offset pressure from disciplined pricing in fully insured. Aetna is returning to product and clinical innovation, which is driving strong performance. “We serve about 18 million members. It's the highest membership level that we've served in the last decade actually. And so this is a strong business for us, and it remains strong. We -- I think the overperformance and growth that we saw in '25 and then as we will continue to grow in '26, it's a result of better-than-expected retention.”

CVS

CVS Health (CVS) Q4 FY25 earnings call: guidance and Q&A

Earnings call· Dec 2025 (Q4 FY25)· Health Care· Feb 10, 2026

Source: earnings call transcript

Executive summary

CVS Health Q4 FY25 — Strong Financial Performance and Strategic Momentum Despite MA Rate Headwinds

CVS Health reported strong Q4 FY25 results, exceeding full-year expectations for adjusted EPS and operating cash flow, driven by significant improvements in Aetna and a turnaround in the Pharmacy & Consumer Wellness segment. The company reaffirmed its FY26 adjusted EPS and revenue guidance, demonstrating confidence in its strategic initiatives and enterprise connectivity, even as it navigates elevated medical cost trends and advocates for more appropriate Medicare Advantage rates.

Highlights

Full year 2025 adjusted EPS of $6.75, exceeding initial expectations by approximately 15%.
Full year 2025 operating cash flow of $10.6 billion, meaningfully outperforming expectations.
Aetna business dramatically improved financial results, delivering over $2.6 billion year-over-year adjusted operating income improvement.
CVS Pharmacy exceeded expectations in 2025, establishing a new trajectory of at least flat earnings annually starting 2026.
Successfully completed the transition to cost-based reimbursement across all pharmacy lines of business.

Concerns

The proposed 2027 Medicare Advantage advanced rate notice does not match the level of medical cost trend in the industry.
Adjusted operating income in the Health Care Benefits segment declined due to changes in Medicare Part D program seasonality and deterioration of risk adjustment position in Individual Exchange.
Medical cost trends remained elevated across all products in Q4 FY25 and are not expected to change in 2026.

Guidance & targets

Category	Target	Timeline	Confidence
Full year 2026 adjusted EPS	$7 to $7.20 high materiality	FY26 · 2026	High
Full year 2026 revenue	at least $400 billion high materiality	FY26 · 2026	High
Full year 2026 operating cash flow	at least $9 billion medium materiality	FY26 · 2026	Medium
Pharmacy & Consumer Wellness annual earnings outlook	at least flat medium materiality	Annually starting 2026	High
Medicare Advantage target margins	unchanged commitment high materiality	Future	High
Cumulative cash flow expectation	increased by over $1.5 billion medium materiality	2025 and 2026 combined	High
Medicare Benefit Ratio (MBR) increase	approximately 850 basis points medium materiality	Q1 to Q4 2026	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Health Care Benefits Revenue increase primarily driven by Government business due to IRA impact on Medicare Part D. Year-over-year member decrease driven by declines in Individual Exchange and Government, partially offset by commercial fee-based growth. Operating loss driven by Medicare Part D seasonality, risk adjustment deterioration in Individual Exchange, and increased flu activity. MBR consistent with prior year, impacted by Medicaid pass-throughs, risk adjustment, and flu. Medical members: 26.6 millionMedical members YoY change: decrease of approximately 500,000Medical Benefit Ratio (Q4): 94.8%Medical Benefit Ratio (FY25): 91.2%Days claims payable: 38.9 days	$36 billion	over 10%	—	adjusted operating loss of $676 million
Health Services Revenue increase primarily driven by pharmacy drug mix and brand inflation, partially offset by pharmacy client price improvements. Operating income increase driven by improved purchasing economics, partially offset by client price improvements. Health Care Delivery growth driven by patient growth at Oak Street Health. Adjusted operating income YoY increase: over 9%Health Care Delivery total revenues growth (ex-CVS Accountable Care): approximately 21%	over $51 billion	9%	—	adjusted operating income of approximately $1.9 billion
Pharmacy & Consumer Wellness Revenue increase driven by pharmacy drug mix and increased prescription volume, including Rite Aid transaction. Partially offset by reimbursement pressure and generic drug introductions. Operating income increase driven by prescription volume and favorable drug mix, partially offset by reimbursement pressure and investments. Retail pharmacy script share growth supported by customer experiences and Rite Aid contribution. Adjusted operating income YoY increase: nearly 9%Full year adjusted operating income: over $6 billionFull year adjusted operating income YoY increase: over 4.5%Same-store total revenues increase: 16%Same-store pharmacy sales growth: over 19%Same-store prescription volumes increase: nearly 10%Same-store front store sales increase: 50 basis pointsRetail pharmacy script share: over 29%	nearly $38 billion	over 12%	—	adjusted operating income of over $1.9 billion

CVS operating KPIs by quarter

CVS operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Dec 2024 Q4 FY24	Mar 2025 Q1 FY25	Sep 2025 Q3 FY25	This call Dec 2025 Q4 FY25	Mar 2026 Q1 FY26	Jun 2026 Q2 FY26	Change vs prior quarter
Employees	300K+ Two, our over 300,000 colleagues who reflect the backgrounds and experiences of all Americans and the communities we serve. Source: earnings call transcript	300K+ This is personal for me, my leadership team and the more than 300,000 CVS Health colleagues that work tirelessly every day to earn the trust of the customers we serve. Source: earnings call transcript	300K+ Our future is bright because of the work of our more than 300,000 colleagues who take care of their friends, families and neighbors and communities across our country. Source: earnings call transcript	300K Our leadership team and our 300,000 colleagues work hard every day to make it better and to realize our ambition of becoming America's most trusted health care company. Source: earnings call transcript	—	—	—
Medical members Health Care Benefits	~27.1M Medical membership of approximately 27.1 million was roughly flat sequentially as membership in our Individual Exchange business started to modestly decline in advance of the 2025 rate increases we took in that book. Source: earnings call transcript	~27.1M Medical membership of approximately 27.1 million was flat sequentially as declines in our individual exchange and Medicare businesses were largely offset by growth in our commercial fee-based business. Source: earnings call transcript	~26.7M We ended the quarter with medical membership of approximately 26.7 million, which was flat sequentially and decreased approximately 445,000 members from the prior year quarter. Source: earnings call transcript	~26.6M We ended the year with approximately 26.6 million medical members, a slight decline sequentially and a decrease of approximately 500,000 members from the prior year. Source: earnings call transcript	~26M We ended the quarter with approximately 26 million medical members, which declined sequentially by approximately 600,000 members. Source: earnings call transcript	~26M Medical membership as of quarter end of approximately 26 million members remain consistent sequentially and declined approximately 700,000 members from the prior year quarter. Source: earnings call transcript	—
Medical care ratio Health Care Benefits	94.8% Our medical benefit ratio of 94.8% increased 630 basis points from the prior year quarter. Source: earnings call transcript	87.3% Our medical benefit ratio of 87.3%, decreased 310 basis points from the prior year. Source: earnings call transcript	92.8% Our medical benefit ratio was 92.8%, a decrease of 240 basis points from the prior year quarter results of 95.2%. Source: earnings call transcript	94.8% Our medical benefit ratio in the quarter was 94.8%, consistent with the prior year quarter. Source: earnings call transcript	84.6% Adjusted operating income in the quarter was approximately $3 billion, and our medical benefit ratio was 84.6%. Source: earnings call transcript	87.4% Adjusted operating income in the quarter was approximately $2.4 billion, and our medical benefit ratio was 87.4%, both of which improved meaningfully from the prior year quarter as we continue to execute on our margin recovery. Source: earnings call transcript	+2.8 pt
Medical members Commercial	—	—	—	~18M Andrew, so on respect to our commercial membership, we serve about 18 million members. Source: earnings call transcript	18M And we have 18 million members in our commercial book. Source: earnings call transcript	—	—

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Deals & partnerships

Rite Aid acquisition

CVS Health successfully acquired Rite Aid assets, welcoming 9 million new patients into stores and over 3,500 new colleagues.

Risks & headwinds

Proposed 2027 Medicare Advantage advanced rate notice 2027

Rates do not match the level of medical cost trend in the industry.

Mitigation:Actively advocating for more appropriate funding; commitment to MA margin recovery is unchanged; focus on improving margins while ensuring a sustainable and compelling product offering.

Elevated medical cost trends Q4 FY25 and 2026

Medical cost trends remained elevated across all products in Q4 FY25 and are not expected to change in 2026.

Mitigation:Disciplined pricing approach; strong rate advocacy; clinical and operational excellence; value-based care models.

Deterioration of risk adjustment position in Individual Exchange business Q4 FY25

Contributed to an adjusted operating loss in the Health Care Benefits segment.

Mitigation:Not explicitly stated, but overall focus on strengthening the business with a better geographic and product mix.

Changes in seasonality of the Medicare Part D program due to Inflation Reduction Act Q4 FY25

Primary driver for the expected decline in adjusted operating income in the Health Care Benefits segment.

Mitigation:Company is adapting to regulatory changes and has time for implementation.

Pharmacy reimbursement pressure and impact of recent generic drug introductions Q4 FY25

Partially offset revenue growth in the Pharmacy & Consumer Wellness segment.

Mitigation:Increased prescription volume; favorable drug mix; successful transition to cost-based reimbursement models.

Q&A highlights

How do the preliminary 2027 MA rates affect the company's goal of returning to target margins by 2028 and the mid-teens earnings growth target?

Management reaffirms commitment to MA margin recovery and long-term enterprise earnings guide, stating the preliminary 2027 MA rates are disappointing but do not impact their long-term targets. They are advocating for more appropriate funding, noting current rates don't match medical cost trends. Aetna's strong foundation, successful AEP, and leading Stars position are highlighted as drivers for continued progress.

“I think the most important question that you asked is how -- while its disappointment in terms of the -- what we've seen is the preliminary rate for '27, we're committed to the Aetna margins, and that commitment remains unchanged. And we do not see this impacting our long-term enterprise guide that we provided in December during the Investor Day.”

asked by Justin Lake · answered by J. Joyner

2 min read 6 chapters

Detailed narrative

Medicare Advantage Outlook and Advocacy

CVS Health expressed disappointment with the proposed 2027 Medicare Advantage advanced rate notice, stating it does not adequately reflect current medical cost trends. The company is actively advocating for more appropriate funding to ensure the program's stability and access for seniors.

Despite this, management reaffirmed its commitment to Aetna's target margins and the long-term enterprise earnings guide, highlighting Signify's critical role in providing in-home health evaluations and value-based care, which aligns with CMS's focus on diagnosis to encounters with medical professionals.

PBM Strategy and Regulatory Environment

Caremark continues to position itself as a crucial check on rising branded drug prices, which have outpaced inflation by 4% annually since 2012. The company supports legislation promoting competition and transparency, particularly those enabling savings at the pharmacy counter. Management noted that recent regulatory changes impacting the commercial market are manageable and align with their TrueCost model, which was introduced in December 2023, anticipating these shifts and aiming to accelerate its adoption for greater transparency and affordability.

Retail Pharmacy Turnaround and Strategy

The Pharmacy & Consumer Wellness segment delivered strong results in 2025, establishing a new trajectory of at least flat annual earnings starting in 2026. This performance was driven by investments in colleagues, technology, and consumer experience, including the successful integration of Rite Aid assets, which brought 9 million new patients.

The company has also completed its transition to cost-based reimbursement models, which are performing in line with expectations, reinforcing its position as a leading national pharmacy focused on local community care.

Aetna's Performance and Strategic Initiatives

Aetna achieved significant financial improvement in 2025, with over $2.6 billion in year-over-year adjusted operating income growth and a leading Stars position. The business is focused on enhancing member experience and reducing administrative burdens, notably having the fewest medical services subject to prior authorization among competitors. 95% of eligible prior authorizations are approved within 24 hours, with condition-specific bundled authorizations expediting care for musculoskeletal, oncology, and IVF patients.

Enterprise Connectivity and Savings Generation

CVS Health leverages its combined enterprise capabilities to deliver better outcomes and lower costs. Examples include the HUMIRA biosimilar strategy, which achieved 96% adoption of a low list price biosimilar, resulting in over $1.5 billion in savings for clients and members.

Overall, Aetna's network negotiations and Caremark's drug manufacturer negotiations collectively generated over $280 billion in annual savings for clients and members, counterbalancing inflationary pressures from hospitals and branded pharmaceutical manufacturers.

Technology and AI Investments

The company is making strategic investments in technology and AI to reimagine the healthcare experience, placing the consumer at the center. These investments are driving efficiencies and enabling product innovation, such as the open engagement platform, which aims to leverage CVS Health's extensive consumer base (over 185 million annually) and local pharmacy footprint (9,000 locations) to improve healthcare engagement, quality, and lower overall costs.

New product launches and partnerships are anticipated in coming quarters.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.