CVS slashing 5,000 jobs to cut costs after string of multibillion-dollar acquisitions

CVS went on a shopping spree earlier this year, spending $8 billion to buy provider network Signify Health in March and $10.6 billion to buy primary care clinic operator Oak Street Health in May as part of its plan to prioritize value-based healthcare.

Now, the retail pharmacy giant is tightening its wallet, cutting thousands of jobs and announcing a cost-cutting initiative to save up to $800 million in 2024.

During CVS’s Q2 2023 earnings call on August 2, CEO Karen Lynch announced a nearly $500 million restructuring charge associated with eliminating 5,000 “noncustomer-facing” jobs.

“These actions enable us to reallocate resources and invest in critical growth areas, such as health services and technology, which are the biggest enabler of our strategy,” Lynch said in the earnings call.

Why is CVS dropping all this cash?

CVS is leaning in to value-based care as it competes with Walgreens, which spent $5.2 billion to acquire primary care clinic operator VillageMD in 2021 and $3.5 billion to buy primary care clinic operator Summit Health-CityMD in January 2023.

“CVS needs to respond to the market,” David Larsen, an analyst at financial services firm BTIG wrote in an analyst note in February, when CVS announced its planned acquisition of Oak Street Health. “It is clear that value-based care is becoming a dominant model in healthcare.”

In a February news release, Lynch said that “enhancing our value-based offerings is core to our strategy as we continue to redefine how people access and experience care that is more affordable, convenient, and connected.”

Following its string of multibillion-dollar acquisitions, Walgreens also recently announced job cuts, laying off 10% of its corporate workforce, or 504 employees, in May.

Other cost-cutting measures

As part of CVS’s cost-cutting efforts, Lynch said in the Q2 2023 earnings call that the company has been experimenting with artificial intelligence to “improve the efficiency of our operations, enhance our customer experience, and increase our competitiveness.”

In a staff memo obtained by the Wall Street Journal, Lynch also said CVS is reducing its use of consultants and vendors, and trimming travel expenses.

“When combining all of our productivity initiatives, we are confident we will achieve the $700 million to $800 million of cost savings that we are targeting in 2024,” Lynch said in the Q2 earnings call.