With CVS (CVS) reportedly considering a split of its vertical divisions, the healthcare industry could be heading toward the end of an era of integrated divisions.

The reports make CVS the second vertically integrated healthcare retailer of its kind in the U.S. to consider a strategy change this year. It could be a spinoff of health insurer Aetna, pharmacy benefit manager Caremark, or a combination of both and other industries.

Walgreens (WBA), its largest retail competitor, is already pulling out of its clinic locations in collaboration with VillageMD. This, along with Walmart (WMT) closing its health retail locations, has signaled the end of a more consumer-focused approach to health care.

CVS stock rose to $64 a share on news of the collapse late Monday, after falling 12% over the past year. It was trading at $61 per share on Tuesday.

CVS’s potential move is being watched with interest by investors. Some are skeptical.

“CVS’s reported decision to conduct a strategic review would not be particularly surprising given the company’s recent execution issues. “We have mixed views on a potential split of CVS Health’s assets,” Allen Lutz, research analyst at Bank of America Securities, said in a note to clients Tuesday.

CVS has long been considered the poster child for successful vertical integration. The prospect of a breakup may not bode well for other players.

A major focus of the breakup effort appears to be the poor performance of health insurer Aetna, which CVS acquired for $70 billion in November 2018, as well as increased government scrutiny of pharmacy benefit managers (PBMs).

At Aetna, the company saw higher usage costs hurt Aetna’s margins this year. Insurers typically prefer and are required by the Affordable Care Act to retain about 20% of health care premiums and spend 80%. If they spend more, it is assumed that they are unable to manage costs properly.

In its second-quarter results, CVS said 90% of its rewards were issued in the first six months of the year. That’s up from 85% over the same period in 2023. The shift is due in part to changes in the way the government pays insurers that offer private Medicare plans, known as Medicare Advantage.

“Aetna’s year-to-date underperformance is the primary reason for CVS’s weak stock price, and it is unclear how much investors would reward this company as a standalone company, particularly given current or next year’s earnings. In other words, we think.” “CVS Health could generate significant shareholder value through improving margins within Aetna over the next few years,” Lutz wrote.

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Since acquiring Aetna, CVS has also invested $18.6 billion in primary care services with its acquisitions of Oak Street and Signify. The idea was to have all the parts work together as part of a larger health care business and help control costs, Lutz wrote.

A low point

Investors and other insider experts who were not authorized to speak publicly told Yahoo Finance that the fact that Glenview Capital Management founder and CEO Larry Robbins attended the meeting was a sign that the Separation efforts are serious.

Robbins was previously involved in the turnaround of the major hospital system Tenet Healthcare (THC). The company’s stock has risen 661% over the past five years and was trading at $163 per share on Tuesday. According to insiders, he has a reputation for presenting a list of demands rather than having a more open discussion.

Jared Holz, Mizuho’s healthcare expert, wrote in a note to clients that there was still skepticism about what would happen with Caremark, CVS’s PBM, given the morning’s rise in shares under the “premise/promise” of a value-accretive strategy , will happen a large market share in the industry. Where would it be housed in the event of a separation?

Recently, the Federal Trade Commission sued CVS and two other large PBMs, alleging that they artificially inflated the price of insulin. This pressure on PBMs, coupled with the fact that employers are looking for creative ways to reduce costs by using multiple PBMs, has increased the pressure on the big players.

“The timing is interesting as some investors argue that reports for both the insurance segment and retail are at what appears to be a low point, with the former hit by excessive case volume and the latter by difficulties across the pharmaceutical space,” Holz said.

Some insiders wonder what this means for vertical integration in healthcare. The only major player left now is UnitedHealth Group (UNH), which is facing its own scrutiny from the FTC.

“We’ll see what Larry (Robbins) and his crew can do in the meantime,” Holz said.

Anjalee Khemlani is the senior healthcare reporter at Yahoo Finance, covering all things pharma, insurance, care services, digital health, PBMs, and healthcare politics and policy. Of course, this also includes GLP-1. Follow Anjalee on most social media platforms @AnjKhem.

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