CVS Health announced it will spin off approximately 9,000 pharmacies into a new public company, unwinding decades of consolidation that brought drugstores, health insurance, and prescription drug management under one roof. The move comes as bipartisan political pressure mounts against the consolidated ownership of pharmacies, insurers, and pharmacy benefit managers (PBMs). Shares in CVS fell 12.5 per cent on Wednesday as investors fretted over the potential distraction of an 18-month break-up and how the debt load would be shared.
Chief executive David Joyner defended the strategy, stating the company is not acting out of distress. The model struggled in recent years as rising healthcare costs crimped margins and competitors like Amazon and Walmart began to compete for pharmacy business. Pressure from the Federal Trade Commission over drug pricing, as well as Washington and state capitals over combined ownership, presented an impasse.
Democrat Ron Wyden, set to oversee the healthcare industry, vowed to scrutinise conglomerates and end the corporate chokehold. Republican senator Josh Hawley and Democrat Elizabeth Warren introduced a bill to ban large healthcare companies from owning pharmacies, with Hawley calling for break-ups. State-level legislation has already passed in Arkansas and Tennessee, though companies have challenged the laws in court.
The spin-off would comply with these regulations. Joyner acknowledged the regulatory environment as a key factor, noting the insurance and PBM side is more valuable.
Source: Financial Times Companies · Summarized by HeadlinesBriefing