CVS Takes $5.7B Charge on Lowered Healthcare Services Projections

The leaders of CVS Health Corp. have reined in their growth plans for the company’s Medicare-focused Oak Street Health clinics and booked a goodwill impairment charge of more than $5.7 billion to account for their lower financial projections for the business.

Rhode Island-based CVS bought Oak Street in 2023 for nearly $10 billion as it sought to scale its healthcare services delivery business and connect Oak Street’s value-based primary care more tightly to its Aetna insurance group. Oak Street grew to more than 230 locations by this time last year and then-new CEO David Joyner said that “the fact is the model works and it works in underserved market specifically for the population that’s important to this business.”

However, in reporting CVS’ third-quarter results Oct. 29, Joyner’s team said its broader healthcare delivery group has faced persistent challenges this year that led it to make a number of strategic changes. Among them is “the determination [to] reduce the number of new primary care clinics it would open in 2026 and thereafter.”

CVS also will close some existing Oak Street clinics next year and booked an $83 million charge to its earnings during the third quarter to cover costs it will incur because of those.

Speaking to analysts on a conference call, Joyner and Group President Prem Shah said CVS’ healthcare delivery division performed as expected during the third quarter and that they remain committed to keeping those services in the company’s fold.

“Value-based care remains a critical component of our strategy,” Joyner said. “The reasons to believe in this business have not changed, but the marketplace is evolving and we are adapting our strategy to get financial performance back in line with our expectations.”

Shah said his team is focused primarily on improving the terms of some of Oak Street’s contracts with other insurers as well as growing the number of Medicare members coming to each clinic. Along with investing in technology and refining a clinical model focused on lowering costs, Shah said those initiatives are teeing up Oak Street to have a better 2026 than 2025.

Unsurprisingly, the large goodwill impairment charge pushed CVS into the red during the third quarter, when it posted a net loss of nearly $4 billion on total revenues of roughly $103 billion. Adjusted operating income, however, grew 36 percent to $3.46 billion thanks to a good quarter from Aetna, which produced a $314 million adjusted operating profit and improved its medical benefits ratio to 92.8 percent from more than 95 percent in last year’s Q3.

CFO Brian Newman said that that 92.8 figure was a little noisy because of various accounting adjustments—some going back to 2018 business and some related to worsening expectations for individuals covered on Affordable Care Act exchanges—but pointed to positive trends in Aetna’s individual Medicare Advantage plans.

Shares of CVS (Ticker: CVS) fell about 2 percent on the heels of the earnings report and conference call and gave up another 5 percent on Oct. 30. Over the past six months, however, they are still up about 15 percent, which has grown the company’s market value at about $97 billion.