CVS Health explores potential breakup amid strategic review and financial challenges

CVS Health is currently undergoing a strategic review that may result in significant changes to its corporate structure, potentially including a breakup of its various business operations.

Stock Performance

The company's stock price has declined about 20% since the beginning of 2023, in contrast to the broader S&P 500 index, which has risen nearly 21%.

Operational Difficulties

The integrated model that CVS has developed includes a range of healthcare services such as its pharmacy benefit manager, CVS Caremark, health insurance through Aetna, and a network of healthcare clinics. However, managing such a diverse portfolio has presented operational difficulties, particularly in the Medicare segment managed by Aetna.

Challenges and Strategy

The expansion of Medicare Advantage offerings in 2023 resulted in a surge of new enrollees but also brought higher-than-expected medical costs, impacting profitability. CVS is recalibrating its strategy in response to these challenges, including a $2 billion cost-cutting initiative and layoffs affecting approximately 2,900 employees. The company is considering a breakup as a potential solution, with options such as splitting off key divisions like Aetna or its pharmacy-benefit management arm. This move reflects investor concerns that CVS's diverse operations may be too complex to manage effectively as a single entity.

Shareholder Pressure

CVS is also facing pressure from shareholders, including hedge fund Glenview Capital Management, which holds about 1% of CVS's shares. The company is actively exploring ways to create value for shareholders.

External Scrutiny

CVS is also dealing with external scrutiny, such as a recent $60 million settlement by its subsidiary Oak Street Health to resolve allegations of violating the False Claims Act. This settlement follows CVS's acquisition of Oak Street Health, a primary care company focused on older adults, which was completed last year in a deal valued at approximately $10.6 billion.

Conclusion

The strategic review is crucial for CVS as it seeks to adapt to the changing healthcare landscape and navigate the challenges of the industry.

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