CVS Health plans to divide itself into two publicly traded companies, ending a decade-long effort to combine drugstores, insurance and pharmacy benefits under one roof. The CVS Health split will separate the retail pharmacy business from the health insurance and pharmacy benefit management units. Chief Executive David Joyner said the two parts of the company would do better apart. “We’re basically taking what I believe is one great company and making it two,” Joyner told The Wall Street Journal, which first reported the plan on 3 November. CVS confirmed the CVS Health split the next day, 4 November, as it prepared to report quarterly results.
What the CVS Health split separates
One company will keep the CVS Health name and will be run by Joyner. It will hold Aetna, the health insurer CVS bought for 78 billion dollars, and CVS Caremark, its pharmacy benefit management business. The same company will hold Oak Street Health primary care clinics, Signify Health home health visits and the specialty drug business. The second company in the CVS Health split will be called CVS Pharmacy. It will hold the retail drugstores, the mail-order pharmacy business, the MinuteClinic walk-in clinics and the Health100 technology services business. CVS runs about 9,000 retail pharmacies in the United States. The company put the value of the business being divided at 117 billion dollars.
Why the CVS Health split is happening now
CVS built its current shape through two large deals. It bought Caremark nearly 20 years ago, and it bought Aetna close to a decade ago for 78 billion dollars. The idea was that the drugstore, the insurer and the drug benefits business would work better together. The CVS Health split reverses that idea. Joyner said the decision reflected how the businesses are performing now. “We believe based off of where we are and how we’re performing, the businesses are best served by splitting,” he told the Journal. The company did not respond to a request for comment from Reuters when the report first appeared. The plan comes after years of pressure from rising health care costs, weak insurance results and investor doubts about the fit.
Ratings review follows the announcement
The CVS Health split drew a fast response from the insurance ratings agency AM Best. On 5 November, AM Best placed the financial strength and credit ratings of several Aetna and CVS Caremark insurance entities under review with developing implications. The agency said it will wait for more detail from CVS management on the finances of the two companies and how debt will be divided. The review covers Aetna Life Insurance Company, which holds an A (Excellent) financial strength rating. AM Best said the separation still needs final approval from the CVS Health board of directors, a Form 10 registration statement filed with the Securities and Exchange Commission to take effect, and confirmation that the transaction will receive tax-free treatment. The company aims to complete the separation in the first half of 2028.
What the CVS Health split means for customers
For customers, little will change at first. The drugstores will keep the CVS name, and Aetna members will keep their current coverage while the separation is prepared. The two companies will still need to work out how they deal with each other once separate, including which drugs Aetna plans cover and what patients pay at CVS counters. Those contracts matter to millions of people who fill prescriptions at CVS stores or hold Aetna plans through an employer. The CVS Health split also matters to the 9,000 stores themselves, which have faced falling reimbursement for prescriptions and competition from online pharmacies and discount drug programs. CVS Pharmacy will have to stand on its own as a retail and pharmacy business, while the health care company will carry the insurance risk and the care businesses.
How the two companies will be run
Joyner will run the company that keeps the CVS Health name. That company will hold the insurance, pharmacy benefit, primary care and home health businesses. CVS has not yet named the chief executive who will run CVS Pharmacy. Both will be publicly traded, and each will report its own results to its own shareholders. The CVS Health split will divide staff, systems and contracts between the two, a process the company has about a year and a half to complete if it meets its target of the first half of 2028. CVS reported its quarterly results on 4 November, the same week it confirmed the plan. The company has not said how many jobs the separation will affect or what it will cost. Those details are expected in the Form 10 filing.