CVS Plans Changes To Stores After Aetna Deal

Nathan Bomey | 12/24/2018

CVS Health plans to reduce the amount of store space devoted to retail and shift more to onsite health care after its $70 billion acquisition of Aetna.

CVS CEO Larry Merlo told USA TODAY that the company will begin using a greater portion of the floor space in its nearly 10,000 locations to provide medical services to its customers.

"I don’t see the size of the store changing from what you would know it to be today, but I do see some space being repurposed," Merlo said Wednesday in an interview.

The company plans the gradual shift after it finalized its acquisition of Aetna. The deal comes as CVS is aiming to diversify its business, navigate the changing health care industry and fend off Amazon.

Merlo said he envisions the "CVS Pharmacy evolving from not just a store that happens to have a pharmacy and products" into "more of a health care destination."

He said CVS stores would still "have a rich array of products that are focused on health, beauty, personal care and elements of convenience" along with "added  medical care related services."

Retail sales at CVS are increasingly less important to the company's finances. In the first nine months of the year, pharmacy prescription sales were more than three times retail product sales.

And retail sales were up only 1.5 percent during that period.

CVS has already invested in developing a network of MinuteClinic locations inside about 1 in 9 of its stores to provide diagnosis and treatment of basic illnesses.

But its stores could also "partner broadly with others in the community around elements that indirectly impact health care," such as recently hospitalized patient transportation to checkups and "access to food services," Merlo said.

"Our goal is to have some concept stores operating early next year," he said. "I’m sure we’ll get some tremendous learnings from those first stores."

With Aetna in hand, CVS is pledging to lower costs for patients and improve results.

That's a tall order, given that many industry players have tried and few have succeeded.

Moody's Vice President Mickey Chadha wrote Wednesday that CVS faces "high execution and integration risk" as it seeks to make the deal successful.

CVS believes it can deliver healthier outcomes by controlling several key stages of the healthcare industry, including pharmacy, drug distribution and insurance. The goal is to cut excess costs and help treat patients more effectively and more efficiently.

??????One practical way CVS plans to lower costs is by seeking to reduce the rate at which hospitalized patients are later readmitted and avoiding unnecessary emergency room visits.

Accomplishing that goal will involve "timelier and more comprehensive medication reviews as well as expanded services and hours at select MinuteClinic locations to reduce inappropriate emergency room use," CVS said.

CVS said it's aiming for "synergies," which usually means cost cuts, of more than $750 million by 2020.

Merlo said the Aetna deal is "a transformative moment in health care" that will enable it to make the industry less "confusing and difficult to navigate."

"Care is often fragmented and expensive. We can and we must do better," he said.

In the short term, the company's finances are shakier following the deal.

Moody's on Wednesday downgraded CVS' senior unsecured credit rating to Baa2 from Baa1 and gave the company a negative rating outlook.

"The combination of CVS and Aetna will create a one of a kind vertically integrated healthcare company with huge scale and mark an industry shift towards a more seamless approach to managing healthcare costs," Chadha said in a note accompanying the ratings downgrade.

But CVS added debt to do the deal, and that hurt its credentials, along with "increased competition, reimbursement rate pressure, regulatory and political uncertainty" and "the changing landscape of the healthcare sector."

For consumers who fill prescriptions with CVS or have Aetna insurance, little will change. Merlo said Aetna plan members would not be required to visit CVS pharmacies to fulfill their prescriptions and will maintain access to their current networks of pharmacies and health care providers.



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