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CVS to Lay Off Nearly 3000 Employees as Part of Cost-Saving Initiative
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The company announced layoffs due to business challenges and regulatory pressures.
CVS Health is set to lay off 2900 employees nationwide, primarily in corporate roles, as part of a $2 billion cost-saving initiative.1
Mike DeAngelis, executive director, Corporate Communications at CVS Health, cited continued disruption, regulatory pressures, and evolving consumer needs as reasons for the layoffs, which represent 1% of the company’s workforce. Front-line workers in stores, pharmacies, and distribution centers will not be affected.
“Before taking this step, we prioritized finding cost-saving everywhere we could, including closing open job postings,” said DeAngelis in a statement to Nexstar’s WPRI, a CBS affiliate in Rhode Island (CVS' headquarters are in Woonsocket, RI). “Decisions on which positions to eliminate were extremely difficult and do not diminish the value that impacted colleagues have brought to the company.”
The company plans to file a Worker Adjustment and Retraining Notification (WARN) notice next week, which is a federal law that requires employers of 100 or more full-time workers to give the state 60 days advance notice of mass layoffs.
On September 20, 2024, the Federal Trade Commission (FTC) sued the 3 largest prescription drug benefit managers (PBMs)—Caremark RX, Express Scripts (ESI), and OptumRx—and their affiliated group purchasing organizations (GPOs) for conducting anticompetitive and unfair rebating practices that artificially inflated the list prices of insulin products.2 As a result, these practices negatively affected patients’ access to lower list-price products and shifted the cost of high insulin list prices to vulnerable patients.
The FTC alleged that CVS Health’s Caremark, Cigna’s ESI, and United Health Group’s Optum, as well as their respective GPOs, abused their economic power by rigging pharmaceutical supply chain competition in their favor, forcing patients to pay more for their insulin medication.
Formulary Manipulation
PBMs control drug formularies, which are the lists of drugs covered by health plans. They can demand higher rebates from manufacturers in exchange for placing certain high-priced drugs on formularies, making those drugs more accessible to patients with insurance. Lower-priced drugs that could be more affordable for patients are often excluded because they offer smaller rebates, which means less revenue for the PBMs.
Revenue From Clients
PBMs provide pharmacy benefit management services to payers, like employers, unions, and health insurers. By securing high rebates, PBMs can attract these clients, presenting the rebates as a way to save on drug costs. However, the rebates do not necessarily lower the price for patients at the point of sale, meaning PBMs benefit financially while patients continue to face high out-of-pocket costs.
Shifting Costs to Patients
Vulnerable patients, particularly those with deductibles or coinsurance, often have to pay the full list price of insulin at the pharmacy counter. Since the rebates are not passed on to patients, these individuals bear the burden of inflated list prices. PBMs and GPOs, meanwhile, keep the rebates and fees, maximizing their profits.
Additionally, CVS Health is exploring the possibility of splitting its retail and insurance units in response to pressure from investors, according to Reuters' sources.3 The split could lead to 2 publicly traded companies, unwinding CVS’ $70 billion acquisition of Aetna in 2017. CVS is also considering whether its PBM unit should be housed within the retail unit or under its insurance unit, if it were to proceed with the company break-up.
These discussions come as CVS faces operational challenges and declining earnings, with investors such as Glenview Capital pushing for changes after the company cut its 2024 earnings outlook for a third consecutive quarter in August.
References
1. Doiron S. CVS to lay off nearly 3000 employees. The Hill. October 1, 2024. Accessed October 1, 2024. https://thehill.com/homenews/4908305-cvs-lay-off-nearly-3000-employees/
2. Jeremias S. FTC takes legal action against 3 largest PBMs over insulin costs. The American Journal of Managed Care®. September 20, 2024. Accessed October 1, 2024. https://www.ajmc.com/view/ftc-takes-legal-action-against-3-largest-pbms-over-insulin-costs
3. Sen A. Exclusive: CVS explores options including potential break-up, sources say. Reuters. October 1, 2024. Accessed October 1, 2024. https://www.reuters.com/business/healthcare-pharmaceuticals/cvs-explores-options-including-potential-break-up-sources-say-2024-09-30/
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