CVS’ reported strategic review includes potential break-up, cutting workforce
CVS Health is reportedly exploring options that could include a break-up of the company to separate its retail and insurance units, per a Reuters report, which cited people familiar with the matter.
The Reuters report also said that in recent weeks, CVS has been discussing various options, including how such a split would work, with its financial advisers.
The plan to potentially split the company's pharmacy chain and the insurance business has been discussed with the board of directors, which hasn't decided yet on the best course of action for CVS to pursue, the sources said. They also cautioned that the plans have not been finalized and CVS may decide on a different strategy.
[Read more: Glenview reportedly to meet top CVS brass, propose operational improvements]
CVS also is discussing whether its pharmacy benefits manager unit, which manages drug benefits for health plans, should be housed within the retail unit or under insurance, if it were to go ahead with a separation that could result in two publicly traded companies, per the report.
A CVS spokesperson provided Drug Store News with the following statement, "CVS Health’s management team and Board of Directors are continually exploring ways to create shareholder value. We remain focused on driving performance and delivering high-quality healthcare products and services enabled by our unmatched scale and integrated model."
The retailer is facing increasing pressure from investors such as Glenview Capital, which is said to be pushing for changes at the company to help improve its operations after it cut its 2024 earnings outlook for a third consecutive quarter in August.
"While we view management's...adjusted EPS growth target for 2025 as attainable, we believe uncertainty around performance in 2024, as well as the outcome of CVS's 2025 Medicare Advantage bids, creates an unclear outlook for 2025 and beyond," TD Cowen analysts wrote in an Aug. 11 note, the report noted.
[Read more: CVS launches new pharmacy reimbursement model, brand for health services segment]
CVS recently announced the departure of Aetna head Brian Kane, after its Medicare business underperformed due to rising medical services costs, and initiated a $1 billion cost-cutting plan. Aetna currently generates roughly a third of CVS's overall revenue, per the Reuters report.
Following on the heels of this news, CVS Health said it is planning to eliminate 2,900 jobs.
CVS spokesperson Mike DeAngelis provided a statement to Drug Store News that said,
"Our industry faces continued disruption, regulatory pressures, and evolving consumer needs and expectations, so it is critical that we remain competitive and operate at peak performance. As we previously disclosed, we’ve embarked on a multi-year initiative to deliver $2 billion in cost savings by reducing expenses and investing in technologies to enhance how we work.
"To achieve this goal and position ourselves for sustainable growth, we will reduce our workforce by less than 1 percent—approximately 2,900 colleagues across CVS Health. Impacted positions are primarily corporate roles. The reductions will not impact front-line jobs in our stores, pharmacies, and distribution centers. Before taking this step, we prioritized finding cost savings everywhere we could, including closing open job postings. Decisions on which positions to eliminate were extremely difficult and do not diminish the value that impacted colleagues have brought to the company.
"We are committed to supporting these colleagues, who will receive severance pay and benefits, including access to outplacement services. The vast majority of impacted colleagues will be notified this week. We remain focused on our mission—continuing to provide the exceptional care and support our patients, members, clients and customers deserve and depend on."