CVS Health is looking to trim hundreds of millions of dollars from its cost structure while also standing up 50 to 60 more Oak Street Health clinics in 2024.
CVS Health President and CEO Karen Lynch spoke about the Woonsocket, R.I.-based company's cost savings goals and capital projects in an Aug. 2 earnings call. The company posted 10.3 percent higher revenues in its second-quarter earnings and exceeded investor expectations, but still saw net income drop 37 percent year over year. The decline is due to companywide restructuring and acquisition-related expenses, among other drivers.
One of the acquisitions carrying expenses is that of Chicago-based Oak Street Health, which CVS closed on in May for $10.6 billion. The acquisition added more than 170 medical centers and 21 states to the CVS network. Both counts are set to tick higher.
"By the end of 2023, we expect to have Oak Street clinics in 25 states, up from 21 at the close of the transaction," Ms. Lynch said. "We will also open new Oak Street clinics co-located with CVS pharmacies this year and have already identified additional locations for 2024. We now expect to build 50 to 60 clinics next year."
Ms. Lynch also detailed efforts to route Medicare-eligible CVS customers and Aetna Medicare members to Oak Street clinics and providers. The company is identifying Aetna Medicare members without a primary care physician and connecting them to the nearest Oak Street provider to "re-engage" their care. CVS has also rolled out in-store and digital initiatives to connect the approximately 1 million Medicare-eligible seniors who visit CVS pharmacies each week near an Oak Street clinic.
Oak Street ended Q2 with 177 centers and 181,000 at-risk lives, marking increases of 23 percent and 35 percent, respectively, over the same period last year.
As CVS looks to drive greater returns from its investment in Oak Street, the company is also working toward $700 million to $800 million in cost savings in 2024. The company is eliminating 5,000 "non-customer facing positions" in a move that contributes to $600 million of run rate savings beginning in 2024. The company also pointed to use of artificial intelligence to drive efficiency as another lever for cost reduction.
Cost management has been on the company's mind, as CVS said in May it will not pursue any major acquisitions in the near future following its recent purchases of Dallas-based Signify Health and Oak Street. The company also told Becker's it was wrapping up its clinical trials unit that launched two years ago to focus on its core business and "long-term strategic priorities." The company aims to sunset the clinical trials unit in phases, with a full exit expected by the end of 2024.