CVS Health Corp – TheNewsHub

CVS replaces CEO Karen Lynch with exec David Joyner as profits, share price suffer

suimt — Fri, 18 Oct 2024 11:29:36 +0000

A general view shows a sign of CVS Health Customer Support Center in CVS headquarters of CVS Health Corp in Woonsocket, Rhode Island, U.S. October 30, 2023.

Faith Ninivaggi | Reuters

Longtime CVS Health executive David Joyner has replaced Karen Lynch as CEO, as the company struggles to drive higher profits and stock performance, CVS announced Friday.

The move, effective Thursday, the day before the announcement, comes as CVS shares have fallen nearly 20% this year. Shares plunged about 11% in premarket trading Friday.

CVS has faced challenges as higher medical costs weigh on its insurance unit, Aetna, and consumer spending drops at its retail pharmacies. In August, the company slashed its full-year profit guidance and said it would cut $2 billion in costs over the next several years.

In its release Friday, CVS also said it expects adjusted earnings of between $1.05 and $1.10 per share in its third quarter. It anticipates higher medical costs than previously expected, with a so-called medical benefit ratio of 95.2% in the quarter.

“In light of continued elevated medical cost pressures in the Health Care Benefits segment, investors should no longer rely on the Company’s previous guidance provided on its second quarter 2024 earnings call on August 7, 2024,” CVS said in the release.

The company is set to report third-quarter earnings on Nov. 6.

Last month, major CVS shareholder Glenview Capital began a significant push for changes at the company, CNBC previously reported.

CNBC reported last month that CVS’ board had engaged strategic advisors to weigh its options, including the potential of a breakup of its insurance and retail businesses.

Joyner most recently oversaw the company’s pharmacy services business as president of CVS Caremark, a similar position to the one Lynch held before she assumed the top job in February 2021. He began his career at Aetna in pharmacy benefit services and previously held the role of executive vice president of sales and marketing at CVS Health.

“We believe David and his deep understanding of our integrated business can help us more directly address the challenges our industry faces, more rapidly advance the operational improvements our company requires, and fully realize the value we can uniquely create,” Chairman Roger Farah said in a statement.

Lynch also stepped down from the company’s board of directors this week, the company said Friday. Joyner will take a seat on the board, and Farah will assume the role of executive chairman.

This is breaking news. Please refresh for updates.

CVS to replace CEO Karen Lynch with long-time executive David Joyner

Aseem — Fri, 18 Oct 2024 10:49:59 +0000

Karen S. Lynch speaks during the 2023 Forbes Healthcare Summit at Jazz at Lincoln Center on December 04, 2023, in New York City.

Taylor Hill | Getty Images Entertainment | Getty Images

CVS Health on Friday named company veteran David Joyner as new CEO, succeeding Karen Lynch who stepped down from the helm of the struggling healthcare giant after an agreement with the board.

Shares of the company tumbled 11% to $57 in premarket trading.

Joyner, president of the company’s pharmacy benefit manager CVS Caremark, takes over as president and CEO from Friday, the company said.

The change comes on the back of repeated profit forecast cuts this year as the company’s insurance segment has struggled with rising medical costs.

“The board believes this is the right time to make a change, and we are confident that David is the right person to lead our company,” said Chairman Roger Farah.

The healthcare giant is also exiting its core infusion services business and plans to either close or sell 29 related regional pharmacies in the coming months, Reuters reported earlier this week.

The Wall Street Journal had first reported the news of Joyner’s appointment on Friday.

Pharmacy deserts are appearing across U.S. as Rite Aid, Walgreens, CVS drug store closures spread

Harsh — Fri, 11 Oct 2024 13:19:29 +0000

A shuttered Rite Aid store in New Lebanon, Ohio.

Kevin Williams

New Lebanon, Ohio, population 3,756, has three dollar stores, a Groceryland grocery store, a few fast-food restaurants, a public library branch, and a spirit-filled school system. What it doesn’t have is a pharmacy.

As part of Rite Aid’s bankruptcy filing in October 2023, the chain announced it was closing 800 stores, with Ohio especially hard hit, at 180 closings slated largely in struggling small towns or Rust Belt cities. According to Rite Aid’s website, the chain currently has 1,700 locations, down from the 2,111 reported at the time of bankruptcy. The company has stated it will emerge from bankruptcy with about 1,300 stores.

New Lebanon’s Rite Aid closed in September.

“My community needs a pharmacist. It is concerning to me that the residents don’t have one here,” said New Lebanon Mayor David Nickerson.

Some smaller towns near New Lebanon have their own pharmacies, but even those are a 15-minute drive away. New Lebanon’s Rite Aid prescriptions were transferred to a Walgreens 30 minutes away in Dayton.

Nickerson, who was just elected last year and has a military background, recently found himself walking the Walgreens parking lot in Dayton. He even strolled around the back of the building at night, doing a thorough inspection to tell his constituents he had done his due diligence and made sure it was a safe place to go. But even coming away convinced that Walgreens was safe and clean won’t be enough for some of New Lebanon’s residents.

“We have many elderly residents who are uncomfortable going that far with the traffic and unknown area,” Nickerson said.

Getting a prescription filled in New Lebanon, which sits on a busy thoroughfare leading to Dayton, wasn’t always so difficult.

“Before we moved to New Lebanon two years ago, there were three pharmacies,” said Joyce Dingman. “Last year New Lebanon’s CVS closed, and now Rite Aid is closing, leaving us with none.”

She and her husband will head to a town 30 minutes away to get prescriptions filled at a Kroger pharmacy.

A spokesman for Rite Aid confirmed the outsized impact the closings are having on Ohio.

“Nearly all our stores in Ohio will be closing by the end of September as part of our recent Chapter 11 process to create a stronger, healthier company,” the spokesman said, adding that there would only be four Rite Aids remaining in Ohio. There were over 140 before the latest round of closures.

New Lebanon, though, is hardly alone in its struggle to hold on to a pharmacy. Experts say the retail pharmacy model has been squeezed by complicated and sometimes lower reimbursement rates for medication while competition for sales of candy and paper towels, items that used to pad profits, has grown more fierce.

The pharmacy squeeze

At a time when the federal government is suing the primary drug market’s middlemen, the pharmacy benefit managers — with the Federal Trade Commission alleging inflated prices on drugs like insulin — some are pointing the finger at the PBMs for the pharmacy deserts.

Miranda Rochol, senior vice president of provider solutions at healthcare technology company Prescryptive Health — who worked her way up in the business, starting as a pharmacy technician before moving to Walgreens health technology team — says the PBMs are largely to blame for the current problems in the industry. “PBMs can steer patients into their own pharmacies, drive profit to their pharmacies, and under-pay community pharmacies,” she said.

In June, the FTC issued a scathing report about PBMs and the “squeezing” of Main Street pharmacies caused by decades of mergers and acquisitions. According to the FTC, the three largest PBMs control nearly 80% of all prescriptions filled in the United States, negotiating the terms and conditions for access to prescription drugs for hundreds of millions of Americans. The report blames falling reimbursement rates from PBMs for many of the financial troubles of smaller pharmacies.

“As long as the big three PBMs go unchecked, more pharmacy deserts will appear,” Rochol said.

The three largest PBMs are CVS‘s Caremark, OptumRX (part of UnitedHealth), and Express Scripts, owned by Cigna.

A spokesperson for Express Scripts pointed to its lawsuit filed against the FTC in response to the report, calling it unfair, biased, erroneous, and defamatory, and claims the report ” wrongly concluded that PBMs inflate drug costs and harm independent pharmacies.”

Tim Wentworth, Walgreens Boots Alliance CEO — who was CEO of Express Scripts from 2016–2021 — addressed PBMs in Walgreens’ third quarter earnings call, saying the company was “in active discussions with our PBM and payer partners to align incentives and ensure we are paid fairly.”

Walgreens has announced that it may close as many as 25 percent of its 8,200 stores, which will further squeeze communities that lack pharmacies. A spokesman for Walgreens pointed out that while they may be large in size, they are still “independent” — unaffiliated with a PBM — so they face many of the same price pressures as smaller stores.

CVS has also closed stores, and for its part, a CVS Caremark spokesman disputes claims that it is economically squeezing smaller pharmacies, citing Georgia as an example. Between 2023 and 2024, independent pharmacies in the CVS Caremark pharmacy network were reimbursed 67.5% higher on average than CVS Pharmacy locations, and 51.9% higher than other chain pharmacies in the state.

“Local, independently owned pharmacies serve as vital partners in CVS Caremark pharmacy networks, representing more than 40% percent of our in-network pharmacies,” the spokesman said. “CVS Caremark reimburses independent pharmacies substantially more, in aggregate, than chain pharmacies.”

The CVS spokesman also said that CVS pharmacies are not all serviced by Caremark, working with over 70 different PBMs. None of CVS’s closings, the spokesman said, were related to PBM issues, but due to changes in consumer buying patterns and population shifts.

“Claiming that PBMs are under-reimbursing independent pharmacies is not based on the fact. Research in fact shows that PBMs are reimbursing independent pharmacies at higher amounts than chain pharmacies,” said Greg Lopes, spokesman for the Pharmaceutical Care Management Association, the national trade group representing PBMs. “There are unfortunately many factors for pharmacy closures in rural areas, including population declines and the growing use of online pharmacies.”

Data from the National Community Pharmacists Association illustrates the concern over PBM pricing.

Almost all pharmacies (99%) have experienced a reduction in the reimbursed dollar amount of prescribed medications at the point of sale. More than half say that insurance plans and their PBMs are reimbursing pharmacies less than the cost to purchase the drug for at least three of every 10 prescriptions they fill.

The National Association of Chain Drug Stores is pressing for PBM reform legislation. “The U.S. Congress has done the hard work to get bipartisan pharmacy benefit manager (PBM) reform ready to go, and that is ‘must-pass legislation’ before the 118th Congress adjourns,” said Steven C. Anderson, president and CEO of NACDS.

CVS pulled out of NACDS in 2022 amid the trade association’s support of PBM reform.

The vital role of the local pharmacist in Amazon era

According to experts, PBMs, are just one of many reasons retail pharmacies are struggling.

With the neighborhood pharmacy’s demise, patients have to get more creative in getting their medicines. Dr. Colin Banas, chief medical officer of health-care solutions company DrFirst, says there are various other ways for patients to get medicine if their neighborhood pharmacy closes.

“For urgent medications, if patients cannot drive to an available pharmacy, they may explore prescription pickup and delivery services offered by ride-share services such as Uber and Lyft,” Banas said.

He added that it’s also worth checking with local hospitals to see if they have in-house pharmacies that can dispense prescriptions. “Even some doctors’ offices and urgent care centers stock certain medications, so it’s worth making a few calls,” Banas said.

But Banas believes the pharmacy deserts will only grow, and lead to an increase the number of apps and digitization.

“As pharmacy deserts become more common, patients should keep an eye on new apps and digital tools that will increasingly begin to fill some of the gaps,” Banas said.

This week, Amazon announced that its same-day prescription delivery would expand to roughly half the U.S. next year.

Patient advocates say that technology can’t replace humanity.

All the focus on PBMs, reimbursements, and profits misses the human aspects of the profession, says Dr. Tamera Hughes, an assistant professor at High Point University’s School of Pharmacy who spent several years working at a community pharmacy in Georgia during the last decade before entering academia.

Hughes says PBM business models do prefer to shuttle people more towards medication by mail, but what may be gained in short-term savings is lost in the value of the pharmacist-patient relationship.

“Medication delivery takes away the engagement and rapport that pharmacists build within the communities they serve,” Hughes said.

During her time working at a pharmacy, she got to know her regulars, their needs, and their ailments. “I knew all my customers by name; I asked about their holidays and grandchildren. By removing that one-on-one upfront engagement with the communities they serve, you strip away what it means to holistically look at someone else’s health,” Hughes said. “Pharmacists are not just dispensing the medication, but some of the other lifestyle things that produce a healthy individual, and pharmacies have been great historically doing it.”

In fact, Hughes says that a pharmacist often serves as a de facto doctor for someone who can’t afford a visit.

“People would come to the pharmacy counter to pick up a prescription, while another two to three people would come to pharmacy because their child is sick and say to the pharmacist ‘What can you recommend for a sore throat or a cough?’ … At least five times an hour, I walked from behind the counter to assist someone in picking out medication for their children, and we are able to ask questions to get them the best over-the-counter medicine,” Hughes said.

Pharmacies are being squeezed from all directions — by rising PBMS costs, competition from online pharmacies like Amazon, and retail competitors like dollar stores — but Hughes says by serving as a first defense against illness, neighborhood pharmacists can save greater strain on the larger health system. With the drug store chains like Rite-Aid closing hundreds of retail locations, that line of defense is being lost.

A spokesman for Rite Aid said the closings were the result of trying to create a more “efficient company.”

In New Lebanon, city officials and the mayor just want their pharmacy back. Acting village manager Rob Anderson says it is a real inconvenience for some residents, and the Rite Aid closing served as a blow to the town.

“Having Rite Aid leave makes it seem like your town is on a negative path when, in reality, New Lebanon’s doing is just fine,” Anderson said. “But it makes you think the big corporations don’t value your town like they once did.”

CVS, UnitedHealth say FTC should take Lina Khan and two commissioners off drug middlemen case

Harsh — Wed, 09 Oct 2024 14:17:47 +0000

FTC Chairwoman Lina Khan testifies during the House Appropriations Subcommittee on Financial Services and General Government hearing titled “Fiscal Year 2025 Request for the Federal Trade Commission,” in Rayburn Building on Wednesday, May 15, 2024.

Tom Williams | Cq-roll Call, Inc. | Getty Images

CVS Health and UnitedHealth Group are demanding Federal Trade Commission Chair Lina Khan and two other commissioners recuse themselves from a suit accusing the companies and other drug middlemen of boosting their profits while inflating insulin costs for Americans.

In separate motions filed Tuesday night with the FTC, CVS and UnitedHealth argued that all three commissioners have an extensive track record of making public statements that indicate “serious bias” against the companies’ so-called pharmacy benefit managers.

The companies accused Khan, as well as Commissioners Alvaro Bedoya and Rebecca Kelly Slaughter, of incorrectly asserting that PBMs are “price gougers” that hold significant control over the pricing and access to drugs like insulin. CVS said those statements demonstrate that the commissioners have “prejudged this matter,” so their participation in the case “violates due process.”

“If the opposite of ‘complete fairness’ is ‘blatant bias,’ the Three Commissioners would easily satisfy even that standard,” CVS wrote in a 23-page motion.

Meanwhile, UnitedHealth’s 17-page motion said, “Any judge who made these remarks about a litigant at the outset of a lawsuit would immediately need to recuse for blatant bias.”

The FTC on Wednesday declined CNBC’s request for comment on the motion.

More CNBC health coverage

Other corporate giants, including Amazon and Meta, have unsuccessfully pushed for Khan to be disqualified from previous cases or investigations, citing concerns about her objectivity. Khan has resisted those calls, saying she has never prejudged any case or set of facts.

The FTC filed the suit last month against the three largest PBMs, CVS Health’s Caremark, UnitedHealth Group‘s Optum Rx and Cigna‘s Express Scripts. All are owned by or connected to health insurers and collectively administer about 80% of the nation’s prescriptions, according to the FTC.

The FTC filed its complaint through its so-called administrative process, which initiates a proceeding before an administrative judge who would hear the case.

PBMs sit at the center of the drug supply chain in the U.S., negotiating medication rebates with manufacturers on behalf of insurers, creating lists of preferred medications covered by health plans and reimbursing pharmacies for prescriptions. The FTC has been investigating PBMs and their role in insulin prices since 2022.

The agency’s lawsuit argues that the three PBMs have created a “perverse” system that prioritizes high rebates from manufacturers, which leads to “artificially inflated insulin list prices.” The suit also alleges that PBMs favor high-list-price insulins even when insulins with lower list prices become available.

The lawsuit also includes each PBM’s affiliated group purchasing organization, or GPO, which brokers drug purchases for hospitals and other health-care providers. Zinc Health Services operates as the GPO for Caremark, while Emisar Pharma acts as the GPO for OptumRx. Ascent Health Services is the GPO for Cigna.

The lawsuit is just one of several headwinds CVS is facing. Shares of the company are down more than 20% this year as it grapples with runaway medical costs in its insurance segment and pharmacy reimbursement pressure.

CVS has engaged advisors in a strategic review of its business, which could potentially involve splitting the company’s insurer from its retail pharmacies. It’s unclear where Caremark would fall in the case of a breakup.

A general view shows a sign of CVS Health Customer Support Center in CVS headquarters of CVS Health Corp in Woonsocket, Rhode Island, U.S. October 30, 2023.

Faith Ninivaggi | Reuters

In the motion Tuesday, CVS alleged that Khan has vilified PBMs during her entire professional career. For example, the company cited a 2022 statement in which Khan said PBMs “practically determine which medicines are prescribed, which pharmacies patients can use, and the amount patients will pay at the pharmacy counter.”

CVS similarly pointed to Slaughter’s previous comments about the allegedly “disturbing,” “unacceptable” and “rotten” rebating practices of PBMs, and how she believes they create “competitive distortions in pharmaceutical markets.” Meanwhile, the company cited Bedoya’s suggestions that “a significant part of the blame” for insulin price increases rests on rebates demanded by PBMs.

CVS called the prior statements of the three commissioners “incorrect assertions” about Caremark and other PBMs.

The health-care giant also alleged that during the FTC probe, the three commissioners attended closed events to help fundraise for anti-PBM lobbying groups. Organizers of those events vilified PBMs as “bloodsuckers” and “vampires,” CVS argued in the motion.

The Biden administration and lawmakers on both sides of the aisle have escalated pressure on PBMs, seeking to increase transparency into their business practices as many patients struggle to afford prescription drugs. Americans pay two to three times more than patients in other developed nations for prescription drugs on average, according to a fact sheet from the White House.

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CVS is under pressure and considering a breakup. Here's why that could be risky

Harsh — Fri, 04 Oct 2024 15:30:17 +0000

A sign outside of a CVS pharmacy store on February 07, 2024 in Miami, Florida.

Joe Raedle | Getty Images

It’s time for a wellness check at CVS Health.

Shares of the company are down more than 20% this year as it grapples with higher-than-expected medical costs in its insurance unit and pharmacy reimbursement pressure, among other issues.

As it seeks to claw back faith with Wall Street, the company is considering breaking itself up.

CVS has engaged advisors in a strategic review of its business, CNBC reported Monday. One option being weighed is splitting up its retail pharmacy and insurance units. It would be a stunning reversal for the company, which has spent tens of billions of dollars on acquisitions over the last two decades to turn itself into a one-stop health destination for patients.

Some analysts contend that a breakup of CVS would be challenging and unlikely.

CVS risks losing customers and revenue if it splits up its vertically integrated business segments, which includes health insurer Aetna and the major pharmacy benefits manager Caremark. That could translate to more lost profits for a health-care giant that has slashed its full-year 2024 earnings guidance for three consecutive quarters.

“There really is no perfect option for a split,” said eMarketer senior analyst Rajiv Leventhal, who believes a breakup is still a possibility. “If that does happen, one side of the split becomes really successful and prosperous, and the other would significantly struggle.”

Notably, CVS executives on Monday met with major shareholder Glenview Capital to discuss how to fix the flailing business and recover its stock, CNBC previously reported. But Glenview on Tuesday denied rumors that it is pushing to break up the company.

If CVS stays intact, CEO Karen Lynch and the rest of the management team will have to execute major changes to address what industry experts say are glaring issues battering its bottom line and stock price.

The company has already undertaken a $2 billion cost-cutting plan, announced in August, to help shore up profits. CVS on Monday said that plan involves laying off nearly 3,000 employees.

More CNBC health coverage

Some analysts said the health-care giant must prioritize recovering the margins in its insurance business, which they believe is the main issue weighing on its stock price and financial guidance for the year. That pressure drove a leadership change earlier this year, with Lynch assuming direct oversight of the company’s insurance unit in August, displacing then-President Brian Kane.

CVS’ management team and board of directors “are continually exploring ways to create shareholder value,” a company spokesperson told CNBC, declining to comment on the rumors of a breakup.

“We remain focused on driving performance and delivering high quality healthcare products and services enabled by our unmatched scale and integrated model,” the spokesperson said in a statement.

Investors may get more clarity on the path forward for the company during its upcoming earnings call in November.

UnitedHealth Group, Cigna and Humana, also have their own PBMs, said eMarketer’s Leventhal.

But Caremark, in some cases, also funnels drug prescriptions to CVS retail pharmacies, he said. That has helped the company’s drugstores gain meaningful prescription market share over its chief rival, Walgreens, which has been struggling to operate as a largely stand-alone pharmacy business.

CVS is the top U.S. pharmacy in terms of prescription drug revenue, holding more than 25% of the market share in 2023, according to Statista data released in March. Walgreens trailed behind with nearly 15% of that share last year.

Now, CVS drugstores must maintain an edge over competitors at a time when the broader retail pharmacy industry faces profitability issues, largely due to falling reimbursement rates for prescription drugs. Increased competition from Amazon and other retailers, inflation, and softer consumer spending are making it more difficult to turn a profit at the front of the store. Meanwhile, burnout among pharmacy staff is also putting pressure on the industry.

CVS’ operating margin for its pharmacy and consumer wellness business was 4.6% last year, up from 3.3% in 2022 but down from 8.5% in 2019 and 9.9% in 2015.

CVS and Walgreens have both pivoted from years of endless retail drugstore store expansions to shuttering hundreds of locations across the U.S. CVS is wrapping up a three-year plan to close 900 of its stores, with 851 locations shuttered as of August.

The rocky outlook for retail pharmacies could make it difficult for CVS to find a buyer for its drugstores in the event of a split, according to Tanquilut. He said a spinoff of CVS’ retail pharmacies would be more likely.

“There’s a reason they’re cutting down stores. Why break it up when the relationship between Caremark and CVS retail is what keeps it outperforming the rest of the pharmacy peer group?” Tanquilut said.

$10.6 billion last year, and Signify Health, an in-home health-care company that CVS bought for about $8 billion in 2022. Those deals aimed to build on CVS’ major push into health care – a strategy that Walgreens and other retailers have also pursued over the last few years.

Oak Street Health could theoretically be spun out with Aetna in the case of a split, Mizuho managing director Ann Hynes wrote in a research note Tuesday.

An Oak Street Health clinic stands in a Brooklyn neighborhood on February 08, 2023 in New York City.

Spencer Platt | Getty Images

The primary care clinic operator complements Aetna’s Medicare business because it takes care of older adults, offering routine health screenings and diagnoses, among other services. CVS also sells Aetna health plans that offer discounts when patients use the company’s medical care providers.

But CVS has also started to integrate Oak Street Health with its retail pharmacies. The company has opened those primary care clinics side by side with some drugstore locations in Texas and Illinois, with plans to introduce around two dozen more in the U.S. by the end of the year.

Several companies, including Amazon, Walmart, CVS and Walgreens, are feeling the pain from bets on primary care. That’s because building clinics requires a lot of capital, and the locations typically lose money for several years before becoming profitable, according to Tanquilut.

Walgreens could potentially exit that market altogether. The company said in a securities filing in August it is considering a sale of its primary care provider VillageMD.

But Tanquilut said it may not make sense for CVS to sell Oak Street Health or Signify Health because “they’re actually hitting their numbers.”

Signify saw 27% year-over-year revenue growth in the second quarter, while Oak Street sales grew roughly 32% compared with the same period last year, reflecting strong patient membership, CVS executives said in an earnings call in August.

Oak Street ended the quarter with 207 centers, an increase of 30 from last year, executives added.

“Why get rid of them when they’re still strategic in nature?” Tanquilut told CNBC, adding that it would be difficult to find a buyer for Oak Street given the challenging market for primary care centers.

jumped over the last year for insurers as more seniors return to hospitals to undergo procedures they had delayed during the Covid-19 pandemic, such as hip and joint replacements.

Medicare Advantage, a privately run health insurance plan contracted by Medicare, has long been a key source of growth and profits for the broader insurance industry. More than half of Medicare beneficiaries are enrolled in those plans as of 2024, enticed by lower monthly premiums and extra benefits not covered by traditional Medicare, according to health policy research organization KFF.

But investors are now concerned about the skyrocketing costs from Medicare Advantage plans, which insurers warn may not come down anytime soon.

A general view shows a sign of CVS Health Customer Support Center in CVS headquarters of CVS Health Corp in Woonsocket, Rhode Island, U.S. October 30, 2023.

Faith Ninivaggi | Reuters

Cherny said CVS faced a “double whammy” in Medicare Advantage this year, grappling with excess membership growth at a time when many seniors are using more benefits.

In August, CVS also said its lowered full-year outlook reflected a decline in the company’s Medicare Advantage star ratings for the 2024 payment year.

Those crucial ratings help patients compare the quality of Medicare health and drug plans and determine how much an insurer receives in bonus payments from the Centers for Medicare & Medicaid Services. Plans that receive four stars or above get a 5% bonus for the following year and have their benchmark increased, giving them a competitive advantage in their markets.

Last year, CVS projected it would lose up to $1 billion in 2024 due to lower star ratings, the company disclosed in a securities filing.

But things may start to look up in 2025.

For example, one of the company’s large Medicare Advantage contracts regained its four-star rating, which will “create an incremental tailwind” in 2025, CVS executives said in August.

“We’re giving them the benefit of the doubt because we know that the stars rating bonus payments will come back in 2025,” Tanquilut said.

During a conference In May, CVS said it would pursue a “margin over membership” strategy: CVS CFO Tom Cowhey said the company is prepared to lose up to 10% of its existing Medicare members next year in an effort to get its margins “back on track.”

The company will make significant changes to its Medicare Advantage plans for 2025, such as increasing copays and premiums and cutting back certain health benefits. That will eliminate the expenses tied to those benefits and drive away patients who need or want to use them.

Those actions will help the company achieve its target of 100- to 200-basis-points margin improvement in its Medicare Advantage business, CVS executives said in August.

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CVS is working with advisors on strategic review, sources say

Harsh — Mon, 30 Sep 2024 23:59:20 +0000

CVS Pharmacy logo is seen in Washington DC, United States on July 9, 2024.

Jakub Porzycki | Nurphoto | Getty Images

CVS Health‘s board has engaged advisors to conduct a strategic review of its business, according to people familiar with the matter, as the company contends with potential activist pressure and a severely depressed stock price.

The review has been ongoing for some time, said the people, but there is no certainty on what actions, if any, the company will take.

CVS management, including CEO Karen Lynch, met with major shareholder Glenview Capital Monday to discuss the company’s lagging prospects and Glenview’s plans to revive the stock, CNBC previously reported.

But Lynch has to contend with an insurance business hammered by heightened medical costs.

In a statement, CVS spokesman David Whitrap told CNBC: “CVS Health’s management team and Board of Directors are continually exploring ways to create shareholder value. We remain focused on driving performance and delivering high quality healthcare products and services enabled by our unmatched scale and integrated model.”

The company has also grappled with leadership turnover. Lynch assumed direct leadership of CVS’s insurance unit earlier this year, displacing then-president Brian Kane.

CVS shares rose around 2.5% in after-hours trading Monday on the news, which was first reported by Reuters.

— CNBC’s Bertha Coombs contributed to this story

Major CVS shareholder plans activist push, will meet with management, sources say

Harsh — Mon, 30 Sep 2024 20:20:37 +0000

Glenview Capital, a major CVS Health shareholder, is expected to meet with company leadership on Monday to lay out proposed fixes for the struggling business, according to people familiar with the matter, a potential precursor to an activist push.

The hedge fund has established a sizable position in the company, said some of the people. Glenview invests in a variety of sectors, but its most recent regulatory filings show it holds positions in Centene, CVS and Teva Pharmaceuticals among other names.

Specifics about Glenview’s proposals could not be learned. The Wall Street Journal first reported that Glenview would be meeting with CVS management, including CEO Karen Lynch.

A CVS spokesperson said the company “maintains a regular dialogue with the investment community as part of our robust shareholder and analyst engagement program.”

“Beyond that, we cannot comment on engagement with specific firms or individuals,” the spokesperson said.”

Shares of CVS closed about 2% higher on Monday. Before Monday’s open, the stock was down about 22% year-to-date.

The meeting with Glenview is not CVS’ first brush with an activist. Earlier this year, Sachem Head Capital Management, the well-known activist fund run by Scott Ferguson, disclosed via regulatory filings that it had amassed a position in the company.

Jeff Smith’s Starboard Value also built a stake in the company in 2019, and engaged in discussion with the company’s leadership as well.

Investor confidence in CVS has soured after three straight quarters of full-year guidance cuts.

The company’s bottom line is getting battered by higher medical costs in its insurance segment – an issue dogging the broader health-care industry as more seniors undergo procedures they had delayed during the Covid-19 pandemic.

CVS owns Aetna, the nation’s third-largest health insurer by market share, according to The American Medical Association. The company’s insurance unit includes plans by Aetna for the Affordable Care Act, Medicare Advantage and Medicaid, along with dental and vision.

In its second-quarter results in August, CVS unveiled a new plan to cut $2 billion in expenses over several years, which it said would involve streamlining operations and increasing the use of artificial intelligence, among other efforts. The company is also wrapping up a three-year plan to close 900 of its stores, with 851 locations closed as of August.

CVS is slashing less than 1% of its workforce, or roughly 2,900 jobs, as part of the new cost-cutting plan, a company spokesperson said in a statement on Monday. The spokesperson said the cuts would mainly impact corporate roles, not workers in the company’s retail stores, pharmacies and distribution centers.

The majority of impacted workers will be notified this week and will receive severance pay and other benefits, according to the spokesperson. Apart from layoffs, CVS has closed some job openings, they said.

“Our industry faces continued disruption, regulatory pressures, and evolving consumer needs and expectations, so it is critical that we remain competitive and operate at peak performance,” the spokesperson told CNBC.

The Wall Street Journal first reported the cuts on Monday.

Also in August, CVS announced a leadership shakeup based on the performance and outlook of its insurance unit. The company said CEO Lynch would replace the president of the segment, Brian Kane, effective immediately.

Meanwhile, CVS faces increased pressure in its retail pharmacy business. Reimbursement rates for prescription drugs have plunged over the last several years, while inflation and softer consumer spending are making it difficult for CVS locations to turn a profit at the front of the store.

'Stop ripping us off': Senate grills Novo Nordisk CEO on weight loss drug pricing

Harsh — Tue, 24 Sep 2024 21:49:12 +0000

Novo Nordisk‘s top executive faced a Senate grilling on Tuesday over the high prices of the company’s weight loss drug Wegovy and diabetes treatment Ozempic, as demand for both injections soars in the U.S.

Novo Nordisk CEO Lars Fruergaard Jørgensen did not explicitly promise lawmakers at a Senate Health, Education, Labor and Pensions Committee hearing in Washington, D.C., that he would slash prices for the two drugs.

But Jørgensen said he wants to work with them on policy solutions that will address the “structural issues” that drive up prescription drug costs. He also committed to sitting down with pharmacy benefit managers – middlemen who negotiate drug rebates with manufacturers on behalf of insurers – to “collaborate on anything that helps patients get access and affordability.”

That pledge came after Sen. Bernie Sanders, the Vermont independent who chairs the Senate panel, said he received commitments in writing from all of the major PBMs that they would not limit coverage of Wegovy and Ozempic if Novo Nordisk reduced their list prices. The hearing comes roughly five months after Sanders opened an investigation into the Danish drugmaker’s pricing practices.

“All we are saying, Mr. Jørgensen, is treat the American people the same way that you treat people all over the world,” Sanders said during the hearing Tuesday. “Stop ripping us off.”

He noted that Novo Nordisk has raked in nearly $50 billion in sales from Wegovy and Ozempic, with most of that revenue coming from the U.S. Sanders contends that Novo Nordisk charges Americans substantially higher prices for its blockbuster drugs than it does for patients in other countries. Before insurance, Ozempic costs nearly $969 per month and Wegovy costs almost $1,350 per month in the U.S.

U.S. Sen. Bernie Sanders (I-VT) speaks during Novo Nordisk CEO Lars Jorgensen’s hearing before a Senate Health, Education, Labor, and Pensions Committee on U.S. prices for the weight loss drugs Ozempic and Wegovy, on Capitol Hill in Washington, U.S., September 24, 2024.

Piroschka Van De Wouw | Reuters

Meanwhile, both treatments can cost as little as under $100 for a month’s supply in some European countries, according to a release from the committee. Ozempic costs just $59 in Germany, while Wegovy costs $92 in the U.K.

Sanders also said last week that the CEOs of major generic pharmaceutical companies have told him that they could sell a version of Ozempic for less than $100 a month at a profit. There are currently no generic alternatives to Ozempic available in the U.S.

Major PBMs, including UnitedHealth Group‘s Optum Rx and CVS‘ Caremark, and some health plans said $100 monthly list prices for Wegovy and Ozempic would help make those drugs more widely available to patients, according to a release from Sanders.

That could undercut Jørgensen’s claim in his written testimony that PBMs are to blame for the high list prices of Novo Nordisk’s drugs and “exercise near-total control over the ability of hundreds of millions of Americans to get the medicines they need at affordable prices.” The company has argued that it needs to be able to pay rebates to those middlemen to get their drugs on formularies, or lists of medications covered by insurance.

Jørgensen noted that the written promises that Sanders received from PBMs are “new information to me,” but said he understands “that perhaps the PBMs have changed their minds.”

Novo Nordisk has argued that it has spent billions to research, develop and expand manufacturing for the treatments and is funneling more money into researching their potential to treat other obesity-related health conditions. That investment has extended and improved the lives of millions of Americans, which helps reduce the health-care costs associated with obesity and diabetes, according to written testimony from Jørgensen.

Novo Nordisk CEO Lars Jorgensen testifies before a Senate Health, Education, Labor, and Pensions Committee hearing on U.S. prices for the weight loss drugs Ozempic and Wegovy, on Capitol Hill in Washington, U.S., September 24, 2024.

Piroschka Van De Wouw | Reuters

During the hearing, Jørgensen said the company has fought to secure public and private insurance coverage for the medications.

He also in part blamed the “complex U.S. healthcare system” for making it difficult for patients to access affordable prescription drugs, noting that “no single company alone can solve such vast and complicated policy challenges.”

Jørgensen promised that Novo Nordisk will “remain engaged and work with this committee on policy solutions to address the structural issues that drive up costs.”

But Jørgensen contended that lowering prices could have consequences, saying it could lead to less insurance coverage.

In his written testimony, Jørgensen said Novo Nordisk’s insulin product Levemir was previously available to 90% of U.S. patients through formularies. But insurers began to drop coverage of the insulin after Novo Nordisk cut its list price, leading to only 36% of patients having access.

That eventually drove the company to discontinue the insulin, Jørgensen said in his written testimony.

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Sanders and other lawmakers, health experts and insurers have warned that the insatiable demand for Novo Nordisk’s drugs and similar weight loss and diabetes treatments from rival Eli Lilly could potentially bankrupt the U.S. health-care system unless prices drop.

Both drugmakers make GLP-1s, which mimic hormones produced in the gut to tamp down a person’s appetite and regulate their blood sugar. Eli Lilly’s weight loss injection Zepbound and diabetes drug Mounjaro similarly cost around $1,000 per month before insurance and other rebates.

In a release, the Senate Health Committee said it would cost the U.S. $411 billion per year if half of all Americans took weight loss drugs from Novo Nordisk and Eli Lilly. That’s $5 billion more than what Americans spent on all prescription drugs in 2022.

Medicare spent $4.6 billion on Ozempic in 2022 alone, according to health policy research organization KFF.

Other insurers and employers have implemented strict requirements to control weight loss drug costs, or have dropped coverage of those treatments altogether. Many health plans cover GLP-1s for diabetes, but not for weight loss. The federal Medicare program doesn’t pay for weight loss treatments unless they are approved and prescribed for another health condition.

The hearing comes as the Biden administration and lawmakers on both sides of the aisle try to rein in health-care costs in the U.S., in part by pressuring the pharmaceutical industry and drug supply chain middlemen. On average, Americans pay two to three times more than patients in other developed nations for prescription drugs, according to a fact sheet from the White House.

Notably, Ozempic will likely be subject to the next round of price negotiations between manufacturers and Medicare — a key provision of President Joe Biden‘s Inflation Reduction Act that aims to lower costs for seniors. Wall Street analysts say Ozempic will likely be eligible for negotiations by the time the next round of drugs is selected in 2025, for price changes that will go into effect in 2027.

Lawmakers asked Novo Nordisk to commit to not suing the federal government if Ozempic and Wegovy are selected for the next round of negotiations.

Jørgensen did not explicitly make that commitment, noting that the company believes the talks are “not a fair negotiation, but actually price-setting” that will have negative consequences for drug innovation.

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FTC sues drug middlemen for allegedly inflating insulin prices

Harsh — Sat, 21 Sep 2024 13:58:35 +0000

Lina Khan, Chair of the Federal Trade Commission (FTC), testifies before the House Appropriations Subcommittee at the Rayburn House Office Building on May 15, 2024 in Washington, DC.

Kevin Dietsch | Getty Images News | Getty Images

The Federal Trade Commission on Friday sued three large U.S. health companies that negotiate insulin prices, arguing the drug middlemen use practices that boost their profits while “artificially” inflating costs for patients.

The suit targets the three biggest so-called pharmacy benefit managers, UnitedHealth Group’s Optum Rx, CVS Health’s Caremark and Cigna’s Express Scripts. All are owned by or connected to health insurers and collectively administer about 80% of the nation’s prescriptions, according to the FTC.

The FTC’s lawsuit also includes each PBM’s affiliated group purchasing organization, which brokers drug purchases for hospitals and other health-care providers. The agency said it could recommend suing drugmakers Eli Lilly, Sanofi and Novo Nordisk in the future as well over their role in driving up list prices for their insulin products.

A UnitedHealth spokesperson said the suit “demonstrates a profound misunderstanding of how drug pricing works, noting that Optum RX has “aggressively and successfully” negotiated with drug manufacturers.

A CVS spokesperson said Caremark is “proud of the work” it has done to make insulin more affordable for Americans, adding that “to suggest anything else, as the FTC did today, is simply wrong.”

And, a spokesperson for Express Scripts said the suit “continues a troubling pattern from the FTC of unsubstantiated and ideologically-driven attacks” on PBMs. It comes three days after Express Scripts sued the FTC, demanding that the agency retract its allegedly “defamatory” July report that claimed that the PBM industry is hiking drug prices.

PBMs sit at the center of the drug supply chain in the U.S. They negotiate rebates with drug manufacturers on behalf of insurers, large employers and federal health plans. They also create lists of medications, or formularies, that are covered by insurance and reimburse pharmacies for prescriptions. The FTC has been investigating PBMs since 2022.

The agency’s suit argues that the three PBMs have created a “perverse” drug rebate system that prioritizes high rebates from drugmakers, which leads to “artificially inflated insulin list prices.” It also alleges that PBMs favor those high-list-price insulins even when more affordable insulins with lower list prices become available.

The FTC is filing its complaint through its so-called administrative process, which initiates a proceeding before an administrative judge who would hear the case.

“Millions of Americans with diabetes need insulin to survive, yet for many of these vulnerable patients, their insulin drug costs have skyrocketed over the past decade thanks in part to powerful PBMs and their greed,” Rahul Rao, deputy director of the FTC’s Bureau of Competition, said in a statement.

“The FTC’s administrative action seeks to put an end to the Big Three PBMs’ exploitative conduct and marks an important step in fixing a broken system—a fix that could ripple beyond the insulin market and restore healthy competition to drive down drug prices for consumers,” Rao continued.

Roughly 8 million Americans with diabetes rely on insulin to survive, and many have been forced to ration the treatment due to high prices, according to the FTC.

The White House has no comment on the FTC’s suit, but has “made clear that no one should pay higher prices because of corporate greed,” White House press secretary Karine Jean-Pierre said in a statement Saturday.

President Joe Biden‘s signature Inflation Reduction Act has capped insulin prices for Medicare beneficiaries at $35 per month. That policy currently does not extend to patients with private insurance.

The Biden administration and Congress have ramped up pressure on PBMs, seeking to increase transparency into their operations as many Americans struggle to afford prescription drugs. On average, Americans pay two to three times more than patients in other developed nations for prescription drugs, according to a fact sheet from the White House.

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The FTC said it remains “deeply troubled” by the role insulin manufacturers play in higher list prices, arguing that they inflate prices in response to PBMs’ demands for higher rebates. Eli Lilly, Sanofi and Novo Nordisk control roughly 90% of the U.S. insulin market.

For example, Eli Lilly’s Humalog insulin had a list price of $274 in 2017, a more than 1,200% increase from its $21 list price in 1999, according to the FTC.

The FTC said all drugmakers should “be on notice that their participation in the type of conduct challenged here raises serious concerns.”

An Eli Lilly spokesperson said the FTC’s suit concerns “aspects of the U.S. health care system that we have long been advocating to reform.” They added that the company last year became the first to cap out-of-pocket costs for all of its insulins at $35 per month for people with private insurance. Eli Lilly also cut some insulin list prices by up to 70%.

Sanofi last year announced a similar $35 monthly price cap for its most commonly prescribed insulin. Novo Nordisk last year also said it would slash the list prices of some of its popular insulins by up to 75%.

A spokesperson for Sanofi said the company has not seen and will not comment on the FTC’s complaint against PBMs. But the French drugmaker agrees with the FTC’s claim that PBMs have “leveraged their position as powerful industry middlemen and have exploited rebates…to benefit themselves while increasing costs for patients and payers at the same time.”

A Novo Nordisk spokesperson said the company is “committed to ensuring patients have affordable access to their medicines, including insulin.” Novo Nordisk does not control the prices patients pay at the pharmacy in the “complex U.S. healthcare system,” the spokesperson noted, pointing to the company’s insulin savings card programs.

Correction: This story has been updated to correct a quote from the FTC.