NEW YORK (Reuters) - CVS Health's ( CVS ) David Joyner is expected to address how he will better manage rising patient costs in the Medicare business than his predecessor when he tackles his first earnings call as CEO on Wednesday, particularly after rivals have shown progress on that front in recent financial reports.

Joyner replaced Karen Lynch as CEO three weeks ago as the company withdrew its 2024 earnings forecast and provided a third-quarter profit outlook far below analysts' expectations, citing medical spending in its insurance business.

CVS shares are down 30% this year and the company faces pressure from investors including hedge fund Glenview Capital Management to improve shareholder value. In the Oct. 18 release, CVS said it had conducted a strategic review that included layoffs, write-downs and the decision to close 271 more retail stores. 

CVS, which owns insurer Aetna, one of the biggest pharmacy chains in the country and a large pharmacy benefit manager, has repeatedly missed financial expectations in the past year, largely due to costs in its Medicare Advantage plans for people aged 65 and older or who are disabled. 

"Specific to CVS, their issue is they took on a lot of enrollment growth for 2024, and the patients that they brought on just carried much higher" use of medical services, said Brian Tranquilut, an analyst at Jefferies. 

CVS's Medicare Advantage enrollment grew 7% to 4.1 million people this year, according to KFF, the biggest percentage increase of all such plans. It received lower quality ratings from the government, which hurt 2024 bonus payments.

The company expects higher reimbursements in those plans in 2025. Nearly 90% of its members enrolled in Medicare Advantage were in health plans with high performance ratings. 

HIGHER COSTS

Insurers managing government-sponsored plans have faced higher costs in both Medicare and Medicaid for low-income members following the COVID-19 pandemic due to changes in enrollment patterns and increased use of medical services delayed during the global health crisis.

"During the pandemic, people were not seeing the doctor as often as they were," said Dan Jones, vice president of Federal Affairs at the industry trade group Alliance of Community Health Plans. "Now they're seeing doctors more often and are also being found to have higher (health risk) levels."

The government needs to raise its payments to insurers in both Medicare Advantage and Medicaid to reflect the higher utilization, Jones said. 

Under the Affordable Care Act, the government's reimbursement for Medicare Advantage has been decreasing to align with traditional Medicare.

Still, CVS rivals and providers of Medicare Advantage plans Centene ( CNC ) and Humana, said they are managing costs and beat Wall Street earnings expectations for the third quarter. 

CVS in October said it expected adjusted third-quarter earnings in a range of $1.05 to $1.10 per share. Analysts had estimated earnings of $1.58 per share for the quarter, according to LSEG data.

CVS's 2025 strategy also involves bolstering healthcare services revenue by directing patients to its retail pharmacies where it offers them, Tranquilut said.

That could require more investment in the stores themselves, Morningstar analyst Julie Utterback said.

CVS acquired MinuteClinic, which offers healthcare services within CVS pharmacies, in 2006 and established it as a primary care provider for some Aetna plan members last month.

The company has stood by its MinuteClinics, which it touted as a low cost healthcare alternative when it bought Aetna in 2017. But it has closed 900 retail stores in the last few years.

Former CEO Lynch earlier this year said the number of Aetna Medicare Advantage members using Oak Street Health - a network of Medicare providers it purchased in 2023 - for primary care should expand next year, as the company introduces co-branded Aetna and Oak Street health plans.    

That may not be enough to turn the tide.

"The healthcare services business through its retail stores are just too small to overcome the rate issues it is having in government-sponsored insurance plans," Utterback said.