CVS Health to spin off its retail pharmacies into new company after regulatory pressure
CVS Health is splitting up its core business, spinning off its retail pharmacy sector into a new company, with the breakup to begin in 2028.
The healthcare conglomerate made the announcement on Wednesday, stating that its 9,000 pharmacy store locations, mail order prescription business and its urgent care clinics will eventually operate under the banner of CVS Pharmacy, a totally new entity.
After the separation is complete, CVS Health will continue to operate with its other businesses intact, including the pharmacy benefit manager (PBM) Caremark and medical insurance provider Aetna. The remaining CVS Health business will also continue to operate primary patient care services, the company said—though it isn’t entirely clear how things will be divided up, as the CVS MinuteClinics currently provide both primary and urgent care in many shared locations.
Investors may be wary of the split, if stock price is any indication. After the announcement, CVS Health stock dropped 12%, currently trading at $80.70 a share, down from its year-to-date high of $81.55.
Last year, the company generated more than $400 billion in revenue, with its pharmacy and consumer wellness segment accounting for about a third of the money coming in.
Shakeup comes after regulatory pressure
The vertical structure of PBMs has been a target of scrutiny from regulators, mainly at the state level. While CVS is challenging some of the laws, the trend has not been moving in the company’s favor.
Beginning in 2027, Tennessee law would forbid PBMs—the middlemen of the pharmaceutical drug supply chain that develop group purchasing rates for health plans—from also owning or operating retail pharmacies. In other words, as it stands, CVS would be forced to slowly divest from its chain of brick-and-mortar stores in the state, so long as it also operates Caremark.
Arkansas passed similar regulation, with legislatures in Virginia, New York, Oklahoma and Texas also considering similar bills.
By splitting up its businesses, CVS Health would be in compliance with those regulations.
Chad is an award-winning writer and editor with over 15 years of experience working in media. He has a decade-long professional background in healthcare, working as a writer and in public relations.