CVS Health to Separate Retail Pharmacy and Insurance Units by 2028

CVS Health revealed plans on Wednesday to divide its operations into two independent publicly traded companies by the first half of 2028. This significant corporate breakup will dismantle the vertically integrated healthcare model established after CVS's $78 billion acquisition of insurer Aetna in 2018.

The restructuring will separate CVS's approximately 9,000 retail pharmacies from its insurance division and pharmacy benefit manager (PBM), Caremark. Caremark is among the nation's three largest PBMs, managing prescription drug benefits for insurers and employers. The company's board of directors reached this decision following an extensive strategic review, as detailed in a company press release. Following the announcement, CVS shares dropped about 11% on Wednesday.

The breakup marks a notable reversal for CVS, which has spent nearly two decades transforming from a traditional drugstore chain into a comprehensive healthcare provider. CEO David Joyner emphasized that the decision comes from a position of strength, citing improvements in Aetna's Medicare business and solid retail pharmacy performance. Speaking to CNBC's "Squawk on the Street," Joyner said, "So it's all about the strength of the business that affords us the opportunity to make what we think are the right strategic decisions for the future of this company."

Since Joyner took over as CEO in October 2024, CVS shares have climbed roughly 70%, increasing the company's market capitalization to approximately $117 billion. Under his leadership, CVS has embarked on a turnaround strategy targeting $2 billion in cost reductions, store closures, leadership changes, and measures to control Medicare Advantage expenses.

The two new entities will both be publicly listed. The insurance and PBM company will retain the CVS Health name and remain under Joyner's leadership. The standalone retail pharmacy business will be called CVS Pharmacy and led by Prem Shah, currently the group president of CVS Health. Further details regarding executive appointments and board members will be announced at a later date. Shareholders of the current CVS will receive shares in both companies following the split. The Financial Times first reported the breakup plans on Tuesday.

In 2025, CVS's pharmacy segment recorded sales of $37.66 billion, while the insurance unit generated $36.29 billion in revenue. The healthcare services segment, which includes primary care and specialty drug businesses, posted $51.24 billion. CVS also released third-quarter results on Wednesday, surpassing Wall Street expectations. Total sales rose to $108.40 billion, up from $102.87 billion in the same period the previous year. Growth in healthcare benefits and services offset a decline in pharmacy services revenue.

The company plans to combine its insurer and PBM operations with its primary care provider Oak Street Health, home health service Signify Health, and specialty drug business. CVS stated that separating the businesses will allow each to pursue focused strategies and enhance innovation, technology adoption, and operational efficiency.

This is not CVS's first consideration of a split. In October 2024, the company engaged advisors to evaluate breaking up the retail pharmacy and insurance arms. At that time, Joyner indicated the company was still in turnaround mode without the financial flexibility or performance stability to proceed. Now, with a stronger business position, the split is seen as viable.

Michael Cherny, an analyst at Leerink Partners, told CNBC that the pharmacy business's stability has improved significantly, aided by CostVantage, CVS's new pharmacy reimbursement model introduced last year aimed at greater transparency. He noted, "This business is a much different business from the one that's been considered three years ago, five years ago, 10 years ago, where there had been a litany of headwinds that the pharmacy just couldn't overcome."

One question for investors is whether the retail pharmacy will lose advantages currently gained from being integrated with a PBM. Joyner assured analysts that commercial agreements between the two companies will maintain synergy without requiring operational integration.

Another factor influencing the decision may be growing regulatory scrutiny. Several states, including Tennessee and Arkansas, have passed laws banning co-ownership of PBMs and pharmacies. CVS and other companies have challenged these laws in court. PBMs face bipartisan criticism over opaque pricing, increasing market power, and potential conflicts of interest arising from vertical integration with insurers and pharmacies.

As the healthcare sector continues to evolve, CVS's upcoming split reflects broader industry trends toward specialization and regulatory pressures on integrated healthcare models. The move will create two more focused companies, each poised to adapt to their respective market challenges and opportunities independently.