CVS tests positive for Covid-related profit

3 minute read

People walk by a CVS pharmacy store in Manhattan, New York City, New York, U.S., November 17, 2021.

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NEW YORK, Feb 9 (Reuters Breakingviews) - One reason U.S. healthcare is so financially dysfunctional is that a patient on the operating table rarely questions the cost of saving their life. That’s especially true when an insurer or the government is paying the bill. The same principle has informed the pricing of Covid-19 vaccines and tests. Retailers like CVS Health (CVS.N) and Walgreens Boots Alliance (WBA.O) performed a public good on the front line while pocketing a sizeable private profit.

CVS said on Wednesday that 45% of the growth in its retail sales last year – around $4 billion – came from Covid-19 vaccines and tests. Those were mostly paid for by insurers, both private and government-backed, and in some cases by the state. The windfall accounted for 30% of CVS’s adjusted retail operating profit, or $2.3 billion. That implies an operating margin of roughly 50%, vastly more than the company’s overall margin of around 6%.

Generous profits are the cost of getting the private sector to help deliver a national priority. The U.S. government pays $75 to providers of Covid-19 tests– or $100 if they process the results swiftly or the patient is uninsured. Insurers generally pay about the same. Vaccines are reimbursed at $40 per shot. The marginal cost to retailers of delivering both is probably no more than a few dollars.

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CVS’s pandemic prize is probably as good as it gets. Finance chief Shawn Gertin told analysts on Wednesday he expects vaccine doses to fall by up to 80% in 2022 read more , and in-store tests to halve. But CVS and its rival Walgreens – which administered pretty much the same number of vaccines in 2021 – both say they’ve acquired new customers thanks to people walking into stores to be vaccinated or diagnosed.

CVS’s mini-windfall will barely touch the sides: The $140 billion company has announced a $10 billion share buyback. Of the 30 cents per share that Covid-19 testing and vaccines added to the whole company’s bottom line last year, 20 cents will go to shareholders in the form of an expanded dividend. CVS and Walgreens have delivered more than 100 million Covid-19 shots, and America should be grateful. So should their investors.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)


- CVS Health on Feb. 9 reported $76.6 billion of revenue for 2021, a 10.1% increase on the year earlier, including increased sales from providing Covid-19 vaccines and tests.

- The U.S. pharmacy and healthcare retailer said vaccines and tests contributed around 45% of its retail division’s revenue growth, and around 30% of the segment’s operating profit, excluding one-offs and accounting impairments.

- Chief Financial Officer Shawn Guertin said on an earnings call that the company expects to administer 70-80% fewer vaccines in 2022, and 40-50% fewer in-store Covid-19 tests. He added that Covid-19 had added around 30 cents to the company’s full-year earnings per share.

- CVS shares were down 5% at $106 by 11 a.m. (1600 GMT) on Feb. 9.

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Editing by Peter Thal Larsen and Sharon Lam

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