Reports of a separation come at a time when the company is struggling to perform, particularly with its insurance arm Aetna.
CVS Health could be on the precipice of breaking up its businesses, sending shockwaves across the industry.
The healthcare giant is reportedly conducting a strategic review and weighing a potential split of its retail and insurance units as it continues to face struggles in those sectors, according to Reuters and The Wall Street Journal.
CVS’ board of directors has retained bankers to facilitate the review, but a decision is not imminent and it’s possible the company won’t experience a significant change, WSJ reported. Hedge fund Glenview Capital Management, which owns about 1% of CVS’ shares, is seeking changes and met with the company’s executives to discuss strategies for improving operations.
"CVS’s management team and Board of Directors are continually exploring ways to create shareholder value," a CVS spokesperson told WSJ. "We remain focused on driving performance and delivering high quality healthcare products and services enabled by our unmatched scale and integrated model."
While CVS has pursued an integrated model by offering health insurance through Aetna, primary care through clinics like Oak Street Health, and a pharmacy benefit manager through Caremark, the strategy hasn’t been without its challenges.
To slash costs, the company is planning layoffs that would affect about 2,900 jobs, or almost 1% of its 300,000 employees, due to “continued disruption, regulatory pressures and evolving consumer needs and expectations,” a spokesperson said. The impacted positions are mostly corporate roles and the reductions will not affect front-line workers in stores, pharmacies, and distribution centers.
In August, CVS also announced plans to cut $2 billion in costs to help offset the rising expenses and floundering financial performance of Aetna, which saw its operating income in the second quarter drop 39% year over year.
Additionally, the results spurred the company to let go of Aetna president Brian Kane and hand the insurer’s operations over to CVS CEO Karen Lynch and CFO Tom Cowhey.
Aetna’s woes are driven by increased utilization in Medicare Advantage while star ratings and bonus payments have been adjusted, resulting in diminished reimbursement for payers.
On the retail side, CVS has upped its investment in Oak Street after acquiring the business for $10.6 billion last year.
As other retailers have softened their position in primary care space or exited the space altogether, CVS announced plans to open 25 more Oak Street clinics by the end of 2024. By placing the clinics at its pharmacy sites, CVS believes it can funnel more patients to its primary care offering and turn around the profitability of the business.
However, considering the costs associated with primary care, CVS may be more inclined to distance itself from that unit rather than Aetna.
The pharmaceutical distributor giant is strengthening its oncology business to compete with its peers.
In the latest move by a pharmaceutical distributor to solidify its position in the oncology market, Cardinal Health announced its plan to acquire Integrated Oncology Network for $1.1 billion.
By scooping up the physician-led independent community oncology network, Cardinal will add more than 50 practice sites and more than 100 providers to its oncology practice alliance Navista, allowing the company to jostle in the space with competitors like McKesson and Cencora.
ION’s practices will also gain access to Navista’s AI analytics capabilities, along with insights from the PPS Analytics and SoNaR technology solutions of Specialty Networks, which Cardinal acquired for $1.2 billion earlier this year.
"Driving growth in specialty continues to be a top priority, and we've made investments to expand our offerings through both Navista and our acquisition of Specialty Networks," Cardinal Health CEO Jason Hollar said in a statement. "With their proven model providing extensive support of community oncology across the cancer care continuum and healthcare ecosystem, we're confident Integrated Oncology Network will further accelerate our oncology strategy and enable us to create value for providers and patients."
Dublin, Ohio-based Cardinal continues to invest in specialty drugs and oncology, with the latter arena seeing stiff competition as companies vie for market share.
McKesson announced last month it was acquiring a controlling interest in Community Oncology Revitalization Enterprise Ventures (Core Ventures), a business and administrative services unit of Florida Cancer Specialists & Research Institute, for $2.5 billion.
Last year, Cencora partnered with TPG to seize a minority interest in OneOncology for $2.1 billion.
Calls to block ‘The Big Three’
Cencora’s deal was completed, but Cardinal and McKesson’s acquisitions are still pending regulatory approval. The American Economic Liberties Project and five other advocacy organizations, however, have asked the FTC to block both moves to keep the companies from further dominating the oncology market.
In the letter written to the federal agency, the groups highlighted that Cardinals, McKesson, and Cencora, or ‘The Big Three,’ account for 98% of the wholesaler industry.
When wholesalers wield their oncology market power, it’s “at the expense of cancer patients, who suffer from persistent drug shortages and higher prices,” the letter argued.
“We respectfully request that the FTC apply the same level of scrutiny to block McKesson’s proposed acquisition of FCS’ Core Ventures and Cardinal Health’s proposed acquisition of the Integrated Oncology Network, both of which exceed the threshold for merger review by at least ninefold,” the groups wrote. “Otherwise, American cancer patients will be left to pay the life-threatening costs of ever-increasing wholesaler concentration, casualties in an intensifying ‘cancer care arms race.’”
The move comes amid a series of changes for the health system as it pursues financial sustainability.
Rhode Island-based Lifespan has targeted the executive level for layoffs to save on rising expenses.
The hospital operator has shed 20% of its executive roles, allowing it to save $6 million in fiscal year 2025, according to a statement from Lifespan president and CEO John Fernandez.
"Lifespan implemented a strategic restructure focused on creating a one-system, one-team approach, designed to reduce executive overhead and streamline operations," Fernandez said in the statement. "Starting from the top like this allows us to allocate more resources directly to patient care and support areas."
Lifespan didn’t provide details on which positions will be affected by the restructuring.
The organization turned around its bottom line in fiscal year 2023 by posting $8.6 million in operating income and $37.1 million in net income, compared to a $76 million loss and $186.8 million deficit in 2022, respectively.
Nevertheless, Lifespan continues to deal with increased expenses, largely driven by labor costs. For the nine months ended June 30, the operator saw total operating expenses increase by $253.3 million (10.9%), with compensation and benefits jumping $107.4 million (7.7%). Compensation and benefits costs were spurred by the system adding 421 FTEs, creating an expense of $39.3 million.
As hospitals and health systems pour more resources into their clinical workforce, executive layoffs allow organizations to slash sizeable salaries without eliminating large quantities of staff.
For Lifespan, the decision comes on the heels of the system announcing in June that it will rebrand to Brown University Health in exchange for a $150 million investment over seven years from Brown University.
Lifespan is also acquiring two Massachusetts hospitals from Steward Health Care after announcing the move in August and receiving court approval for the sale earlier this month. The $175 million deal brings Fall River-based St. Anne’s Hospital and Taunton-based Morton Hospital under Lifespan’s control.
Here's what the guiding hands at three organizations recently told HealthLeaders about solving for their biggest pain point.
Whether you're at the helm of giant health system or leading a rural hospital, building and maintaining a sustainable workforce is almost certainly at the top of your to-do list.
As the saying goes though, there's more than one way to skin a cat. In the case of tackling workforce challenges for CEOs, there are multiple ways to go about solidifying recruitment and retention in your organization.
Some leaders are prioritizing the wellbeing of their people and thinking of ways to improve the workplace culture, while others are more focused on reducing the work burden through technology.
Three hospitals CEOs recently shared their approach to the workforce with HealthLeaders. Here's what they had to say:
"We're in the greatest healthcare workforce shortage in the history of the world," Crouse Health CEO and HealthLeaders Exchange member Seth Kronenberg said.
The pandemic is over, but the workforce is still recovering from its effects. One of the impacts has been a drain of workers exiting the industry, which is expected to only get worse in the coming years. By 2028, healthcare is projected to have a shortage of over 100,000 critical care workers nationwide, according to a report by Mercer consultancy.
One of the strategies Kronenberg highlighted to retain workers is to provide them with more flexibility and optionality so they don't feel inclined to leave, whether it's for an opportunity to transfer into another discipline or have more work-life balance.
"Healthcare in general, we all were caught a little flat-footed with, certainly with COVID, all of the opportunities people had to work remote," he said. "There were many more opportunities in other industries, other than the hospital environment. So now we want to make sure we can meet the demands of the workforce as we go forward."
Kronenberg will be among many senior-level leaders from hospitals, health systems, and medical groups at the Workforce Decision Makers Exchange in Washington D.C., from November 7-8 to discuss solutions to building the workforce of the future.
At Cedars-Sinai, Peter Slavin is set to take charge on October 1 as the Los Angeles-based health system enters a new leadership era.
Coming into the role, Slavin shared that he wants to shape the workforce by improving the experience for clinical staff and leaning on technology to counteract the buildup of administrative tasks.
"Clearly the workforce was traumatized during the pandemic and is slowly recovering," Slavin said. "How do you make the work environment as positive and joyful as possible?"
Investing in and implementing generative AI can go a long way to easing the load on physicians, Slavin highlighted. By fighting burnout among your physicians and nurses, CEOs can significantly increase their chances of holding on to staff and keeping them happy.
"One of the sources of trauma that the healthcare workforce is facing is just the trauma caused by spending too much time in front of computers and not enough time in front of patients," he said. "Generative AI and other aspects of artificial intelligence, there's incredible opportunity to shift that balance between time in front of computers and patients and make it much more favorable from clinician standpoint.
"But I would emphasize that I don't think technology is the only answer to the issue. I think it's a variety of other things. It's just management paying close attention to the needs, the voices of the workforce and making sure that we're as attentive as ever to how to make the work environment as positive as possible."
At Oregon-based Grande Ronde Hospital, CEO and fellow HealthLeaders Exchange member Jeremy Davis understands that his organization has to be even more proactive with workforce strategies as a rural hospital.
That means understanding and being attentive to the needs of his staff, which allowed Grande Ronde to cut down on open positions from 220 two years ago to 50-60 in July.
"That took a lot of reflection and introspection about some of our policies and procedures," Davis said. "We have updated our personal policy manual and tried to find ways where we can be a little bit more flexible."
Developing nurses of the future through a nurse residency program and a partnership with a local university is another way Grande Ronde is adding to its workforce. By building a pipeline and training newer generations of workers, CEOs can mitigate the consequences of staff turnover and an aging out of older workers.
"It also just comes down to culture of being an organization that people want to be a part of," Davis said. "We're not perfect. We still have our things that we need to improve on but we're certainly listening. We're certainly trying and when people see an organization that's growing and trying to expand and trying to improve, they want to be a part of that and help determine that destiny."
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The for-profit hospital is further leaning into revenue from outpatient facilities as it aims for financial viability.
Community Health Systems’ subsidiary is buying 10 Arizona urgent care centers as the hospital operator balances divestitures with strategic acquisitions.
The definitive agreement by Northwest Urgent Care to purchase the centers from Carbon Health comes as CHS leans on outpatient services to deliver to financial relief.
Through the acquisition, which is expected to close in the fourth quarter, Franklin, Tennessee-based CHS will expand its integrated health network to more than 80 care sites in Tucson, Arizona.
“Our strategic investments are accelerating the growth of important access points in our health systems and expanding capacity for more patients,” CHS CEO Tim Hingtgen said in a statement. “In markets like Tucson, we are successfully executing strategies that make healthcare accessible and convenient, further improve our competitive position, and generate value for all of our stakeholders.”
CHS’ peers have also been staking a claim on the outpatient side.
Fellow giant HCA Healthcare revealed last November that it wanted to increase its outpatient facilities at each inpatient hospital from 12 to 20 over the next few years, with $2 billion earmarked for a roughly even spend on new inpatient and outpatient locations, according to chief operating officer Jon Foster.
For CHS, outpatient services have aided the system’s financial recovery in recent quarters. Growth in outpatient and same-store surgery volumes in the second quarter allowed the operator to cut its net loss to $13 million, compared to $38 million for the same period in 2023.
“We've been really deliberate about making sure we're putting outpatient access where our consumers want it and need it so that we can continue to capture more of the total share of spend in our markets,” Hingtgen told investors in the second quarter earnings call.
As demand for outpatient services has increased over the years, it has become a profitable investment for providers. Urgent care centers drive utilization but come without some of the expenses associated with inpatient facilities.
While CHS said it is also seeking to grow its inpatient business, the system has pursued divestitures to realign its portfolio.
In July, CHS announced a definitive agreement to offload three Pennsylvania hospitals to WoodBridge Healthcare for $120 million as part of a plan to reap $1 billion in hospital sales this year.
The health system is "built to weather a storm like this," executive vice president and CFO Saurabh Tripathi said.
Ascension's earnings over the past year are a prime example of the turmoil a cyberattack can inflict on a bottom line.
The St. Louis-based hospital operator was on its way to a significant financial recovery before suffering a ransomware attack in May that derailed operations and led to a $1.1 billion net loss for fiscal year 2024.
The cyberattacks on Ascension, Change Healthcare, and other organizations of late have underscored the importance of healthcare leaders investing in cybersecurity to protect against disruptions and lost revenue.
In the case of Ascension, the health system reported a loss from recurring operations of $79 million across the first 10 months of the fiscal year, a marked improvement from the $1.2 billion loss tallied in the same period for the prior year.
However, the ransomware attack caused a considerable downturn over the final two months of the fiscal year, forcing Ascension to finish with an operating loss of $1.8 billion.
"This incident resulted in delays in revenue cycle processes, including insurance verification processes, claims submission, and payment processing, as well as the incurrence of certain remediation costs, which collectively led to negative impacts to results of operations and cash flows during May and June 2024," Ascension wrote in its earnings report.
The system experienced encouraging growth in patient volume across the first 10 months, when emergency room visits were up 2.5%, inpatient surgery visits were up 2%, outpatient surgery visits were up 0.5%, and encounters per provider were up 3.9%. In May and June, same facility patient volumes dipped between 8% to 12% on average from the same period the prior year.
Even after feeling the financial ramifications of the cyberattack, the system's operating margin improved by $1.2 billion from the $3 billion operating loss in fiscal year 2023. Net loss, meanwhile, shrunk from $2.7 billion for 2023 to $1.1 billion, including operating and nonoperating items.
Ascension executive vice president and CFO Saurabh Tripathi said that the operator's focus is on growing patient volume now that it is recovering from May's incident.
"While temporarily impacted by the cybersecurity incident, Ascension's balance sheet and liquidity levels remain strong with sufficient liquidity to continue to provide care for patients," Tripathi said in a statement. "Ascension's solid financial foundation of a strong balance sheet with approximately $41 billion of assets and over $15 billion of liquidity was built to weather a storm like this. With the strong momentum of operational improvements, I am confident Ascension's best days are ahead of us."
The Catholic nonprofit has also been busy divesting assets to trim down its portfolio, shed expenses, and strengthen its core markets.
This year has included deals by Ascension to sell nine Illinois hospitals to Prime Healthcare and a five-hospital system to UAB Health.
The payer is tightening its grasp on the MA market in the Hoosier State.
Elevance Health is upping its investment in Medicare Advantage through its latest deal.
The insurer has reached a deal to acquire Indiana University Health Plans, IU Health’s insurance business, to expand its MA presence in the state and grow the profitability of its private program offering.
IU Health Plans provides MA plans to 19,000 members in 36 counties, in addition to serving 12,000 commercial plans members, according to the announcement.
The acquisition, which is expected to be completed at the end of the year, would result in IU Health Plans operating as part of Elevance’s Anthem Blue Cross and Blue Shield in Indiana.
"Acquiring IU Health Plans reflects our dedication to elevating quality and expanding our product offerings," Dave Mull, Medicare market president of Anthem Blue Cross and Blue Shield in Indiana, said in a statement. "This strategic step aligns with our health equity goals, providing comprehensive access to high-quality care and timely interventions. Through this purchase, we are strengthening our efforts to cultivate healthier communities and improve health outcomes for those we are privileged to serve.”
Elevance downgraded its long-term guidance for its health insurance unit in its second quarter earnings, largely driven by dwindling membership from Medicaid redeterminations and uncertain MA bids for 2025.
Despite seeing membership drop 4.6% and contending with revisions to the MA risk model, Elevance still profited $2.3 billion for the quarter.
Now, as some insurers are scaling back their MA offerings and exiting markets, Elevance is continuing to pour resources into that side of the business.
“It's an incredibly dynamic time in Medicare Advantage and now more than ever, we think it's important to be very thoughtful and rational as we plan for 2025,” Felicia Norwood, executive vice president and president for Elevance’s Government Health Benefits, told investors in the second quarter earnings call. “Despite this environment, Medicare Advantage enrollment is at an all-time high and over 50% of individuals are still choosing MA. That means there's still a clear value for what MA offers and we're committed in the long term to having and operating a profitable and sustainable MA business.”
A new survey reveals technology investment choices and outlooks by providers and payers.
Even with providers and payers focused on getting the most bang for their buck on investments, healthcare organizations are showing a willingness to spend on technology to address pain points and strive for innovation.
In a survey of 150 providers and payers by Bain & Company and KLAS, 75% of respondents reported increased IT investments over the past year, with an emphasis on addressing cybersecurity and labor challenges.
This year has seen several cyberattacks in healthcare that have highlighted the importance of cybersecurity spending. Chief among them is the Change Healthcare attack in February, which 70% of surveyed respondents reported being directly affected by.
In response, many organizations said they’ve audited internal systems and current vendors, while 56% of payers and 38% of providers have increased cybersecurity software spending. Only 11% of providers and 8% of payers stated they’ve not taken action.
Investment in IT infrastructure and services, including cybersecurity, was cited as a top-three priority the most among providers, selected by 38% of respondents. That was followed by clinical workflow optimization (35%) and data platforms and interoperability (33%).
One way to improve clinical workflow optimization is to embrace AI solutions and that’s something surveyed providers have shown a willingness to do. About 15% of providers said they have an AI strategy today, compared to around 5% in 2023.
Both providers and payers reported optimism about implementing generative AI, which the former group is using to assist in areas like clinical documentation. Generative AI solutions have the potential to significantly reduce the administrative burden on clinicians, giving them time back for both their work and personal life, resulting in less burnout.
However, providers and payers alike cited regulatory and legal considerations, cost, and accuracy as the biggest obstacles to implementing AI.
Costs in general were chosen as the top concern to technology investment for providers, selected as a top-three pain point by 49% of respondents. Electronic health records integration was second among the pain points (42%), showing that providers prefer to stick with current vendors instead of pursuing unknown ROI.
Nevertheless, organizations appear more eager overall to take chances and experiment with their technology investments in a post-pandemic world.
These strategies can get physicians to stay instead of walking out the door or leaving the profession altogether.
To know how to keep the physicians at their organization, CEOs should understand what matters most to physicians.
That perspective was shared in McKinsey’s recent survey, which revealed the factors that are influencing physicians to either remain in their role or leave amid a workforce shortage that is only expected to get worse in the coming years.
Of the 631 surveyed physicians, about 35% said they are likely to leave their current position in the next five years, with 60% of those respondents saying they’re likely to stop practicing completely.
Meanwhile, more than half of physicians (58%) indicated that their desire to change jobs has increased over the past year, a jump from the 43% reported in McKinsey’s previous survey.
Here are four ways to hold on to your physicians, based on respondents’ answers:
Improve compensation and incentive structures
Compensation is unsurprisingly a major factor for physicians, with 69% highlighting better pay as a reason to leave their job.
However, with many hospitals and health systems looking to cut back on expenses, increasing compensation is not always a viable option. Though paying up to keep physicians happy can save on the bottom line in the long run by avoiding costs associated with turnover, CEOs can also approach compensation by aligning it with organizational strategy, McKinsey noted.
Organizations should consider revamping their compensation models to further incentivize better performance, along with educating physicians about their incentive structures. Only 23% of surveyed physicians participating in risk-based contracts said they have a “very good understanding” of what is needed to reach their contract goals.
Focus on lifestyle and well-being
Alongside compensation, physicians care just as much about balancing their work life with their family life, with 69% deeming it a reason to leave.
Other well-being factors that influence physicians’ decisions are the intensity of the workload and its demanding nature (66%), the emotional toll of the job (65%), and the physical toll (61%).
To combat these stresses, CEOs should find ways to offer physicians more work flexibility and control over their schedule. The survey found that physicians want the ability to take time off (87%), find coverage when needed (77%), and have the ability to work specific hours (69%).
Flexibility over what days and times to work was deemed more vital for respondents than the ability to work remotely, which was chosen by 38%. Despite this sentiment, only 59% of physicians said that their organization is offering flexible schedules.
By implementing programs that allow physicians to better control their hours and investing in technology solutions that can achieve flexibility, CEOs can combat burnout among their employees.
Involve physicians in decision-making
Physicians also want to be heard and feel that their input is being valued.
More than 60% of respondents said they expect to be at least consulted or have a vote on important decisions, whether that’s on patient care quality, culture, or organizational strategies.
To empower their physicians, CEOs can open more channels of communication to collect feedback and input, as well develop physician leadership to give them the skills to make an impact.
Provide staffing and support systems
Additionally, organizations need to support their physicians by putting the right staff around them to improve delegation and minimize the time spent on administrative tasks.
More than half of respondents cited insufficient levels of support staff (57%) and insufficient quality of support staff (56%) as influences on their decision to leave, with only 30% reporting that their organization is providing support for the tasks physicians feel can be delegated.
To reduce the unnecessary burden placed on physicians, CEOs must ensure they are hiring enough nonclinical workers and having them properly trained, while implementing technology like generative AI to take care of time-consuming tasks like documentation.
The agreement with Medical Properties Trust allows the hospital operator to continue digging out of financial turmoil.
Steward Health Care has overcome a significant hurdle as it attempts to make its way back from bankruptcy.
The troubled health system reached a settlement with its landlord Medical Properties Trust that will absolve Steward of billions of dollars in outstanding debt and pave the way for it to sell its remaining hospitals.
The deal results in MPT waiving its claim of $7.5 billion, including $6.6 in future rent obligations, and allowing Steward to keep $395 million from the sale of three Florida hospitals to pay its lenders and creditors.
In return, Steward will drop its lawsuit against the real estate company, which alleged that MPT had interfered in its sales to improve its position.
U.S. Bankruptcy Judge Christopher Lopez approved the agreement on the heels of Steward selling Rockledge Regional Medical Center, Melbourne Regional Medical Center, and Sebastian River Medical Center to Orlando Health for $439 million. Final approval of the settlement by Lopez is expected to come later this month.
By coming together with MPT, Steward will be able to keep most of its hospitals open. The agreement involves 23 hospitals that will remain operational, including 15 facilities in Arizona, Florida, Louisiana, Ohio, and Texas that already have four new tenants taking over on an interim basis, effective September 11.
MPT expects to bring in around $160 million in annual rent payments upon stabilization in the fourth quarter of 2026, which represents 95% of what Steward would have owed in rent in Q4 2026.
While the new tenants take control, MPT has agreed to defer cash rent payments for the 15 hospitals until the end of the year.
Steward filed for Chapter 11 bankruptcy and put all 31 of its U.S. hospitals on the market in May.
As the hospital operator attempts to turn around its financial instability, its CEO, Ralph de la Torre has come under fire for his mismanagement.
After being subpoenaed to testify at a hearing on Capitol Hill last week, de la Torre declined to appear. Senators are now expected to hold the CEO in contempt when they vote on September 19, allowing for a criminal prosecution of de la Torre.
