WOONSOCKET, R.I. — CVS Health plans to cut approximately 5,000 jobs nationwide as part of a cost-cutting strategy aimed at sharpening the retail pharmacy giant’s focus on health care services.
Affected employees will be notified in the next few weeks, and those who are laid off will receive a severance package, CEO Karen Lynch said in a memo sent to employees.
The company, which is headquartered in Woonsocket, employed more than 300,000 workers as of the end of 2022, primarily in the US. With 8,600 employees in Rhode Island, it’s the state’s third-largest employer.
In a statement to the Globe, CVS spokesman Michael J. DeAngelis said the cuts will primarily affect workers in corporate positions. Executives do not expect customer-oriented roles in individual pharmacies, clinics, or stores to be part of this plan, he noted.
“We do not anticipate there will be any impact to our clients and customers as we remain focused on our mission,” the statement said.
It’s unclear where the employees affected by the layoffs are based. DeAngelis did not respond to questions related to the location of these employees.
Lynch also plans to trim expenses tied to travel use, consultants, and vendors, according to a report in The Wall Street Journal. In his statement, DeAngelis said the layoffs and other cost-reducing measures will “set the company up for long-term success.”
Olivia DaRocha, a press secretary for Rhode Island Governor Daniel J. McKee, said the administration was notified on Monday of the company’s announcement, just hours before the memo was sent to employees. CVS did not provide “detailed information” on how these layoffs may impact Rhode Island specifically, she said.
“When that information is shared, we will work with [the R.I. Department of Labor and Training] and the company to support any impacted Rhode Islanders,” said DaRocha in an email Tuesday.
In a statement to the Globe, Rhode Island Commerce Secretary Elizabeth M. Tanner said, “We are in communication with CVS leadership to better understand the exact impact on Rhode Island. Any affected residents will have access to state resources and support services.”
CVS operates more than 9,000 stores and 1,100 walk-in clinics nationwide. In 2018, the company acquired Aetna, one of the country’s largest health insurance companies, in a $69 billion deal.
Aetna’s headquarters have been located in Hartford since 1853. Hartford has long been hailed as the insurance capital of the world, and office employees there are still seen as the key to economic development, but the city has struggled to incentivize major employers to bring workers back into offices after the pandemic. Before it was acquired by CVS, Aetna had announced plans to relocate to New York City; in 2018, CVS promised Hartford’s political leaders that they would keep Aetna’s headquarters in Hartford until 2028. At the time, CVS also agreed to maintain its 5,300 employees in Connecticut for at least four years. That agreement ended on Oct. 1, 2022, according to the Hartford Courant.
It’s unclear if Aetna’s corporate office in Hartford will be impacted by these layoffs.
CVS’ layoffs come at a perilous time for the US pharmacy industry. Both CVS and its top rival, Walgreens Boots Alliance, enjoyed strong sales growth during the pandemic due to high demand for COVID-19 vaccines and tests.
But the pandemic has been winding down: the Biden administration officially ended the country’s emergency response to the outbreak in April. And the economy has been hit with high inflation, causing consumers to spend less.
CVS’ cuts have less to do with current economic conditions and more to do with its long-term strategy. The company wants to transform itself from a business that simply charges a fee for service into a “value-based” health care provider.
“We’re going to become the nation’s leading health solutions company for consumers,” Dr. Troyen A. Brennan, the company’s chief medical officer, told investors in December 2021. “Delivering a consumer experience should be as frictionless as banking or shopping.”
Such a model emphasizes providing services to wherever consumers need it and to measurably improve patient outcomes. That requires using technology, including electronic medical records, to seamlessly coordinate care between pharmacists, doctors, nurses, and hospitals. But such a major transformation requires lots of capital and reorganization.
In late 2021, executives announced a plan to close 900 stores in three years in order to expand primary care services.
The company is in the middle of its second year of that “strategic closure,” and DeAngelis said “nearly all employees transition to other nearby CVS stores.”
In January, CVS invested $100 million in Carbon Health, a San Francisco-based startup whose “Connective Care” model uses software to help patients establish relationships with an integrated health care team, remotely monitor and manage their health, and access in-person care when and where they need it. In March, CVS completed a $7.8 billion acquisition of home health care provider Signify Health. And in May, CVS paid $10.6 billion to purchase Oak Street Health, which specializes in helping older Americans to stay healthy. Oak Street employs approximately 600 primary care doctors and has 169 medical centers across 21 states.
The recent acquisitions caused financial executives at the company to downgrade its revenue outlook for the year, despite the company posting an $85.28 billion revenue in March compared to its $76.83 billion posting a year prior.
The company has also had some recent shifts in its business plans while it doubles down on health care. In May, two years after its launch, the company announced it would close its clinical trials unit the end of 2024 to “refocus on core operations.”
CVS’ new model is compelling, especially given the rapidly growing numbers of aging Americans who are retiring and will need such care, said Burt Flickinger, managing director of Strategic Resources consulting group in New York.
But transformation requires CVS to grow its workforce, not lay off thousands of workers, Flickinger said.
The company can’t treat its transformation to value-based care simply as an item on its balance sheet, he said. CVS needs its executives and employees to develop the necessary leadership and operational skills to carry this strategy forward.
With Walgreens struggling to cut costs, “now is the perfect time for CVS to invest and grow,” Flickinger said.
This story has been updated to include additional reporting.