CVS Health reportedly considering splitting up its businesses, will lay off 2,900 employees
As part of a multiyear, $2 billion cost-cutting effort announced in August, CVS Health said it will trim its workforce by 2,900 mostly corporate positions, The Wall Street Journal reported last week. The company is also considering the possibility of separating its retail and Aetna insurance units, Reuters reported, citing sources familiar with the matter.
The sources told Reuters that management at CVS has been discussing various options with its financial advisers in recent weeks and said the possibility of splitting the pharmacy chain from the insurance business has been discussed with the board of directors.
They also noted that discussions have taken place regarding whether CVS Caremark, the company’s pharmacy benefit manager, would be paired with the retail unit or with Aetna, should the two businesses be separated.
The board has not made any decisions and no plans have been finalized, according to the sources.
A spokesperson for CVS did not comment on whether such discussions have taken place, Reuters noted.
“CVS’s management team and board of directors are continually exploring ways to create shareholder value,” the spokesperson said. “We remain focused on driving performance and delivering high-quality health care products and services enabled by our unmatched scale and integrated model.”
According to The Wall Street Journal, management at CVS met with Glenview Capital, a hedge fund based in New York and one of the company’s investors, last Monday to discuss ways of improving the company’s operations.
News of the meeting led to press reports that Glenview was pushing for the breakup, but Glenview said in a statement released on Tuesday those reports are false.
“Glenview and CVS leadership are engaged in good faith and constructive conversations through which Glenview is offering suggestions to enhance the governance, culture, efficiency, sustainability, and growth of CVS Health,” Glenview stated.
The positions being eliminated at CVS Health represent slightly less than 1% of the company’s overall workforce of 300,000. According to Healthcare Dive, a spokesperson said no frontline workers in CVS stores or pharmacies would be let go.
Our Take: Like Walgreens and Walmart, CVS Health has made significant investments in recent years to increase the health services it offers. Last year CVS Health spent $18 billion on the acquisitions of primary care provider Oak Street Health and in-home care provider Signify Health.
Like Walgreens and Walmart, CVS is re-evaluating its business strategies after experiencing lower-than-anticipated returns on some of those investments.
Earlier this year, Walmart unexpectedly and swiftly closed its Walmart Health centers. Walgreens has closed between 140 and160 VillageMD locations since the beginning of the year, and the company stated in a regulatory filing in August that it is evaluating various options with respect to its investments in VillageMD. Those options could include “a sale of all or part of” the VillageMD businesses, according to the filing.
Both Walgreens and CVS Health have closed hundreds of their stores in the last several years in an attempt to shore up their financial statements.
CVS Health may find it difficult to make more sweeping changes, though, in part because of its ownership of Aetna. CVS paid $70 billion for Aetna in 2018 and has integrated the insurance business with its retail pharmacy, PBM, and care provider services.
Karen Lynch, CVS Health’s CEO, said the company was disappointed with the performance of its health care benefits segment, which includes Aetna, when she told investors during the earnings call in August that Brian Kane, who served as president of Aetna, was no longer with the company.
Tom Cowhey, CVS Health’s chief financial officer, said during the call that costs associated with Aetna’s Medicare Advantage plans could increase in the second half of this year. Many of the largest insurers have seen increased utilization erode their MA profits the last couple of years or so.
But, as Becker’s Hospital Review noted, CVS Health runs the risk of adversely affecting its customer retention and revenue streams if it removes Aetna or any of its lines of business from the company’s integrated model.
And, there’s that niggling matter of whether CVS Caremark belongs with Aetna or the pharmacy business — not to mention the potential ramifications of the Federal Trade Commission’s investigation into PBM practices.
In the Reuters report about the possible breakup, Julie Utterback, an analyst at the investment research firm Morningstar, said:
“While we realize the medical insurance and PBM operations are facing problems currently, we agree with management, as highlighted last year at its investor day, that the long-term weak link at CVS will likely be its namesake retail pharmacy stores. So, unless there is a fix, such as expanding health care services in those stores substantially in the near future, a strategic change there may be necessary.”
Alan Lutz, a research analyst with Bank of America Securities, wrote in a note to clients:
“Aetna’s underperformance year-to-date is the main driver of CVS’ weak share price, and it is unclear how much investors would reward that business as a stand-alone entity, especially on current year or next year’s earnings. Put another way, we think CVS Health could generate substantial shareholder value by improving margins within Aetna over the next few years.”
Although CVS Health said no decisions have been made and none may be imminent, now that talk of a potential split has been made public, we don’t expect the company to let the matter drag out for long.
What else you need to know
Updates on two mergers and an acquisition: Detroit-based Henry Ford Health and Ascension Michigan launched their newly combined organization, which takes the Henry Ford Health name, on Oct. 1. Bob Riney, CEO of the legacy Henry Ford Health system, is president and CEO of the joint venture, which has more than 550 sites across Michigan, including 13 acute care hospitals, and employs approximately 50,000 team members. The Ascension Michigan hospitals and their affiliated sites will be rebranded to Henry Ford Health; the Catholic sites of care will maintain their existing name in conjunction with Henry Ford Health and will continue to provide faith-based care.
Separately, the Oregon Health Authority will begin a preliminary review of the proposed integration of Portland-based Oregon Health & Science University (OHSO) and Legacy Health, after confirming on Friday receipt of OHSO’s health care market oversight notice, according to a news release. The proposed merger, announced in late May, would form an integrated public university health system with more than 100 locations, including 12 hospitals, under the OHSO name; it would one of the largest providers of services for Medicaid members in Oregon. OHSO has committed to making a $1 billion capital investment in Legacy Health’s infrastructure and technology. OHSO and Legacy Health anticipate completing the transaction by next spring.
In other news, Dallas-based Tenet Healthcare completed the sale of its 70% ownership interest in Brookwood Baptist Health, a Birmingham, Ala.-based health system, with five hospitals, more than 70 clinics, an estimated 1,500 affiliated physicians, and over 7,300 employees, to Orlando Health, a not-for-profit health system with 17 hospitals. When the definitive agreement was announced in August, Tenet valued the transaction at approximately $910 million. Moving forward, the Alabama health system will continue to be a faith-based organization but will be called Baptist Health. Tenet’s revenue cycle management subsidiary, Conifer Health Solutions, entered into a 10-year contract to provide services for the Brookwood Baptist Health operations.
Humana’s share price dropped sharply last week when CMS released preliminary 2025 Medicare Advantage star ratings data. Based on that data, Humana stated in a regulatory filing, approximately 25% of Humana’s members are currently enrolled in plans with a 4-star or higher rating for 2025, down from 94% in 2024. The insurer said a “significant driver” of the results was a rating reduction for the 2025 plan year for a major contract, from 4.5 stars to 3.5 stars. The contract covers approximately 45% of Humana’s MA membership, including nearly all of its group MA membership. Humana said the reduction in ratings was “driven by narrowly missing higher industry cut points on a small number of measures.” Believing there may be errors in some of CMS’ threshold calculations, Humana said it has outstanding appeals related to certain results and has requested additional information from CMS. Nonetheless, the company said it is “disappointed with its performance” and has undertaken initiatives to improve its “operating discipline.” The lower rating will affect Humana’s quality bonus payments in 2026.
The Medicare Advantage landscape continues to shift, with large insurers including Humana, CVS Health, Cigna, and Centene scaling back their offerings for the coming plan year and others, like Premera Blue Cross, exiting the market altogether. In an announcement Tuesday, Premera said its decision not to offer MA plans next year was influenced by changing market conditions and financial constraints. Premera noted that the nearly 32,000 members who currently have an MA plan represent a small percentage of the company’s total 2.75 million members, and that it would maintain its Medicare Supplement business in Washington and Alaska.
Similarly, University of Vermont Health Network and MVP Health Care said they will not offer their joint MA plan, UVM Health Advantage, in Vermont next year, though it will still be available in five counties in upstate New York. CMS recently released fact sheets for all 50 states with open enrollment data for 2025. Compared with this year, fewer MA plans will be available in 22 states, though CMS said in a press release the average monthly premium for all MA plans is projected to decrease slightly, benefit options will remain stable, and enrollment in MA plans is expected to increase.
Blue Shield of California (BSCA) will buy a Humira biosimilar directly from manufacturer Fresenius Kabi, according to a news release. The agreement between BSCA, Fresenius Kabi, and Evio Pharmacy Solutions, which facilitated the deal, is part of the insurer’s new Pharmacy Care Reimagined model. BSCA introduced the model last year when it announced that it was carving out most of CVS Caremark’s pharmacy benefit management functions. Under the agreement, BSCA will pay Fresenius Kabi a net price of $525 per monthly dose of the adalimumab biosimilar. By comparison, the insurer noted, the market-reported net price of AbbVie’s Humira is $2,100. BSCA said it spends more on Humira than any other drug for its members, processing approximately 40,000 prescriptions for the drug annually. Starting Jan. 1, 2025, most of BSCA’s commercial members who use the adalimumab biosimilar will have no out-of-pocket cost.
Two U.S. senators asked the Federal Trade Commission to expand the scope of its investigation into PBM practices to include “co-manufacturing” agreements. In a letter to the FTC, Sen. Ron Wyden, D-Ore., who chairs the Senate Finance Committee, and committee member Sen. Sherrod Brown, D-Ohio, wrote that CVS Caremark and Cigna’s Express Scripts have established “subsidiary ‘manufacturers’ that purport to co-manufacture certain biosimilars.” (CVS’ subsidiary is Cordavis, and Evernorth/Express Scripts’ subsidiary is Quallent Pharmaceuticals.) Basing their concerns on “available information,” the senators suggested the co-manufacturing agreements are “a veiled attempt by PBMs to control additional parts of the supply chain, which has resulted in additional harm to consumers in the form of fewer drug choices and higher drug costs.” Rather than performing any actual manufacturing activity, they said, the PBMs appear to be providing only consulting services to the drugmakers they partner with. But, the senators pointed out, the agreements give the PBMs an opportunity to markup the cost of the biosimilars and then steer patients to those more expensive biosimilars while limiting access to products from other manufacturers.
What we’re reading
Rare Diagnoses Change People’s Perception of Medical Risk. Scientific American, 9.27.24
AI Model Takes New Approach to Performing Diagnostic Tasks in Multiple Cancer Types. NIH Director’s Blog, 10.3.24
