One of America’s largest healthcare companies is preparing to undergo a major transformation. CVS Health (NYSE: CVS) announced on November 4 that it intends to split its business into two independent, publicly traded companies, separating its retail pharmacy operations from its insurance and healthcare services businesses.
The move represents a significant reversal of the company’s strategy over the past decade, during which CVS spent billions of dollars acquiring businesses to create an integrated healthcare organization. Rather than operating pharmacies, insurance services, and prescription benefit management under one corporate umbrella, CVS believes these businesses may be more successful operating independently.
The separation is expected to be completed during the first half of 2028. For shareholders, this could create an interesting opportunity, potentially unlocking value that has been hidden within the company’s complicated corporate structure. However, it also introduces some new risks.
What are the two companies?
The separation will create two businesses, both of which will remain publicly traded.
1. CVS Health – Healthcare Solutions
Insurance and healthcare services
This company will retain the CVS Health name and focus on insurance, prescription benefits, specialty medications, and healthcare delivery.
Its businesses will include:
- Aetna: Health insurance, including employer-sponsored plans and Medicare products.
- CVS Caremark: Pharmacy Benefit Manager (PBM), which manages prescription drug benefits for insurers, employers, and health plans.
- CVS Specialty: Specialty pharmacy services for patients requiring complex or expensive medications.
- Oak Street Health: Primary care clinics, particularly serving older adults.
- Signify Health: In-home healthcare assessments and related services.
David Joyner, CVS Health’s current chairman and CEO, will lead this company.
2. CVS Pharmacy – Retail and Community Healthcare
New standalone company
This is the other company being created. It will focus on operating the familiar CVS pharmacy stores and providing direct healthcare services to consumers.
Its businesses will include:
- Approximately 9,000 retail CVS pharmacy locations.
- Mail-order pharmacy operations.
- MinuteClinic walk-in clinics and virtual care.
- Health100 technology services.
Prem Shah, currently group president of CVS Health, will become CEO of CVS Pharmacy.
One important distinction is that CVS Specialty will remain with the insurance and healthcare services company, while mail-order pharmacy will move to CVS Pharmacy. This means the separation isn’t simply dividing physical stores from everything else that involves prescriptions.
Why is CVS doing this?
At first glance, separating these businesses might seem counterproductive. After all, CVS spent years acquiring companies specifically to bring insurance, pharmacies, and healthcare services together.
In 2018, CVS completed its approximately $78 billion acquisition of Aetna, one of the largest health insurance companies in the United States. The idea was to create a healthcare ecosystem where insurance, prescription services, and medical care could work together to reduce costs and improve patient experiences.
The strategy made sense on paper. A customer could receive insurance through Aetna, have prescriptions managed through Caremark, and fill those prescriptions at a CVS pharmacy.
However, combining so many different businesses also created complications.
The problem with being too big
CVS operates in several highly competitive industries, each with different financial pressures.
Aetna has faced rising medical costs and challenges within its Medicare Advantage business. Caremark operates in an increasingly scrutinized pharmacy benefit management industry, while traditional retail pharmacies face competition from online retailers, changing shopping habits, and pressure on prescription reimbursement.
Managing all these businesses together makes it difficult to establish a clear identity and strategy for the overall company.
There is also growing regulatory scrutiny. Pharmacy Benefit Managers have attracted criticism from lawmakers and regulators who question their influence over prescription drug pricing and potential conflicts of interest when they are owned by companies that also operate pharmacies.
Although CVS CEO David Joyner has said regulatory pressure was not the primary reason for the separation, splitting the businesses could help address some of those concerns.
The goal is to let each business focus on what it does best.
CVS Health can concentrate on insurance, healthcare delivery, and prescription benefit management, while CVS Pharmacy can focus on retail operations, pharmacy services, and expanding its community healthcare presence.
The company believes both businesses will benefit from independent management, financial flexibility, and more focused investment strategies.
What does this mean for investors?
This is arguably the most interesting part of the announcement.
CVS isn’t simply closing stores, selling off divisions, or restructuring its existing stock. It intends to create two separate publicly traded companies, and existing shareholders are expected to receive ownership in both.
If you own CVS shares today, the plan is for you to become a shareholder in both companies after the separation.
For example, if you own 100 shares of CVS today, you would retain an economic interest in the two businesses after the separation. However, CVS has not yet announced the final share distribution ratio, so we don’t know exactly how many shares of each company shareholders will receive.
The separation is also intended to be tax-free for CVS and its shareholders under U.S. federal income tax rules, subject to the required conditions and approvals.
Could splitting the company increase its stock value?
There is a concept in investing called sum-of-the-parts valuation. Essentially, investors sometimes believe a company is worth more when its individual businesses are valued separately rather than combined.
CVS could be a good example.
Currently, investors evaluating CVS must consider its insurance operations, pharmacy benefit management, retail stores, and healthcare services together. Each business has different growth prospects, profit margins, risks, and competitors.
Once separated, investors can evaluate each company independently.
For example:
- Investors who believe healthcare insurance and prescription benefit management have stronger long-term potential could favor CVS Health.
- Investors who believe traditional pharmacies and community healthcare services can become more profitable could favor CVS Pharmacy.
- Investors who want exposure to both sides of the healthcare industry could continue holding shares in both companies.
This could attract investors who previously avoided CVS because they weren’t interested in owning all its different businesses.
The potential benefits and risks
| Potential benefits | Potential risks |
|---|---|
| More focused management | Loss of operational synergies |
| Independent financial strategies | Higher standalone operating costs |
| Greater transparency into profitability | Retail pharmacy faces tough competition |
| Potentially improved stock valuations | Healthcare insurance faces rising medical costs |
| More flexibility with investments and dividends | Regulatory uncertainty remains |
One particularly important consideration is that CVS Pharmacy will no longer have the financial support of the insurance and pharmacy benefit businesses under the same corporate umbrella.
That doesn’t mean it will be financially weak, but it will need to demonstrate that its retail operations can generate sustainable profits independently.
This is important because traditional pharmacy chains have faced considerable difficulties. Walgreens Boots Alliance has struggled with declining profitability, store closures, and competition from online retailers.
CVS Pharmacy will need to prove it can avoid similar problems.
What about dividends?
CVS has indicated that both companies are expected to maintain attractive dividend policies and investment-grade credit ratings.
This is potentially good news for income investors.
However, investors shouldn’t assume that both companies will pay the same dividend CVS currently pays. The dividend amounts, payout ratios, and distribution policies will be determined as the separation progresses.
It will be particularly important to compare the combined dividends of the two new companies against what CVS shareholders receive today.
When will the split happen?
- November 4, 2026 – Announcement
CVS officially announces its intention to separate into two publicly traded companies.
- 2027 – Preparation
Investors should expect additional information about financial statements, management, capital structures, dividends, and the distribution of shares.
- First half of 2028 – Expected separation
The two businesses are expected to become independent publicly traded companies, subject to board approval, regulatory and other customary requirements.
Until then, CVS will continue operating as one company under its existing NYSE ticker, CVS.
