Glenview Capital Plans Push for Changes at CVS
The hedge fund has taken a large position in the healthcare company, which has seen its shares fall 24% this year to date
A major hedge-fund investor will meet top executives of CVS Health on Monday to propose ways the struggling healthcare company can improve its operations, the potential start of an activist stance by the fund, according to people close to the matter.
The slated meeting, between CVS and hedge fund Glenview Capital Management, comes amid signs investors are turning restless with a company that remains among the best-recognized in the healthcare industry but has seen its shares tumble 24% this year to date.
Larry Robbins, founder of healthcare-focused Glenview, has established a large position in CVS, the people said. The giant healthcare company amounts to about $700 million of his $2.5 billion hedge fund, according to a person familiar with the matter. Glenview owns about 1% of CVS’s shares outstanding.
Glenview’s position is a sign of Robbins’s belief in the company’s potential and his confidence he can get executives to pursue a new path, the person said.
A CVS spokesman said the company “maintains a regular dialogue with the investment community as part of our robust shareholder and analyst engagement program. Beyond that, we cannot comment on engagement with specific firms or individuals.”
Robbins is expected to meet with Chief Executive Officer Karen Lynch and others to present ways to energize the company, but not to break up the company, according to the person. In the past, Robbins has suggested ways various healthcare companies can improve their operations and worked with them in a cooperative manner.
Yet he has also been an activist in at least two instances, pushing for board seats while exerting other pressure on executives. Most recently, Glenview pressed Tenet Healthcare to oust four of its board members. The company’s chief executive eventually resigned, amid the pressure.
At least one other hedge fund has also established a significant position in CVS in recent months, seeing value in the company. They, too, may move to pressure the company for change, according to the person.
CVS Health is one of the biggest healthcare companies in the U.S. and a household name, because of its namesake pharmacies. It is the parent of the Aetna insurance business as well as the nation’s largest pharmacy-benefit manager, in addition to its eponymous drugstores.
It has been struggling, cutting its earnings guidance for 2024 several times since late last year. The most recent figure, delivered in August, was down 23% from its original forecast back in December.
The main driver of the recent financial woes is the company’s Medicare business.
Last year, CVS’s Aetna unit placed a big bet on attracting seniors to its Medicare plans, adding hundreds of thousands new enrollees in 2024. The gamble backfired, as its Medicare members racked up more healthcare costs than the company expected and the federal government squeezed payments to private insurers.
CVS has said it is adjusting its approach to the Medicare business for 2025 to bolster its margins and improve its financial performance.
At the same time as the company issued its latest earnings outlook downgrade in August, Lynch promised $2 billion in additional cost cuts and announced that CVS would let go Aetna President Brian Kane, who had been in the job less than a year. She said she would take over Aetna’s management directly, along with CVS Chief Financial Officer Tom Cowhey. Lynch was previously president of Aetna.
CVS is also facing scrutiny of its pharmacy-benefit unit, CVS Caremark, one of three large companies recently sued by the Federal Trade Commission. The FTC has accused the pharmacy-benefit managers of inflating the price of insulin. CVS Caremark and its rivals have said that high prices are the fault of drug manufacturers, and they work to aggressively negotiate discounts for their clients.
Aetna’s problems reflect broader issues across the insurance industry with Medicare Advantage, the private-plan version of the federal program for the elderly and disabled. Competitors have also reported higher-than-expected medical costs and challenges with new federal rules that limit some revenue-bolstering billing practices.