CVS Health is reportedly exploring strategic options that may include a separation of its retail pharmacy and insurance divisions, as the company faces mounting investor pressure amid financial challenges. Sources familiar with the matter revealed that CVS has been consulting with financial advisers in recent weeks about the feasibility of splitting its operations into two distinct entities, although no final decision has been made.
The proposed plan, which has been discussed with the board of directors, would involve separating CVS’s pharmacy chain from its insurance business, potentially resulting in two publicly traded companies. This move would effectively reverse CVS’s high-profile $70 billion acquisition of healthcare insurer Aetna in 2017. The company is also evaluating the future positioning of its pharmacy benefits manager (PBM) unit, which could either be integrated into the retail or insurance segments.
While CVS has not yet made a formal decision on the potential restructuring, the company is under increasing scrutiny from shareholders. One such investor, Glenview Capital, is reportedly advocating for changes to improve the company’s operations. CVS has also been grappling with financial headwinds, having downgraded its earnings forecast for 2024 for the third consecutive quarter in August. The company now projects annual earnings of $6.40 to $6.65 per share, down from the previous forecast of at least $7.00 per share.
A CVS spokesperson refrained from commenting directly on the potential split but noted that the company’s management and board are “continually exploring ways to create shareholder value” while remaining focused on delivering high-quality healthcare products and services.
CVS’s financial struggles have been exacerbated by rising medical costs, particularly within its Aetna unit, which underperformed in the Medicare market. As a result, the company has implemented a $1 billion cost-cutting initiative and announced the departure of Aetna’s head, Brian Kane. Aetna, which contributes approximately one-third of CVS’s overall revenue, has been significantly impacted by rising healthcare service costs, a challenge also faced by other major insurers like UnitedHealth Group and Humana.
CVS is currently led by CEO Karen Lynch, a veteran of the healthcare industry who previously oversaw the Aetna unit. Lynch, along with CFO Tom Cowhey, is temporarily managing Aetna’s operations.
The company’s stock has underperformed significantly this year, losing nearly 25% of its value, in contrast to the S&P 500’s 21% rise during the same period. Analysts have expressed concerns about CVS’s future performance, particularly in light of its 2025 Medicare Advantage bids and ongoing challenges in the medical insurance and PBM sectors. Despite these challenges, some analysts, like Julie Utterback of Morningstar, see the company’s retail pharmacy division as a long-term weak point unless strategic changes, such as expanding healthcare services in stores, are implemented.
Founded in 1963 as a retail pharmacy, CVS now operates over 9,000 stores across the U.S. and has expanded through notable acquisitions, including Caremark, Signify Health, and Oak Street Health. However, the potential split of its retail and insurance businesses signals that CVS may be seeking a new direction to navigate one of the most challenging periods in its history.
