What went wrong at CVS? (2024)

The pharmacy industry is in crisis. That's especially true at CVS, where layoffs are piling on top of layoffs — and the future of the company is in question.

CVS Health announced this month that it is laying off 2,000 workers, CNN said, as part of an effort to "slash costs" across the company. That's on top of the 5,000 layoffs it announced last year, and after the company closed around 900 stores in recent years. CVS and other drug store chains are "struggling" due to falling reimbursement rates for prescription drugs, CNN said. "Our industry faces continued disruption, regulatory pressures and evolving consumer needs and expectations," said a company spokesperson.

CVS' problems are also "very specific to the company," said Axios. In addition to its pharmacies, CVS is also a "major insurer" — it bought Aetna in 2017 — as well as a pharmacy benefit manager. Yes, "retail pharmacy in general is struggling," but CVS' challenges "could just be the specific businesses it has combined," Axios said. That's why company leaders are reportedly considering breaking up those businesses — an extraordinary move in an era where "vertical integration is all the rage."

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"Satisfaction with brick-and-mortar pharmacies dropped 10 points in 2024," said Time. Customers report short-staffed outlets with "long lines and frustrating experiences." It's not just CVS: Rite Aid recently emerged from bankruptcy, and Walgreens is planning to close one-fourth of its roughly 8,600 stores. Customers simply didn't return to brick-and-mortar stores after the pandemic, preferring cheaper online alternatives. "The current pharmacy model is not sustainable," Walgreens CEO Tim Wentworth said in June.

That affects communities. The mass closure of retail pharmacies is a "growing worry for health experts," said the Missouri Independent. The problem is "most acute" in places with low incomes — "urban cores" and rural areas where pharmacies are the "convenience stores of the health care system." That makes getting necessary medications a growing challenge for the people who live in those places. "When those community pharmacies close, communities lose critical access," said one expert.

One other factor in the struggles of CVS and its industry: "Heavy competition" from Amazon and Walmart, said the Los Angeles Times. Pharmacy benefit managers (PBMs) also play a role — they have "significant control" over how much insurers pay pharmacies for medications and have worked to push down those reimbursement costs. That pushes down pharmacy profitability. One irony: CVS owns Caremark, a PBM. "That's made the drug retail business more healthy," said one analyst — but it still hasn't made CVS "immune to market forces," said the Times.

What next?

CVS' board is looking at "splitting the company," said The Wall Street Journal. That could be difficult. The spun-off businesses "might struggle to flourish on their own." The mergers with Aetna and Caremark were supposed to "bring down costs and give patients more convenient, accessible care." That didn't pan out. Now the future of the company is in limbo, the Journal said: CVS' board "isn't expected to make a decision soon."