CVS Health plans to spin off pharmacies, including on Long Island

CVS Health said Wednesday it will break itself into two companies, dividing its retail pharmacy and insurance businesses.

The announcement unwinds past acquisitions that created a $103 billion industry behemoth with significant influence over how Americans, including Long Islanders, spend money on healthcare and prescriptions.

Under the proposed plan, CVS’ more than 9,000 pharmacies, its MinuteClinics and virtual care business would form CVS Pharmacy.

Meanwhile Aetna, pharmacy benefit manager CVS Caremark, CVS Specialty pharmacy, clinic chain Oak Street Health and in-home care company Signify Health will operate under CVS Health.

On Long Island, CVS has more than 130 pharmacies and Aetna offers employer-sponsored, private Medicare and Medicaid plans, among other options.

The breakup would give the two companies greater flexibility to adopt to new technology and regulations while also giving each entity independence to enter into a broader range of industry partnerships, David Joyner, CVS’ chairman and CEO, said Wednesday on a call with analysts.

"By taking this deliberate action, we are creating simpler, stronger and more focused companies," Joyner said.

The deal separates the company’s retail locations from its lucrative insurance and pharmacy-benefit management business, making individual stores more vulnerable to future closure, said John Rizzo, a health economist and professor at Stony Brook University.

Rite Aid closed or sold its 18 Long Island stores last year after declaring bankruptcy.

"On their own, the drug stores no longer have insurance profits behind them, and this is the same industry that already put Rite Aid out of business," he said.

Consolidated healthcare companies have faced increased scrutiny over their scale and dominance in the market from state and federal lawmakers. 

While the deal spins off CVS’ drug stores, it doesn’t completely resolve lawmakers’ concerns as pharmacy benefit manager Caremark will remain part of the same company as CVS’ specialty pharmacy, which dispenses its most expensive drugs, Rizzo said.

The company estimated the proposed CVS Health companies would generate about $320 billion in revenue this year, while the CVS Pharmacy entities would have $145 billion in revenue.

CVS shares fell 12.5% on Wednesday to $79.96 following the company’s announcement before the market opened.

Joyner told analysts Wednesday the company opted to pursue the split at a time when its businesses are operating from a position of financial strength.

The company reported net income of $2.1 billion for the third quarter, an improvement compared with a nearly $4 billion loss in the same quarter a year ago. 

"Now is the time because we are not doing anything out of a distressed decision," Joyner said.

By Jonathan LaMantia

jonathan.lamantia@newsday.com@jonlamantia

Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.