CVS Health Corp. topped second-quarter expectations, but the health care giant’s profit sank as pricing pressure hurt its drugstores and a jump in care use hit the insurance side.
The company also booked a $496 million, pretax restructuring charge to cut costs and improve efficiency. CEO Karen Lynch told analysts Wednesday that charge was tied partly to eliminating about 5,000 jobs that don’t involve dealing with customers.
Investing Wisely: Enhancing Efficiency & Value Through Sustainable Operations
Amgen is using its innovative capabilities to combat climate change and preserve natural resources through…
Learn More
The Wall Street Journal reported the cuts earlier this week. CVS Health says it employs more than 300,000 people. About 73% are full-time.
CVS Health runs prescription drug plans through one of the nation’s largest pharmacy benefits managers. Its Aetna insurance arm covers more than 25 million people, and the company has nearly 10,000 drugstores.
The cuts make sense because the business has grown complex and unwieldy, said Neil Saunders, who follows CVS Health as managing director of GlobalData.
“Our sense is that the business could be leaner and better organized,” Saunders said in an email.
CVS Executive Director of Corporate Communications Mike DeAngelis told Providence Business News Tuesday the company is planning to eliminate a number of noncustomer-facing positions “as part of an enterprise initiative to reprioritize our investments around care delivery and technology.” He would not say whether any Rhode Island-based employees will be affected.
DeAngelis said the layoffs will impact primarily corporate positions, though the company did not identify the states where the job cuts will occur. He also added laid off workers would receive severance pay and benefits, including access to outplacement services.
The company now employs 300,000 across the U.S., including 8,600 at its headquarters in Woonsocket, according to PBN’s 2023 Book of Lists. CVS runs a drugstore chain with nearly 10,000 locations. It manages prescription drug plans for big clients, such as insurers and employers, and it provides coverage for more than 25 million people through its Aetna arm.
CVS Health also is shifting its focus more to delivering care and managing customer health. It’s digesting a couple of multibillion-dollar acquisitions geared toward that. The company plans to use its roughly $10.6 billion acquisition of Oak Street Health to open clinics in some of its stores.
Lynch said Wednesday the company expects to build 50 to 60 clinics next year. Oak Street specializes in serving people with Medicare Advantage plans. Those are privately run versions of the government’s Medicare program and a growth focus for CVS Health.
In the second quarter, growth from the CVS Health’s largest business, pharmacy benefits management, softened hits from both the insurance and drugstore segments.
Adjusted operating income sank 20% on the health insurance side. Aetna, like other insurers, has seen a bigger-than-expected jump in care for Medicare Advantage customers. Patients are returning to outpatient surgery centers for hip and knee surgeries they put off earlier in the COVID-19 pandemic.
The drugstore side saw adjusted operating income fall 17% as it dealt with tight reimbursement for prescriptions and a drop in COVID-19 vaccinations and testing.
Overall, CVS Health’s net income plunged 37% to $1.9 billion in the quarter, but Wall Street largely saw that coming. Adjusted earnings totaled $2.21 per share. Total revenue grew 10% to $88.92 billion.
FactSet says analysts expected earnings of $2.12 per share on $86.41 billion in revenue.
Shares of Woonsocket, Rhode Island-based CVS Health Corp. climbed more than 3% to $76.44 Wednesday morning, while broader indexes slipped.
(Update: Story recast with comment from Lynch, more details)
Tom Murphy is a health care writer for The Associated Press.
