A significant shakeup in the health care industry is underway in Rhode Island, as Woonsocket-based CVS Health recently announced it will split into two companies.
One company will feature CVS’s 9,000 retail pharmacies and its Minute Clinics, while the other will include the health insurance giant Aetna and the pharmacy benefit manager Caremark.
The split marks a major strategic reversal for CVS, which has spent the better part of two decades building a large parent company.
Ocean State Media morning host Luis Hernandez spoke with Liam Rice, a lecturer in Economics and Math at Bryant University, about what the CVS breakup means for Woonsocket and Rhode Island’s economy.
Interview highlights
On how the shakeup could impact CVS’ headquarters
Liam Rice: We have not heard anything about changing headquarters yet, but it's something to absolutely keep an eye on. You would imagine two headquarters in Woonsocket would be a big short-term boon. Whether those headquarters for both companies stay in Woonsocket, I think, is a very big open question. The pharmacy side seems like it would probably stay in Woonsocket. That's where it's historically been, but the Aetna/Caremark side doesn't really have an anchor here. You could absolutely see it head somewhere else.
On why CVS has chosen to split up the company
Rice: What's driving their split now is probably two things. One, (CVS) hasn't really ultimately seen too many efficiencies from having pharmacies under their chain of command. Sure, there have been some benefits to that, but not enough benefits to justify the costs that come with this full efficiency. It's probably why you see them spinning off just the pharmacy part of the company. But the other thing that is driving this split is just the regulatory environment. We've seen a lot of (legislation) introduced at the state level around breaking up pharmacy benefit managers (PBMs) and pharmacies. I think CVS is seeing the writing on the wall that they're not going to be allowed to stay as this fully integrated company in the future, and they're choosing now to do the split on their own terms rather than waiting to be forced to do so by the state at a certain point.
On the financial health of CVS
Rice: So CVS has had a rough couple (of) years, not so much on the pharmacy side, but the insurance side. That's not unique just to CVS. That's been pretty much any insurer that does Medicare Advantage insurance plans. The profits from those have fallen a fair bit, but the past year has been a pretty solid turnaround for CVS. Their insurance business has picked back up. Pharmacies have been growing decently. Part of their increase in profits has been a lot of the consolidation they've been doing. We've seen layoffs at headquarters in Woonsocket since 2024, but they're certainly on solid ground. I don't think there's any concern for your local CVS pharmacy closing, necessarily. I don't think you're super concerned about the company facing any existential threat in that way.
On whether the split is an indicator of an eventual CVS relocation
Rice: I think everything is certainly on the table. Can you see a world where both headquarters, both of these two new companies, split off and headquarter in a different state? Absolutely. I don't think that is likely, however. You've got a new incoming governor in Rhode Island who (used to work at) CVS who's made it pretty clear publicly she expects CVS Pharmacy to still continue in the state. She's not in charge of the company, but she would not come out and say that if, I think, she did not feel confident that's where they are heading. I can absolutely see the insurance pharmacy company headquartering somewhere else.
There is a wonderful new space in Pawtucket that was recently vacated that perhaps they would want to slot into. I don't know if I would want to do that if I were the Aetna CVS Caremark company, but I think Pawtucket City Hall certainly should be knocking on some doors asking.
On how the CVS split could benefit smaller pharmacies in Rhode Island
Rice: When people think of pharmacies, they're usually thinking of the big two of CVS and Walgreens. Those are the big giant chain pharmacies, but Rhode Island specifically has several independent small chain pharmacies that historically have been kind of pushed under the rug by these giant CVS Caremark organizations. This is a step in the right direction for them; maybe they get some better negotiating power, (maybe) they can negotiate better drug prices. The idea of increasing competition, having more options besides just CVS, just Walgreens, to go get prescriptions would be wonderful. I think this is sort of a potential signal (that) those companies, those independent pharmacies, might be better off in the future, but they are certainly not out of the woods yet on that.
On CVS’ impact on Rhode Island's economy
Rice: CVS has a pretty substantial impact. We don't have many Fortune 500 companies in Rhode Island, so the ones that we do have are big anchors in two main ways. On one hand, you've got headquarters here in Woonsocket that employ a fair number of people. It's not a gigantic quantity of people, but the employees that CVS has here tend to be paid well and spend money in the economy. There's a whole multiplier effect that spreads and ripples. So if, for instance, one of those headquarters were to leave, you're worried less about the jobs leaving directly. That would hurt the jobs, but it's more the ripple effect spending that is leaving that is a big issue.
The second arm, though, is all the civic engagement philanthropy stuff. When you've got a headquarters for a big company in a state, they tend to spend a lot of money in that state with foundations and charities and civic engagements at schools and stuff like that. Certainly, if I were the state government, I would not be excited about having a potential anchor like that leaving the state.
On how the CVS split could be a harbinger of further regulation of pharmaceutical companies
Rice: The whole push in the elections in the midterms we just had was all about affordability and inflation, right? Healthcare is such a key part of that. Premiums are going up on average of 13% next year. We're in open enrollment right now for most people. This (split at CVS) is not going to have an immediate direct impact on people's drug affordability, but I do wonder if it is the first domino in a sea change of how we are actually regulating biomedical, pharma companies, insurance companies, and whether we'll start to see that shift more in other companies besides just CVS.
