Cases
CVS Health Corporation
Corporate Governance / Derivative
Overview
Overview
- Date:
- 10/29/2024
- Company Name:
- CVS Health Corporation
- Stock Symbol:
- CVS
- Class Period:
- FROM 5/3/2023 TO 4/30/2024
- Status:
- Filed
- Filing Date:
- 7/12/2024
- Court:
- U.S. District Court: Southern District of New York
Bragar Eagel & Squire, P.C., a nationally recognized shareholder rights law firm, is investigating potential claims against CVS Health Corporation (NYSE: CVS) on behalf of long-term stockholders following a class action complaint that was filed against CVS on July 12, 2024 with a Class Period from May 3, 2023 to April 30, 2024. Our investigation concerns whether the board of directors of CVS have breached their fiduciary duties to the company.
CVS is a healthcare company that operates through three primary segments: Health Care Benefits, Health Services, and Pharmacy & Consumer Wellness. The Health Care Benefits segment purportedly offers “a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental and behavioral health plans, medical management capabilities, Medicare Advantage and Medicare Supplement plans, [prescription drug plans] and Medicaid health care management services.” The Health Care Benefits segment’s revenues consist almost entirely of insurance premiums paid by customers.
The pricing and other terms of the Company’s private health insurance plans are typically determined in advance of a plan’s policy period, which is typically one year. CVS determines premiums for these plans based on internal forecasts that consider historical data and the profitability of which are dependent on the Company’s ability to accurately model, among other things, medical cost trends and health care utilization patterns. Generally, a fixed premium rate is determined at the beginning of the policy period. To the extent that unmodeled-for increases in the costs of health care and other benefits arise during a given policy period, CVS is ultimately responsible for the payment of those costs. Accordingly, the profitability of the Health Care Benefits segment is particularly sensitive to the accuracy of its cost forecasts.
The Complaint alleges that, throughout the Class Period, Defendants made materially false and misleading statements regarding the Company’s business, operations, and compliance policies. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) the forecasts CVS used to determine plan premiums were ineffective at accounting for medical cost trends and health care utilization patterns; (ii) as a result, CVS was likely to incur significant expenses to cover cost increases that were not accounted for in the Company’s forecasts and thus not covered by plan premiums; (iii) accordingly, CVS had overstated the profitability of its Health Care Benefits segment; (iv) contrary to Defendants’ assurances, the revenues generated from the Company’s other primary segments were insufficient to offset the negative financial impact of the increasing expenditures within the Health Care Benefits segment; and (v) as a result, the Company’s public statements were materially false and misleading at all relevant times.
On August 2, 2023, CVS issued a press release announcing the Company’s results for the quarter ended June 30, 2023, which revealed that the Company was revising its diluted earnings-per-share (“EPS”) guidance range to $6.53 to $6.75 from $6.90 to $7.12. In a Quarterly Report filed on Form 10-Q the United States Securities and Exchange Commission (“SEC”) that same day, CVS stated that operating income, which has a direct impact on EPS, “decreased $1.4 billion, or 30.7%, in the three months ended June 30, 2023 compared to the prior year primarily due to declines in the Health Care Benefits segment[.]”
On this news, CVS’s stock price fell $2.04 per share, or 2.73%, to close at $72.32 per share on August 3, 2023.
Then, on November 1, 2023, CVS issued a press release announcing the Company’s results for the quarter ended September 30, 2023, which revealed that the Company was again reducing its diluted EPS guidance range to $6.37 to $6.61 from $6.53 to $6.75. In a Quarterly Report filed on Form 10-Q with the SEC that same day, CVS stated that while operating income increased “in the nine months ended September 30, 2023 compared to the prior year [. . .] [t]hese increases in operating income were partially offset by declines in the Health Care Benefits segment.”
Then, on February 7, 2024, CVS issued a press release announcing the Company’s results for the year ended December 31, 2023 which revealed that the Company was revising its diluted EPS guidance range to at least $7.06 from at least $7.26, its adjusted EPS guidance range to at least $8.30 from at least $8.50, and its cash flow from operations guidance to at least $12.0 billion from at least $12.5 billion. In an Annual Report filed on Form 10-K with the SEC that same day reporting the Company’s financial and operational results for the year ended December 31, 2023, CVS stated that, while operating income increased in 2023 compared to 2022, “[t]hese increases in operating income were partially offset by declines in the Health Care Benefits segment.” Moreover, in a conference call held with investors and analysts that same day to discuss the Company’s 2023 results, CVS’s Chief Financial Officer Defendant Thomas F. Cowhey stated, in relevant part, “we now expect adjusted operating income for the Healthcare Benefit segment to be at least $5.4 billion, a decrease of $370 million from our prior estimates.”
On this news, CVS’s stock price fell $0.96 per share, or 1.27%, to close at $74.36 per share on February 8, 2024.
Finally, on May 1, 2024, CVS issued a press release reporting its results for the quarter ended March 31, 2024 and revising its full-year 2024 guidance. Among other items, CVS reported $88.4 billion in revenue, missing expectations of $89 billion. The Company stated that higher utilization of healthcare services, meaning more insurance dollars spent, weighed on its results in addition to Medicare reimbursement rate cuts that will continue to pressure CVS for the remainder of the year. Accordingly, CVS issued revised full-year 2024 guidance, including “[r]evised GAAP diluted EPS guidance to at least $5.64 from at least $7.06”; “[r]evised Adjusted EPS guidance to at least $7.00 from at least $8.30”; and “[r]evised cash flow from operations guidance to at least $10.5 billion from at least $12.0 billion”. Further, in a Quarterly Report filed on Form 10-Q with the SEC that same day, CVS stated that operating income decreased $1.2 billion, or 34.1% “in in the three months ended March 31, 2024, primarily due to increased Medicare utilization, the unfavorable impact of the previously disclosed decline in the Company’s 2024 Medicare Advantage star ratings and a year-over-year unfavorable impact from development of prior-years’ health care cost estimates in the Health Care Benefits segment.”
On this news, CVS’s stock price fell $11.40 per share, or 16.84%, to close at $56.31 per share on May 1, 2024.
If you are a long-term stockholder of CVS, have information, would like to learn more about these claims, or have any questions concerning this announcement or your rights or interests with respect to these matters, please contact Brandon Walker or Marion Passmore by email at investigations@bespc.com, by telephone at (212) 355-4648, or by filling out the form below. There is no cost or obligation to you.
CVS is a healthcare company that operates through three primary segments: Health Care Benefits, Health Services, and Pharmacy & Consumer Wellness. The Health Care Benefits segment purportedly offers “a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental and behavioral health plans, medical management capabilities, Medicare Advantage and Medicare Supplement plans, [prescription drug plans] and Medicaid health care management services.” The Health Care Benefits segment’s revenues consist almost entirely of insurance premiums paid by customers.
The pricing and other terms of the Company’s private health insurance plans are typically determined in advance of a plan’s policy period, which is typically one year. CVS determines premiums for these plans based on internal forecasts that consider historical data and the profitability of which are dependent on the Company’s ability to accurately model, among other things, medical cost trends and health care utilization patterns. Generally, a fixed premium rate is determined at the beginning of the policy period. To the extent that unmodeled-for increases in the costs of health care and other benefits arise during a given policy period, CVS is ultimately responsible for the payment of those costs. Accordingly, the profitability of the Health Care Benefits segment is particularly sensitive to the accuracy of its cost forecasts.
The Complaint alleges that, throughout the Class Period, Defendants made materially false and misleading statements regarding the Company’s business, operations, and compliance policies. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) the forecasts CVS used to determine plan premiums were ineffective at accounting for medical cost trends and health care utilization patterns; (ii) as a result, CVS was likely to incur significant expenses to cover cost increases that were not accounted for in the Company’s forecasts and thus not covered by plan premiums; (iii) accordingly, CVS had overstated the profitability of its Health Care Benefits segment; (iv) contrary to Defendants’ assurances, the revenues generated from the Company’s other primary segments were insufficient to offset the negative financial impact of the increasing expenditures within the Health Care Benefits segment; and (v) as a result, the Company’s public statements were materially false and misleading at all relevant times.
On August 2, 2023, CVS issued a press release announcing the Company’s results for the quarter ended June 30, 2023, which revealed that the Company was revising its diluted earnings-per-share (“EPS”) guidance range to $6.53 to $6.75 from $6.90 to $7.12. In a Quarterly Report filed on Form 10-Q the United States Securities and Exchange Commission (“SEC”) that same day, CVS stated that operating income, which has a direct impact on EPS, “decreased $1.4 billion, or 30.7%, in the three months ended June 30, 2023 compared to the prior year primarily due to declines in the Health Care Benefits segment[.]”
On this news, CVS’s stock price fell $2.04 per share, or 2.73%, to close at $72.32 per share on August 3, 2023.
Then, on November 1, 2023, CVS issued a press release announcing the Company’s results for the quarter ended September 30, 2023, which revealed that the Company was again reducing its diluted EPS guidance range to $6.37 to $6.61 from $6.53 to $6.75. In a Quarterly Report filed on Form 10-Q with the SEC that same day, CVS stated that while operating income increased “in the nine months ended September 30, 2023 compared to the prior year [. . .] [t]hese increases in operating income were partially offset by declines in the Health Care Benefits segment.”
Then, on February 7, 2024, CVS issued a press release announcing the Company’s results for the year ended December 31, 2023 which revealed that the Company was revising its diluted EPS guidance range to at least $7.06 from at least $7.26, its adjusted EPS guidance range to at least $8.30 from at least $8.50, and its cash flow from operations guidance to at least $12.0 billion from at least $12.5 billion. In an Annual Report filed on Form 10-K with the SEC that same day reporting the Company’s financial and operational results for the year ended December 31, 2023, CVS stated that, while operating income increased in 2023 compared to 2022, “[t]hese increases in operating income were partially offset by declines in the Health Care Benefits segment.” Moreover, in a conference call held with investors and analysts that same day to discuss the Company’s 2023 results, CVS’s Chief Financial Officer Defendant Thomas F. Cowhey stated, in relevant part, “we now expect adjusted operating income for the Healthcare Benefit segment to be at least $5.4 billion, a decrease of $370 million from our prior estimates.”
On this news, CVS’s stock price fell $0.96 per share, or 1.27%, to close at $74.36 per share on February 8, 2024.
Finally, on May 1, 2024, CVS issued a press release reporting its results for the quarter ended March 31, 2024 and revising its full-year 2024 guidance. Among other items, CVS reported $88.4 billion in revenue, missing expectations of $89 billion. The Company stated that higher utilization of healthcare services, meaning more insurance dollars spent, weighed on its results in addition to Medicare reimbursement rate cuts that will continue to pressure CVS for the remainder of the year. Accordingly, CVS issued revised full-year 2024 guidance, including “[r]evised GAAP diluted EPS guidance to at least $5.64 from at least $7.06”; “[r]evised Adjusted EPS guidance to at least $7.00 from at least $8.30”; and “[r]evised cash flow from operations guidance to at least $10.5 billion from at least $12.0 billion”. Further, in a Quarterly Report filed on Form 10-Q with the SEC that same day, CVS stated that operating income decreased $1.2 billion, or 34.1% “in in the three months ended March 31, 2024, primarily due to increased Medicare utilization, the unfavorable impact of the previously disclosed decline in the Company’s 2024 Medicare Advantage star ratings and a year-over-year unfavorable impact from development of prior-years’ health care cost estimates in the Health Care Benefits segment.”
On this news, CVS’s stock price fell $11.40 per share, or 16.84%, to close at $56.31 per share on May 1, 2024.
If you are a long-term stockholder of CVS, have information, would like to learn more about these claims, or have any questions concerning this announcement or your rights or interests with respect to these matters, please contact Brandon Walker or Marion Passmore by email at investigations@bespc.com, by telephone at (212) 355-4648, or by filling out the form below. There is no cost or obligation to you.
The individual or institution below (“Plaintiff”) has reviewed and agrees to the Bragar Eagel & Squire, P.C. (“BESPC”) retainer agreement and authorizes BESPC to prosecute an action on Plaintiff’s behalf under the federal securities laws or applicable state laws to recover damages on behalf of investors in CVS Health Corporation. BESPC will prosecute the action on a full contingency basis and will forward all costs and expenses.
Case Updates
Retainer Agreement
This will confirm that you have retained Bragar Eagel & Squire, P.C. (“BESPC”) to represent you in connection with potential litigation against CVS Health Corporation (the “Company”) and its directors and officers. BESPC has conducted an investigation and believes that there is a valid basis to assert claims against the Company and its directors and/or officers for breach of fiduciary duties and other applicable laws.
In making this agreement, BESPC is relying upon your representation that you held the Company’s shares during the period from 5/3/2023 to 4/30/2024 (the “Relevant Period”) and that you continue to hold Company shares. Please provide us with documentation of your trading history in the Company’s stock by emailing a relevant copies of your brokerage statements to investigations@bespc.com. If you have any questions or need assistance, please call us at (212) 308-5858.
The terms under which we will represent you and your responsibilities as a potential representative plaintiff are set forth below.
You will have an obligation to remain knowledgeable about the litigation and participate in decisions concerning the progress of the litigation. If BESPC is appointed as lead counsel or in a similar capacity in the action, we will provide you with copies of all pleadings in the litigation for your review and approval, circumstances permitting, before they are filed with the court. BESPC will also promptly advise you of any significant developments in the litigation.
As a representative plaintiff, you cannot have any interest antagonistic to or in conflict with other shareholders or the Company concerning the claims we are pursuing or any relationships with any of the named defendants that would in any way impair your ability or incentive to obtain the best possible result. You agree that neither you nor any of your affiliates or agents will trade stocks while in the possession of any material non-public information you may receive in connection with the litigation. In addition, as a representative plaintiff, you may be required to continue holding Company shares. Please contact us before buying or selling Company shares.
BESPC will prosecute this litigation on a contingency basis. You will not be responsible for paying any legal fees, costs, or out-of-pocket expenses arising out of or related to the prosecution of this litigation, regardless of the outcome of the matter. If there is a monetary recovery in this action, BESPC will, at the conclusion of the litigation or any segment thereof, apply to the court for approval of an award of attorneys’ fees and reimbursement of expenses. BESPC may also seek a fee if we obtain substantial non-monetary relief for the Class or the Company. The court will then award fees and disbursements (if any) from the proceeds of any judgment or settlement obtained in this litigation, based on factors considered relevant by the court. Such fees, costs, and disbursements will be paid from the entire settlement amount and not only from your share of the settlement amount.
BESPC may associate with other counsel to assist in the prosecution of this litigation. Any recovery of fees and costs will be shared with such counsel, determined on a percentage basis or based upon the time spent on the matter, as approved by the court if applicable. The division of work and or fees among co-counsel will not affect the amount of fees received upon a successful completion of the litigation. From time to time, BESPC may utilize contract attorneys to supplement the work of its own employed attorneys. BESPC will supervise the work of all contract attorneys and adopt their work product as its own. You authorize BESPC, as we deem appropriate, to associate with other counsel and to hire experts and consultants to assist in the handling of your claims.
It is possible that you will not be appointed as a lead plaintiff in the action. However, we may wish to represent you in other litigation related to the wrongful acts giving rise to this case. In such event, we will contact you to discuss the scope of such representation and obtain your approval before moving forward. You also agree that we may contact you with respect to other potential matters on your behalf.
BESPC will consult with you regarding any settlement negotiations and seek to obtain your approval for any proposed resolution of this litigation before entering into a final settlement agreement with defendants.
You expressly acknowledge that we have not made any representation to you, express or implied, concerning the outcome of any litigation or other matter in which we represent you.
If you are not chosen as a representative plaintiff and we do not choose to pursue other related litigation on your behalf, we will provide you with notification and this Agreement shall terminate. Otherwise, this Agreement shall remain in effect until the conclusion of the relevant litigation. However, you may terminate this Agreement at any time.
Upon termination, BESPC’s files and papers compiled in connection with its investigation and prosecution of this matter constitute the work product and property of BESPC over which it has complete control with respect to its use and/or disclosure.
This agreement sets forth the entire agreement between the parties and supersedes all other oral or written communications.
Please feel free to contact us at any time should you have any questions or comments in this regard.
In making this agreement, BESPC is relying upon your representation that you held the Company’s shares during the period from 5/3/2023 to 4/30/2024 (the “Relevant Period”) and that you continue to hold Company shares. Please provide us with documentation of your trading history in the Company’s stock by emailing a relevant copies of your brokerage statements to investigations@bespc.com. If you have any questions or need assistance, please call us at (212) 308-5858.
The terms under which we will represent you and your responsibilities as a potential representative plaintiff are set forth below.
Your Responsibilities as a Representative Plaintiff
As a representative plaintiff, you will have a duty to represent the interests of similarly situated shareholders and to participate in the prosecution of this litigation. You may also be asked to provide documents concerning your trading in Company stock and may be asked to sit for a deposition. Accordingly, you should preserve all documents that relate to this case until it has concluded or we inform you otherwise. Relevant documents include any information you have about the Company or your trading in Company stock, no matter how it is recorded or who is keeping it for you. If you have any questions about whether information should be retained, please contact us.You will have an obligation to remain knowledgeable about the litigation and participate in decisions concerning the progress of the litigation. If BESPC is appointed as lead counsel or in a similar capacity in the action, we will provide you with copies of all pleadings in the litigation for your review and approval, circumstances permitting, before they are filed with the court. BESPC will also promptly advise you of any significant developments in the litigation.
As a representative plaintiff, you cannot have any interest antagonistic to or in conflict with other shareholders or the Company concerning the claims we are pursuing or any relationships with any of the named defendants that would in any way impair your ability or incentive to obtain the best possible result. You agree that neither you nor any of your affiliates or agents will trade stocks while in the possession of any material non-public information you may receive in connection with the litigation. In addition, as a representative plaintiff, you may be required to continue holding Company shares. Please contact us before buying or selling Company shares.
Contingency Fee and Advancement of Expenses
BESPC will prosecute this litigation on a contingency basis. You will not be responsible for paying any legal fees, costs, or out-of-pocket expenses arising out of or related to the prosecution of this litigation, regardless of the outcome of the matter. If there is a monetary recovery in this action, BESPC will, at the conclusion of the litigation or any segment thereof, apply to the court for approval of an award of attorneys’ fees and reimbursement of expenses. BESPC may also seek a fee if we obtain substantial non-monetary relief for the Class or the Company. The court will then award fees and disbursements (if any) from the proceeds of any judgment or settlement obtained in this litigation, based on factors considered relevant by the court. Such fees, costs, and disbursements will be paid from the entire settlement amount and not only from your share of the settlement amount.
Association with Counsel
BESPC may associate with other counsel to assist in the prosecution of this litigation. Any recovery of fees and costs will be shared with such counsel, determined on a percentage basis or based upon the time spent on the matter, as approved by the court if applicable. The division of work and or fees among co-counsel will not affect the amount of fees received upon a successful completion of the litigation. From time to time, BESPC may utilize contract attorneys to supplement the work of its own employed attorneys. BESPC will supervise the work of all contract attorneys and adopt their work product as its own. You authorize BESPC, as we deem appropriate, to associate with other counsel and to hire experts and consultants to assist in the handling of your claims.
Other Actions
It is possible that you will not be appointed as a lead plaintiff in the action. However, we may wish to represent you in other litigation related to the wrongful acts giving rise to this case. In such event, we will contact you to discuss the scope of such representation and obtain your approval before moving forward. You also agree that we may contact you with respect to other potential matters on your behalf.No Special Treatment
You understand that in the event we secure a recovery, you will not receive any special treatment or receive a greater share of any recovery based on your service as a named plaintiff. However, we may ask the Court to approve an additional award to you to compensate you for the time and effort you expend on this matter. Any such award is solely within the discretion of the Court.
Settlement
BESPC will consult with you regarding any settlement negotiations and seek to obtain your approval for any proposed resolution of this litigation before entering into a final settlement agreement with defendants.
No Guarantee of Success
You expressly acknowledge that we have not made any representation to you, express or implied, concerning the outcome of any litigation or other matter in which we represent you.
Termination of This Agreement
If you are not chosen as a representative plaintiff and we do not choose to pursue other related litigation on your behalf, we will provide you with notification and this Agreement shall terminate. Otherwise, this Agreement shall remain in effect until the conclusion of the relevant litigation. However, you may terminate this Agreement at any time. Upon termination, BESPC’s files and papers compiled in connection with its investigation and prosecution of this matter constitute the work product and property of BESPC over which it has complete control with respect to its use and/or disclosure.
This agreement sets forth the entire agreement between the parties and supersedes all other oral or written communications.
Please feel free to contact us at any time should you have any questions or comments in this regard.