CVS Health replaces CEO Lynch, Walgreens to close 1,200 stores
On Friday, CVS Health announced that Karen Lynch had stepped down as CEO “in agreement with the company’s board of directors” and that David Joyner had been appointed as president and CEO on Thursday.
Joyner, who is now also a member of the board, previously served as executive vice president of CVS Health and president of pharmacy benefit manager CVS Caremark since January 2023. He worked at both Caremark and Aetna before CVS acquired either of the companies.
Roger Farah, who stepped up from chairing CVS Health’s board to the role of executive chairman as of Friday, said the board “believes this is the right time to make a change.”
“The board also recognizes the many contributions Karen made to our company, both during her tenure at Aetna and then as president and CEO of CVS Health,” Farah added.
“We are grateful for her consistent, customer-focused leadership, especially during the COVID-19 pandemic when our pharmacies provided needed tests and vaccines,” Farah said. “We also appreciate her work to advance CVS Health’s modernization and transformation to become a diversified, connected, technology-driven health care company, allowing us to do even more for the people we are privileged to serve.”
Along with the announced change in leadership, CVS Health released preliminary financial results for the third quarter and pulled its earnings guidance yet again, citing higher-than-expected medical costs for its Aetna subsidiary.
The company reported preliminary adjusted profit for the quarter in the range of $1.32 billion to $1.39 billion but anticipated its medical loss ratio for the quarter would be approximately 95.2%, up from 85.7% for the same period a year ago.
In addition, CVS Health will record a charge of approximately $1.1 billion related to a premium deficiency reserve to cover excess medical costs, primarily associated with Aetna’s Medicare and Marketplace exchange businesses.
Rival retailer Walgreens Boots Alliance released its fourth-quarter financial results Tuesday, reflecting its own ongoing struggles but also indicating progress in its efforts to cut costs.
The company reported net losses of $3 billion for its final quarter and $8.6 billion for fiscal 2024 (vs. losses of $180 million and $3.1 billion for the comparable periods of fiscal 2023).
For its U.S. health care segment, Walgreens reported operating losses of $526 million for the final fiscal quarter and $14.2 billion for fiscal 2024, which includes $12.4 billion in impairment charges in the second quarter related to VillageMD goodwill. The net losses for the corresponding periods of fiscal 2023 were $294 million and $1.7 billion.
Sales in Walgreens’ retail pharmacy segment were up 6.5% in the final quarter compared with a year ago, and pharmacy sales increased 9.6% from fiscal 2023’s fourth quarter. Retail sales for the quarter, however, were down 3.5% from the same period in 2023.
Compared with the final quarter of fiscal 2023, revenue from Walgreens’ U.S. health care segment increased 7.1% in fiscal 2024’s fourth quarter. Revenue from VillageMD was up 7.2% and Shields Health Solutions, Walgreens’ specialty pharmacy segment, grew 27.8% in the quarter.
Walgreens plans to close 1,200 stores in the next three years, with roughly 500 of the closures slated for fiscal 2025.
CEO Tim Wentworth told investors during Tuesday’s earnings call that approximately 6,000 of Walgreens’ 8,700 stores are profitable and said the company would use funding obtained through the accelerated closing of underperforming stores to invest in the profitable locations.
Walgreens is still evaluating its options with regard to VillageMD, which has yet to turn a profit. Walgreens considers the primary care chain a non-core asset that is “not a crucial part” of the company’s future, according to Wentworth. He said the goal is to monetize VillageMD but to do so “without destroying value unnecessarily.”
“We believe it’s a great business and will do well on its own. But we’re going to be very methodical and very appropriate in trying to preserve value,” Wentworth said.
Wentworth and Walgreens’ chief financial officer, Manmohan Mahajan, said on the earnings call that the company is making good progress. According to Wentworth, Walgreens exceeded its targets for fiscal 2024, cutting costs by more than $1 billion (mostly from the retail pharmacy segment) and lowering its capital expenditures by over $700 million. Mahajan said the company reduced its debt by $1.9 billion and reduced its lease obligations by $1.2 billion.
“This turnaround will take time,” Wentworth said, “but we are confident it will yield significant financial and consumer benefits over the long term.”
To lead the company’s commercial growth strategy, Walgreens recently hired Jason Stenta as its first chief commercial officer. Stenta previously served as senior vice president of payer sales at Optum. Before that, he held various leadership roles at CVS Health.
Our Take: As we’ve written previously, Walgreens, CVS Health, and Walmart all made substantial investments to increase their consumer health services in recent years. Clearly, that hasn’t worked out as they’d hoped, though all three remained bullish on their primary care strategies until about a year ago.
Walgreens and CVS both started closing stores before the pandemic, but then foot traffic picked up when they began offering COVID-19 vaccinations in early 2021. They hoped more people would be exposed to, and take advantage of, their primary care offerings while in the stores to be vaccinated.
Fast-forward a couple of years, and far fewer people were getting vaccinated. Shrinkage, or retail theft, had become a serious problem at the stores, and retail sales on non-pharmacy items were declining. Mail order and online pharmacies, including Amazon Pharmacy, were eating into their pharmacy sales.
Pharmacy benefit managers were squeezing reimbursement rates, though CVS was buffered to some extent by having its own PBM.
More store closings were announced. Rite Aid filed for bankruptcy last October, around the same time that Walgreens brought Tim Wentworth on board as CEO to reverse the downward trend in the company’s share price. Soon after, Walgreens announced it would cut at least $1 billion in costs in 2024.
Then Walmart stunned the industry earlier this year with the announcement that it was shutting down Walmart Health.
CVS announced its $2 billion cost-cutting initiative when the company released its second-quarter earnings report in August. CEO Lynch told investors on the earnings call that Brian Kane had been removed as president of Aetna.
Earlier this month, CVS was reportedly considering separating Aetna from its retail business, though the company didn’t confirm the possibility. Modern Healthcare reported on Friday that such a breakup was no longer in consideration.
Also earlier this month, CVS said it had laid off 2,900 employees in late September and planned to close or sell 29 regional pharmacies in the months ahead.
Rite Aid emerged from bankruptcy in September, after closing hundreds of stores, eliminating about $2 billion in debt, and receiving approximately $2.5 billion in exit financing, according to Reuters. Moving forward, it will operate as a private company.
Walmart is leasing nearly two dozen of its shuttered Walmart Health locations to Humana, who will rebrand the clinics as CenterWell and Conviva primary care clinics for seniors.
Wentworth is making progress at Walgreens, even if it’s taking longer than he’d hoped. We’ll see what Joyner has in mind for CVS Health.
Meanwhile, with hundreds of pharmacy locations now closed and potentially thousands of additional closures to come, pharmacy deserts will become more of a problem throughout the U.S., as CNBC reported recently. People will be forced to drive greater distances to get the drugs they need or, when possible, rely on digital pharmacies and delivery services.
It’s a good time for Amazon Pharmacy to be expanding its same-day prescription delivery service, as announced earlier this month.
In an article for Harvard Business Review, Timothy Hoff, a professor of management, health care systems, and health policy at Northeastern University, suggests there’s a place for retail chains in health care if they’re willing to overhaul their strategies.
Hoff says they must make primary care a core business (instead of a loss leader); expand into rural and suburban communities (96% of retail clinics in the U.S. are based in urban areas and larger cities, he says); move into complex care with higher margins (e.g., chronic disease management); and partner with other providers, such as health systems or local primary care practices.
Without weighing in on the validity of Hoff’s recommendations, we’ll just say that we don’t see the big retail chains taking any of these steps other than maybe increasing their presence in less-urban areas. But in light of the current restructuring strategies and the ongoing store closures, that also seems unlikely.
Health Care Rounds #172: Achieving Health Equity with Dr. Trudy Hall of TidalHealth
How does a multi-state health system deliver its promise of health equity, while operating in a challenging reimbursement environment? In this episode, we explore Maryland’s All-Payer system with Dr. Trudy Hall, Vice President of Medical Affairs and Chief Medical Officer at TidalHealth, discussing how this innovative approach is changing the game by streamlining health care costs while keeping patient care at the forefront. Watch the episode on YouTube here or on your favorite podcast platform.
What else you need to know
Gilead Sciences will withdraw the accelerated approval of Trodelvy for the treatment of adults with advanced or metastatic bladder cancer, based on negative results from the TROPiCS-04 confirmatory trial. The FDA granted the drug, a Trop-2-directed antibody-drug conjugate that combines sacituzumab and govitecan, accelerated approval for this indication in 2021 based on results from a Phase II, single-arm study, but the subsequent confirmatory trial failed to meet the primary endpoint of overall survival. Gilead said in a statement it made the decision to withdraw Trodelvy in consultation with the FDA; the withdrawal does not affect Trodelvy’s approved breast cancer indications. Trodelvy is being evaluated as a monotherapy and in combination with other drugs in more than 20 ongoing trials, Gilead noted, including trials with patients who have lung and gynecological cancers.
Earlier this year, the Phase III EVOKE-01 study of Trodelvy in patients with previously treated metastatic non-small cell lung cancer also failed to meet the primary endpoint of overall survival, leading Gilead to take an impairment charge of $2.4 billion in the second quarter.
The Blue Cross Blue Shield Association (BCBSA) and 33 affiliated Blues plans agreed to a $2.8 billion settlement to resolve a longstanding class-action antitrust case. Plaintiffs in the case, which include health systems, physicians, and other providers, alleged the independent Blues plans engaged in anticompetitive practices that increased costs and reduced reimbursements. The lawsuit, filed in 2012, claimed that the Blues plans agreed not to sell insurance in one another’s service areas and that they fixed prices paid to providers through the BlueCard program. The agreement, which is subject to the court’s final approval, covers providers who treated Blues plan members between July 24, 2008, and October 4, 2024, Fierce Healthcare reported.
Along with the payout, the settlement also calls for the Blues plans to invest “hundreds of millions of dollars in system improvements for the benefit of providers,” the law firm for the plaintiffs said in a press release, noting that the agreement is the largest antitrust settlement in the health care industry. BCBSA and the Blues plans denied the allegations, saying they agreed to the settlement to “put years of litigation behind us.” BCBSA and affiliated Blues plans reached a separate $2.7 billion settlement with customers in 2020.
Danish drugmaker Lundbeck agreed to acquire Longboard Pharmaceuticals, a biopharmaceutical firm based in La Jolla, Calif., in a deal valued at approximately $2.6 billion. Longboard’s lead candidate, bexicaserin, a 5-HT2C receptor agonist, is in clinical development for a set of rare and severe epilepsy disorders, including Dravet and Lennox-Gastaut syndromes. The agreed-upon price of $60 per share is a substantial premium relative to the closing price of $38.90 the day before the deal was announced. Both companies’ boards have approved the acquisition, which requires regulatory approval and is expected to close before year-end.
UPMC Health Plan will have a new CEO on Jan. 1. Mary Beth Jenkins will succeed Diane Holder, who has been with Pittsburgh-based UPMC for 40 years. Jenkins has been with UPMC Health Plan since 1998, according to a news release, and has served as chief operating officer for UPMC’s insurance services division since Holder’s retirement was announced last year.
Providence is seeking a new chief information officer following the departure of B.J. Moore, who stepped down from the role on Sept. 26 to pursue new opportunities, Becker’s Hospital Review reported, citing a statement received via email from the Renton, Wash.-based health system. Providence said Moore played a crucial role in modernizing its cybersecurity, IT systems, and real estate functions. He led the health system’s transition to the cloud and approach to artificial intelligence, according to the statement, and contributed to the creation of the data consortium Truveta.
What we’re reading
How Biden Transformed Medicare Advantage. Modern Healthcare, 10.16.24
Translating AI for the Clinician. JAMA, 10.18.25
