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The new chief executive officer of CVS Health is schooled in many of the traditions that built the company into a major player in both health insurance and healthcare delivery. So don’t look for David Joyner to move away from vertical integration as both a provider and a health insurance company. Joyner, who is 60 years old, brings nearly four decades of experience from across health insurance, pharmacy benefits and the provision of healthcare that have for years now served CVS well until healthcare costs started to jump in the last year just after the company’s Aetna health insurance business greatly expanded its sales of Medicare Advantage plans to more seniors.
Many of those seniors had held off getting medical care during the early years of the COVID-19 pandemic and are coming back to the doctor and hospital in droves and it’s causing big health insurers – including Aetna’s rivals - lots of problems all while the government squeezes payments and implements new regulations. On the same day CVS announced Lynch’s exit, the company Friday issued preliminary guidance for the third quarter that included “charges to record premium deficiency reserves, primarily related to the company’s Medicare and individual exchange businesses inside its health care benefits segment, of approximately $1.1 billion.
” But companies like CVS that own medical care providers and health insurance products aren’t about to unload major businesses, which would mean unraveling synergies already making the company money and the potential to make even more. CVS includes the large chain of CVS drugstores; fast-growing clinic operator Oak Street Health; Caremark, one of the nation’s largest pharmacy benefit management companies; and Aetna, the nation’s third largest health insurance company with more than 26 million health plan members. It’s no wonder last Friday’s statement announcing ongoing problems in the health insurance business and the departure of Karen S.
Lynch, 62, as CVS’ top executive mentioned the word “integrated” twice in quotes from the newly named executive chairman of the company, Roger Farah, 71, a former executive at jewelry retailer Tiffany and luxury fashion company Ralph Lauren . “CVS Health is responsible for improving health for millions of people across the U.S.
, and our integrated businesses work together to deliver on our purpose and mission every day,” Farah said. “To build on our position of strength, 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.” Other healthcare companies, too, that are seeing rising costs in their health insurance businesses are moving forward with both the operation and acquisition of medical care providers.
Rival UnitedHealth Group, which owns Optum and its array of clinics, surgery centers, doctor practices and medical groups, has had issues in its health insurance businesses but still made more than $6 billion in its third quarter even while spending hundreds of millions of dollars this year on a costly and unprecedented cyberattack on its massive businesses. UnitedHealth’s Optum reported third quarter operating earnings of more than $4.5 billion.
And rival Elevance Health, which is also having issues in its health insurance businesses, particularly the management of Medicaid coverage for poor Americans, announced during its earnings call it was adding to its Carelon healthcare provider business with an agreement to purchase Carebridge, a manager of home care and community-based services. Thus, the trend for health insurers to integrate with medical care providers isn’t going away. And even if CVS wanted to unload its healthcare services and medical care providers businesses, it’s unclear the company would get a return on its massive investment.
CVS spent more than $20 billion last year acquiring senior primary care centers via its acquisition of Oak Street Health and a homecare company, Signify Health. Aetna health plan members can be incentivized to use Oak Street or other providers the company has acquired or developed, executives have said. While CVS’ rival Walgreens has lost billions of dollars on its investment in primary care provider VillageMD, CVS retail healthcare operations are showing promise in part due to the relationships between the company’s health insurer and its providers.
Walgreens doesn’t own a health insurance company and Walgreens executives have said a key problem the VillageMD clinics were having is the inability to fill “patient panels” so dozens have been shuttered. Meanwhile, Humana’s healthcare services business, CenterWell, earlier this year announced plans to lease and open senior-focused primary care centers at 23 former Walmart Health clinic locations in Florida, Georgia, Missouri and Texas. A new Oak Street format is being deployed this year in several markets across the U.
S. in shuttered drugstores with the senior clinic long side a CVS pharmacy. Oak Street also has standalone senior clinics that include mental and social services a community room and related activities for seniors.
By 2026, CVS has said Oak Street Health “will have more than 300 centers, each of which has the potential to contribute $7 million of Oak Street Health Adjusted EBITDA at clinic maturity.” While CVS’ “preliminary guidance” ahead of next month’s third quarter earnings release described the company’s health benefits segment as continuing to have “elevated medical cost pressures,” the company’s “other segments performed consistent with prior projections in the quarter.” CVS’ final third quarter earnings report is scheduled for November 6.
Stay tuned..
