David Joyner has officially taken over as the CEO of CVS Health, succeeding Karen Lynch, amid the company’s struggle to improve profits and stock performance. The announcement of this leadership change was made on Friday, October 18, 2024, effective from Thursday, the day before.
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Significant Stock Decline
This decision comes as CVS shares have fallen nearly 20% this year, with the stock closing approximately 5% lower on Friday. CVS is facing numerous challenges, including rising medical costs impacting its insurance unit, Aetna, alongside a retail pharmacy business pressured by weaker consumer spending and reimbursement issues for prescription drugs.
In August, CVS had to lower its full-year profit guidance for the third consecutive quarter and announced plans to cut $2 billion in costs over the next several years.
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Unfavorable Earnings Forecast
In its Friday release, CVS also projected adjusted earnings of between $1.05 and $1.10 per share for the third quarter. The company anticipates higher medical costs than previously expected. “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 stated in its release.
CVS is set to report third-quarter earnings on November 6.
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Pressure from Major Shareholders
Last month, CVS’s major shareholder, Glenview Capital, initiated a significant push for changes within the company. Glenview Capital issued a statement expressing respect and support for Lynch’s departure and a willingness to engage with Joyner. The firm called for CVS to refresh its board of directors. “We believe the Company’s culture, governance, and leadership should be strengthened by those with both appropriate industry experience as well as fresh perspectives, and that the Company would be best served through prompt Board evolution,” Glenview said.
Oversight and Strategic Review
According to CNBC, CVS’s board has engaged strategic advisors to consider its options, including the potential breakup of its insurance and retail businesses. However, a CVS spokesperson stated that the company will move forward intact.
David Joyner previously oversaw the company’s pharmacy services as president of Caremark, a major pharmacy benefits manager, a similar position to the one Lynch held before becoming CEO in February 2021. Joyner retired from CVS in 2019 before returning to lead Caremark at the beginning of last year.
“I came back to CVS Health in 2023 because I believed I could give more to the company, and I take this opportunity today for the same reason,” Joyner said in a statement.
Experience and Upcoming Challenges
Joyner began his career at Aetna in pharmacy benefit services and previously held the role of executive vice president of sales and marketing at CVS Health. He also had a roughly eight-year stint at Caremark before CVS acquired it in 2007. Caremark is now one of the three largest pharmacy benefits managers (PBMs) in the nation, playing a central role in the U.S. drug supply chain.
“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,” Chairman Roger Farah said in a statement.
Lynch also stepped down from the company’s board of directors this week, CVS announced on Friday. Joyner will take a seat on the board, while Farah will assume the role of executive chairman.
Regulatory Challenges Ahead
As CEO of CVS, Joyner will grapple with increased scrutiny from the Biden administration and lawmakers regarding Caremark and other PBMs, which is likely to continue regardless of which party holds the White House after the U.S. election. The Federal Trade Commission (FTC) last month sued Caremark and two other major PBMs, arguing that they employ practices that boost their profits while inflating insulin costs for patients.
He will also need to navigate higher medical costs for Medicare Advantage patients, which have surged over the past year as more seniors return to hospitals for procedures they had delayed during the COVID-19 pandemic. Medicare Advantage is a privately run health insurance plan contracted by Medicare.
Improvement Goals
The company hopes to achieve a target of 100 to 200 basis points margin improvement in its Medicare Advantage business next year, CVS executives said in August.
Next month, CVS will report that medical costs were still elevated in the third quarter. The company expects its insurance unit’s medical benefit ratio—a measure of total medical expenses paid relative to premiums collected—to be around 95.2% for the quarter, up from 85.7% during the same period last year. A lower ratio typically indicates that a company collected more in premiums than it paid out in benefits, resulting in higher profitability.
With this leadership change, CVS Health stands at a critical juncture. David Joyner will need to leverage his experience to tackle the significant challenges facing the company amid a rapidly changing healthcare industry. The decisions made in the coming months will not only impact the future of CVS but also the broader landscape of insurance and pharmaceutical industries.
