By Amina Niasse and Sriparna Roy
(Reuters) – CVS Health (NYSE:CVS) on Wednesday named Steve Nelson, a former UnitedHealth (NYSE:UNH) insurance head, to run its Aetna business, where rising medical costs in the third quarter caused the company to preannounce an earnings miss last month.
The company last month replaced CEO Karen Lynch with David Joyner due to troubles managing costs in that business.
It has come under investor pressure, including from activist hedge fund Glenview Capital Management, to improve its cost management.
CVS reported a third-quarter adjusted profit of $1.09 per share, less than half of the $2.21 it earned a year ago, due to unexpected spending on medical services in its health insurance unit. That was in line with pre-reported adjusted earnings of $1.05 to $1.10 per share.
The company’s shares have fallen nearly 30% so far this year, compared with the more than 20% gain for the broader S&P 500 during the period.
CVS, which owns a pharmacy benefit manager and one of the largest U.S. national pharmacy chains, said Nelson would begin immediately. Lynch had been running the business after Brian Kane left in August.
The company also named Prem Shah, chief pharmacy officer, as its president.
During the third quarter, the company recorded a charge of about $1.1 billion related to anticipated fourth-quarter losses in its insurance business that serves Medicare and individual health plans.
The company’s medical benefit ratio, or the percentage of premiums spent on healthcare for its members, rose to 95.2% from 85.7% this same quarter last year, in line with its announcement last month.
The healthcare company confirmed it would take $1.2 billion in restructuring charges for layoffs, store closures and closing down certain businesses.
“Our third quarter results reflect strong performance in the Health Services and Pharmacy & Consumer Wellness segments, and also highlight the continued need to work across our enterprise and address macro challenges to the Health Care Benefits segment,” Joyner said in the company’s release.
CVS said net income fell to $87 million, or 7 cents per share, from $2.26 billion, or $1.75 per share, a year earlier.
Revenue in the health care benefits unit rose 25.5% to $33 billion, driven by growth in the Medicare and commercial health insurance businesses.
Sales in health services division, which includes the pharmacy benefit management unit, fell 6% to $44.13 billion, primarily due to the loss of a large client.
Its pharmacy and wellness revenue increased 12.3% to $32.42 billion, buoyed by increased prescription volume.