CVS executives say health care delivery is more integrated when CVS and Oak Street Pharmacy … [+]
Talk that CVS Health could break up its businesses would mean unraveling the synergies already making the company a lot of money and the potential to make even more.
Several media reports earlier this week raised the possibility that CVS management was considering breaking up the company. CVS includes the large CVS pharmacy chain; 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 a growing number of Aetna-branded health plans that offer discounts when its medical care providers are used on 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 some U.S. markets that includes Oak Street Health’s senior-focused health centers “side by side ” a reformed CVS pharmacy former drug store.
Aetna health plan members may be encouraged to use Oak Street or other providers the company has acquired or developed. In an interview earlier this year, CVS Health Chief Executive Karen S. Lynch said the company’s four million Medicare Advantage members “can access our Oak Street clinics.”
While CVS rival Walgreens has lost billions of dollars on its investment in primary care provider VillageMD, CVS’s retail health care operations are showing promise in part because of the relationship between the company’s health insurer and its providers.
Walgreens does not own a health insurance company, and Walgreens executives have said a major problem VillageMD clinics have had is an inability to fill “patient panels,” so dozens have closed.
Meanwhile, the new Oak Street format is being rolled out this year in several markets across the US, including Chicago, New York City, Dallas-Fort Worth and Columbus, Ohio. In 2025, 11 more of the new formats will open with Oak Street health centers along with a pharmacy.
“We have a captive audience with benefit models that can support physicians (in clinics),” Lynch said earlier this year in an interview. “We can take patients to (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’s adjusted EBITDA to clinic maturity.”
A growing number of analysts who follow CVS, rival health insurers and retail health care companies seem to agree that it makes little sense to break up CVS.
“We believe the likelihood of CVS separating the retail pharmacy and insurance segments is low given the combined entities’ embedded synergies 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 PBM,” said Ann Hynes, research analyst at Mizuho Americas.
Meanwhile, CVS is moving forward with its previously announced strategic review. As part of that plan, CVS on Monday revealed plans to cut about 2,900 jobs, or less than 1% of its total workforce.
“Our industry faces constant disruption, regulatory pressures and evolving consumer needs and expectations, so it’s critical that we remain competitive and operate at peak performance,” CVS said in a memo to employees Monday. “As we’ve previously disclosed, we’ve launched a multi-year initiative to deliver $2 billion in cost savings by cutting costs and investing in technology to improve the way we work.”