The company announced restructuring and layoffs to offset expenses as net income dropped in the second quarter.
CVS Health wants to trim up to $800 million in expenses in 2024 while shifting resources to expand Oak Street Health, the healthcare giant shared with investors in an earnings call.
The company released its second-quarter earnings, which showed a net income of $1.9 billion for a 37% decline year-over-year, and announced restructuring plans one day after eliminating 5,000 jobs to save $600 million.
"These actions enable us to reallocate resources and invest in critical growth areas, such as health services and technology, which are the biggest enabler of our strategy," CVS Health president and CEO Karen Lynch said on the call. "We've taken meaningful steps executing on our long-term strategy with tangible proof of the value of our unique integrated offering."
Despite beating Wall Street expectations with total revenue increasing 10.3% to $88.9 billion, CVS Health reduced its 2024 adjusted earnings per share target from $9 to a range of $8.50 to $8.70 and said it doesn't expect to reach its target of $10 for 2025.
Increased expenses stem from greater-than-expected Medicare Advantage utilization in outpatient settings, fewer COVID-19 cases contributing to lower volume in retail, and significant expansion of Oak Street Health clinics.
CVS Health completed its acquisition of Oak Street Health in May for $10.6 billion, adding 600 primary care providers and more than 170 medical centers across 21 states. The company expects to build 50 to 60 clinics next year, increase its reach to 25 states by the end of 2023, and open new Oak Street clinics co-located with CVS pharmacies this year, Lynch said.
The company also closed its purchase of home care provider Signify Health for $8 billion this year and is pursuing opportunity to connect it and Oak Street Health to its other businesses, such as CVS Pharmacy, Aetna, and MinuteClinic.
While CEOs everywhere are telling their CFOs to focus on cutting costs, innovating and using technology to optimize operations is a key trend for 2023.
Lynch said CVS Health is identifying opportunities to utilize technology, which includes "selectively using artificial intelligence for some time," while Oak Street Health president Mike Pykosz emphasized the advantage Oak Street has with the same operating model and same technology in all their centers.
The company will deal with headwinds across their set of assets in the coming year, but is proactively positioning itself to navigate a shifting financial climiate.
Jay Asser is the contributing editor for strategy at HealthLeaders.
KEY TAKEAWAYS
CVS Health posted its second quarter earnings report, revealing a 37% decline in net income year-over-year to $1.9 billion.
President and CEO Karen Lynch told investors on an earnings call that the company is aiming to reduce costs by up to $800 million in 2024, with more than $600 million saved through the elimination of 5,000 jobs and restructuring.
The expansion of Oak Street Health clinics will be a focus over the next year, along with integrating Signify Health into the other lines of business.