What happened
CVS Health named David Joyner, head of its Caremark pharmacy benefits unit, as CEO on 18 October 2024, replacing Karen Lynch, who had run the company since February 2021. Fortune said the board made the decision after the company repeatedly missed earnings targets, setting off shareholder unrest that had spilled into public view, including an approach by hedge fund Glenview Capital Management.
CVS said its third-quarter results would miss Wall Street expectations and that it was pulling 2024 earnings guidance because of 'continued elevated medical cost pressures' in its health-care benefits segment. Preliminary adjusted earnings were $1.05 to $1.10 a share, the segment's medical loss ratio was expected at 95.2%, far above estimates, and results included a $1.1 billion charge for a premium deficiency reserve to cover excess medical costs.
CVS shares fell 13% in premarket trading, after a 20% decline in 2024 so far against a 22% rise in the S&P 500, and about 10% since Lynch became CEO. Bloomberg had reported that CVS had reviewed strategic options for months, including a possible breakup. Roger Farah became executive chairman.
Why it happened
Aetna's medical costs ran well above what its premiums covered, shown by the 95.2% loss ratio and the premium deficiency reserve.
Lynch's effort to build a one-stop shop for medical services ran into government spending crackdowns and rising health expenses.
Post-pandemic pressure on retail pharmacy stores added to the strain, per Fortune.
The lesson
An insurer that prices below its medical cost trend lets losses compound unseen. Repeated misses show up first in investors' patience, then in the CEO's job.
Aftermath
Joyner took over immediately and CVS said it would update investors on its November earnings call. Farah, named executive chairman, said the board believed it was the right time for a change. The article reports no breakup decision, and Bloomberg had said CVS was reviewing strategic options for months.
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