Economic Analysis of CVS Health Company

Topic: Administration
Words: 2486 Pages: 9

CVS Health is an American health care company that own a retail pharmacy chain and provides different health care equipment, including insurance (Fortune Editors, 2022). It was founded in 1963 in Lowell, Massachusetts and now operate in several states of the U.S using CVS symbol in the market. Under the leadership of Karen Lynch, the company had 292 million dollars in revenue and an increase in 8.7% during the year of 2021 (Fortune Editors, 2022). In the company’s new plan, hundreds of CVS stored have been transformed into superclinics, being the states’ leading urgent and primary care hospitals. The market value of the CVS Health is 132,839 million dollars and it has over 258000 employees (Fortune Editors, 2022). As the GICS sector of the company is health care equipment, the sub GICS sub industry is health care services. CVS Health has experienced tremendous expansion during the last decade. The firm has been successful in building a prominent brand associated with healthcare services provided in several nations throughout the world.

CVS devised a creative approach, including the Government Hiring Program, to bring together corporate growth and development goals and to provide high-quality service to its customers. CVS enhanced corporations as a means of locating the necessary partners – individuals and businesses capable of distinguishing the company from the competition by ensuring customers have a comfortable, welcome experience in the shop. The CVS pharmacy Government Hiring Department was created according to the location, with each team member having based on geography obligation for a number of States while also expanding specific community specialty areas. One department member, for example, advised firms across the country on the issues and ways to employing immobile workers while simultaneously supervising general government hiring training in a number of selected states.

CVS Health has established a competitive edge by supplying its consumers with a unique range of services and developing market power to manage prices. Unless competitors such as Walgreens and Rite Aid figure out how to respond to CVS Caremark’s strategy, it will be tough to compete with this company for long. Overall, the merger was a superb strategic decision for both firms, ensuring CVS Health success. Today’s Performance CVS Health has thrived since its merger roughly seven years ago.

The main product of the CVS Health entity is a retail pharmacy chain, CVS Pharmacy which has almost 10 000 stores all over the country. CVS Health offers pharmacy has management services, which include health plan design, clinical services, and disease management programs. Prescriptions, cosmetics, personal care goods, convenience meals, seasonal merchandise, and other related things are also available. Additionally, CVS Health offers health insurance, such as CVS’s acquisition of Atena. The objective of the entity is to make healthcare more inexpensive and accessible to consumers. The target customers of the company are general population of the US, families and people who needs medical products and services.

K-10 report includes factors that may affect shift demand curve for the company’s products. For example, inability to forecast future health care costs may negatively influence the sales of the company. High costs of products that were previously low may harm the customer’s paying ability, as such customers may purchase products from other companies in the industry. Another factor is negative public image, for instance, if the company appear in conflicts or does unethical deals, customers will hesitate to use CVS Health products and services.

The brand image is significant factor for every business entity as it directly influences whether buyers want to use the products and services of the health care entity or not. The way people perceive your organization or product is referred to as its brand image. It is your company’s reputation that precedes it. How you are seen in the marketplace is determined by your brand image.

A positive public image fosters client trust and may provide more customers than before. It reflects how people perceive offers of the CVS Health. Customers rely heavily on reviews to determine whether or not they want to do business with you. Looking at internet reviews is one of the first things most people do before purchasing a product or service. This has a direct impact on their decision. If there are positive evaluations, a consumer will move on to the next phase of buying and obersving the stores of the business.

Changes in regulations of the entity can also affect the demand curve for the products. If the CVS Health stores previously had free services and now imply a price list, customers will turn to other health care companies. One of the examples of such a change in regulations can be the implementation of tariffs. Tariffs that are applied by the governments have a wide range of effects on global economies, certainly in industries that have not been targeted before. It is critical that a company’s leadership understands changes in tariffs and trade policies will influence them in the long run and be able to make adjustments that will not harm the business structure.

Cutting business expenditures, managing profit margins, maintaining inventory levels, holding excess liquid cash, and renegotiating contracts are all ways to protect the business entity form the fluctuations in international trading policies. Unexpected needs for heal care products and services may have both negative and positive impact on the demand for assets of the entity. For example, an increase in COVID-19 vaccines allowed the CVS Health company to achieve its highest revenue (Fortune Editors, 2022). All above-mentioned factors are crucial and should be controlled by the administrative body of the business.

Factors that may affect supply curve for the company’s products and services are the relationship between retailers and customers, competitors, and emergencies in the market. The relationship between the ones who deliver products and services and the ones who use them is critical as it determines trends in supply market. The company should be aware of the customers’ need and complains. If there are products and services that are not in demand, there will be supply of unnecessary assets which will lead to unexpected expenses (Zhu et al., 2018). The CVS Health company has competitors, such as Walgreens, Walmart, and other pharmacies and clinics (Langley, 2018). The market is indeed highly competitive, and the entity should control whether the mechanism of supply and demand work effectively. Some competitors may provide more products that are in demand than others and if that is a case, the CVS Health should ensure that it presents alternatives to customers. Another factor, which is emergencies like the pandemic, may increase supply of vaccines and medications needed for the treatment of lung diseases.

According to the current situation in the worldwide health care, the company is expected to have both elastic and inelastic demand. The degree to which demand fluctuates when an economic factor like income or price changes is called elasticity (Zhu et al., 2018). Today, the world undergoes economic fluctuations due to the recent international conflicts, oil price shifts and the pandemic (Bryan, & Tsai, 2021). Due to a massive rise of COVID-19 patients in the spring of 2020, numerous hospitals across the United States were required by state executive orders to postpone elective surgery in order to produce hospital space. Not only did this delay medical and surgical care for patients, but it also resulted in a projected $323 billion financial loss for US hospitals in 2020, as well as a spate of closures that disproportionately impacted safety-net institutions (Bryan, & Tsai, 2021). Therefore, it can be assumed that the demand for certain products and services of CVS Health will be altered once the prices would increase (Langley, 2018). For example, some seasonal products like drugs that are used for the treatment of allergies can be considered as an elastic demand.

In normal times, it is acceptable that the practice of health insurance corporations profiting from premiums that exceed what is claimed in care. In light of the enormous catastrophe that the epidemic represents for the healthcare system as a whole, such earnings may need to be interpreted differently (Bryan, & Tsai, 2021). Insurance companies’ record profits indicate lower use, and we are just now beginning to comprehend the repercussions of this tremendous shock to the health-care system. Early statistics indicate an increase in non-COVID mortality during the pandemic’s initial wave (Bryan, & Tsai, 2021). The increased morbidity and mortality associated with postponing normal treatment will most certainly take years to fully realize.

As such, the companies like CVS Health can follow in the footsteps of CMS, which extended its current Accelerated and Advance Payment Program to include the COVID-19 epidemic. These payments are “designed to provide required monies if claims submission and/or processing is disrupted.” (Bryan, & Tsai, 2021). Many practices operate on thin margins, unable to withstand payment problems caused by the financial crisis, delayed or canceled appointments and operations, and the heightened operating needs of the epidemic.

As for the inelastic demand, personal health care items can be considered for this. In contrast, an inelastic product is whereas a change in the value has no discernible effect on demand. Inelastic demand arises when the interest for an item or service stays constant despite changes in its price or another factor. In other words, whenever prices or salaries change, customers’ purchasing habits remain unchanged.

The income impact is inextricably linked to the demand curve, which slopes downward and to the right, indicating that demand rises as prices fall. The reasoning for this is because when prices decline, consumers have more discretionary income. With that disposable money, the customer may then buy more things, thereby having increased paying ability. Due to the pandemic, many people lost their jobs and now struggle to afford drugs or any other health care service. This negatively influence the profitability of the CVS Health company. Moreover, the factor of income cannot be controlled by the business structure, hence the company should be able to adapt for the income changes of their clients. There may be some changes in regulation of prices or making the services more accessible to different class members.

In a competitive market, the price buyers pay for a commodity should be as close to the cost of production as feasible. If the firms are competitive and profit-maximizing, the price of an item equals the marginal costs of making that thing. If the company may freely enter and exit the market, the price corresponds to the lowest possible average total cost of production. This allows CVS to compete on pricing with its rivals. Looking over data and observing the costs CVS encounters, it appears that the majority are changeable in nature (Fortune Editors, 2022). The majority of the company’s earnings is impacted by variable healthcare prices and medication costs.

Furthermore, the price of drugs and consumer goods fluctuates according to supply and demand. Prescription prices fluctuate based on the supplier and the current need, such as lung medication during the COVID-19 pandemic (Lugo et al., 2021). With current expansion and the opening of new stores, as well as changes in the minimum wage, labor expenses are also changeable. The firm’s profitability is influenced by all the above-mentioned factors and the leadership of CVS Health must maintain at least some of these aspects to ensure that the company’s revenues will increase and not otherwise.

The type of market structure that the CVS Health company has is perfect competition. A market structure with perfect competition is one in which several enterprises sell a similar product. Firms will generate typical profits and prices will be maintained low by competitive forces since there is free entrance and exit and perfect information. Indeed, it cannot be said that in the industry of health care there is a monopoly. The United States has many health care providers, and the market is highly competitive (Lugo et al., 2021). Monopolies do not exist in a perfect competitive scenario. In perfect competition, there are many buyers and sellers, and prices reflect supply and demand. Companies only make enough money to be involved in the market. Other companies would enter the market and decrease revenues if they generated too much material capital. A price taker is a totally competitive business structure that accepts the market’s existing equilibrium price due to the pressure of competing companies. If a corporation raises the price of its product by even a cent in a totally competitive market, it will lose all of its sales to competitors.

A highly competitive market has a big number of buyers and sellers. Instead of giant companies capable of influencing pricing through supply changes, the sellers are small businesses. They sell items that differ just slightly in terms of capabilities, features, and cost. This guarantees that purchasers cannot differentiate between items based on physical characteristics like size or color, or intangible factors like branding. A huge population of both buyers and sellers assures that supply and demand in this market stay consistent. As a result, purchasers may readily swap one company’s items for another.

The structure of the modern healthcare liberation is rapidly changing due to the recent health care crisis. As the United States’ healthcare system fails to coordinate growing prices and managers demand greater accountability for managing labor expenses, healthcare is becoming more customer oriented. The aging population, growing chronic illness prevalence, and increased usage of the Medicare medication benefit are driving demand for training and pharmacy improvements. Generic drugs that are less expensive are becoming more readily available, while novel pharmacological solutions that address unmet healthcare needs and shorten hospital stays are being created. Customers want prescriptive organizational agendas and better data to help them get the most out of their healthcare spending. CVS is well positioned to supply explanations that meet these trends, which will greatly enhance clients’ pharmaceutical services skills.

CVS Health has put in place a variety of measures aimed at lowering prescription prices and expenditures. According to CVS Health, these measures have had a large and favorable impact on adherence and total health costs (Langley, 2018). These approaches include promoting wider use of generics, implementing prior authorizations for effective usage, and pursuing rebates and reductions from manufacturers. Three new initiatives have just been announced. According to Langley (2018), a preventative medication list for chronic disease with no out-of-pocket expenses, lowering the launch price through comparative effectiveness exclusions to encourage doctors, pharmacists, and consumers to engage in cost control. A control system is vital in any business that works with many stores and divisions that must be directed and managed strictly. As often control systems are past-action-adjusted, they are ineffective or prone to fail. For instance, there is nothing a worker can do today to change the repercussions of activities taken some time ago. Routing controls, on the other hand, are future-directed and allow changes to be planned to get back on track before the management period expires. As a result, they express a more motivating working environment.


Bryan, A. F., & Tsai, T. C. (2021). Health insurance profitability during the Covid-19 pandemic. Annals of Surgery, 273(3), e88.

Fortune Editors. (2022). Fortune 500. Fortune.

Langley, P. C. (2018). CVS Health and the imaginary worlds of the Institute for Clinical and Economic Review (ICER). Innovations in Pharmacy, 9(4).

Lugo, K., Jarosz, L., Toscani, M., & York, J. (2021). CVS health faces a new wave of disruption. International Journal of Pharmaceutical and Healthcare Marketing.

Zhu, X., Li, L., Zhou, K., Zhang, X., & Yang, S. (2018). A meta-analysis on the price elasticity and income elasticity of residential electricity demand. Journal of Cleaner Production, 201, 169-177.

The Johns Hopkins Hospital's Organizational Management
McGregor's Organizational Behavior Theories in Healthcare