Cvs Prescribes Itself Two Separate Companies 

CVS is taking a pill-splitter to its business, separating its 9,000 retail pharmacies into one company and its insurer Aetna plus its pharmacy benefit manager Caremark into another. The historical unwinding will see CVS’ $117 billion healthcare megacompany split in two — will the pieces break apart cleanly or get crushed?

Both companies, CVS Pharmacy and CVS Health, will be publicly traded. CVS Pharmacy will own the parts of the biz that let shoppers buy a fresh tube of mascara while picking up their multiple nasal-spray prescriptions and if they’re up to it, getting a flu shot at CVS’ back-of-store MinuteClinic operations. In addition to Caremark and Aetna, CVS Health will house senior care provider Oak Street Health, in-home health firm Signify Health and CVS’ specialty-drug pharmacy. 

For CVS, which beat Wall Street’s expectations for eight quarters in a row as of yesterday morning, two may simply be better than one.

Not Clowning Around

CVS has been bulking up its healthcare company for the last 20 years, first agreeing to buy Caremark in 2006, a combo its then-CEO Tom Ryan said would “help manage the costs and complexities of the US healthcare system.” From there, CVS made a series of acquisitions including defunct Longs and later Rite Aid stores. In 2018, CVS bought Aetna for $78 billion — its CEO at the time, Mark Bertolini, mirrored Ryan, saying the two companies together would “eliminate the unnecessary complexities that frustrate today’s healthcare consumers.”

But in 2024, Aetna became a drag on its wider business as spiking medical costs ate as much as 95% of premiums. CVS slashed its guidance three times over the next six months. The fix: CVS shook up its leadership and went on a cost-cutting spree that saw Aetna exit Affordable Care Act exchanges and shutter more than 1,100 stores. 

The turnaround plan was more than a Band-Aid: 

• Aetna’s margins have recovered and CVS’ profits are following. CVS thinks its healthcare businesses have grown enough together that they’re ready to thrive separately — like an overcrowded Monstera split up into two pots. 
• “We take this action from a position of strength,” CEO David Joyner said. Joyner added that the soon-to-be-separated businesses will maintain any products and services they’ve developed together via commercial agreements and simply no longer need to be fused at the operational level. 

Side Effect: Just like layered lace camis have gone out of style since CVS bought Caremark in 2006, so too have vertically integrated healthcare businesses. Pending bipartisan legislation is threatening to split pharmacy benefit managers from pharmacies, a combination Rep. Jake Auchincloss called “an unacceptable conflict of interest.” The blue wave of Democrats that crashed on Tuesday is only expected to ramp up scrutiny of healthcare giants. CVS’ move could partially pre-empt any legislation that wants to break up its biz.

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