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CVS on road to transformation

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Less than a year after the completion of the $77 billion acquisition of Aetna, CVS Health shows every sign of being on course to achieve its stated objective of transforming the consumer health care experience in America. Evidence of the swift progress in integrating the two companies and the positive response to the initial steps toward creating a new health care model can be found in CVS’ second quarter financial results released earlier this month.

Fueled by the addition of Aetna and with all of its divisions meeting or exceeding the company’s targets (the Retail/Long-Term Care and Pharmacy Services segments exceeded expectations), revenues rose 35.8% to $63.4 billion, operating income surged 55.1% to $4.03 billion, and earnings per share grew 11.8% to $1.89 — all on an adjusted basis. In light of that performance, CVS raised its full-year guidance for adjusted profits to between $6.89 and $7 per share.

The numbers are, indeed, impressive, but even more striking is what stands behind them. The process of reimagining health care delivery is proceeding apace, with the work thus far coalescing around the HealthHUB format. The stores, which have been in operation in the Houston market since February, augment the offerings found in a typical CVS Pharmacy with such services as personalized pharmacy support and expanded MinuteClinic services; digital health tools; an expanded assortment of durable medical equipment; and nutrition and weight loss programs.

CVS Health president and chief executive officer Larry Merlo characterized the format as a differentiator during a recent conference call with financial analysts, reiterating plans to convert 1,500 CVS drug stores into HealthHUBs by the end of 2021.

“Our expansion strategy is reinforced by the strong results we are seeing in our initial hub locations, including increased customer traffic and incremental sales in pharmacy, front store and MinuteClinics,” he said. “We’ve also received strong consumer feedback reflected in net promoter scores at the HealthHUBs outpacing our broader chain by about 900 basis points. So we’re extremely excited with the reception to our innovative offering that will allow us to engage with consumers in a differentiated manner in the communities where they live, and importantly improve health outcomes.”

The outperformance by the HealthHUBs in relation to other CVS drug stores is particularly telling, since the latter are generating solid gains of their own. Revenue in the Retail/Long-Term Care division rose 3.7% in the second quarter, paced by a 5.9% increase in adjusted prescription count and a 2.9% gain in comparable-store sales at the front end.

CVS Pharmacy is building on the momentum it has developed by intensifying its focus on adherence programs, collaboration with other pharmacy benefits managers, and its preferred status in many Medicare Part D networks.

The drug chain this month extended the CarePass loyalty plan, which it began testing late last year in Boston, throughout the United States. People who sign up and pay a membership fee of $5 a month, or $48 a year, receive a range of benefits, including free delivery on qualifying prescription drug orders and most purchases made on cvs.com, round-the-clock access to advice from a pharmacist, discounts on CVS Health brand products, and a $10 promotional reward each month that can be used either in-store or online.

All those developments relate in one way or another to CVS’ roots as a retailer. More striking, because they represent a departure from the traditional idea of a drug store, are projects that leverage the capabilities of the combined company.

Among the examples cited by Merlo and his colleagues during the conference call are the development of a chronic kidney care program, including the clinical trial of CVS’ Hemodialysis System; the establishment of a comprehensive oncology solutions program designed to improve care and reduce costs; and the application of best practices to the Medicare Part D business.

Even at this early stage, it is clear that CVS Health’s impact on the health and well-being of the customers it serves will vastly increase. The ability to touch and control more points along the continuum of care should enable the company to make meaningful progress in addressing the issues of access, quality and cost that vex the American health care system.

“It’s still very early in our transformational journey; you can see we’re working quickly in the development of new products and services that will transform the consumer health experience,” Merlo said. “This gives us the confidence that we will be able to realize the potential of our innovative and powerful new business model, delivering enhanced value to our clients, the consumers we serve and certainly our shareholders.”

The reinvention of the nation’s broken health care system is essential. It’s good to see that CVS Health has positioned itself to be a major contributor to that process.


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