Dive Brief:
- Mike Pykosz, the co-founder of Oak Street Health and president of CVS’ healthcare delivery arm, is departing CVS, the retail pharmacy giant announced Wednesday.
- Pykosz, who is leaving CVS 18 months after joining with its acquisition of the value-based medical chain, will be replaced by Sreekanth Chaguturu, CVS’ current executive vice president and chief medical officer, according to the company’s release.
- It’s the latest in a flurry of executive changes at CVS, which has had a challenging year amid pressures in its insurance arm Aetna. Since October, CVS has named a new chief executive, president and head of Aetna, and added four new board members.
Dive Insight:
Higher medical costs for seniors in Medicare Advantage plans has led CVS to cut its profit outlook three times this year, before pulling it altogether in October. As the company’s stock hovers at its lowest levels since 2019, CVS has initiated a strategic review, closed underperforming pharmacies, laid off thousands of workers and reshuffled its executive leadership.
This fall, CVS replaced CEO Karen Lynch with Caremark President David Joyner and Aetna President Brian Kane with Steve Nelson, previously the CEO of value-based primary care company ChenMed. CVS also added four additional members to its board of directors this week, all from activist investor Glenview, a move that could augur more changes at the Woonsocket, Rhode Island-based company.
However, Pykosz was not forced out. According to CVS’ release, the executive informed the company earlier this year that he planned to depart.
Pykosz joined CVS in 2023 along with the company’s $10.6 billion acquisition of Oak Street, a multi-state chain of doctor-staffed medical clinics for seniors. CVS nabbed Oak Street to build out its healthcare delivery capabilities, aiming to capture revenue at each stage of a patient’s healthcare journey by building a vertically integrated business including doctor’s offices, a health plan and pharmacy.
Since then, CVS has invested heavily in Oak Street, growing the business to almost 250 locations from the 170 centers it ran in the spring of 2023. The company has also worked to integrate Oak Street with its other healthcare delivery assets, including home health provider Signify and MinuteClinic locations in CVS stores.
CVS has also been trying to nudge Aetna members to its owned care sites, which the company says will help it succeed in value-based payment arrangements by better controlling medical care. It also allows CVS to retain more of a patient’s healthcare dollar — and essentially pay itself for delivering medical care.
CVS has seen some success on these initiatives. Aetna members served by Signify almost doubled year over year in the third quarter, while Aetna members enrolled at Oak Street have quadrupled since the acquisition closed, Joyner said on an earnings call earlier this month.
Revenue at Oak Street and Signify increased 36% and 37% year over year in the quarter, respectively. However, CVS doesn’t disclose whether the businesses are in the black. Other major retailers have struggled to make similar healthcare delivery strategies profitable — Walmart shut down its health clinics unit this spring, while Walgreens is rolling back its investment in primary care chain VillageMD and considering a full sale.
Oak Street is also exposed to the same cost pressures as Aetna’s Medicare business, since it specializes in contracting with Medicare plans to manage care for their patients. But that also means Oak Street could benefit from the higher profitability of Aetna MA members next year, after the insurer worked to offload costlier enrollees, according to management.
“We think that there could be some nice tailwinds in that business next year as we think about some of the changes that competitors and ourselves have made as we continue to grow our share of Aetna members inside those clinics,” CFO Tom Cowhey said on the third-quarter earnings call.
With Pykosz’s departure, Chaguturu will have oversight of CVS’ healthcare delivery division. The executive joined CVS in 2022 as chief medical officer of the company’s massive pharmacy benefit manager, Caremark, before moving up to enterprise-wide EVP and CMO.
Before joining CVS, Chaguturu was chief population health officer of Massachusetts health system Mass General Brigham.
