CVS announces layoffs of 2,900 workers and is reportedly considering liquidation

CVS Health said Monday that it would lay off about 2,900 employees amid pressure from investors to cut costs and improve its financial performance. And there could soon be even more dramatic changes.

A spokesman for the health care giant, which has long been based in Woonsocket, Rhode Island and runs health insurer Aetna in Hartford, confirmed the cuts will primarily impact corporate roles. Late Monday, news service Reuters reported that the company is considering an even bigger move – splitting up its pharmacy chain and insurance business – although no final decisions have been made.

A spokesman declined to comment to Reuters about a possible separation, but confirmed the layoffs to the Globe and said they were part of a $2 billion cost-cutting plan intended to improve the company’s financial performance. The job cuts will be company-wide, “not isolated to a single company branch or state,” the spokesman said, and will amount to less than 1 percent of the company’s workforce.

“Our industry faces ongoing disruption, regulatory pressures and changing consumer needs and expectations. Therefore, it is crucial that we remain competitive and perform at our best,” the company said in a statement. “Before taking this step, we prioritized finding cost savings wherever we could, including closing open job postings. The decision as to which positions should be eliminated was extremely difficult and does not diminish the value that the affected colleagues brought to the company.”

More details about the layoffs are expected to be announced next week, when the company is expected to file notices with state labor departments.

The Reuters report, citing “people familiar with the matter,” describes a far more aggressive move that effectively killed CVS’s 2017 acquisition of Aetna, which now generates about a third of the company’s revenue. CVS’s board is considering spinning off two publicly traded companies, but has not yet decided how to proceed.

The news comes the same day that CVS executives met with investor Glenview Capital Management to discuss how to improve operations after a long decline in stock value. Glenview founder Larry Robbins has built a large position in CVS, the Wall Street Journal reported Sunday, citing unidentified people familiar with the matter. CVS represents about $700 million of Robbins’ $2.5 billion fund, one of the people told the Journal.

The diversified healthcare company has faced major challenges in both its drugstore chain and Aetna health insurance division, with shares having lost 45 percent of their value since their last peak in February 2022. In August, CVS lowered its 2024 profit forecast for the third quarter in a row due to rising patient care costs at the insurance unit.

CVS will likely “sharpen its focus on near-term wins and be more assertive in communicating its strategy with Robbins, who is now publicly involved,” Jonathan Palmer, an analyst at Bloomberg Intelligence, said in an email. “The challenge is that these are highly regulated companies where changes due to contracting occur relatively slowly. There is no quick fix that will make CVS more competitive overnight.”

Rising medical costs are impacting companies across the insurance industry, including Humana Inc. and UnitedHealth Group Inc. CVS launched a multiyear effort to cut $2 billion in expenses as health care spending at its Aetna unit plunged into the skyrocket. The unit also recently suffered a setback when Medicare, the U.S. health care program for the elderly, lowered the quality rating for one of its national health plans, thereby lowering reimbursement rates.

Brian Kane, who had led the insurance department, left in August after less than a year in the position. Chief Executive Karen Lynch and Chief Financial Officer Tom Cowhey have taken over his duties while CVS searches for a successor. Lynch is seeking to diversify into businesses such as the Oak Street chain of clinics for Medicare patients.

Meanwhile, it has become more difficult for both CVS and rival Walgreens Boots Alliance Inc. to make profits in stores. The entire drugstore business is suffering from cost pressure and increasing competition from online companies and discount giants.

CVS has been consolidating its business by closing unprofitable stores, which has impacted its store footprint. That means there are fewer CVS stores for shoppers to shop at, driving traffic back to their competitors who are “aggressively flexing their muscles in the health and wellness space,” said Amar Singh, senior director at retail consulting firm Kantar Group Ltd.

Material from Globe Wire Services was used in this report.

Tim Logan can be reached at [email protected]. Follow him @bytimlogan.