2019 Retail Pacesetters: CVS Health seeks to transform the healthcare model

CVS Health is redefining what it means to be a drug store operator — and carving out its place as a healthcare company.

With its $70 billion acquisition of health insurance provider Aetna, which closed last November, the retailer has established a new Health Care Benefits segment to go along with its retail and pharmacy benefit management operations.

“CVS Health is in a superior position to lead the change needed in the fragmented U.S. healthcare system,” Larry Merlo, president and CEO of the Woonsocket, R.I.-based retailer, said in the company’s year-end earnings conference call. “In short, 2018 was a milestone year both tactically and strategically as we successfully completed our transformational merger with Aetna.”

The company reported a 5.3% increase in revenues for the year that ended Dec. 31 to $194.6 billion. At year-end, it operated more than 9,900 retail locations and 1,100 walk-in medical clinics.

Perhaps nowhere is the company’s focus on remaining relevant to consumers more evident than in its three new HealthHub concept stores, which opened earlier this year in Houston. Merlo described the stores as being emblematic of its strategy around “creating a more consumer-centric healthcare experience.”

The HealthHub stores feature a care concierge — a newly created store position designed to help direct customers to the health resources they need, including in-store dietitians and an array of resources for patients seeking to manage such chronic conditions as diabetes, hypertension and asthma. More than 20% of the new store format is dedicated to health services, the company said, including new durable medical equipment and supplies, as well as new product and service combinations for sleep apnea and diabetes care. The stores also offer full-personalized pharmacy support programs and MinuteClinic services, with a focus on recommending next best clinical actions and driving medical costs savings.

“CVS has pushed heavily into a vertical integration of health care, from the prior acquisition of Caremark to the merger with Aetna,” said Neil Stern, senior partner at Chicago-based consulting firm McMillanDoolittle. “This creates a different kind of company, particularly as it pertains to retail execution.”

In addition, he said the new test formats “push the boundaries further into health services as they move closer to an integrated healthcare company.”

In addition to the HealthHub stores, CVS Pharmacy has been testing a store-within-a-store beauty department called BeautyIRL. The expanded beauty offering debuted last year in four stores in Florida, Connecticut and Massachusetts.

CVS Pharmacy also has embraced home delivery and is a leader in marketing and promotions, said Burt Flickinger, managing partner at New York-based Strategic Resource Group. “CVS has arguably the best database of any major retailer anywhere in North America,” he said. “It has the most powerful promotional programs anywhere in the world for chain drug.”

Flickinger also said CVS Health’s deep executive and store-level talent gives it a competitive advantage over its rivals.

CVS Pharmacy’s front-store merchandising is fueled by its ExtraCare loyalty program, which it rewards its best customers by providing them with automatic sale prices, customized coupons, ExtraBucks rewards and other benefits. It also carries about 7,000 products under the CVS Health and other proprietary brands, which accounted for about 23% of front-store revenues in 2018.

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