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CVS Health expects medical costs to remain high through the year

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By Sriparna Roy and Leroy Leo

(Reuters) -CVS Health said on Wednesday that high demand for medical care among older adults hit its second-quarter results, a trend that continued into July, causing it to slash its 2024 profit forecast.

CVS lowered its annual profit forecast to $6.40 to $6.65 per share from its prior view of least $7.00, marking at least the fourth time the healthcare conglomerate lowered its outlook for the year.

“We are disappointed by the current performance and outlook for the Health Care Benefits segment, and I have decided to make leadership changes effective immediately,” CEO Karen Lynch said on a call to discuss the financial results.

Brian Kane, chief of the healthcare benefits unit that runs insurer Aetna, is leaving the company, and Lynch, who was the president of Aetna before being promoted to CVS’ top post, will assume leadership of the unit.

CVS also appointed Katerina Guerraz, chief strategy officer and a 20-year Aetna veteran, as the chief operating officer of the insurance unit.

The company also announced a multi-year plan to save $2 billion in costs through measures such as “streamlining” its operations and using artificial intelligence and automation across its business.

In addition to Aetna and its Caremark pharmacy benefits unit, CVS has one of the biggest retail pharmacy chains in the U.S.

Like other health insurers, Aetna has been struggling with elevated medical costs since late last year as older adults catch up on delayed procedures, and lower-than-expected payments from the government for managing healthcare hurt its margins.

The company expects its medical costs to be higher in the second half of the year than the first half, based on early indicators in July, Chief Financial Officer Thomas Cowhey said during the call.

Baird analyst Michael Ha said he wondered if CVS had accounted for the continued rise in medical services use seen in July into its proposed premium rates for 2025 Medicare Advantage plans that were due to the government in June.

“We begin to question just how much lower can CVS trade even though we’ve seen misexecution time and time again this year,” Ha said.

CVS shares, which have fallen more than 26% this year, were off about 0.5% in late morning trading at $58.03.

Last week, Humana (NYSE:) also flagged more-than-expected inpatient admissions in late June, and suggested that costs would remain elevated for the year.

Costs from Medicaid plans for lower income people have also been high due to sicker patients gaining coverage.

The company reported a sharp decline in second-quarter profit to $1.83 per share, from $2.21 a year earlier.

The profit, however, was 10 cents ahead of analysts’ estimates, which had come down sharply in the past month, according to LSEG data.

The company’s healthcare benefit ratio – the percentage of premiums spent on medical care – also rose more than 3 percentage points to 89.6%, but was lower than estimates of 90.5%.

CVS raised its forecast for 2024 healthcare benefit ratio to 90.6% to 90.8%, from about 89.8% it estimated in May.

© Reuters. FILE PHOTO: A general view shows a sign of CVS Health Retail Pharmacy Customer Care Center, at CVS headquarters of CVS Health Corp in Woonsocket, Rhode Island, U.S. October 30, 2023. REUTERS/Faith Ninivaggi/File Photo

“It’s another frustrating quarter,” said James Harlow, senior vice president at Novare Capital Management, which owns 101,522 shares of CVS.

“The fact that they have to cut their outlook yet again really damages management’s credibility.”

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Palantir, Anduril join forces with tech groups to bid for Pentagon contracts, FT reports

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(Reuters) – Data analytics firm Palantir Technologies (NASDAQ:) and defense tech company Anduril Industries are in talks with about a dozen competitors to form a consortium that will jointly bid for U.S. government work, the Financial Times reported on Sunday.

The consortium, which could announce agreements with other tech groups as early as January, is expected to include SpaceX, OpenAI, autonomous shipbuilder Saronic and artificial intelligence data group Scale AI, the newspaper said, citing several people with knowledge of the matter.

“We are working together to provide a new generation of defence contractors,” a person involved in developing the group told the newspaper.

The consortium will bring together the heft of some of Silicon Valley’s most valuable companies and will leverage their products to provide a more efficient way of supplying the U.S. government with cutting-edge defence and weapons capabilities, the newspaper added.

Palantir, Anduril, OpenAI, Scale AI and Saronic did not immediately respond to a Reuters request for comment. SpaceX could not be immediately reached for a comment.

Reuters reported earlier this month that President-elect Donald Trump’s planned U.S. government efficiency drive involving Elon Musk could lead to more joint projects between big defense contractors and smaller tech firms in areas such as artificial intelligence, drones and uncrewed submarines.

Musk, who was named as a co-leader of a government efficiency initiative in the incoming government, has indicated that Pentagon spending and priorities will be a target of the efficiency push, spreading anxiety at defense heavyweights such as Boeing (NYSE:) , Northrop Grumman (NYSE:) , Lockheed Martin (NYSE:) and General Dynamics (NYSE:) .

Musk and many small defense tech firms have been aligned in criticizing legacy defense programs like Lockheed Martin’s F-35 fighter jet while calling for mass production of cheaper AI-powered drones, missiles and submarines.

Such views have given major defense contractors more incentive to partner with emerging defense technology players in these areas.

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Weakened Iran could pursue nuclear weapon, White House’s Sullivan says

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By Simon Lewis (JO:)

(Reuters) -The Biden administration is concerned that a weakened Iran could build a nuclear weapon, White House National Security Adviser Jake Sullivan said on Sunday, adding that he was briefing President-elect Donald Trump’s team on the risk.

Iran has suffered setbacks to its regional influence after Israel’s assaults on its allies, Palestinian Hamas and Lebanon’s Hezbollah, followed by the fall of Iran-aligned Syrian President Bashar al-Assad.

Israeli strikes on Iranian facilities, including missile factories and air defenses, have reduced Tehran’s conventional military capabilities, Sullivan told CNN.

“It’s no wonder there are voices (in Iran) saying, ‘Hey, maybe we need to go for a nuclear weapon right now … Maybe we have to revisit our nuclear doctrine’,” Sullivan said.

Iran says its nuclear program is peaceful, but it has expanded uranium enrichment since Trump, in his 2017-2021 presidential term, pulled out of a deal between Tehran and world powers that put restrictions on Iran’s nuclear activity in exchange for sanctions relief.

Sullivan said that there was a risk that Iran might abandon its promise not to build nuclear weapons.

“It’s a risk we are trying to be vigilant about now. It’s a risk that I’m personally briefing the incoming team on,” Sullivan said, adding that he had also consulted with U.S. ally Israel.

Trump, who takes office on Jan. 20, could return to his hardline Iran policy by stepping up sanctions on Iran’s oil industry.

© Reuters. FILE PHOTO: Iranian flag flies in front of the UN office building, housing IAEA headquarters, in Vienna, Austria, May 24, 2021. REUTERS/Lisi Niesner/File Photo

Sullivan said Trump would have an opportunity to pursue diplomacy with Tehran, given Iran’s “weakened state.”

“Maybe he can come around this time, with the situation Iran finds itself in, and actually deliver a nuclear deal that curbs Iran’s nuclear ambitions for the long term,” he said.

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Ukraine says Russian general deliberately targeted Reuters staff in August missile strike

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(Reuters) -Ukraine’s security service has named a Russian general it suspects of ordering a missile strike on a hotel in eastern Ukraine in August and said he acted “with the motive of deliberately killing employees of” Reuters.

The Security Service of Ukraine (SBU) said in a statement on Friday that Colonel General Alexei Kim, a deputy chief of Russia’s General Staff, approved the strike that killed Reuters safety adviser Ryan Evans and wounded two of the agency’s journalists on Aug. 24.

In a statement posted on Telegram messenger the SBU said it was notifying Kim in absentia that he was an official suspect in its investigation into the strike on the Sapphire Hotel in Kramatorsk, a step in Ukrainian criminal proceedings that can later lead to charges.

In a separate, 15-page notice of suspicion, in which the SBU set out findings from its investigation, the agency said that the decision to fire the missile was made “with the motive of deliberately killing employees of the international news agency Reuters who were engaged in journalistic activities in Ukraine”.

The document, which was published on the website of the General Prosecutor’s Office on Friday, said that Kim had received intelligence that Reuters staff were staying in Kramatorsk. It added that Kim would have been “fully aware that the individuals were civilians and not participating in the armed conflict”.

The Russian defence ministry did not respond to a request for comment on the SBU’s findings and has not replied to previous questions about the attack. The Kremlin also did not respond to a request for comment. Kim did not reply to messages sent by Reuters to his mobile telephone seeking comment about the SBU’s statement and whether the strike deliberately targeted Reuters staff.

The SBU did not provide evidence to support its claims, nor say why Russia targeted Reuters. In response to questions from the news agency, the security agency declined to provide further details, saying its criminal investigation was still under way and it was therefore not able to disclose such information.

Reuters has not independently confirmed any of the SBU’s claims.

Reuters said on Friday: “We note the news today from the Ukrainian security services regarding the missile attack on August 24, 2024, on the Sapphire Hotel in Kramatorsk, a civilian target more than 20 km from Russian-occupied territory.”

“The strike had devastating consequences, killing our safety adviser, Ryan Evans, and injuring members of our editorial team. We continue to seek more information about the attack. It is critically important for journalists to be able to report freely and safely,” the statement said.

Reuters declined to comment further on the allegation that its staff were deliberately targeted.

The SBU statement said Kim had been named a suspect under two articles of the Ukrainian criminal code: waging an aggressive war and violating the laws and customs of war.

“It was Kim who signed the directive and gave the combat order to fire on the hotel, where only civilians were staying,” it said.

Evans, a 38-year-old former British soldier who had worked as a safety adviser for Reuters since 2022, was killed instantly in the strike.

The SBU statement gave some details about how the strike had occurred, according to its investigation.

“To carry out the attack, the Russian colonel general involved one of his subordinate missile forces units,” the Ukrainian agency said, adding that the strike was carried out with an Iskander-M ballistic missile.

The SBU did not identify the specific unit.

© Reuters. FILE PHOTO: Reuters safety advisor Ryan Evans holds a cat during a news assignment, as Russia's attack on Ukraine continues, during intense shelling in Kramatorsk, Ukraine, December 26, 2022. REUTERS/Clodagh Kilcoyne/File Photo

Ivan Lyubysh-Kirdey, a videographer for the news agency who was in a room across the corridor, was seriously wounded. Kyiv-based text correspondent Dan Peleschuk was also injured.

The remaining three members of the Reuters team escaped with minor cuts and scratches.

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