Grapevine

CVS is under pressure and considering a breakup. Here's why that could be risky

The Caremark question

Some analysts said the likelihood of CVS separating its retail pharmacy and insurance segments is low given the synergies between the three combined businesses. Separating them could come with risks, they added. "The strategy itself is still vertical integration," Jefferies analyst Brian Tanquilut told CNBC. "The execution might not have been the greatest, but I think it's a little too early to really conclude that it's a broken strategy." Many of CVS' clients contract with the company across its three business units, according to Elizabeth Anderson, analyst at Evercore ISI. Anderson said "carving out and pulling apart a whole contract" in the event of a breakup might be "quite difficult operationally" and lead to lost customers and revenue. Pharmacy benefits managers like CVS' Caremark sit at the center of the drug supply chain in the U.S., negotiating drug rebates with manufacturers on behalf of insurers, creating lists of preferred medications covered by health plans and reimbursing pharmacies for prescriptions. That means Caremark also sits at the intersection of CVS' retail pharmacy operation and its Aetna insurer, boosting the competitive advantage of both of the businesses. In the event of a breakup, it's not clear where Caremark would fall.