The company started the year by opening three HealthHub
locations and plans to open 1,500 locations by the end of 2021.
By Max Nisen | June 04, 2019 at 02:04 PM
Shares of CVS
Health Inc. have been battered in recent months along with other health-care
companies amid stepped-up scrutiny of the industry’s
pricing practices and calls from lawmakers and the Trump administration to
overhaul the current complicated and costly U.S. health system. CVS also has
had the added task of integrating Aetna Inc., the
insurer it bought for $69 billion in November as part of an ambitious plan to
transform itself from a pharmacy giant into a a more complete provider of
health-care services.
It was against this
backdrop, and with CVS’s shares down 31 percent since completing the Aetna
deal, that the company held its much-anticipated investor day Tuesday. It
marked the first comprehensive update of CVS post-merger, and was a chance for
management to convince shareholders that the combined company was up to the
challenges ahead and moving in the right direction. Based on the stock’s
initial positive reaction, investors seem to have liked what they heard. That upbeat
vibe isn’t misplaced.
CVS’s most
promising initiative is the rapid expansion of its new “HealthHub” store model,
which includes substantially more health-care services and expanded clinics. At
these locations, CVS says it can offer about 80 percent of the services your
average primary-care practice provides, as well as some things that they don’t.
This includes everything from traditional urgent care to sleep-apnea
screenings.
The company started
the year by opening three HealthHub locations in Houston. It plans to open
1,500 locations by the end of 2021, with the rollout focused on the
Philadelphia area, Atlanta and Tampa, Florida, in addition tits initial target
market of Houston. It’s a lofty goal and may make hitting its financial targets
that much more difficult, but it’s a worthwhile long-term investment.
Transforming
standard pharmacies into something more is key to making the Aetna purchase pay
off. The company’s massive physical reach differentiates it from large rivals
like Cigna Inc. and UnitedHealth Group Inc., which also manage both
health-insurance and prescription-drug plans.
The new services
focus in large part on patients with high-cost chronic conditions like
diabetes. CVS argues that it has an advantage in reaching what’s historically
been a tricky and expensive population. Because it’s an insurer, it knows when
someone is overdue for a diabetes checkup and it can can remind them when they
arrive at the pharmacy counter. CVS can schedule and provide that appointment,
and also can arrange follow-up interventions like a consultation with a dietician,
helping patients better adhere to their care plans so they stay healthier and
avert the need for costly measures in the future.
Success would pay
off handsomely. Keeping spending in check for patients with chronic conditions
could make Aetna significantly more profitable and competitive, while revenue
from services would keep more health spending profitably in-house and boost the
financial performance of its stores. That would come in handy amid pricing
pressures and Amazon.com Inc’s entry into the mail-order drug business. The new
model also diversifies CVS away from its prescription-drug plan management
business, which has lost business recently and is exposed to significant
regulatory pressure.
That isn’t to say
it will be easy. CVS plans to transform 1,500 stores; it currently only has
1,100 locations that even have clinics, some of which will be expanded.
Executives pointed to positive early anecdotes and data, but the combined
company is still young and the cost savings are theoretical. This expansion
won’t be cheap, and it will have to be balanced with debt reduction and a
target of double-digit earnings growth by 2022.
Regulatory risk,
heightened bipartisan scrutiny and ambitious health-reform plans put forth by
Democrats have given investors reason to be antsy; the negative reaction to any
failure on CVS’s part to meet expectations will be swift and substantial.
Still, the company is right to keep pushing forward with its plans. In the end,
mild tweaks to the status quo won’t be enough to bring down costs or stand out
in a competitive and unstable market.
Max Nisen (
mnisen@bloomberg.net) is a Bloomberg Opinion columnist covering biotech, pharma
and health care. He previously wrote about management and corporate strategy
for Quartz and Business Insider.
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