Talk that CVS Health may break up its businesses would mean unraveling synergies already making the company a lot of money and the potential to make even more.
Some media reports earlier this week floated the possibility that CVS management was entertaining the idea to break up the company. CVS includes the large chain of CVS drugstores; fast-growing clinic operator Oak Street Health; Caremark, one of the nation’s largest pharmacy benefit management companies; and Aetna, the nation’s third largest health insurance company with more than 26 million health plan members.
CVS sells an increasing number of Aetna brand health plans that offer discounts when its medical care providers are used in those health insurance products.
Take Oak Street Health, which CVS bought last year for more than $10 billion, and is rolling out a new store format in several U.S. markets that includes Oak Street Health’s senior-focused health centers “side-by-side” a CVS pharmacy in reformatted former drugstores.
Aetna health plan members can be incentivized to use Oak Street or other providers the company has acquired or developed. In an interview earlier this year, CVS Health chief executive officer Karen S. Lynch said the company’s four million Medicare Advantage members “can have access to our Oak Street clinics.”
While CVS’ rival Walgreens has lost billions of dollars on its investment in primary care provider VillageMD, CVS retail healthcare operations are showing promise in part due to the relationships between the company’s health insurer and its providers.
Walgreens doesn’t own a health insurance company and Walgreens executives have said a key problem the VillageMD clinics were having is the inability to fill “patient panels” so dozens have been shuttered.
Meanwhile, the new Oak Street format is being deployed this year in several markets across the U.S. including Chicago, New York City, Dallas-Fort Worth and Columbus, Ohio. Another 11 of the new formats with Oak Street health centers alongside a pharmacy will open in 2025.
“We have a captive audience with benefit designs that can support the physicians (in the clinics),” Lynch said earlier this year in an interview. “We can drive patients to (the Oak Street health centers.)”
By 2026, CVS has said Oak Street Health “will have more than 300 centers, each of which has the potential to contribute $7 million of Oak Street Health Adjusted EBITDA at clinic maturity.”
An increasing number of analysts who follow CVS, rival health insurers and retail healthcare companies seem to agree that it makes little sense to break up CVS.
“We believe the likelihood of CVS of separating the retail pharmacy and insurance segments is low given the embedded synergies of the combined entities, and the fact that ownership of Caremark benefits both the retail and health insurance businesses, making it difficult for either segment to be competitive without the PBM,” said Ann Hynes, research analyst at Mizuho Americas.
Meanwhile, CVS is forging ahead with its previously announced strategic review. As part of that plan, CVS disclosed on Monday plans to pare about 2,900 jobs, or less than 1% of its total workforce.
“Our industry faces continued disruption, regulatory pressures, and evolving consumer needs and expectations, so it is critical that we remain competitive and operate at peak performance,” CVS said in a memo to employees Monday. “As we previously disclosed, we’ve embarked on a multi-year initiative to deliver $2 billion in cost savings by reducing expenses and investing in technologies to enhance how we work.”
