Video Case Study

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19-3 Moving Toward a Health Care Company Despite the ethical challenges CVS has experienced, it is trying to reposition itself as a socially responsible organization that places priority on consumer health. Being a quality health care company not only offers reputational benefits but financial advantages as well. Changes in both the economic and health care landscape are creating new opportunities for CVS to provide different programs and redefine itself. Trends including the declining number of primary care physicians, the 16 million baby boomers who are becoming eligible for Medicare benefits, and the more than 30 million newly insured Americans under the Affordable Care Act (ACA) offer CVS an attractive market in which to expand. For example, CVS has refocused its efforts on supplying the growing need for chronic disease management that consumes costly resources when patients do not adhere to physician recommended medications and monitoring methods to maintain health. PBM services are being successfully implemented, including mail order, specialty pharmacy, plan design and administration, formulary management, discounted drug purchase arrangements, and disease management services.

Innovative programs such as Pharmacy Advisor and Maintenance Choice, developed in collaboration with researchers from Harvard University and Brigham and Women’s Hospital, help patients stay on their medications. Research shows that regular interaction between patient and pharmacist increases the likelihood that patients will adhere to their medication regimen. Many patients who take regular prescriptions often think that they are well enough to cease taking their medication. However, when the symptoms of their ailments reappear, the costs are great, both financially and medically. CVS’s programs allow the company to inform patients about the benefits and risks of these effects through education and awareness. The entire industry also benefits from this knowledge by preventing more costly medical procedures due to medication non-adherence, which occurs when patients skip or incorrectly take their dosage requirements. This is estimated to cost between $5 and $10 for every $1 spent on adherence programs. These services are key components of CVS’s competitive advantage, allowing it to provide the best possible patient care. It was also proactive in preparing patients for Health Care Reform. For instance, CVS partnered with the Centers for Medicare and Medicaid Services to raise awareness about new services available to Medicare patients under the ACA.

To help people keep up with these and other changes in health care, CVS has established its presence on social media and mobile devices. The company introduced a mobile application allowing customers to conveniently refill prescriptions, while its Facebook and Twitter pages provide helpful health tips. Customers benefit from using CVS’s digital tools through increased savings and easier access to many of CVS’s services. For instance, CVS’s iPad application allows individuals to have a 3D digital pharmacy experience

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reminiscent of shopping in-store. Customers that are unable to physically visit the store, or prefer the convenience of shopping from home, are able to partake in the CVS experience through the company’s technology. With over 10 million registered users, many are saving money and time filling and refilling prescriptions as well as having instant access to essential drug information.

MinuteClinics are one of the major contributors to CVS’s rebranding efforts. These clinics are the first in health care retail history to be accredited by the Joint Commission, the national evaluation and certifying agency for health care organizations and programs in the United States. This accreditation signifies the clinics’ commitment to and execution in providing safe, quality health care that meets nationally set standards. In addition to health care services, MinuteClinics provide smoking cessation and weight loss programs that contribute positively to people’s health. These clinics are also the first retail clinic provider to launch a partnership with the National Patient Safety Foundation for its health literacy program to help improve patient education and community health.

Under the ACA, health care organizations are eligible to become members of the Accountable Care Organizations (ACO) program. This program ensures that members are accountable in providing quality health care to the sick as well as meeting certain standards to provide health-conscious programs such as those related to smoking cessation and weight loss. Accountability is measured by positive outcomes, resulting in cost savings, which in turn is divided up among members to continue these effective programs and services. There are at least 123 ACOs in the United States, and 480 ACOs have been established as Medicare providers since the ACA went into effect—covering over 9 million beneficiaries.

In 2015 CVS announced that it was purchasing Target’s 1,672 in-store pharmacies for $1.9 billion. These pharmacies were branded as CVS/pharmacy and remained located in Target stores. About 80 Target clinics will be rebranded as MinuteClinics. This will increase CVS’s reach significantly, particularly in areas like the Northwest where it does not have a strong presence. Another benefit is that it will increase convenience for consumers who use CVS for their prescriptions as they can now choose from a CVS drugstore or a CVS/pharmacy within a Target location. Target pharmacies have generally received higher customer satisfaction ratings compared to CVS. If CVS can tap into the same practices that Target pharmacies have used to keep their customers satisfied, CVS could use what it learns to adopt a more customer-centric culture that would provide it with an advantage over rivals Walgreens and Rite Aid.

Despite CVS’s strides in becoming a health care company, competition from Walgreens has been gaining. In 2017 Walgreens obtained an advantage in prescription management contracts after the Tricare plan from the Department of Defense signed a deal with Walgreens. This deal did not include CVS pharmacies. Walgreens Boots Alliance also made a deal with PBM Prime Therapeutics to launch a specialty pharmacy and mail services company called AllianceRx Walgreens Prime, further increasing the competitive threat to CVS. However, CEO Larry Merlo claims that CVS is about to embark upon new drug

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management programs. Combined with the acquisition of Target’s pharmacies, Merlo believes CVS will gain an advantage over Walgreens and become more attractive to patients and pharmacies. Insurers like Aetna and Anthem have also announced intentions to partner with PBMs and pharmacies. Unlike CVS Walgreens is not itself a PBM, although it is in talks to acquire competitor Rite Aid and Rite Aid’s PBM EnvisionRx. The competition is likely to increase going forward as both firms try to gain the upper hand in this lucrative industry.

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