CVS Health’s third-quarter earnings results released Wednesday (Nov. 6) reflected the company’s ongoing efforts to adapt to a changing healthcare and retail environment.
As it continued to overhaul its operations in response to shifting market dynamics, including the digital transformation of healthcare, CVS faced challenges across its various business units.
The company reported a total revenue rise of 6.3%, to $95.4 billion.
While the company’s Pharmacy & Consumer Wellness segment delivered positive results, the Health Services division struggled, underscoring the complexities of CVS’s strategic shift.
CEO David Joyner, who assumed the role in October following the departure of Karen S. Lynch, emphasized the strengths of the company’s pharmacy services while acknowledging the pressures facing its Health Care Benefits (HCB) segment.
“HCB is clearly underperforming,” Joyner told analysts during the company’s earnings call. “The entire industry has seen pressure. The retail sector is pressured, lots of headwinds in this market.”
CVS saw increases in the Health Services and Pharmacy & Consumer Wellness segments, with the latter seeing a 12.3% revenue increase to $32.4 billion, driven by higher prescription volumes and growth in vaccinations. The Health Care Benefits segment also showed growth, with a 25.5% year-over-year revenue increase, to $33 billion, fueled by expansion in the Medicare and commercial product lines.
However, the Health Services division faced challenges, experiencing a 5.9% revenue decline, to $44.1 billion, primarily due to the loss of a large client and continued pricing pressures in the pharmacy sector.
As part of its ongoing restructuring efforts to streamline operations and reduce costs, CVS Health recorded $1.2 billion in charges during Q3, including $607 million for impairments related to planned retail pharmacy closures in 2025, $293 million for workforce optimization, and $269 million for non-core asset disposals. These moves are part of a larger strategy to refocus the company’s operations and improve long-term profitability.
In addition, CVS announced key leadership changes, with Prem Shah appointed as group president and Steve Nelson named president of Aetna, both reporting to Joyner.
The company’s operating income plummeted 77.5%, to $832 million from $3.7 billion last year. The decline was due to the restructuring charges and a drop in adjusted operating income, highlighting the financial challenges CVS continues to face as it implements its strategic overhaul.
The divergence in performance comes as CVS Health faces a dual challenge: increased competition from traditional and digital health players and rising costs in its health benefits unit. These challenges prompted the company to consider a restructuring effort aimed at streamlining operations and reducing overhead, as well as expanding its digital offerings to remain competitive in the fast-changing healthcare and retail sectors.
Sudip Mazumder, senior vice president and retail industry lead, North America, at digital consultancy Publicis Sapient, discussed with PYMNTS in October the key challenges all retail pharmacies face.
“This decline in foot traffic has notably impacted the overall sales of retail pharmacies,” Mazumder said. “While prescription drug sales remain a stronghold, the reduction in over-the-counter (OTC) purchases and related services has adversely affected their financial performance. … As consumers increasingly seek convenience, the demand for in-person pharmacy consultations and services has decreased, resulting in a decrease in front-of-the-store high-margin general merchandise sales. Retail pharmacies must adapt quickly to these changes to stay relevant.”
Meanwhile, CVS faces ongoing reimbursement pressure, particularly within its Medicaid and Medicare segments, which are more sensitive to regulatory changes and the broader economic environment.
During the Q3, CVS recorded premium deficiency reserves of approximately $1.1 billion in its Health Care Benefits segment, primarily in its Medicare and individual exchange product lines related to anticipated losses for the 2024 coverage year. The premium deficiency reserves are expected to be released during the fourth quarter of 2024, benefiting results in that period. The Health Care Benefits segment recorded an operating loss of $924 million compared to adjusted operating income of $1.5 billion for the same period last year.
“We’re taking deliberate actions to position ourselves for 2025 and beyond,” Chief Financial Officer Thomas Cowhey told analysts during the call.
CVS remains focused on its strategy of integrated health services and digital innovation. Joyner pointed to the launch of SimplePay Health, aimed at simplifying the healthcare experience by offering price certainty before treatment, with members paying a single copay for all covered medical and pharmacy services up to their out-of-pocket maximum.
SimplePay Health promotes cost transparency, allowing members to choose providers through an app, and eliminates complex billing by consolidating all claims into one monthly statement. Joyner said early results showed a 60% increase in the use of high-quality providers and a 12% savings in total cost of care for both employers and members.
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