Hailey Whitlock, Editor
On Nov. 4, CVS Health announced that the healthcare conglomerate has plans to split into two separate entities in the first half of 2028. However, before one can fully understand this division, it is essential to understand the conditions in which this decision was made.
The announcement came on the third-quarter conference call for CVS Health. Per Forbes, the reported quarterly revenue reached $108.4 billion with a net profit of $2.17 billion. This exceeded analyst expectations, with the company having a stronger footing in the market than expected. Morningstar analyst Julie Utterback said to USA Today, “Improving financial results probably helped with the timing of the move – better to move from a position of strength than a place of weakness.”
Further commenting on this notion of strength, current CVS Health CEO David Joyner remarked on the split per USA Today, “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.”
In addition to higher-than-expected earnings, the decision also came in line with a tightening regulatory environment for large healthcare companies. For example, the “Break Up Big Medical Act” seeks to address “rampant consolidation in the healthcare industry that drives up the prices, squashes competition, and fuels corporate greed,” as explained in Forbes. Elizabeth Warren said of the bill, “The only way to make health care more affordable is to break up these health care conglomerates. Our bill would be a monumental step towards ending the stranglehold that corporate giants have on our broken health care system.” In an environment where concerns continue to mount about over-consolidation in the healthcare industry, this decision seeks to alleviate consumer hesitations about CVS. It brings into question, though, what this division will look like.
The current plan to divide CVS Health into two involves breaking up the healthcare portion from the retail portion. The first company – which will continue to be known as CVS Health – will be run in the interim by David Joyner, the current CEO of CVS. It will include purchased companies such as Aetna and Caremark, specializing in the insurance area and pharmacy benefits. The second company would consist of about 9,000 retail stores, retail clinics, and a mail-in operation; this would essentially be the retail stores we drive by. This division will be called CVS Pharmacy, with Group President Prem Shah becoming CEO.
Consequently, the question investors face now is whether this split is a good decision for the future of the company and their investments. Stock prices trended slightly down after the announcement, but were buoyed by the positive earnings. Joyner told CNBC when asked what’s changed in the last few years to make this move viable: “What’s changed in two years is the fact that we now can look at this business and the assets that are assembled and really determine, without any distress or without anything that we have to do, what is the right strategic decision to make.” Michael Cherney, a senior research analyst at Lerrink Partners, said to CNBC about the decision, “The issue is not whether the companies can continue working together in some capacity, but whether any future contractual relationships preserve the SAME competitive advantages and flexibility as today under common ownership.” As to that question, the public will merely have to wait and see.
