In the midst of market turbulence, CVS Health is reportedly considering a strategic split from its pharmacy benefits management (PBM) arm, Aetna. However, the possible decision of such a drastic measure reflects the stresses under which the company is currently operating, and it also presents significant risks.
In recent years, CVS took substantial steps to evolve beyond its traditional identity as a major drugstore chain. It sought growth through complex, multifaceted diversification, most notably through merging with Aetna in 2018. The merger made CVS a dominant player in the healthcare space, combining CVS’s vast retail network with Aetna’s health insurance services.
The merger wove Aetna deep into the fabric of CVS, allowing the company to cultivate a potent triple power of pharmaceuticals, insurance, and retail under one umbrella. This was in line with the trend of American healthcare — a country where the overlapping industries of medicine, insurance, and retail pharmacy are increasingly becoming one.
However, the irony is that this seemingly powerful triple-tier integration may be the cause of CVS’s current woes. CVS is under scrutiny due to subtle complexities in pharmaceutical pricing. For instance, it charges a “clawback” fee for some prescription drugs, which has sparked legal actions alleging violations of the Employee Retirement Income Security Act (ERISA).
Additionally, CVS’s multi-faceted 구조 has led to unintended consequences. The company’s decision not to report pharmacy benefit manager (PBM) profits separately from its retail business has led to analysts’ skeptical views regarding CVS’s overall business transparency. Furthermore, the heavy reliance on the PBM segment for its profits makes it vulnerable to pricing changes and market volatility.
To alleviate the mounting pressures, CVS is considering a breakup. The company could potentially spin-off its PBM and healthcare insurance segments, reverting back to focus on its more traditional pharmacy business.
However, this move could be risky. First, the intertwined nature of CVS’s operations means that a breakup would likely be a complex and costly process, fraught with logistical challenges. Further, a spin-off would eliminate the benefits of integrated operations, such as potential cost savings and opportunities for cross-promotion between the pharmacy and insurance businesses.
Moreover, the healthcare marketplace is currently moving towards a more integrated model, with other companies seeking to combine pharmaceuticals, insurance, and retail in the same way CVS has. Hence, by splitting, CVS would be moving in the opposite direction of the prevailing industry trend.
BVrying regulatory changes also present a risk. The Biden administration has been clear about its intentions to tackle high drug prices, which may significantly impact the PBM sector. While a separate PBM firm could potentially deal with this better, there’s also the risk that such a standalone firm could be more vulnerable to pricing changes.
In conclusion, while a potential breakup could provide CVS with a means of navigating its current pressures, it also represents a significant gamble on the future direction of the healthcare market. CVS must carefully weigh its options and consider both the market trend towards integration and the potential regulatory changes that are looming on the horizon.