CVS Health to eliminate 5K corporate jobs

In a cost-cutting move, CVS Health on Tuesday confirmed that it expects to lay off thousands of corporate employees nationwide this year.

Then on Wednesday, in a conference call with analysts on 2023 second-quarter results, CEO Karen Lynch and Chief Financial Officer Shawn Guertin affirmed that the company aims to eliminate 5,000 positions and took a nearly $500 million restructuring charge in Q2 related to the job reduction.

Woonsocket, Rhode Island-based CVS communicated plans to cut 5,000 jobs to staff on Monday in a memo from Lynch, according to published reports. Affected personnel—who exclude the company’s retail locations—are slated to be notified in the coming weeks.

“Our industry is evolving to adapt to new consumer health needs and expectations. As part of an enterprise initiative to reprioritize our investments around care delivery and technology, we must take difficult steps to reduce expenses,” a CVS Health spokesman said in an email on Tuesday. “This unfortunately includes the need to eliminate a number of non-customer-facing positions across the company. We do not expect there to be any impact to our customer-facing colleagues in our stores, pharmacies, clinics or customer services centers.”

The impacted workers will receive severance pay and benefits, including access to outplacement services, he said. Overall, CVS has more than 300,000 employees.
 
“We do not anticipate there will be any impact to our clients and customers as we remain focused on our mission: continuing to provide the exceptional care and support our customers, patients and communities deserve and depend on,” the spokesman stated. “Throughout our company’s history, we’ve continuously adapted to market dynamics to lead the industry. The difficult decision we are making will set the company up for long-term success.”

CVS’ workforce streamlining comes in the wake of two big health care acquisitions: the $10.6 billion purchase of Medicare primary care provider Oak Street Health (closed in early May) and the $8 billion purchase of value-based health care payment platform Signify Health (finalized in late March).

CVS expects to close 300 drugstores in 2023 as part of a three-year plan announced in late 2021 to shut about 900 locations. / Photo: Shutterstock

"Last quarter, we discussed optimizing our cost structure. This morning, we announced a restructuring charge of nearly $500 million [$496 million] associated with the elimination of approximately 5,000 non-customer-facing positions, as well as the impairment of non-core assets. These efforts are expected to generate over $600 million of run-rate savings beginning in 2024," Lynch told analysts on in the Aug. 2 call on Q2 results. (Call transcript provided by AlphaSense.)

"Our optimization efforts have also focused on identifying additional opportunities to drive efficiency and operational excellence using technology. For example, we've been selectively using artificial intelligence for some time and are increasingly finding opportunities to improve the efficiency of our operations, enhance our customer experience and increase our competitiveness," she explained. "When combining all of our productivity initiatives, we are confident we will achieve the $700 million to $800 million of cost savings that we are targeting in 2024. These actions enable us to reallocate resources and invest in critical growth areas such as health services and technology, which are the biggest enablers of our strategy."

In early May, CVS executives noted in a first-quarter analyst call that the company is sharpening its focus on integration following the Oak Street and Signify acquisitions in order to fine-tune its health care business model.

To that end, CVS realigned its business units under four segments: Health Services (PBM, primary care, retail health clinics, home-based care and provider enablement), Pharmacy & Consumer Wellness (retail pharmacy and front-end retail, specialty and mail-order pharmacy fulfillment, and infusion services), Health Care Benefits (insured and self-insured medical, pharmacy, dental and behavioral health products/services) and Corporate/Other.

The realignment will “more accurately reflect how our businesses are managed,” Lynch said in the Q1 call. “These changes allow us to be more nimble in our execution and more innovative when expanding our products and services.” (Call transcript provided by AlphaSense.)

Guertin later added in the call, “The early close of the Signify and Oak Street transactions improve our ability to accelerate synergy realization. In addition, our business resegmentation presents the opportunity to reduce duplicative efforts and enhance focus on rationalizing our core operations.”

Health care transformation takes hold

During the past 15 years or so, CVS has evolved from a regional drug chain and value retailer into a health care giant and the largest U.S. pharmacy care provider.

The transformation included the acquisitions of retail health provider MinuteClinic in 2006 and long-term care pharmacy Omnicare in 2015—plus a couple of ground-breaking mergers. In March 2007, CVS finalized its $26.5 billion acquisition of Caremark Rx, which joined a retail pharmacy chain and a pharmacy benefit manager under one company. That deal marked the beginning of CVS’ transition from a pharmacy retailer into a broad health care services company, which culminated in November 2018 with the closing of the company’s $70 billion merger with health insurer Aetna. CVS adopted the name CVS Health in 2014 after announcing plans to remove tobacco products from all stores.

CVS’ recent acquisitions of Oak Street and Signify, totaling nearly $19 billion, continued the shift toward health care. Meanwhile, CVS’ retail footprint has continued to shrink. In November 2021, the company unveiled plans to shut about 900 CVS Pharmacy drugstores over the next three years to better focus on omnichannel health care. At the end of fiscal 2022, CVS had over 9,000 retail locations, and its retail pharmacy segment (including long-term care) accounted for roughly $106.9 billion of the company’s total $322.5 billion in revenue.

“We continued to successfully execute on our retail footprint optimization strategy, closing more than 100 locations year-to-date, while exceeding our retention goals for colleagues and scripts,” Lynch said in the 2023 Q1 conference call. “We remain on track to close 300 stores in 2023 and a cumulative total of 900 stores by 2024.”

*Editor's Note: Article updated on Wednesday with CEO comment from Q2 conference call.