CVS' Service-Focused Future

CVS Eyes Concept Stores Amid Planned Aetna Deal

Within the next week or so, CVS’s planned acquisition of Aetna is expected to close, pairing the nation's largest pharmacy chain and the nation’s fifth-largest health insurer under a single banner.

The move, according to CVS CEO Larry Merlo, will change the face of the CVS brand going forward, as it moves to take a more active and avid approach to influencing better health outcomes while at the same time reducing healthcare costs across the board.

On an earnings call last week, Merlo told investors that the combined firm will exceed its initial projected two-year $750 million cost savings.  Those cost savings, he noted, will come by synergies that will allow corporate expenses and operational costs to be lowered. More important, though, the combined entity, according to Merlo, will be able to bring down medical costs by pushing new programs dedicated to medication-adherence programs and pushing patients to lower-cost sites of care than costly emergency rooms.

Merlos called out CVS’s 2014 $2.1 billion acquisition of Coram, a retail pharmacy chain that specializes in infusion services in home-based and outpatient settings. Currently it serves nearly 45,000 patients annually, from more than 90 locations nationwide including retail infusion sites and five CVS Pharmacies.

Moreover, he noted, over the long term, CVS-Aetna will be able to better assist in the management of chronic conditions — such as diabetes, cardiovascular disease, hypertension and asthma — by integrating CVS pharmacy and Aetna medical claims data to better find and fix gaps in chronic condition management.

“Remaking the consumer experience will be an increasingly important competitive differentiator and we are hard at work creating a plan to differentiate CVS Health in these patient journeys with the goal of making them simpler and more personalized, while making care more accessible,” Merlo said on the call.

To make all of these new offerings, the new care models described by Merlo will get their first public test drive via CVS’s new concept "health hub" store set to open in early 2019.

The goal is to offer up “new services to better address the cost-quality-access challenges of consumers and identify the most effective and scalable solutions, so they can be rolled out more broadly across our footprint,” Merlo said.

And that footprint is very large: there are 9,800 CVS locations in the United States, and Aetna has well over 20 million members insured by its policies.

And CVS — though obviously thinking first about those Aetna customers — as this point says that its newly redesigned, more healthcare-focused and service-focused vision going forward is for more than just Aetna members. The brand envisions someday being a wellness platform that will be inviting to the patients of firms that will soon be CVS Health’s direct competitors. The long-term business strategy, according to Merlo, is to build out an open platform model that can be used by a range of different health plan partners.

Coming out of the call — and the health hub announcement — the question remaining among many analysts was whether CVS will expand its MinuteClinic model into a full-service primary and urgent care model to treat routine conditions. That would push CVS-Aetna into direct competition with UnitedHealth and Walgreens, which have already opened the MedExpress urgent care unit.

It also remains to be seen how and when CVS will expand its CarePass program, currently being piloted in Boston. The new offering allows customers access to free delivery on prescriptions and online purchases, among other perks like access to a pharmacy helpline, a 20 percent discount on CVS-branded products and a $10 coupon each month.

The membership costs $48 a year or $5 a month — lower than what Amazon charges for its Prime membership service. An important distinction, as Amazon has recently vastly expanded its competitive efforts in the field of healthcare and services, particularly with its recent  acquisition of digital pharmacy startup PillPack. CVS still has the ability to do something Amazon cannot — notably bundle prescription drugs with regular, everyday-type items and a much lower buy-in price. But Prime it self is a larger bundled offering that includes a host of other services like two-day delivery and media streaming among other things — making it not exactly an-apples-to-apples comparison.



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