CVS is officially breaking up into two companies
CVS spent nearly two decades assembling a healthcare empire. Now, it is breaking the whole thing apart. The company announced Wednesday that it plans to separate into two publicly traded businesses, splitting its roughly 9,000 retail pharmacies from its insurance, pharmacy benefit management and healthcare services operations. The separation is expected to be completed in the first half of 2028. Read on for what it all means for you as a consumer.
CVS Pharmacy and CVS Health are going their separate ways
CVS Pharmacy will house the familiar retail operation, including approximately 9,000 pharmacies, mail-order pharmacy services, MinuteClinic locations and the Health100 technology business. The other company will temporarily retain the CVS Health name. It will include Aetna, Caremark, CVS Specialty, Oak Street Health and Signify Health.
David Joyner, CVS Health's current CEO, will lead the healthcare services company. Prem Shah, currently CVS's group president, will become CEO of CVS Pharmacy. Essentially, one company will focus on the pharmacy experience customers recognize, while the other handles insurance, prescription benefits and other healthcare services.
Your CVS shopping routine is not affected
If you are wondering whether this means higher prescription prices, different insurance arrangements or a CVS store suddenly losing its MinuteClinic, there is no immediate change announced for customers.
According to CVS, the separation won't affect how its businesses operate before the transaction closes. The pharmacy and Caremark's prescription-benefit management operations already function separately, even though they're under the same corporate umbrella.
And the company hasn't announced store closures as part of the breakup. Shareholders, meanwhile, are expected to receive shares in both companies through a separation intended to be tax-free under U.S. federal tax rules.
Behind CVS undoing its healthcare empire
CVS's strategy was built around the idea that controlling more parts of healthcare would make the company stronger. It merged with Caremark in 2007 and acquired Aetna in 2018 in a deal worth roughly $69 billion. It later expanded into primary care and home-health services.
That vertical integration was supposed to connect insurance, prescription benefits, pharmacies and healthcare delivery under one roof. But the strategy has increasingly attracted criticism.
Consumer advocates and lawmakers have questioned whether healthcare conglomerates controlling multiple parts of the system create conflicts of interest, reduce competition and contribute to higher costs. Pharmacy benefit managers, including Caremark, have faced particular scrutiny over their influence on prescription drug pricing.
In all of this, CVS is not the only company facing pressure to reconsider consolidation. The healthcare industry as a whole has spent years combining insurers, pharmacies and providers, as regulators have increasingly questioned whether those arrangements benefit patients as much as the companies involved. Separating the businesses could give each one more room to operate independently while reducing some of the complications that come with running such a massive healthcare operation.
Amazon is also making things harder
CVS Pharmacy has another problem that doesn't disappear with a corporate split. People are increasingly comfortable ordering things online, including prescriptions. Amazon and other online pharmacies have put pressure on traditional drugstore chains, while fewer store visits mean fewer opportunities to sell the snacks, cosmetics and everyday essentials that help make physical pharmacies profitable.
CVS has also faced pressure from rising healthcare costs and challenges across its insurance business.
The company says its businesses have improved enough over the past two years to make separation possible. But investors weren't exactly throwing a breakup party. CVS shares dropped 12.5% on Wednesday after the announcement, wiping nearly $15 billion off its market value. With the split, perhaps it will turn out that two companies can do what one could not.
