Photo: CVS Health
CVS plans to buy its way into the primary care business
CVS has arguably been the driving force behind America’s acceptance of health clinics in retail store environments. The drugstore giant acquired MinuteClinic in 2006 and grew it from 83 in-store clinics staffed by nurse practitioners to more than 1,100 today. Now, the chain is looking to take the next step with retail clinics staffed by doctors.
Karen Lynch, president and CEO of CVS Health, speaking earlier this week on the retailer’s earnings call, responded to an analyst’s question about the company’s plans going forward.
She said that CVS is focused on three specific categories of health services — primary care, provider enablement and home health. She said, “We can’t be in primary care without M&A.”
CVS CFO Shawn Guertin said that the company was evaluating possible acquisitions based on several factors including “their capabilities to drive real and lasting value, the financial dynamics of these different business models and the optionality and growth levers that they provide us with, including our own ability to deploy our existing assets and create value in these entities.”
Mr. Guertin said that “there is no one-and-done asset” that will meet all of CVS’s strategic acquisition needs.
CVS’s desire to move into primary care has likely been intensified by Walgreens’ acquisition of VillageMD. Walgreens, under CEO Roz Brewer, has focused on the primary care opportunity and is aggressively opening MD-staffed clinics inside its stores. It expects to have 1,000 clinics in operation across the U.S. by 2027.
Amazon.com last month said that it had reached a deal to acquire One Medical, a “technology-powered national primary care organization” that combines in-person, digital and telehealth services to care for patients.
Walmart last year acquired MeMD, a company offering nationwide virtual medical and mental healthcare services. The move was seen as complementary to in-person Walmart Health centers operated by the company that also have doctors treating patients.
CVS earlier this week reported better than expected sales and earnings for the second quarter and lifted its outlook for the year in the process. The company posted an eight percent year-over-year gain in same-store sales as front-of-store comps jumped nine percent and pharmacy improved 7.6 percent. CVS now expects full-year earnings to come in between $8.40 and $8.60 a share, up from $8.20 and $8.40.
- CVS Health (CVS) Q2 2022 Earnings Call Transcript – The Motley Fool
- CVS Health reports strong second quarter results, raises 2022 full-year EPS and cash flow from operations guidance – CVS Health
- Amazon and One Medical Sign an Agreement for Amazon to Acquire One Medical – Amazon press release
- CVS Gets Into Quick Clinic Biz – RetailWire
- Will a trip to the doctor soon mean a trip to CVS? – RetailWire
- Is Amazon on the verge of reinventing American healthcare? – RetailWire
- Walmart is going all in on 24/7/365 telehealth – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Do you think CVS will be able to acquire and scale a primary care provider quickly enough to catch up with Walgreens’ VillageMD rollout? How do you think the addition of MD-staffed clinics will affect the evolution of drugstores?
Poll
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Neil Saunders
Managing Director, GlobalData
Steve Montgomery
President, b2b Solutions, LLC
With its reach and brand name and reputation in the health space, it makes perfect sense for CVS to move more squarely into primary care. Walgreens has done a pretty good job with VillageMD, which provides a nice bolt-on to some stores. That said, I still maintain that CVS has a lot of work to do in bringing its retail operation up to scratch. I have been in a lot of CVS stores where the HealthHUB or MinuteClinic are let down by a shabby, depressing environment – with, for example, boxes of retail stock stacked in the waiting area. CVS needs to start looking at the operation as a whole and not just bolting on new things with no consideration as to how they integrate.
Neil, I agree completely that CVS has issues with the store experience that it needs to address before rolling out a primary care strategy. From store clutter and cleanliness to the customer service at the pharmacy or front-of-store checkout, CVS has a lot of work to do from my observation.
I also wonder how these primary care clinics function within the maze of different insurance plans that most consumers live with. Are they “in network” or “out of network”? The giant insurers and healthcare systems would have a lot to say about the viability of free-standing operations.
CVS seems to have a quality control problem in its stores. I switched to another chain because I found the help rude at the store I went to, but another one, just 20 blocks down is supposed to be excellent. Believe it or not, online reviews really do tell the tale in this case. So it’s all about operational excellence. After that, I think this is a great idea.
From our discussion last week about Walgreens’s issues with patient confidentiality and religious bias, I am very eager to hear what safeguards CVS is going to use when dealing with even bigger issues around actual procedures and diagnoses, not just prescriptions.
Anyone can buy their way into any vertical, but executing upon that strategy after the acquisition is what matters. With CVS’ scale, they most certainly can compete for a slice of the growing pie in what I refer to as “quick-service healthcare” or QSH. Success will depend on a variety of factors, and CVS executives will have to put a lot of thought into decisions around types of health services offered, pricing models, physician/PA coverage and the ability to leverage data/analytics for improved patient experiences.
There is a definite logic in combining drugstores and MD staffed clinics. The first change will be in site selection. Sites that worked for a drug store might not work for a clinic and a drug store. My take would be that people will drive further to visit a clinic location than they will for a drug store. The lots will need to be bigger to accommodate more parking and larger buildings. If the model proves to be successful the question is, will be there be many standalone drug stores built in the future?
CVS pharmacies and pharmacists are their biggest asset. Combining these with enhanced health services via M&A will be successful if they can improve store execution and consistency.