CVS Health

CVS Health Corporation
Type	Public
Traded as	NYSE: CVS
Industry	Healthcare, retail pharmacy, health insurance
Founded	1963, Lowell, Massachusetts
Founder	Stanley Goldstein, Sidney Goldstein, Ralph Hoagland
Headquarters	Woonsocket, Rhode Island, United States
Area served	United States
Key people	David Joyner (CEO)
Products	Prescription and over-the-counter medicines, health and beauty products
Services	Retail pharmacy, pharmacy benefit management, health insurance, primary care, home health
Subsidiaries	Aetna, CVS Pharmacy, CVS Caremark, MinuteClinic, Omnicare, Coram, Oak Street Health, Signify Health
Website	cvshealth.com

CVS Health Corporation is an American multinational healthcare company that owns CVS Pharmacy, a retail pharmacy chain; CVS Caremark, a pharmacy benefit manager; and Aetna, a health insurer, among other businesses. It is the second largest healthcare company in the world behind UnitedHealth Group, and was ranked 64th in the 2023 Forbes Global 2000.

CVS began in Lowell, Massachusetts as a chain founded by the brothers Stanley and Sidney Goldstein with their partner Ralph Hoagland. The name stood for Consumer Value Stores.

The company is the clearest example of vertical integration in American healthcare. Over three decades it assembled a retail pharmacy chain, the pharmacy benefit manager that decides which drugs insurers cover, the insurer itself, walk-in clinics, home health services and primary care practices, so that a single corporation can insure a patient, decide which medicines are reimbursed, dispense them, and provide the clinical care. That structure is the source both of its scale and of nearly every criticism made of it.

History

Foundation and early expansion, 1963 to 1979

The first Consumer Value Store opened in 1963 in Lowell, Massachusetts, selling health and beauty products. By 1964 there were 17 stores trading principally in beauty products, and in 1967 CVS opened its first stores with pharmacy departments, at Warwick and Cumberland in Rhode Island. The company was sold to the Melville Corporation in 1969.

By 1970 CVS operated 100 stores across New England and the north-east. It acquired 84 Clinton Drug and Discount Stores in 1972, entering the Midwest through Indiana, and 36 New Jersey-based Mack Drug stores in 1977.

Growth by acquisition, 1980s and 1990s

CVS began providing home healthcare for haemophilia in 1983, an early move beyond retail dispensing, and acquired the small Boston-area chain Heartland Drug in 1988.

The 1990s established the company nationally. It acquired 500 Peoples Drug stores in 1990, entering the mid-Atlantic including Washington, D.C., Pennsylvania, Maryland and Virginia. In 1994 it launched PharmaCare, its first pharmacy benefit management business.

CVS became a standalone public company on the New York Stock Exchange in 1996, with Stanley Goldstein as its first chairman. It acquired more than 2,500 Revco drug stores in 1997, extending into the Midwest, south-east and east, and 207 Arbor Drugs stores in 1998, entering Michigan. In 1999 it acquired Soma.com, the first online pharmacy, renaming it CVS.com and becoming the first fully integrated online and physical pharmacy.

Consolidation and the Caremark merger, 2000s

In 2000 CVS acquired the Stadtlander pharmacy from Bergen Brunswig, making CVS ProCare the largest speciality pharmacy in the United States. The ExtraCare loyalty programme launched in 2001 and enrolled 30 million customers within a year.

In 2004 CVS purchased 1,268 Eckerd drug stores and Eckerd Health Services, Eckerd's benefit management and mail order business, from JCPenney, expanding into Texas, Florida and the southern states. In 2006 it acquired 700 freestanding drug stores from the supermarket group Albertsons, trading as Osco Drug and Sav-On Drugs, and the Minneapolis walk-in clinic operator MinuteClinic.

The decisive transaction came in 2007, when CVS Corporation and Caremark Rx completed a merger creating CVS Caremark, an integrated pharmacy services provider, with headquarters remaining in Woonsocket, Rhode Island. Tom Ryan, chairman and chief executive of CVS, became president and chief executive of the combined company, and Caremark's Edwin Crawford became chairman.

The merger joined a retail dispenser with one of the largest pharmacy benefit managers in the country. Benefit managers negotiate with drug manufacturers on behalf of insurers and employers, set formularies determining which medicines are covered, and administer claims. Combining that function with the pharmacies that dispense the medicines created the conflict of interest that has defined regulatory scrutiny of the company ever since.

CVS Caremark acquired 541 Longs Drugs stores in California, Hawaii and Nevada in 2008.

Health services strategy, 2010s

Larry Merlo succeeded Tom Ryan as president and chief executive in 2011, having joined CVS in 1990 through the Peoples Drug acquisition.

On 3 September 2014 the company announced that it had ceased selling tobacco products at all 7,700 locations, a month earlier than planned, forgoing approximately two billion dollars in annual revenue. It simultaneously changed its corporate name to CVS Health to reflect what it described as a broader healthcare commitment, while retail stores continued to trade as CVS Pharmacy. The tobacco decision was widely praised and is frequently cited as a rare instance of a listed retailer abandoning a profitable product line on public health grounds.

The company acquired Coram, the specialty infusion and enteral nutrition business of Apria Healthcare, in 2014, together with 33 Miami-based Navarro Discount Pharmacy stores, the largest Hispanic-owned drugstore chain in the country. In 2015 it acquired Omnicare, supplying pharmacy services to long-term care facilities, and more than 1,600 Target pharmacies and retail clinics, operated in a store-within-a-store format.

In 2017 CVS announced the installation of 25 vending machines in high-traffic locations including LaGuardia Airport and Boston's South Station, carrying personal items and snacks.

In December 2017 CVS agreed to buy the health insurer Aetna for approximately 207 dollars a share, 145 dollars in cash and the remainder in stock, a transaction valued at about 69 billion dollars. It would give CVS the ability to provide a broad range of services to Aetna's 22 million medical members, and Merlo was named to run the combined company. The Department of Justice approved the merger in 2018 subject to divestiture of Aetna's Medicare Part D business, and a federal judge conducted an unusually searching review before approving it in 2019.

Merlo told USA Today in November 2018 that the chain would renovate stores to focus more on healthcare and less on retail, offering medical services alongside prescriptions. In June 2019 the company announced plans to expand its HealthHUB concept, launched in Houston earlier that year, to 1,500 locations by the end of 2021. HealthHUB stores devote at least 20 per cent of floor space to health services including expanded MinuteClinic areas, reducing space given to slower-selling merchandise such as greeting cards. Conversions were paused in March 2020 because of the COVID-19 pandemic.

Recent developments, 2020s

CVS reduced its board from 16 to 13 directors in February 2020. During the pandemic the company became one of the principal administrators of COVID-19 testing and vaccination in the United States, delivering tens of millions of vaccine doses through its stores and through a federal programme covering long-term care facilities.

On 18 November 2021 it announced the closure of 900 stores over three years, about ten per cent of its American estate, citing changes in consumer behaviour, population shifts and the future of healthcare needs.

On 23 November 2021 a federal jury found that CVS, together with Walgreens and Walmart, had substantially contributed to the opioid crisis in two Ohio counties, the first such verdict against pharmacy chains.

In December 2021 the company announced a strategic partnership with Microsoft on personalised care and digital health. In September 2022 it agreed to buy the home health company Signify Health for roughly eight billion dollars, a month after announcing plans to move into primary care. On 8 February 2023 it agreed to acquire Oak Street Health, an operator of primary care clinics for Medicare patients, in an all-cash transaction at 39 dollars a share, an enterprise value of approximately 10.6 billion dollars, completing in May 2023.

David Joyner succeeded Karen Lynch as chief executive in October 2024 following sustained pressure on the company's performance, particularly in its Medicare Advantage business, where medical costs had risen faster than premiums.

Business segments and subsidiaries

Aetna

Aetna Inc. is a managed care company selling traditional and consumer-directed health insurance and related services including medical, pharmaceutical, dental, behavioural health, long-term care and disability cover, principally through employer-paid insurance and benefit programmes and through Medicare.

CVS Pharmacy

CVS Pharmacy is among the largest retail pharmacy chains in the United States, with about 9,600 stores across all 50 states, the District of Columbia and Puerto Rico, trading principally as CVS Pharmacy and also as Longs Drugs, Navarro Discount Pharmacy and Drogaria Onofre. It fills more than one in every five prescriptions dispensed in the United States, and 85 per cent of the American population lives within ten miles of a branch. The ExtraCare loyalty programme has more than 70 million cardholders, the largest retail loyalty scheme in the country.

CVS Caremark

CVS Caremark provides prescription benefit management including mail order and speciality pharmacy services, infusion services, plan design and administration, formulary management and claims processing. Its clients are employers, insurers, unions, government employee groups, health plans, managed Medicaid plans and individuals. It manages dispensing for more than 75 million plan members through five mail order pharmacies, speciality and long-term care pharmacies and a network of more than 68,000 retail pharmacies, comprising approximately 41,000 chain and 27,000 independent outlets.

MinuteClinic

MinuteClinic operates retail medical clinics inside CVS Pharmacy locations, the largest walk-in clinic network in the United States with more than 1,100 sites across 33 states and the District of Columbia. More than half the American population lives within ten miles of one. Clinics are staffed principally by nurse practitioners and physician assistants and treat minor illnesses, administer vaccinations and manage some chronic conditions.

CVS Specialty

CVS Specialty provides pharmacy services for patients with chronic or genetic conditions requiring complex and expensive therapies, operating 24 retail speciality pharmacies and 11 speciality mail order pharmacies, making it the largest speciality pharmacy in the United States. Speciality drugs account for a small fraction of prescriptions but a large and growing share of drug spending.

Other subsidiaries

Omnicare supplies pharmacy services to skilled nursing and assisted living facilities across North America, acquired in August 2015.

Coram is among the largest providers of infusion services, clinical and compliance monitoring and patient counselling, caring for 140,000 patients a year through more than 85 locations and the largest home infusion network in the United States.

Accordant provides case and care management for patients with rare chronic diseases and their carers, serving health plans, employers and third-party administrators.

Longs Drugs operates approximately 40 pharmacies in Hawaii. Before its 2008 acquisition it was a chain of more than 500 stores principally on the west coast; stores outside Hawaii were rebranded as CVS.

Navarro Discount Pharmacies operates 33 stores principally in Miami-Dade and Broward counties, retained as a separate brand after its 2014 acquisition.

HealthHUB locations operate within selected CVS Pharmacy stores, offering sleep apnoea services, durable medical equipment, home health technology and compression therapy, staffed by care concierges, with MinuteClinics at these sites employing medical assistants and registered, licensed practical and vocational nurses alongside nurse practitioners and physician assistants.

CVS Media Exchange is the company's retail media network, launched in 2020, selling advertising against its customer data.

Oak Street Health operates primary care centres for Medicare patients under value-based arrangements, and Signify Health provides in-home health evaluations.

Strategy

CVS Health's structure reflects a specific view of where value sits in American healthcare. Retail pharmacy is a low-margin business under permanent pressure from reimbursement rates set by benefit managers and from mail order and online competition. Owning the benefit manager captures part of that margin. Owning the insurer captures the premium. Owning clinics and primary care practices under value-based contracts, where the provider is paid for keeping patients well rather than for each service delivered, aligns the incentives of all three.

The counter-argument, made by regulators, employers, independent pharmacists and some legislators, is that the same integration removes the checks that separation provides. A benefit manager owned by a pharmacy chain sets the reimbursement rates paid to competing pharmacies, and an insurer owned by the same parent directs patients toward affiliated dispensers.

Retail operations

Store format

A typical CVS Pharmacy occupies between 10,000 and 13,000 square feet, with the pharmacy counter positioned at the rear so that customers pass through general merchandise to reach it. The front of store carries over-the-counter medicines, personal care and beauty products, seasonal merchandise, greeting cards, convenience food and household goods. Photograph processing, once a significant traffic driver, has declined with digital photography and now operates principally as an online order and collect service.

The company has progressively reduced front-of-store space in favour of health services. HealthHUB conversions allocate at least a fifth of the floor to clinical use, and closures since 2021 have concentrated on locations where several stores served overlapping catchments, a legacy of the many chains CVS absorbed during its acquisition programme.

Store brands

CVS sells a substantial range under its own labels, including the CVS Health brand for over-the-counter medicines and health products, Gold Emblem for food, Beauty 360 for cosmetics and Total Home for household goods. Own-label products carry considerably higher margins than national brands and are positioned directly alongside them on shelf, a practice that has drawn occasional complaint from manufacturers about packaging similarity.

Loyalty and pricing

The ExtraCare programme, launched in 2001, issues rewards as ExtraBucks redeemable against future purchases rather than as immediate discounts, and generates the purchase data underlying both personalised offers and the CVS Media Exchange advertising business. The scheme's long printed receipts became a recurring subject of public ridicule and internet parody, and the company shortened them and moved much of the offer delivery to digital channels in response.

COVID-19 pandemic

CVS became one of the principal delivery channels for the American pandemic response. It operated drive-through and in-store testing at thousands of locations, and under the federal Pharmacy Partnership for Long-Term Care Program it administered vaccinations at skilled nursing and assisted living facilities across the country, reaching a population that could not readily travel to vaccination centres.

The company recruited tens of thousands of additional staff to support testing and vaccination, and pharmacy became for a period the most visible point of contact between the public health system and the population. The experience accelerated the strategic shift toward clinical services, and it also exposed the strain that additional clinical duties placed on pharmacy staffing, a tension that surfaced directly in the walkouts of 2023.

Pandemic-related revenue subsequently fell sharply as testing and vaccination volumes normalised, and the decline was among the factors weighing on the company's results from 2023.

Leadership

Stanley Goldstein, co-founder, first chairman of the independent company from 1996
Tom Ryan, chairman and chief executive to 2011
Larry Merlo, president and chief executive 2011 to 2021
Karen Lynch, president and chief executive 2021 to 2024
David Joyner, chief executive from 2024

Karen Lynch, who joined through the Aetna acquisition and had led that business, was for a period the highest-ranking woman by revenue in American business, heading the largest company in the Fortune 500 led by a woman. Her removal in October 2024 followed repeated reductions in earnings guidance driven principally by Medicare Advantage costs.

Competition

CVS competes on several fronts simultaneously, a consequence of its integrated structure. In retail pharmacy its principal competitors are Walgreens, supermarket and mass merchant pharmacies including Walmart, Kroger and Costco, and increasingly online dispensers including Amazon Pharmacy and Mark Cuban's Cost Plus Drugs, the latter competing explicitly on price transparency in direct contrast to the benefit manager model.

In pharmacy benefit management it competes with Express Scripts, owned by Cigna, and Optum Rx, owned by UnitedHealth Group, the three together administering the large majority of American prescription claims.

In health insurance Aetna competes with UnitedHealthcare, Elevance Health, Cigna and Humana, and in primary care the Oak Street business competes with UnitedHealth's Optum, the largest employer of physicians in the United States, in the same value-based Medicare segment.

The convergence is notable: UnitedHealth Group, Cigna and CVS Health have each assembled insurer, benefit manager and provider under one owner, so that the three largest firms in American healthcare now compete as vertically integrated systems rather than as specialists.

Public health positions

The 2014 decision to stop selling tobacco removed approximately two billion dollars of annual revenue and was accompanied by an argument that a company presenting itself as a healthcare provider could not also sell cigarettes. Subsequent research published in the American Journal of Public Health found a measurable reduction in cigarette purchasing in states where CVS had a substantial share of tobacco sales, suggesting the decision had an effect beyond the company's own counters.

CVS has since taken positions on other public health questions, including restricting the sale of certain sunscreens, altering beauty imagery policies to disclose digital alteration, and expanding naloxone availability without prescription in response to the opioid crisis, the last of which critics noted sat uneasily alongside the dispensing conduct at issue in the opioid litigation.

Financial performance

CVS Health generates the great majority of its revenue from health services and health care benefits rather than from front-of-store retail, and its revenues place it consistently among the largest companies in the United States by turnover, while its margins remain thin by the standards of either retail or insurance taken alone.

The most persistent recent pressure has come from Medicare Advantage, where utilisation rose faster than the company had priced, producing repeated reductions to earnings guidance during 2023 and 2024 and contributing to the change of chief executive.

Segment reporting

CVS Health reports in three segments. Health Care Benefits comprises the Aetna insurance business, covering commercial, Medicare, Medicaid and dental and vision plans. Health Services comprises Caremark, the speciality pharmacy operations, Oak Street Health, Signify Health and the infusion and long-term care businesses. Pharmacy and Consumer Wellness comprises the retail stores, the dispensing operation and front-of-store merchandise.

Health Services generates the largest share of revenue, reflecting the scale of prescription claims flowing through Caremark, though a substantial part of that figure represents the cost of medicines passing through rather than value added. Health Care Benefits carries the greatest earnings volatility, since insurance results depend on the accuracy with which future medical costs were predicted when premiums were set. Pharmacy and Consumer Wellness generates comparatively stable but slowly declining profit, squeezed between falling reimbursement and the fixed cost of a large store estate.

Because the same prescription can be recorded in more than one segment as it passes from insurer to benefit manager to dispensing pharmacy, the company reports substantial intersegment eliminations, a feature that complicates comparison with less integrated competitors and has attracted comment from analysts.

Capital allocation

The acquisitions of Aetna, Signify Health and Oak Street Health were financed substantially with debt, and the reduction of that leverage has constrained the company's capacity for share repurchases and for further acquisitions. The dividend was maintained through the period, and management has repeatedly identified debt reduction and the restoration of Medicare Advantage margins as its priorities ahead of further expansion.

Corporate governance

The board was reduced from 16 to 13 directors in February 2020 and has since included directors drawn from insurance, retail, clinical medicine and technology, reflecting the breadth of the businesses under common ownership. Shareholder proposals in recent years have addressed lobbying disclosure, the reporting of pharmacy staffing and patient safety metrics, and the alignment of executive incentives with health outcomes rather than volume.

Institutional investors have periodically pressed for a separation of the company's components, arguing that the retail, benefit management and insurance businesses would be valued more highly apart than together, and that the conglomerate structure obscures the performance of each. Management has consistently defended integration on the grounds that coordinated care produces better outcomes at lower cost than the fragmented alternative, and that the segments reinforce one another commercially.

Controversies

Opioid litigation

CVS was among the pharmacy chains found by a federal jury on 23 November 2021 to have substantially contributed to the opioid crisis in Lake and Trumbull counties in Ohio, alongside Walgreens and Walmart, in the first such verdict against dispensers rather than manufacturers or distributors. The claim was that the chains failed to maintain effective controls against diversion and ignored patterns of suspicious prescribing.

In 2022 CVS agreed to pay approximately five billion dollars over ten years to settle opioid claims brought by states, local governments and tribes, without admission of liability. The settlements, together with those of other pharmacy chains, form part of a body of opioid litigation exceeding 50 billion dollars in aggregate.

Pharmacy benefit management practices

The conduct of pharmacy benefit managers has become one of the most contested subjects in American healthcare policy, and CVS Caremark is among the three companies that control the large majority of the market.

Criticisms include spread pricing, in which the manager charges a health plan more for a drug than it reimburses the dispensing pharmacy and retains the difference; the retention of manufacturer rebates negotiated in exchange for formulary placement, which critics argue creates an incentive to favour higher-priced drugs carrying larger rebates over cheaper alternatives; clawbacks from pharmacies after the point of sale; and the steering of patients toward affiliated pharmacies.

In 2024 the Federal Trade Commission published an interim report concluding that the largest benefit managers exercised substantial market power in ways that disadvantaged patients and independent pharmacies, and subsequently brought an administrative action against CVS Caremark and its two principal competitors concerning practices relating to insulin pricing, alleging that rebate arrangements had inflated list prices while patients paying cash or subject to deductibles bore the cost. CVS rejected the allegations, arguing that it had reduced net insulin costs for plan sponsors and that list prices are set by manufacturers.

Independent pharmacies

Independent pharmacists have argued for years that reimbursement rates set by CVS Caremark are below the cost of dispensing while the same parent company operates competing retail stores. Several states have legislated to restrict benefit manager conduct, and litigation has been brought in a number of jurisdictions. CVS maintains that its network rates are competitive and that independent pharmacies are free to decline participation.

Store closures and pharmacy access

The closure of 900 stores announced in 2021, and further closures since, has drawn criticism where it has left neighbourhoods without a nearby pharmacy, a phenomenon described as a pharmacy desert, with effects concentrated in lower-income and rural areas. The company's position is that store density built for a retail model is not sustainable as prescriptions move to mail order and as reimbursement declines.

Pharmacist working conditions

In 2023 pharmacists and technicians at CVS and other chains staged walkouts over staffing levels, arguing that prescription volume targets, vaccination requirements and administrative duties had reached a point where patient safety was at risk. Regulators in several states examined staffing and error rates, and CVS committed to additional hours and hiring. Pharmacy boards and professional bodies have continued to raise the issue.

Medicare and federal programme allegations

The company has faced litigation under the False Claims Act concerning aspects of its Medicare and Medicaid billing, including allegations relating to the reporting of drug prices to government programmes. Federal authorities have also examined risk adjustment practices in Medicare Advantage across the industry, where payments to insurers depend on recorded patient diagnoses, and a case concerning Aetna was among those brought.

Aetna merger review

The 69 billion dollar acquisition of Aetna received an unusual degree of judicial scrutiny. After the Department of Justice agreed to settle subject to divestiture of Aetna's Medicare Part D business, District Judge Richard Leon declined to approve the consent decree as a formality and instead held hearings over several months at which opponents including the American Medical Association and consumer groups argued that the combination would raise costs and foreclose competition.

Judge Leon approved the settlement in September 2019 while criticising the process by which such decrees are ordinarily rubber-stamped. The episode drew attention to the limited practical scrutiny applied to vertical mergers in healthcare, and the arguments made by opponents have since been revisited by legislators examining benefit manager conduct.

Advertising and pricing transparency

Consumer groups have criticised the complexity of pharmacy pricing at CVS and its competitors, in which the cash price, the insured copayment and the amount the plan is charged may differ substantially for the same medicine, and in which a patient with insurance may pay more than one without it. Gag clauses preventing pharmacists from telling customers that a cash price was lower than their copayment were prohibited by federal legislation in 2018 after the practice became public.

CVS introduced a simplified pricing model, CostVantage, from 2024, under which reimbursement is based on the cost of the drug plus a defined markup and dispensing fee, presented as a response to criticism of opacity. Independent analysts noted that the model shifts rather than removes the underlying complexity, since the benefit manager remains in the chain.

Labour relations

CVS has generally resisted unionisation among its retail and pharmacy staff, and organising efforts at individual stores have been contested. Pharmacists at a small number of locations voted to unionise following the 2023 walkouts. The company states that it prefers to address concerns directly with employees.

Privacy

As holder of pharmacy, insurance and clinical records for a very large share of the American population, CVS has attracted scrutiny over data handling. It has settled state enforcement actions over the disposal of records containing patient information and over the use of health data in advertising, and its retail media network, which monetises customer purchase data, has prompted questions about the boundary between retail and health information.

Prescription errors

Investigations by state pharmacy boards and reporting in major newspapers have documented dispensing errors at high-volume stores and have linked them to workload. CVS has said that error rates are low relative to volume and has introduced workflow changes and technology intended to reduce them.

References

External links

Official website