Call the Doctor! What’s Gone Wrong at CVS Health
Veteran CVS Health executive David Joyner has replaced Karen Lynch as CEO following the US healthcare group’s dismal third- quarter earnings report.
Shares of CVS have fallen by about 25% this year with the healthcare giant struggling on several fronts.
The move comes after CVS repeatedly missed earnings targets, setting off unrest among shareholders which went public in recent months.
CVS said its third-quarter results are expected to miss Wall Street’s expectations and that the company will pull its 2024 earnings guidance, warning investors not to rely on the company’s previous estimates “in light of continued elevated medical cost pressures” in its healthcare benefits arm.
The company’s earnings have disappointed investors in recent quarters, in part because of rising costs at Aetna, CVS’s company’s insurance arm.
- CVS Health covers around 39 million people through its Aetna health insurance arm
- CVS employs about 300,000 people
- CVS has more than 9,000 retail pharmacies
- Oak Street Health runs over 200 Medicare primary health centres
How CVS became unwell
CVS is under pressure from various fronts.
First, its large healthcare insurance business is facing rising costs in its Aetna insurance arm.
Costs for insurers providing Medicare plans - available for people aged 65 years and above and those with disabilities - have soared in the last year due to sustained high demand from older adults for healthcare services.
Second, it faces increased online competition from Amazon and others for its familiar network of neighbourhood pharmacies.
Its third business - pharmacy benefit management - has been profitable but a focal point for US government efforts to bring down US drug prices. The Federal Trade Commission sued CVS and its rivals last month.
Wall Street superstar
CVS was already growing rapidly beyond its retail pharmacy footprint when it bought health insurer Aetna in 2017. Former Aetna executive Karen Lynch took over as CEO in 2021 and the company's shares soared as it benefited from its role in the COVID-19 pandemic recovery.
This meant that Lynch headed the largest Fortune 500 enterprise, measured by sales, of any female CEO.
For years, she reigned as the most powerful woman in American business and was the toast of Wall Street, having lifted CVS’s share prices from US$70 to roughly US$110 by late 2022.
“I don’t want people to think about CVS Health as just that drugstore,” she told the New York Times in 2022. “I want them to think about it being a healthcare company.”
Roger Farah named executive chairman
CVS also announced that former Tiffany & Co Chairman and Ralph Lauren Executive Vice Chairman Roger Farah would become Executive Chairman of the board.
“The board believes this is the right time to make a change,” said Farah. “David [Joyner] and his deep understanding of our integrated business can help us more directly address the challenges our industry faces.”
“A lot of the company is working, but part of it’s not,” Farar told Fortune magazine. “The macro issues in the insurance business are challenging for everybody, but we have some of our own issues.”
Who is David Joyner?
Joyner, who began his career at Aetna as an employee benefit representative, was most recently Executive Vice President of CVS Health and President of CVS Caremark. He led the pharmacy services business, which works with employers, health plans and government entities.
"This move was brewing for some time, as CVS has struggled under Lynch's leadership following the failed Aetna merger,” Oppenheimer analyst Michael Wiederhorn told Reuters.
******
Make sure you check out the latest edition of Business Chief, the monthly digital magazine for CEOs of multinational companies
******
Business Chief is a BizClik brand