CVS Health plans to split itself up. Here's why a breakup could make sense now
Analysts say that after a roughly two-year turnaround the company's retail pharmacy business and other units may be strong enough to stand on their own.
TL;DR
- CVS Health announced plans to split into two publicly traded companies by the first half of 2028.
- The separation will divide the company into its retail pharmacy business (including ~9,000 locations) and its insurance/PBM business (Caremark).
- This move is considered more viable now than in the past due to improved profitability in the retail pharmacy sector and better performance from insurer Aetna.
- CVS CEO David Joyner highlighted an aggressive turnaround plan over the last two years, involving cost cuts and performance improvements across all segments.
- The retail pharmacy business has benefited from competitor retrenchment and changes like the CostVantage reimbursement model, though it remains a low-margin operation.
- The split occurs amidst increasing regulatory scrutiny of PBM practices, though CVS states the decision is strategic and not driven by regulatory issues.
- The integrated strategy, built through acquisitions like Aetna, is being partially unwound, though Aetna and Caremark will remain together in one healthcare company.
- Commercial agreements are expected to preserve synergies between the separated entities, though profits from these arrangements will no longer accrue to a single company.
- Risks include the sustainability of retail pharmacy growth and continued regulatory scrutiny for Caremark, alongside Aetna's efforts to rebuild Medicare Advantage margins.