Will a new CEO cure its financial ills?
By Nancy Lavin, Rhode Island Current
The Woonsocket-based company named David Joyner as its new president and CEO, effective Thursday, Oct. 17. Joyner replaces outgoing CEO Karen Lynch, who stepped down after three-and-a-half years as president.
The corner office change comes as the national pharmacy giant faces rising costs tied to its insurance business, lawsuits attacking its pharmacy benefits arm and a changing landscape for retail stores. In September, the company announced plans to lay off 2,900 people — 1% of its workforce — including 600 employees who work in or report to supervisors out of its facilities in northern Rhode Island.
Shares fell more than 5%, to $60.34 per share, as of market close on Friday.
“They are having real problems,” Len Lardaro, an economics professor at the University of Rhode Island, said in an interview Friday. “The fact that they got rid of a CEO says this is serious stuff and they can’t wait as long as they wanted. This is a fire they have to put out now.”
Board Chairman Roger Farah, named executive chairman as part of the leadership transition, praised Joyner’s experience in a statement.
“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 for the benefit of all stakeholders, including customers, employees, patients, and shareholders,” Farah said. “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. 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.”
As president of CVS Caremark, Joyner led the company’s pharmacy services business, serving more than 90 million members nationwide. Joyner got his start at health insurance company Aetna, now under CVS ownership, and has 37 years of experience in health care and pharmacy benefit management.
“There is no greater honor than to lead a company whose mission and purpose are completely focused on improving health,” Joyner said in a statement. “Every day, CVS Health expands access, drives greater affordability, and achieves better health outcomes for more than 186 million people. Aligned with our management team and our Board, I believe in the future of our company and I am committed to delivering our best every day to everyone we serve.”
Lynch also came to CVS from Aetna, serving as the insurance company’s president during its 2018 acquisition by CVS. She was tapped as CVS Health president and CEO February 2021, overseeing the company’s rollout of retail COVID-19 vaccines and its foray into health care delivery.
Lynch’s payout, and Joyner’s new salary, were not immediately available. However, Lynch’s employment agreement allows for a cash severance package no more than 2.5 times her base salary and target bonus, according to an April 5 regulatory filing. In fiscal 2023, Lynch’s base salary was $1.5 million. Including incentives and stock awards and options, she earned $21.6 million in fiscal 2023.
Medicare costs drag down profits
Soaring costs for Medicare patients have been a pain point for the company, requiring a $1.1 billion reserve as of Sept. 30, according to CVS’ preliminary financial estimates.
Full quarterly earnings results will be released Nov. 6, but the company has already cautioned investors and shareholders to lower expectations.
“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 a statement.
CVS now projects adjusted earnings of $1.05 to $1.10 per share for the quarter that ended Sept. 30, based on an expected $1.32 to $1.38 billion net income.The latest revisions mark a 34% drop over prior industry forecasts of $1.69 per share.
Lardaro anticipates tough choices on the horizon as investors pressure the company to spin off the “inefficient parts.”
The board of directors has already discussed breaking up the company into separate retail and pharmacy units, as first reported by Reuters.
“Aetna is really not performing,” Lardaro said. “I can’t imagine that they’re going to keep them.”
He continued, “I think at this point, they are really looking at, what is the future of a company like CVS? Where is it going?”
Swapping out CEOs may be a first step, but it’s going to take time, and other shrewd business decisions, for the company to regain its financial footing, Lardaro said.
CVS is not alone. Its competitor Walgreens on Oct. 15 reported a $3 billion quarterly earnings loss, with plans to close another 1,200 stores over the next three years.
Health insurance companies including UnitedHealth Group and Humana have also seen profits shrink and stock values tumble amid rising demand and lower reimbursements for patients on government health insurance, according to news reports.
“Health care is a difficult space,” Liz Catucci, president and CEO of the Northern Rhode Island Chamber of Commerce, said in an interview Friday. “I do believe [CVS] is very committed to the state. We have a lot of confidence in the new leadership and look forward to working with them.”
Ethan Slavin, a CVS spokesperson, confirmed that despite financial headwinds, the company doesn’t plan on leaving Rhode Island.
“Rhode Island will continue to be the headquarters of CVS Health,” Slavin said in an emailed statement Friday.
Not that Rhode Island leaders shouldn’t do everything they can to entice CVS to stay, Lardaro said.
“The problem with the Rhode Island government is that they tend to be reactive rather than proactive,” Lardaro said. “If I were in state government, I would be saying, ‘what do we need to do to help you guys with this whole transition?’ Let’s get on top of it now. Look at what’s happening with Hasbro.”
The Pawtucket toy and entertainment company is considering new headquarters in Massachusetts, as first reported by the Boston Business Journal in September.
Gov. Dan McKee and Woonsocket Mayor Christopher Beauchamp did not return inquiries for comment about CVS on Friday.
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