CVS discontinues infusion services as part of cost-cutting measures

Over the last few years, CVS has struggled with declining profit margins at its retail pharmacies, as well as rising costs of patient care through its insurance unit Aetna, which generates around a third of the company's revenue. So far, CVS has cut its 2024 earnings forecast for three straight quarters.

Currently, the company is conducting a strategic review of options, including a potential breakup of its businesses, people familiar with the matter said. CVS has also met with investor Glenview Capital Management to discuss ways to improve the company's operations.

CVS also previously announced a plan to cut 2,900 jobs as part of a $2 billion cost reduction plan. According to a company spokesperson, the layoffs represent less than 1% of the company's workforce and will primarily impact corporate staff. Frontline employees in pharmacies, stores, and distribution centers won't be impacted.

Last week, the company announced more changes, which include exiting its core infusion services business and either closing or selling 29 related pharmacies. Coram, a drug infusion services provider purchased by CVS in 2013, plans to discontinue its infusion services offering, but will continue to provide nursing services nationwide and specialty medications and enteral nutrition in certain states.

"Providers of infused medications have continued to face a challenging environment for their most highly specialized, complex services, and Coram has not been immune to these challenges," said Shelly Bendit, a senior manager of corporate communications at CVS.

According to Advisory Board's Lindsey Paul, the infusion business has become more difficult for corporate entities like CVS to participate in. Although demand is rising, non-hospital providers face low reimbursement rates and declining profit margins. Private equity investment in infusion services may also create increased competition for other freestanding infusion centers.

"CVS' recent actions are emblematic of a larger change in how corporate entities are approaching investment in infusion services," Paul said. "Their focus is shifting from delivering infusions of low-revenue drugs like antibiotics toward delivering higher-revenue specialty medications and owning specialty pharmacy assets."

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Walgreens to close 1,200 stores over next 3 years

Walgreens has also recently faced some financial difficulties. For the fourth quarter of fiscal year 2024, the company almost doubled its U.S. healthcare services operating losses to $526 million. The company's full-year losses in the segment was $14.2 billion, compared to a loss of $1.7 billion in 2023.

Earlier this year, Walgreens also halted its expansion plans for its primary care clinic VillageMD. Between January and April, Walgreens closed over 150 VillageMD clinics, or around 50% of the company's footprint. Currently, VillageMD still has primary care clinics in seven states.

On Tuesday, Walgreens announced that it plans to close 1,200 of its retail stores, or around 14% of all the company' stores, over the next three years. Of these closures, 500 will occur in fiscal year 2025.

"While the decision to close a store is never an easy one, we feel confident in our ability to continue to serve our customers," said Walgreens CEO Tim Wentworth in an earnings call. According to Wentworth, the store closures will give the company a "healthier store base" that will allow it to respond more effectively to changes in consumer behavior and buying preferences.

"Our ability to respond to a changing environment needs to improve," Wentworth said.

Currently, Walgreens is focusing on stabilizing its pharmacy operations, improving its retail strategy, and reducing net debt. The company, along with CVS, has also proposed new structures for how they want to be paid for prescriptions.

"I'm very confident that over a two- to three-year period we will have reset the framework for reimbursement discussions," Wentworth said. "We are in the early stages of a turnaround that will take time."

Why retail pharmacies have fallen behind

According to NPR, one problem that is affecting both companies is scale. Both CVS and Walgreens have thousands of stores nationwide, but their sales have declined for years, especially against bigger competitors like Amazon or Walmart.

Anshuman Jaiswal, a longtime consultant for retailers and pharmacies, said that the companies have not added many new incentives for shoppers, nor do they have a meaningful online presence.

"If you go to CVS.com or Walgreens.com, if you are placing an order for cough syrup, why don't I sell chicken broth as a product recommendation immediately?" Jaiswal said. "It's about reimagining the business model."

Both companies are also facing difficulties making a profit from prescription medications, especially since they are limited in their leverage over health insurers.

"Historically, there was a view that there was a lot of customer loyalty to their specific retail pharmacy … and that patients, or consumers, would be all up in arms if they were forced to move their prescriptions," said Brian Tanquilut, a healthcare services analyst at Jefferies.

However, Walgreens previously tested this theory against Express Scripts, a pharmacy benefits manager. Instead of earning more from prescriptions, Walgreens was cut out of insurance networks for a time, leaving people to simply go elsewhere to get their medications for cheaper in-network prices.

"What that did was to prove that patient loyalty is not to the retail pharmacy, but it actually is whatever my insurance is willing to pay," Tanquilut said. "And that opened the door for the payers to keep pushing pricing down on retail pharmacy chains." (Gagosz, Boston Globe, 10/15; Ashley, Becker's Hospital CFO Report, 10/11; Niasse, Reuters, 10/15; Schencker, Chicago Tribune, 10/16; Hudson, Modern Healthcare, 10/15; Selyukh, NPR, 10/16)

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