CVS to separate pharmacy and insurance operations

CVS Health announced yesterday that it is preparing to divide its pharmacy and healthcare operations into two independent companies.

It plans to spin off its 9,000 retail pharmacies into a separate entity, CVS Pharmacy, by mid-2028; it will also operate MinuteClinics, mail-order pharmacies, and its Health100 consumer platform.

Meanwhile, CVS Health will retain Aetna insurance, Caremark pharmacy-benefit services, specialty pharmacies and healthcare providers Oak Street Health and Signify Health.

The restructuring comes as regulators increase scrutiny of healthcare companies that combine insurance coverage, drug pricing and pharmacy services.

The $117 billion healthcare giant has come under mounting pressure from state and federal authorities to break up its business.

Sens. Elizabeth Warren (D) and Josh Hawley (R) revived bipartisan legislation in May to prevent PBMs from owning pharmacies. Two states have also enacted similar laws that CVS is seeking to overturn.

Critics argue that this business model has allowed giants like CVS and UnitedHealth to inflate healthcare costs and stifle competition.

The company also faces rising medical expenses, pressure on prescription reimbursements, and competition from online retailers such as Amazon.

The decision could reshape how CVS manages its operations and competes in the healthcare market. Separating the businesses may give each company greater flexibility, improve transparency, and allow investors to assess their performance independently.

Existing shareholders will receive stakes in both companies after the separation.

However, the move could also eliminate some of the cost savings and operational advantages that justified its acquisitions.

Investors initially reacted negatively, sending CVS shares down 12.5% and wiping nearly $15 billion off its market value.

Despite the setback, CVS reported third-quarter earnings of $2.09 per share, beating analysts' expectations of $1.65. It expects at least $8.65 per share in adjusted earnings in 2027.

CVS’s revenue topped $400 billion last year.