US healthcare industry giant CVS Health is considering a strategic breakup of its retail and insurance units. A potential split would mark a significant shift in the company’s “one-stop shop” strategy that it has already invested billions in to realize. Its vision to date has been to create a seamless healthcare experience for consumers and employers by integrating its retail pharmacy, health services, and insurance segments.

What’s Happened: Financial Woes Across A Complex Portfolio Cornered CVS

CVS is under pressure from investors to improve its financial performance. As CVS CEO Karen Lynch explained in the Q3 2024 earnings call, the company has developed a multiyear plan to generate as much as $2 billion in savings by “ … continuing to rationalize our business portfolio and accelerating the use of artificial intelligence and automation across the enterprise as we consolidate and integrate.” A WARN filing prompted the company to share that this also includes reducing its workforce by nearly 2,900 employees.

In recent months, challenges have mounted across the CVS portfolio — and also highlighted its strongest assets.

  • Health insurance carrier Aetna is ailing as more members resume using medical services. CVS’s 2018 acquisition of Aetna aimed to create a healthcare powerhouse but has since encountered significant integration challenges while at the same time facing scrutiny over the vertical integration of the portfolio. In 2024, CVS to date has cut its earnings guidance three times due to escalating medical costs pressuring Aetna’s bottom line. One culprit: Post-pandemic, Medicare Advantage beneficiaries have resumed using medical services and visits to the doctor. Former Aetna President Brian Kane is now gone. But costs from Medicare Advantage plans will continue to skyrocket due to utilization and newly included benefits that have become table stakes for seniors.
  • Pharmacy benefit manager (PBM) prosperity faces potential pitfalls. 2024 began with the loss of large, long-tenured clients, including employer Tyson Foods and narrowed business with health insurer Blue Shield of California. Midyear, the FTC called PBMs manipulative middlemen and highlighted their role in spreading medical deserts. In September, the FTC filed action against CVS Health’s PBM, Caremark Rx, with allegations of the PBM and its competitors engaging in anticompetitive and unfair rebating practices. These methods reportedly artificially inflated the list prices of insulin drugs, restricted patient access to lower-priced options, and shifted the burden of high insulin costs onto vulnerable patients. The suit builds on industry concerns regarding concentration risk in the PBM market.
  • Retail stores provide a sturdy stronghold. CVS has over 9,000 physical locations in the US. Per Definitive Healthcare’s ClinicView, as of 2023, CVS also holds over 60% of the US retail clinic market. In Q3 2024, CVS’s retail clinics outperformed other business segments, benefiting from competitors’ retreats, such as Walmart’s exit due to lack of profitability and Walgreens’ shift to specialty pharmacy expansion. CVS’s digital experience enhancements and broader in-store services, especially for chronic conditions and mental health, have boosted sustained customer engagement and retention. Services like vaccinations continue to provide an (ongoing) one-time revenue boost and remind customers of the available convenient care options in their local store.

What A Breakup Would Mean For Key Stakeholders

While CVS is distracted pondering its next moves, competitors in the health insurance and pharmacy space should position themselves to take market share now. If a breakup plays out, we may see greater focus within each of the (erstwhile) CVS business units. Unlocking financial gains through technological advances, however, will take time and could lead to:

  • Health insurers picking up new populations. If Aetna becomes independent, expect some of its members to shop around for new insurers. After all, Aetna’s synergy with CVS was one of its key selling points. Competitors should highlight established adoption of emerging technologies such as generative AI, proof of efficiencies that reduce administrative burden for providers, and care advocacy services that drive member trust and appropriate utilization of healthcare services.
  • Retail pharmacies expanding services. If a breakup happens, expect retail competitors to try to poach CVS shoppers with expanded pharmacy services like home delivery and virtual consults. We expect retailers like Amazon and Walmart to make prescription transfers easy to execute and to market price transparency and better prescription drug pricing that benefits consumers.
  • Degradation in the consumer experience. Consumers have benefited from the vertical integration of the PBM and retail pharmacy. Dismantling this connection would lead to disjointed experiences and push employers with frustrated employees into the open arms of competitors that have preserved their integration, such as UnitedHealthcare or Cigna.

One CVS group could come out ahead in a breakup: CVS’s Caremark PBM. As all PBMs face regulatory scrutiny over concentration risk, a breakup could actually put CVS ahead of the curve.

We will continue to watch as this potential strategic shift evolves. Forrester clients can schedule time with us — Arielle Trzcinski and Sucharita Kodali — to talk more about the future of health insurance and retail health.