Video Case Study

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19-1 Introduction In 1963 brothers Stanley and Sidney Goldstein founded the first Consumer Value Store (CVS) with partner Ralph Hoagland in Lowell, Massachusetts. The store originally sold health and beauty supplies. It was widely successful and grew to include 17 stores in one year. By 1967 CVS began offering in-store pharmacy departments, and in less than a decade it was acquired by the retail holding corporation Melville Corporation. This marked the beginning of CVS’s expansion across the East Coast through new store openings or mergers and acquisitions. It soon reached the milestone of exceeding $100 million in sales in 1974.

As the company grew, it faced intense competition, which it responded to through a differentiation strategy. CVS focused on its core offerings of health and beauty products, placing stores in shopping malls to generate more foot traffic. This strategy worked well for the company, allowing it to hit $1 billion in sales by 1985. The company celebrated its 25th year in 1988 with 750 stores and $1.6 billion in sales. The acquisition of Peoples Drug stores enabled CVS to establish its presence more widely along the coast and spurred the launch of PharmaCare, a pharmacy benefit management (PBM) company providing services to employers and insurers. PBM aids employers in managing health care benefit plans and processes prescriptions. Because they are so big, PBMs also have strong negotiating power with drug companies. In 1996 the Melville Corporation restructured, and CVS became independent as a publicly traded company on the New York Stock Exchange.

This new surge of investment allowed the company to expand widely across the nation into the Midwest and Southeast. CVS’s acquisition of 2,500 Revco stores became the largest acquisition in U.S. retail pharmacy history. With the rise of the Internet, CVS seized upon the opportunity to launch CVS.com in 1999 (and Caremark.com after the 2007 acquisition). This became the first fully integrated online pharmacy in the United States. In another first for the U.S. pharmacy retail industry, the company introduced the ExtraCare Card loyalty program in 2001. The company’s 40th anniversary in 2003 was marked with increasing westward expansion, 44 million loyalty card holders, and more than 4,000 stores in approximately 30 states. In the following five years, the company’s acquisitions allowed CVS to gain leadership in key markets, begin a mail order business, and open its 7,000th retail location. The company would later be rebranded as CVS Health.

The two most important acquisitions in the history of CVS include MinuteClinic walk-in health clinics (in 2005) and Caremark Rx, Inc. (in 2007), a pharmacy benefits management company. To date, MinuteClinic has facilitated over 34 million patient visits in more than 1,100 clinics across 33 states. CVS became the largest pharmacy in the United States (although it vies with Walgreens to maintain this title) and began introducing new services

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such as online prescription refills. The company makes more than $153 billion in revenue and has over 9,700 pharmacies, 1,100 MinuteClinics, 68,000 retail network pharmacies, 35 specialty retail pharmacies, and a pharmacy benefit management business. It estimates that it serves five million customers daily.

CVS sells products that meet the highest quality standards as well as its own line of products whose specifications and performance are annually tested and reviewed to ensure compliance with applicable consumer safety laws. In addition, the company has instituted a Cosmetic Safety Policy that applies to all of the cosmetic products it sells. CVS employs 250,000 people in over 9,700 locations across 49 states, the District of Columbia, Puerto Rico, Brazil, and Northern Ireland. Corporate headquarters are located in Woonsocket, Rhode Island. In one year CVS fills and manages 1.9 billion prescriptions, provides services to 90 million PBM members, and earns $40 billion in specialty drug revenue. The company is proud to note its seventh spot on the Fortune 500 list. Today, CVS is the largest pharmacy health care provider and pharmacy in the United States and is composed of four business functions: CVS Pharmacy, CVS Caremark, CVS MinuteClinic, and CVS Specialty.

The following case will explain some of the legal and ethical challenges CVS has encountered, including a settlement with the Federal Trade Commission (FTC) and U.S. Department of Health & Human Services (HHS) regarding violations of the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule, deceptive business practices, and unseemly conduct by a manager resulting in a death. Our examination will also include how CVS responded to such allegations and how it has worked to redefine the company as a health care provider. We will analyze the company’s ethical structure, including its decision to stop selling cigarettes, as well as provide an overview of some criticisms the company has received during its transition. The conclusion offers some insights into the future challenges CVS will likely experience.

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