10-K: CVS Health 2025 Annual Report: Revenue Growth Amidst Challenges

CVS Health reports a 7.8% revenue increase in 2025 to $402.07 billion, driven by growth across all segments, despite a significant goodwill impairment charge and increased litigation expenses impacting net income.

Summary

• Total revenues increased by $29.3 billion, or 7.8%, to $402.07 billion in 2025 compared to 2024.
• Operating income decreased by $3.9 billion, or 45.3%, to $4.66 billion in 2025, primarily due to a $5.7 billion goodwill impairment charge related to the Health Care Delivery reporting unit and $1.2 billion in legacy litigation charges.
• Net income attributable to CVS Health decreased by $2.85 billion, or 61.7%, to $1.77 billion in 2025.
• Diluted EPS decreased to $1.39 in 2025 from $3.66 in 2024.
• Health Care Benefits segment revenues increased by 9.7% to $143.35 billion, driven by growth in the Government business, largely due to the impact of the Inflation Reduction Act (IRA) on the Medicare Part D program.
• The Health Care Benefits Medical Benefit Ratio (MBR) decreased to 91.2% in 2025 from 92.5% in 2024, indicating improved underlying performance in the Government business and higher favorable prior year development.
• Health Services segment revenues increased by 9.7% to $190.43 billion, primarily driven by pharmacy drug mix and brand inflation.
• Pharmacy & Consumer Wellness segment revenues increased by 11.9% to $139.37 billion, primarily due to pharmacy drug mix and increased prescription volume, including incremental volume from Rite Aid prescription file acquisitions.
• A significant $5.7 billion goodwill impairment charge was recorded in the Health Services segment related to the Health Care Delivery reporting unit (Oak Street Health).
• Legacy litigation charges of $1.2 billion were recorded in 2025, including $387 million for Omnicare dispensing practices, $542 million in penalties, and $291 million for PBM direct and indirect remuneration reporting practices.
• Opioid litigation charges of $320 million were recorded in 2025 due to a change in the company's accrual for ongoing matters.
• A gain on deconsolidation of Omnicare, LLC of $483 million was recorded in 2025 following its Chapter 11 proceedings.
• The company exited the ACO REACH program and MSSP, incurring $288 million in pre-tax losses on Accountable Care assets.
• The effective income tax rate decreased to 19.1% in 2025 from 25.4% in 2024, partly due to a $1.9 billion worthless stock deduction associated with a subsidiary bankruptcy.
• Net cash provided by operating activities increased by $1.5 billion, or 16.8%, to $10.64 billion in 2025.
• No shares of common stock were repurchased in 2025, with $10.0 billion remaining authorized under the 2022 Repurchase Program and $1.5 billion under the 2021 Repurchase Program.
• The quarterly cash dividend was maintained at $0.665 per share in 2025 and is expected to be maintained throughout 2026.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a challenging year for CVS Health, marked by significant non-recurring charges and a notable decline in profitability, despite underlying revenue growth in key segments. The goodwill impairment and litigation expenses overshadow operational improvements, and future regulatory pressures in Medicare Advantage and PBMs present headwinds.

Positives

• Total revenues increased by 7.8% to $402.07 billion in 2025, demonstrating overall business growth.
• Health Care Benefits segment revenues grew by 9.7%, driven by the Government business and the impact of the Inflation Reduction Act on Medicare Part D.
• The Medical Benefit Ratio (MBR) for Health Care Benefits improved to 91.2% from 92.5%, indicating better underlying performance and higher favorable prior year development.
• Health Services segment revenues increased by 9.7%, supported by pharmacy drug mix and brand inflation.
• Pharmacy & Consumer Wellness segment revenues increased by 11.9%, benefiting from pharmacy drug mix and incremental prescription volume from Rite Aid acquisitions.
• Pharmacy same-store sales increased by 18.0%, driven by branded GLP-1 drugs and an 8.0% increase in pharmacy same-store prescription volume.
• Net cash provided by operating activities increased by $1.5 billion, or 16.8%, to $10.64 billion, reflecting improved operating performance in the Health Care Benefits segment and timing of payments.
• The company maintained its quarterly dividend of $0.665 per share and expects to continue this throughout 2026.
• The effective income tax rate decreased to 19.1% in 2025, partly due to a $1.9 billion worthless stock deduction associated with a subsidiary bankruptcy.
• The company launched Cordavis, a new subsidiary focused on commercializing and co-producing high-quality biosimilar products, aiming for lower costs and higher savings for clients.
• More than 81% of Medicare Advantage members were in plans with 2026 star ratings of at least 4.0 stars, indicating strong quality performance, though a slight decrease from 88% in 2025.

Negatives

• Operating income decreased significantly by 45.3% to $4.66 billion in 2025.
• Net income attributable to CVS Health decreased by 61.7% to $1.77 billion in 2025.
• A substantial $5.7 billion goodwill impairment charge was recorded in the Health Services segment related to the Health Care Delivery reporting unit (Oak Street Health).
• Legacy litigation charges totaled $1.2 billion in 2025, including $387 million for Omnicare dispensing practices, $542 million in penalties, and $291 million for PBM direct and indirect remuneration reporting practices.
• Opioid litigation charges increased by $320 million in 2025.
• The company incurred $288 million in pre-tax losses on Accountable Care assets due to exiting the ACO REACH program and MSSP.
• Medical membership decreased by 504,000 members, reflecting declines in the individual exchange and Government product lines.
• The company exited the states where Aetna operated on Public Exchanges effective January 2026.
• The 2026 Medicare Advantage star ratings for plans with at least 4.0 stars decreased to 81% of members from 88% in 2025.
• The proposed 2027 Medicare Advantage payment rates, if finalized, will result in an expected average increase in revenue for the industry of only 0.09% (excluding risk score trend increase), posing a challenge to profitability.
• The company closed 243 retail locations in 2025, including 221 due to a strategic review, indicating a contraction of its physical footprint.
• No shares were repurchased in 2025, despite significant authorization remaining.

Risks

• Inability to accurately forecast health care and other benefit costs, especially with volatility in utilization and medical claim submission patterns, could adversely affect Health Care Benefits operating results.
• Adverse economic conditions (inflation, high interest rates, unemployment, supply chain disruptions) can negatively impact all segments, leading to increased costs, reduced demand, and customer inability to pay.
• Highly competitive and evolving business environments across all segments, with increasing price compression, reimbursement pressures, and new market entrants.
• Changes in Health Care Benefits product mix towards less profitable ASC or government-sponsored programs could adversely affect profit margins.
• Unique risks in health care delivery businesses (Signify Health, Oak Street Health), including talent retention, independent contractor challenges, dependence on key health plan customers, quality of information, ability to achieve shared savings, and regulatory risks related to Medicare risk adjustment payments.
• Negative public perception of the industries, drug pricing, PBMs, and business practices could harm brand, reputation, and operating results.
• Dependence on maintaining and improving relationships with retail and specialty pharmacy customers and increasing demand for products and services, including proprietary brands, is crucial.
• Risks relating to the availability, pricing, and safety profiles of prescription drugs, including supply shortages, regulatory restrictions, and increased generic drug utilization leading to reimbursement pressure.
• Inherent variability and judgment in estimating reserves for expected claims in Insured Health Care Benefits products, with potential for actual claims to exceed estimates.
• Potential changes in public policy, laws, and regulations, including U.S. health care system reform, Medicare/Medicaid entitlement programs, 340B program changes, and PBM regulations, could materially affect business.
• Failure to comply with complex laws and regulations could lead to significant adverse regulatory actions, monetary penalties, and reputational harm.
• Routine litigation and adverse legal proceedings, including class actions and qui tam actions, seeking substantial damages not always covered by insurance.
• Frequent governmental audits, investigations, and reviews that could result in changes to business practices, material refunds, fines, penalties, civil liabilities, criminal liabilities, and other sanctions.
• Increased regulatory risks due to vertical integration strategy, such as legislation prohibiting pharmacy licensure for PBM-affiliated pharmacies.
• Dependence on U.S. federal government funding for a significant portion of revenues, making the company vulnerable to funding disruptions or policy changes.
• Inability to obtain adequate premium rate increases in Insured Health Care Benefits products due to regulatory approval processes, potentially leading to operating margin compression.
• Minimum MLR rebate requirements limit margins in Insured Health Care Benefits products and expose the company to higher-than-expected medical costs.
• Operating results may be adversely affected by changes in laws and policies governing employers and union organizing activity.
• Data governance failures, IT system disruptions, cyberattacks, or other information security incidents can harm reputation and expose the company to regulatory actions and claims. The use of AI and related technology may also increase exposure to reputational, cybersecurity, data privacy, legal, regulatory and operational risks.
• Product liability, product recall, professional liability, or personal injury issues could damage reputation and financial condition.
• Significant competition in attracting and retaining talented employees and managing executive succession.
• Sales of products and services are dependent on the ability to attract and motivate internal sales personnel and independent third-party brokers, consultants, and agents, with new distribution channels creating new disintermediation risk.
• Payment-related risks that could increase operating costs, expose the company to fraud or theft, subject it to new rules and other requirements and potential liability, and may disrupt business operations.
• Both the company's and its vendors' operations are subject to a variety of business continuity hazards and risks that could interrupt operations or otherwise adversely affect performance and operating results.
• Adverse conditions in the U.S. and global capital markets can significantly and adversely affect the value of investments in debt and equity securities, mortgage loans, alternative investments, and other investments, and operating results and/or financial condition.
• Goodwill and other intangible assets could, in the future, become impaired, requiring material noncash charges to operating results.
• Risks relating to the market availability, pricing, suppliers, and safety profiles of prescription drugs and other products that the company purchases and sells.
• Continuing consolidation and integration among providers and other suppliers may increase medical and other covered benefit costs, make it difficult to compete in certain geographies, and create new competitors.

Future Outlook

Utilization is expected to persist at elevated levels in 2026, potentially pressuring the Health Care Benefits segment and health care delivery assets. The company anticipates continued price compression and increased client demands for lower prices in PBM services, along with pressure from pharmaceutical manufacturers regarding rebate calculations. Changes in the economic environment, including inflation, tariffs, and labor dynamics, could increase costs and supply chain disruptions, impacting consumer demand and financial results. Consumer spend management and a shift to value, grocery, and digital retailers could lead to lower front store sales in the Pharmacy & Consumer Wellness segment. The company is exposed to funding and regulation changes for Medicare and Medicaid programs, including potential new reforms or surcharges and changes to risk adjustment mechanisms. Legislation and regulations targeting PBM activities are expected to continue, potentially affecting the company's ability to conduct business on commercially reasonable terms and standardize services across states. The proposed 2027 Medicare Advantage payment rates, if finalized as proposed, will result in an expected average increase in revenue for the industry of only 0.09% (excluding risk score trend increase), which could challenge profitability. The future of the 340B Rebate Model Pilot Program is uncertain, and any changes could impact financial performance. The company plans to reduce the number of new primary care clinics it would open in 2026 and annually thereafter, and close certain existing Oak Street Health clinics in 2026. The company expects to maintain its quarterly dividend of $0.665 per share throughout 2026.

Management Comments

• Our ambition at CVS Health is to be Americas most trusted health care company. Our purpose is to simplify health care one person, one family and one community at a time.
• We expect to create sustainable shareholder value by delivering best-in-class execution, transforming consumer experiences, being the partner of choice and harnessing enterprise capabilities, enabled by innovation and capital stewardship.
• The Company is committed to expanding value-based care in the U.S. and delivering higher quality care to patients at a lower overall cost to the industry.
• CVS Health's community health destinations are an integral part of its ability to meet the needs of consumers and maintain its leadership position in the changing health care landscape.
• The Company recognizes that AI has the potential to reimagine health care, including simplifying care navigation, reducing costs, transforming consumer experience and enhancing the quality of and access to care.
• CVS Health is committed to doing its part to help ensure the safe, responsible, ethical and consumer-centric use of AI.
• We believe engaged colleagues produce stronger business results and are more likely to build a career with the Company.
• The Company believes its operating cash flows, commercial paper program, credit facilities, as well as any potential future borrowings, will be sufficient to fund these future payments and long-term initiatives.

Industry Context

StockSavvy.ai notes that CVS Health's 2025 performance reflects broader trends in the U.S. healthcare industry, including the ongoing shift towards value-based care models, increased regulatory scrutiny on drug pricing and PBM practices, and the growing importance of integrated health solutions. The company's strategic moves, such as the acquisition of Rite Aid prescription files and the launch of Cordavis for biosimilars, align with industry efforts to expand market reach and address cost pressures. However, the significant goodwill impairment related to Health Care Delivery (Oak Street Health) and the exit from ACO REACH and MSSP highlight the challenges and competitive intensity in integrating and scaling new care delivery models, particularly in government-sponsored programs. The slight decline in Medicare Advantage star ratings for a portion of its members, coupled with proposed lower payment rate increases for 2027, signals a tightening reimbursement environment for health plans, a trend observed across the sector. The increased focus on AI and digital solutions is consistent with industry-wide efforts to enhance efficiency and consumer engagement.

Comparison to Industry Standards

• The 2026 Medicare Advantage payment rates resulted in an expected average increase in revenue for the industry of 5.06% (excluding risk score trend), while the proposed 2027 rates show a much lower 0.09% increase (excluding risk score trend). This indicates a tightening reimbursement environment for Medicare Advantage plans across the industry, impacting all participants.
• The company's 81% of Medicare Advantage members in 4+ star plans for 2026, while strong, is a decrease from 88% in 2025, suggesting increased difficulty in maintaining top-tier quality ratings compared to prior periods, a challenge CMS has made harder for all plans.
• The PBM industry continues to face price compression and increased client demands for lower prices and greater revenue sharing, as evidenced by CVS Health's experience, reflecting a competitive landscape with major players like Express Scripts (Cigna) and Optum Rx (UnitedHealth Group).
• The retail pharmacy sector, where CVS Health operates approximately 9,000 locations, is highly competitive, with rivals including Walgreens, Walmart, Amazon, and independent pharmacies, all vying for market share based on location, service, product selection, and price.
• The value-based primary care market, where Oak Street Health operates 246 centers, is experiencing a shift from fee-for-service models, with many providers and health systems forming integrated delivery networks and new joint ventures to compete for Medicare-eligible patients and payor contracts.

Management Changes

Corporate Governance

Legal Proceedings

• The company is named as a defendant in multiple lawsuits, including class actions and state false claims act claims, alleging overcharging for prescription drugs by not submitting the correct usual and customary price during claims adjudication.
• Multiple lawsuits and investigations, including by the FTC and state Attorneys General, allege anti-competitive and unfair PBM practices, particularly regarding drug pricing and rebate arrangements, with many consolidated into a multi-district litigation in the U.S. District Court for the District of New Jersey.
• The FTC filed an administrative complaint in September 2024 against the three largest PBMs (including company subsidiaries) alleging anti-competitive practices that artificially increased insulin costs. The company is defending itself and appealing a district court's denial of a constitutional challenge.
• In *U.S. ex rel. Behnke v. CVS Caremark Corporation, et al.*, a court found the company liable under the False Claims Act for certain claims, resulting in a $291 million judgment (recorded as a litigation reserve in 2025). The company has appealed to the Third Circuit Court of Appeals.
• In *U.S. ex rel. Bassan et al. v. Omnicare, Inc. and CVS Health Corp.*, a jury found Omnicare and CVS Health Corporation liable for False Claims Act violations related to improper prescription filling. Omnicare was awarded approximately $136 million (tripled to $407 million) and $542 million in penalties. CVS Health Corporation was found jointly and severally liable for $165 million of the penalties. The company has appealed to the Second Circuit.
• The company is defending against a DOJ-intervened qui tam action, filed in December 2024, alleging violations of the federal Controlled Substances Act and False Claims Act based on the filling of opioid and other controlled substance prescriptions at CVS Pharmacy locations nationwide.
• The company is subject to subpoenas from the U.S. Attorneys Office for the Western District of Virginia, seeking records related to commercial arrangements between its PBM and opioid manufacturers.
• The company is a defendant in purported class actions and individual lawsuits regarding payment of claims for services rendered by in-network and out-of-network providers, alleging underpayment or failure to timely pay claims.
• CMS regularly audits the company's Medicare Advantage and Part D plans for compliance and quality, including risk adjustment data validation (RADV) audits. CMS announced in May 2025 its intention to audit every Medicare Advantage contract each payment year, with an expedited plan for 2018-2024 audits by early 2026. The methodology for these audits is subject to pending litigation.
• In *U.S. ex rel. Andrew Shea v. Aetna Life Insurance Company, et al.*, a complaint alleges the company paid kickbacks to insurance brokers to direct patients to Medicare Advantage plans and engaged in discriminatory conduct. The company is defending itself against these claims.
• The company is subject to protests by unsuccessful bidders for government contracts, which can result in awards being reversed, delayed, or modified.
• Multiple class action and derivative complaints were filed against the company and certain current/former officers and directors, alleging omissions and misrepresentations related to the former LTC business unit and the profitability of the Health Care Benefits segment. Some cases have been consolidated or dismissed, with appeals pending.
• The company has received several Section 220 demands for inspection of books and records related to potential breaches of fiduciary duties concerning opioids and PBM/retail practices.
• The company's remaining accrual for opioid litigation matters was approximately $4.0 billion as of December 31, 2025, but the ultimate loss range cannot be reasonably estimated due to many uncertainties.

Related Party Transactions

• The company made a charitable contribution of $50 million to the CVS Health Foundation, a non-profit entity, during 2025.
• The company and Cardinal Health, Inc. each have a 50% ownership in Red Oak Sourcing, LLC, a generic pharmaceutical sourcing entity. The company consolidates Red Oak and receives quarterly payments from Cardinal, which reduce the company's inventory carrying value.

Stakeholder Impact

• Shareholders: Negative impact from decreased net income, goodwill impairment, and litigation charges. Potential for future share price volatility due to ongoing legal and regulatory risks. Dividend stability is a positive.
• Employees: Increased investments in colleagues and capabilities, comprehensive and competitive rewards package, and training programs are positive. Corporate workforce optimization costs and restructuring charges indicate potential job impacts.
• Customers/Members: Improved MBR in Health Care Benefits and increased prescription volume are positive for service delivery. Exit from Public Exchanges for Aetna and planned closure of Oak Street Health clinics may impact access for some. Cordavis aims to lower drug costs.
• Suppliers/Vendors: Dependence on drug manufacturers and suppliers, with risks related to availability, pricing, and supply chain disruptions. Consolidation among providers may increase costs for the company.
• Creditors: Long-term debt ratings are investment grade, but negative outlooks from Fitch and S&P indicate potential concerns. Compliance with debt covenants is maintained.

Next Steps

• CMS intends to publish the final 2027 Medicare Advantage rate announcement no later than April 6, 2026.
• The company plans to reduce the number of new primary care clinics it would open in 2026 and annually thereafter.
• The company plans to close certain existing Oak Street Health clinics in 2026.
• The company expects to maintain its quarterly dividend of $0.665 per share throughout 2026.
• The appeal of the *U.S. ex rel. Bassan et al. v. Omnicare, Inc. and CVS Health Corp.* case to the Second Circuit is ongoing.
• A new trial for the Florida hospitals opioid case is scheduled to begin in August 2026.
• The *Lovoi v. Aguirre* derivative case remains stayed pending the resolution of the appeal in *In re CVS Health Corp. Securities Act Litigation*.
• The Board will defer a decision on the stockholder demand regarding fiduciary duties pending developments in related litigation.
• The company will continue to defend itself against claims in the *U.S. ex rel. Gill et al. v. CVS Health Corp. et al.* case.
• The appeal of the FTC's administrative complaint against the PBM Group regarding insulin costs to the U.S. Court of Appeals for the Eighth Circuit is pending.

Key Dates

Recommendation

While CVS Health demonstrated revenue growth across all segments and an improved MBR in its Health Care Benefits segment, the significant goodwill impairment charge, substantial litigation expenses, and losses from exiting certain accountable care programs resulted in a sharp decline in operating and net income. The outlook for 2027 Medicare Advantage payment rates is challenging, and ongoing regulatory scrutiny and competitive pressures in PBM and healthcare delivery segments present considerable headwinds. The company's capital allocation strategy, including share repurchases, was paused in 2025. Given the mixed financial performance, the substantial non-recurring charges, and the uncertain regulatory and competitive landscape, a 'hold' recommendation is appropriate as investors await clearer signs of sustained profitability and successful navigation of these challenges.

Keywords

Healthcare, Pharmacy, PBM, Health Insurance, Medicare Advantage, Medicaid, Retail Pharmacy, CVS Health, Aetna, CVS Caremark, Oak Street Health, Signify Health, Biosimilars, Goodwill Impairment, Litigation, SEC Filing, 10-K, Financial Results, Risk Factors, Corporate Governance, Capital Allocation, Digital Health, AI in Healthcare, Prescription Drugs, Health Services, Consumer Wellness, Share Repurchase, Dividends, Regulatory Compliance, Cybersecurity, Supply Chain, Inflation Reduction Act