This post is meant to contextualize the layoffs & explain them to any laid of employees that might be blaming themselves & internalizing CVS Aetna dysfunction as their own personal failure somehow--it's not: you deserve far better than CVS Aetna. It also serves to provide closure as everyone has a right to know what happened to them during the very short period we have together on this Earth.
To be clear these were mostly Aetna layoffs & mostly positions in Shared Services where HR costs find their way into various "core business" Medical Loss Ratios (MLR's) which you can tell via location data/where the WARN notices were posted: BlueBell PA, Hartford CA, Dallas TX, Phoenix AZ... these were Aetna Shared Service strongholds. This is especially true once you consider the relative size of CVS vs. Aetna workforces & what 500 employees means for one vs. the other.
The reasons (3) in order of descending importance:
- ) Stock & management consultants. As everyone knows CVS Aetna made tons of free money during the majority of the pandemic in what can only be described as one of the greatest windfalls in history. At Aetna we had the largest profit margins I've ever seen in this industry. This boomed CVS Aetna stock at an opportune time as it was subsequent to the "painful"-for-leadership 2019 stock lull as the CVS Aetna acquisition honeymoon period abruptly ended.
CVS Aetna has now returned to pre-pandemic stock valuation, like a bad dream for leadership with their perverse stock incentives as well as for share holders. So naturally management consultants--possibly McKinsey & Co.?--were undoubtedly advised to make stock go back up. What's the first thing management consulting firms advise? Layoffs. Simply stop paying 5,000 employees & stock go up by the definition of profits = sales - expense. You can tell that the messaging to shareholders WAS the point of the layoffs by how readers of the Wall Street Journal knew about the layoffs long before us. If you go back to the original WSJ announcement (naturally it's paywalled it's from July 31st) it sources a leaked "internal memo"--I certainly didn't get this memo--which is just a vague handwavy reference used to shield an anonymous source that simply provided this information to the WSJ on purpose which is exactly what a management consulting firm would do for leadership as these connections to publications like the WSJ are standard for McKinsey. This explains numerous additional facts like how poorly these layoffs were handled, their unusual timing, & the confusion even amongst leadership within the organization at what exactly was even happening.
- ) CVS runs Aetna, not the other way around. When CVS first acquired Aetna there was a loose handshake circulated internally & meant to lull Aetna labor that CVS would not "touch"--read: dismantle pieces of--Aetna for the first 10 years. This is common practice for acquisitions so many at Aetna were ready for large scale layoffs in 2019 that didn't ultimate come to fruition... until now. This is CVS doing just that: they made it halfway to 10 years. Many have somehow already forgotten this context: Aetna is an acquired company. It's the standard M&A playbook to run acquired companies with a skeleton crew & this will continue long into the future--many friends still at Aetna call this layoff, "round 1."
- ) Medicare Stars. Aetna's biggest Medicare plan lost its Stars rating of a 4.0 down to a 3.5 which means they no longer get the kicker payments from CMS worth ~$1B next year & every year after. For many competing companies this is the difference between breaking even/losing money & making a profit in Medicare. For context this loss is much larger than the $600-$800M estimate for what CVS Aetna will "save" in annual salaries due to the layoff. For leadership, the Board, & shareholders, this is a moment to be reactionary as everyone knows reactions are what makes the business world go around. CVS/Board/shareholders lost faith in Aetna as a leading payer when left to its own devices. Of course this Stars dip was mostly due to the inflation of CAHPS metrics--surveys by CMS directly to Medicare members--within the scoring system as McKinsey outlined in a public report on this topic. Aetna is not good at this. If you've ever read CAHPS survey questions they can be very end-result-heavy with questions that ultimately impugn CMS as much as Providers as much as Aetna: "Did your PCP schedule a follow-up visit after referring you for labwork?" "Did you have trouble scheduling a visit with a specialist?" This favors Providers-turned-Payers like Kaiser Permanente that consistently make 5's. Why is this relevant? CVS is a provider, and increasingly so as Karen Ly--h has made very clear. A "pivot" to Medicare is entirely consistent with buying up more & more providers, a strategy CVS has been clear that they're currently embarking on. They see Medicare Stars simply as an issue of not owning the providers--serious investments in payer infrastructure & administration be damned. Even Value-Based Care arrangements are not up to the task as many VBC employees in Shared Services were laid off, contrary to statements about this being the future.
Anyways, I hope this helped those still struggling to understand the perverse incentives in the industry & what ultimately led to these layoffs. Do NOT personalize the failings of this company & this industry as your own.
FAQ--debunking common talking points:
- "Weren't these layoffs to 'pay for technological improvements'?"
This is probably the funniest talking point because the last 3 years have been absolute windfalls that were pi---d away & mismanaged by senior leadership & simply not reinvested back into the business. To believe the profits made through these layoffs would be reinvested back into the business is truly a conspiracy theory contrary to all prior evidence.
- "Isn't this conspiracy? How could you know all of this?"
These are system explanations based on rational perspectives of incentives & common industry practices, the exact opposite of the conspiratorial "it happened with smoke & mirrors in a secret backroom." Reading into leadership's perspectives & the participation of entities like McKinsey are deductions based on the known & well-understood phenomena of management consulting firms chiefly being the omnipresent executors of operational changes to maximize returns on capital (ie. parlor tricks to make stock go up.) Executive mindsets are based on their perverse incentives when compared to those actually laid off: stock needs to go up so executives & shareholders can cash out, 5/10-year plans be damned they'll be long gone by then.
- "But Karen is from Aetna so doesn't Aetna run CVS?"
This is the saddest personalization of systemic power in the United States. By this logic she's also the President of Magellan, a major competitor to Aetna & is thus hellbent on Aetna's destruction. People respond to the very real incentives of their current positions, as you & I do everyday.