CVS Health mulls potential breakup in midst of strategic review
Various forms of a potential separation are reportedly under consideration, though specifics remain unclear.
Photo: Mario Tama/Getty Images
CVS Health is undergoing a strategic review that could reshape its future, and has retained bankers to help assess a variety of options, including a potential breakup of the business, The Wall Street Journal has reported.
Although no decisions are imminent, the news comes at a time when its efforts to become a comprehensive healthcare conglomerate are facing increased scrutiny, the report said.
CVS's business encompasses a wide array of healthcare services, including its pharmacy benefit manager CVS Caremark, health insurance through Aetna, and a network of healthcare clinics. This integrated model was designed to streamline healthcare delivery, offering a lower-cost, more efficient way to serve customers and patients.
However, the reality has been more complicated, and the company's stock has dropped by about 20% since 2023, while the broader S&P 500 has risen nearly 21%, the WSJ reported.
WHAT'S THE IMPACT?
A key driver of CVS's current challenges is its Medicare business, which is managed by Aetna. The company aggressively expanded its Medicare Advantage offerings in 2023, drawing in hundreds of thousands of new enrollees, but the influx of new members has led to higher-than-expected medical costs, eating into profitability, according to the report.
Additionally, federal regulatory policies have placed pressure on Medicare insurers like Aetna, exacerbating the challenges CVS faces in that segment.
According to Investors.com, CVS has begun shifting its strategy in response, promising to recalibrate its approach to Medicare next year while also implementing a $2 billion cost-cutting plan. As part of these efforts, the company recently announced layoffs affecting about 2,900 employees.
The ongoing strategic review suggests CVS may be considering more drastic measures to address its financial and operational difficulties. The possibility of a breakup has emerged as a potential solution, although the company has not yet committed to any major structural changes, WSJ reported. Various forms of a potential separation are reportedly under consideration, though specifics remain unclear.
One possibility is that CVS could split off some of its core divisions, such as Aetna, or its pharmacy-benefit management arm, allowing each unit to operate independently. According to Investors.com, this move would reflect a growing sentiment among investors that the company's diverse operations may be too unwieldy to manage effectively as a single entity.
The recent strategic review also highlights growing pressures from shareholders. Hedge fund Glenview Capital Management, which owns about 1% of CVS's shares, has met with company executives to discuss ways to enhance operations and boost shareholder value.
"CVS's management team and Board of Directors are continually exploring ways to create shareholder value," a spokesperson told the WSJ.
THE LARGER TREND
CVS subsidiary Oak Street Health revealed last month it's paying $60 million to the federal government to resolve allegations that it violated the False Claims Act by paying kickbacks to third-party insurance agents in exchange for recruiting seniors to Oak Street Health's primary care clinics.
CVS completed its acquisition of Oak Street Health last year.
The all-cash transaction was valued at around $10.6 billion. Oak Street Health is a multi-payer, value-based primary care company focused on older adults, with a care model and technology platform it describes as scalable.
Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.
