CVS Calls Itself a Health Company. It's a PBM Carrying Two Expensive Passengers.

Walk into a CVS and you see the company everyone thinks it is: aisles of shampoo and gum, a photo counter, a pharmacist behind glass. So it surprises people to learn that in 2024 the stores were the part bleeding. CVS shuttered roughly 900 of them between late 2021 and the end of 2024, then lined up 271 more to close in 2025.⁶ Meanwhile, three floors of accounting away from any shelf, a business with no storefront at all was quietly throwing off $7.2 billion.² The thing on the sign is not the thing making the money.

The official story is that CVS is a pharmacy company that bought a PBM and an insurer and became a diversified health giant. The truer story, written in its own SEC filings, runs the other way: CVS is a pharmacy benefit manager with two expensive appendages bolted on - a retail chain it is shrinking, and an insurer that, last year, came within a single bad quarter of losing money for the year.

The segment that held still while everything else fell

Start with the headline number, because it points the wrong way. CVS posted $372.8 billion in total revenue for 2024 - up 4.2% - but operating income fell 38% to $8.5 billion, dragged down by what the company plainly blames on its insurance arm.¹ Now zoom into the segments and the story flips. The Health Services segment, which houses the Caremark PBM along with Oak Street Health, Signify, and MinuteClinic, earned $7.2 billion in adjusted operating income - down less than 1% year over year.² Read that twice. The PBM segment held its profit nearly flat even though the number of pharmacy claims it processed dropped 18.2%, gutted by the loss of one large client.² An 18% drop in volume produced a 1% dip in profit. That is not the math of a competitive retail business. That is the math of a toll.

Why the middleman wins while both ends lose

Here is the mechanism, and it is the whole game. A PBM sits between drug manufacturers, insurers, and pharmacies, deciding which drugs are covered, at what price, and how much a pharmacy gets reimbursed for filling a script. It is the chokepoint. Three PBMs - Caremark, Express Scripts, and Optum Rx - administer roughly 80% of U.S. prescriptions, touching an estimated 270 million people, and all three live inside larger healthcare companies.⁸ The power isn't in dispensing pills; it's in setting the terms on which everyone else dispenses them. Caremark sets reimbursement rates that squeeze pharmacies - and the cruel joke is that one of the pharmacies it squeezes is CVS's own retail counter. The Pharmacy & Consumer Wellness segment is under 'continued pharmacy reimbursement pressure' from PBMs, including Caremark itself, which is exactly why CVS is piloting a cost-plus pricing model called CostVantage to claw back margin.⁷ The left hand is reimbursing the right hand at a rate that forces the right hand to close stores.

The insurer that was supposed to be the engine

In 2018 CVS bought Aetna and the narrative wrote itself: a vertically integrated health colossus, insurance and pharmacy and care delivery under one roof. Six years on, the engine became the anchor. The Health Care Benefits segment - Aetna - was the primary earnings drag across 2024. CVS's own Q4 release says Adjusted EPS fell from $2.12 to $1.19 'primarily due to a decline in the Health Care Benefits segment's operating results,' citing continued utilization pressure and the unfavorable impact of weak Medicare Advantage star ratings.³ Older patients used more care than Aetna had priced for, and a star-ratings miss cut the government payments that make Medicare Advantage work. The acquisition meant to diversify CVS instead handed it a near-breakeven business - $307 million of adjusted operating income on a segment that earned $5.6 billion the year before - that the PBM now has to carry.⁹

But isn't a PBM that lost the top spot a fragile engine?

The fair objection is that the engine isn't bulletproof - and 2024 proves it. Caremark lost the Centene book to Express Scripts, its 30-day equivalent claims fell from 2.3 billion to 1.9 billion, and Express Scripts reclaimed the title of largest PBM by claims processed.⁵ Health Services revenue dropped 7.1% to $173.6 billion on that loss.⁴ So this isn't a serene tollbooth; it's a contested one. But notice what survived the loss. Revenue fell 7%, claims fell 18%, and profit fell under 1%.²⁴ A business that can lose its single largest client and its market-share crown while keeping its profit essentially intact is demonstrating the opposite of fragility - it's showing that the margin lives in the structural position, not the volume. The honest counter is that all three giant PBMs face mounting regulatory scrutiny precisely because of this chokepoint power; the FTC didn't tally those 270 million affected people as a compliment.⁸ The engine is durable today and politically exposed tomorrow. That is a different risk than the one CVS's retail and insurance arms face - they're being squeezed by the present, not the future.

So the picture inverts. CVS is not a drugstore that diversified into health services; it is a profit engine that happens to wear a drugstore's clothes. The stores are a shrinking distribution footprint. The insurer is a strategic bet still waiting to pay off. And the part that quietly funds both is the one with no aisles, no photo counter, and no place for a customer to stand - the middleman that decides what everything else gets paid. CVS spent tens of billions assembling a diversified health company. What it actually built was a PBM with two expensive passengers, and only one of them is driving.