Health CV plans to split into two separate public companies in the first half of 2028 in what would be one of the largest corporate splits in history, the company announced Wednesday.
The move would reverse the $78 billion insurance company, Aetna, and dismantle the vertically integrated health conglomerate it created in 2018. The plan would separate CVS’s roughly 9,000 retail pharmacies from its main insurance business and pharmacy benefits manager, Caremarks, one of the largest PBMs.
The decision follows a “comprehensive strategic review” by the company’s board of directors, according to a news release.. Shares of CVS fell more than 12% on Wednesday.
This is a remarkable turnaround for health professionals, who have spent two decades working to become the ultimate health destination. The move also comes as CVS’s aggressive turnaround plan under CEO David Joyner shows significant progress, with the company pursuing $2 billion in cost cuts, store closings, leadership changes and efforts to reduce Medicare Advantage costs.
But Joyner told CNBC’s “Squawk on the Street” on Wednesday that the split decision was “from a position of strength,” pointing to the recovery of Aetna’s Medicare business and solid performance in retail pharmacy.
“So it’s all about the strength of the business that gives us the opportunity to make what we think are the right strategic decisions for the future of this company,” he said later.
People walk into a CVS pharmacy near George Washington University in Washington, US, on August 15, 2024.
Kaylee Greenlee Beal | Reuters
CVS stock has risen about 70% since Joyner took the helm in October 2024, bringing the company’s market value to $117 billion.
Both new companies will be publicly traded.
The insurance and PBM companies will retain the CVS Health name and be managed by Joyner, while the other company will be called CVS Pharmacy and led by Prem Shah, who is now CVS Health group president. Additional leadership positions and board members will be announced at a later date, CVS said.
Existing CVS shareholders will own shares in both companies after the split. The Financial Times on Tuesday first reported the separation plan.
The company’s pharmacy business will generate $37.66 billion in 2025 sales, while its insurance unit will generate $36.29 billion and its health services division will generate $51.24 billion.
CVS on Wednesday also posted third-quarter earnings and revenue that topped Wall Street expectations. Total sales rose to $108.40 billion, from $102.87 billion in the year-ago period.
Sales were boosted by year-over-year growth in the company’s health benefits and health services segments. Meanwhile, revenue in the pharmaceutical services business declined from the previous year.
How to split CVS will work
On Wednesday, CVS said it would combine its insurers and PBMs with primary care business Oak Street Health, home visit provider Signify Health and the company’s specialty drug business.
CVS also said the split would allow the two companies to experience a “focused strategic agenda” and a greater ability to “innovate, leverage technology, increase efficiency,” among other benefits.
This isn’t the first time CVS has considered splitting the company. In October 2024, CVS engages advisors in a strategic review of the business and considers breaking up the retail pharmacy and insurance units.
But Joyner told CNBC that the company was “in a turnaround” at the time without the flexibility, cash position or business performance to execute the split.
In an interview, Leerink Partners analyst Michael Cherny said the split reflects the “stability of pharmacies,” which have won market share from rivals and seen stable gross profit thanks to CostVantage, a new pharmacy reimbursement model that CVS introduced last year if the company’s bills were more transparent.
“This business is a very different business than what we’ve considered three years ago, five years ago, 10 years ago, where there are a lot of headwinds that pharmacies can’t overcome,” he told CNBC on Wednesday.
One potential concern for investors is whether retail pharmacies will lose their competitive advantage by being directly linked to PBMs, which negotiate drug prices and manage prescription drug benefits on behalf of insurance companies and employers.
But Joyner told analysts there that the synergy between the two businesses “will be preserved in the commercial agreement between the two organizations,” adding that “we do not need the integration of the operating structure.”
Cherny said the rationale for the split can also extend to the state legislative examination through the corporate level of vertical integration.
The potential disconnect also comes as pharmacy benefit managers face bipartisan scrutiny in Washington, DC, and across the country. Republicans in Tennessee and Arkansas have passed legislation that would ban joint ownership of PBMs and pharmacies. That has been challenged in court by CVS and other companies.
PBMs have been criticized for their opaque pricing practices, increasing market power and potential conflicts of interest when they are owned by companies that also operate insurance companies and pharmacies.