The healthcare landscape is on the cusp of a significant transformation as CVS, a pioneer in vertical integration, considers breaking up its diverse business units. This potential move follows Walgreens’ decision to exit its retail clinic locations and Walmart’s shutdown of its healthcare centers, signaling a shift away from consumer-centric healthcare models. CVS’s stock surged 3% to $64 per share on the news, a welcome respite from its 12% decline over the past year.
The possible breakup could involve spinning off Aetna, its health insurance arm, or Caremark, its pharmacy benefit manager, or a combination of both. Aetna’s underperformance, driven by higher utilization costs, has been a major concern for CVS. The insurer’s margins have been squeezed, with 90% of premium dollars spent in the first half of the year, up from 85% in the same period last year.
Bank of America Securities analyst Allen Lutz expressed mixed views about a potential breakup, citing the challenges of improving Aetna’s margins as a standalone entity. However, he believes that CVS could unlock substantial shareholder value by addressing Aetna’s performance issues over the next few years.
The involvement of Glenview Capital Management’s Larry Robbins, known for his turnaround expertise, suggests that the breakup effort is serious. Robbins’ presence has sparked optimism among investors, who are eager to see how CVS will address its underperforming units.
The fate of Caremark, which dominates the pharmacy benefit management market, remains uncertain. The Federal Trade Commission’s lawsuit against CVS and other PBMs has increased pressure on the industry, and employers are exploring alternative cost-saving strategies.
As the healthcare industry navigates this potential sea change, one question looms large: what does this mean for vertical integration in healthcare? With UnitedHealth Group being the only major player left standing, the future of integrated healthcare models hangs in the balance.
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