Reports of a separation come at a time when the company is struggling to perform, particularly with its insurance arm Aetna.
CVS Health could be on the precipice of breaking up its businesses, sending shockwaves across the industry.
The healthcare giant is reportedly conducting a strategic review and weighing a potential split of its retail and insurance units as it continues to face struggles in those sectors, according to Reuters and The Wall Street Journal.
CVS’ board of directors has retained bankers to facilitate the review, but a decision is not imminent and it’s possible the company won’t experience a significant change, WSJ reported. Hedge fund Glenview Capital Management, which owns about 1% of CVS’ shares, is seeking changes and met with the company’s executives to discuss strategies for improving operations.
"CVS’s management team and Board of Directors are continually exploring ways to create shareholder value," a CVS spokesperson told WSJ. "We remain focused on driving performance and delivering high quality healthcare products and services enabled by our unmatched scale and integrated model."
While CVS has pursued an integrated model by offering health insurance through Aetna, primary care through clinics like Oak Street Health, and a pharmacy benefit manager through Caremark, the strategy hasn’t been without its challenges.
To slash costs, the company is planning layoffs that would affect about 2,900 jobs, or almost 1% of its 300,000 employees, due to “continued disruption, regulatory pressures and evolving consumer needs and expectations,” a spokesperson said. The impacted positions are mostly corporate roles and the reductions will not affect front-line workers in stores, pharmacies, and distribution centers.
In August, CVS also announced plans to cut $2 billion in costs to help offset the rising expenses and floundering financial performance of Aetna, which saw its operating income in the second quarter drop 39% year over year.
Additionally, the results spurred the company to let go of Aetna president Brian Kane and hand the insurer’s operations over to CVS CEO Karen Lynch and CFO Tom Cowhey.
Aetna’s woes are driven by increased utilization in Medicare Advantage while star ratings and bonus payments have been adjusted, resulting in diminished reimbursement for payers.
On the retail side, CVS has upped its investment in Oak Street after acquiring the business for $10.6 billion last year.
As other retailers have softened their position in primary care space or exited the space altogether, CVS announced plans to open 25 more Oak Street clinics by the end of 2024. By placing the clinics at its pharmacy sites, CVS believes it can funnel more patients to its primary care offering and turn around the profitability of the business.
However, considering the costs associated with primary care, CVS may be more inclined to distance itself from that unit rather than Aetna.
Jay Asser is the CEO editor for HealthLeaders.
KEY TAKEAWAYS
Major changes could be in store for CVS Health, with the company reportedly in the midst of a strategic review and contemplating splintering its retail and insurance businesses.
CVS’ insurance arm Aetna has faced financial turmoil of late due to high utilization and lowered reimbursement in Medicare Advantage.
The company’s retail business after purchasing Oak Street Health has also been costly and required significant investment to scale.