CVS Health announced it will divide into two separate companies: one will encompass its insurance division, Aetna, and pharmacy benefits manager, Caremark, while the other will retain its network of 9,000 retail pharmacies. This move marks one of history’s most significant corporate separations, occurring ten years after CVS acquired Aetna in a $78 billion deal.
The move marks a significant shift away from the long-standing vertical integration model that has dominated healthcare. By separating its operations, CVS aims to enhance agility and competitiveness, as stated by CEO David Joyner during an investor call.
Reversal of Strategy
This decision represents a dramatic change in direction for CVS, which has spent two decades merging entities, including Caremark in 2007 and Aetna in 2018, along with several medical groups. The split dismantles a key aspect of CVS’s acquisition strategy, according to Forrester analyst Arielle Trzcinski.
Public sentiment is turning against large conglomerates that dictate healthcare access and costs. Regulatory and legislative pressures are also increasing, with CVS contesting laws in Arkansas and Tennessee that would separate pharmacy and PBM ownership.
Despite expectations of continued scrutiny in 2027, particularly following Democratic gains in the midterms, CVS’s CEO asserts that regulatory pressure is not the driving force behind the split. Instead, Joyner describes it as a natural progression in CVS’s evolution.
Creating Two Stronger Organizations
The company with Aetna and Caremark will also include senior care provider Oak Street Health, home health firm Signify Health, and CVS’ specialty drug business. This company will be called CVS Health and be led by Joyner. The other company, CVS Pharmacy, will include pharmacy assets like its retail stores, mail order pharmacy, walk-in clinics, and Health100 technology services, and will be led by Prem Shah.
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Both CVS Health and CVS Pharmacy will be publicly traded, and current shareholders will own shares in both. The split is expected to be completed in the first half of 2028. As CVS moves forward with the breakup, it’s likely that the company will focus on preserving the connection between Aetna and Caremark, and Aetna and its care delivery arm, according to Joyner.
The unique products that CVS has built over the last 20 years will be preserved in commercial agreements between the two organizations. This will allow CVS to maintain and expand integration where it matters, combining the tools necessary to improve affordability within medical and pharmacy benefits and deliver care to high acuity populations.
CVS’s third-quarter results showed a profit of $2.2 billion on $108.4 billion in revenue, up from a $4 billion loss and $102.9 billion in revenue the previous year. Aetna’s performance exceeded expectations due to improvements in Medicare Advantage margins.
CVS has improved its pharmacy performance in recent years, downsizing its footprint while growing prescriptions and shifting to a new reimbursement model tied more directly to drug acquisition costs. CVS’ retail pharmacy has always operated behind a firewall, so carving it out won’t eliminate valuable overlaps between the businesses, Joyner said.
Public Trading and Leadership
The strong third-quarter results were overshadowed by the news of the split. Analysts noted that the decision to carve out the pharmacies now is surprising, given that they have been stabilized for the first time in years. However, the rationale could be to avoid state legislative scrutiny over the company’s level of vertical integration.
