CVS Health's The board has hired consultants to conduct a strategic review of its business as the corporate grapples with potential activist pressure and a sharply fallen stock price, in line with people acquainted with the matter.
The review has been underway for a while, the people said, but there isn’t a certainty about what motion, if any, the corporate will take. A split of the insurance and trading business is one in all the choices being considered, it is alleged.
CVS management, including CEO Karen Lynch, met with major shareholder Glenview Capital on Monday to debate the corporate's declining outlook and Glenview's plans to revive the stock, CNBC previously reported.
In a press release, CVS spokesman David Whitrap told CNBC: “CVS Health's management team and Board of Directors continually seek opportunities to create shareholder value. We remain focused on driving performance and delivering high-quality healthcare services enabled by our unmatched scale and integrated model.”
CVS shares rose about 1% in premarket trading on Tuesday on the news, which was first reported by Reuters on Monday.
Lynch has struggled with an insurance business that has suffered from increased medical costs, which led to a leadership change earlier this year. Lynch took direct control of CVS's insurance division in August, replacing then-president Brian Kane.
The company also announced a new plan in August to cut spending by $2 billion over several years. On Monday, CVS said this would mean a reduction of less than 1% of its workforce, or about 2,900 workers.
The company owns Aetna health insurance, which includes Affordable Act, Medicare Advantage and Medicaid plans, as well as dental and vision insurance.
In particular, medical costs for Medicare Advantage patients have skyrocketed for insurers like CVS, UnitedHealth Group and Humana in the last year as more seniors return to hospitals to undergo procedures they had put off during the Covid pandemic, such as such as hip and joint replacements.
Medicare AdvantagePrivately run health insurance under Medicare has long been an important source of growth and profit for the entire insurance sector. More than half According to health policy research organization KFF, starting in 2024, most Medicare beneficiaries will be enrolled in these plans because they are lured by lower monthly premiums and additional benefits not covered by traditional Medicare.
But Wall Street is increasingly concerned about the out-of-control costs of Medicare Advantage plans, which insurers warn won't go down any time soon.
In August, CVS said so Forecast for the full year lowered reflected a decline in the company's Medicare Advantage star rating in 2024. These ratings are critical because they 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 and Medicaid Services.
CVS predicted last year that it would lose up to $1 billion in 2024 due to lower star ratings, the company said in a statement Deposit of securities.
Unlike insurers like Humana, CVS has two other business lines – its retail pharmacy and health services segments – that could help mitigate the impact of higher medical costs.
The company's pharmacy and consumer wellness division reported year-over-year sales growth in the second quarter, driven in part by increased prescription volume. The unit dispenses prescriptions at more than 9,000 retail pharmacies across the U.S. and offers other pharmacy services such as vaccinations and diagnostic testing.
However, the company said declining prescription drug reimbursement rates and lower volume at the front of the retail store, where it sells everything from pantry staples to makeup and cleaning products, weighed on the unit's sales in the quarter.
Inflation, weaker consumer spending, theft and competition from Amazon and grocery giants are putting pressure on retailers. In August, CVS said same-store sales at the front of the store fell about 4% in the second quarter compared to the same period last year, reflecting a “general softening in consumer demand.”
CVS is counting on its private label products to draw shoppers away from national brands to combat inflation.
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