Nov 4 (Reuters) – CVS Health said on Wednesday it will split into two companies, separating retail pharmacy from its insurance and pharmacy-benefit operations in a major unwinding of the healthcare conglomerate it spent years building through acquisitions.
The split comes amid growing scrutiny from lawmakers and regulators of vertically integrated healthcare companies such as CVS.
Years of consolidation across the industry have raised concerns that companies controlling multiple parts of the healthcare supply chain could face conflicts of interest, limit competition and contribute to rising healthcare costs.
CVS said the separation of its units was expected to be completed in the first half of 2028. The split would mark a significant reversal of the company’s strategy of combining retail pharmacy, health insurance and pharmacy-benefit management under one roof.
CVS built the conglomerate through a series of acquisitions, including its roughly $78 billion purchase of health insurer Aetna in 2018.
Shares of the company were down 2.1% in premarket trading.
Leerink Partners analyst Michael Cherny attributed the premarket decline partly to deal-related uncertainty and broader volatility in healthcare stocks following the midterm elections.
Following the split, the healthcare solutions company will be referred to as CVS Health in the interim. CVS Health CEO David Joyner will lead the healthcare solutions company, while Group President Prem Shah will become CEO of CVS Pharmacy.
“From a position of strength, and a focus on the long term, we plan to create two focused companies to improve consumer engagement, affordability, and care coordination,” said Joyner.
Health insurers have grappled with elevated medical costs in recent years as consumers increased their use of healthcare services, prompting companies to raise premiums, trim benefits and exit less profitable plans.
CVS drugstores have also been grappling with pressures, including competition from Amazon and a shift toward prescription delivery that has reduced store visits, which traditionally generated additional retail purchases.
The challenges underscore the increasingly difficult economics of large US drugstore chains.
Faced with similar challenges, rival Walgreens sold its Boots pharmacy business and was acquired by private equity firm Sycamore Partners last year following a prolonged sale process.
CVS had also explored options including a potential breakup in 2024, Reuters reported at the time, as the healthcare giant grappled with challenges across its businesses.
Analysts viewed the potential split positively, saying the timing was favorable as CVS’s Pharmacy and Consumer Wellness business had returned to growth after years of underperformance.
“Improving financial results probably helped with the timing of the move — better to move from a place of strength than a place of weakness,” said Morningstar analyst Julie Utterback.
A separation could also help address regulatory scrutiny of CVS’s vertically integrated model, some analysts noted.
Separately, the company reported third-quarter results. Its per-share profit of $2.09 beat analysts’ average estimate of $1.65, per data compiled by LSEG.
The company also raised its annual adjusted profit forecast to at least $8.20, but said it was maintaining a cautious view for the remainder of the year in light of continued elevated medical cost trends and potential macro headwinds.
Upon completion of the separation, CVS Health shareholders will own shares in both companies.
(Reporting by Siddhi Mahatole, Aishwarya Venugopal and Sneha S K in Bengaluru; Amina Niasse in New York,; Editing by Shinjini Ganguli)
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