Pondering the Genius of CVS’s Two-Part Strategic Healthcare Move

July 16, 2015
The rebranding of CVS as CVS Health holds many implications for traditional institutional healthcare providers—on many levels

I was fascinated to read a New York Times article last week about the strategic moves made recently by CVS, the mega-giant pharmacy chain. The July 11 article, by Hiroko, Tabuchi, noted the dual strategy of the nationwide chain in on the one hand deciding to end the sales of cigarettes and tobacco products last year, and on the other hand, making a very big push into the retail clinic arena. As Tabuchi writes,  “With 7,800 retail stores and a presence in almost every state, CVS Health has enormous reach. And while shoppers might think of CVS as a place to pick up toothpaste, Band-Aids or lipstick, it is also the country’s biggest operator of health clinics, the largest dispenser of prescription drugs and the second-largest pharmacy benefits manager. With close to $140 billion in revenue last year — about 97 percent of that from prescription drugs or pharmacy services — CVS is arguably the country’s biggest health care company, bigger than the drug makers and wholesalers, and bigger than the insurers.”

What’s more,  as Tabuchi notes,  “Even before the Affordable Care Act created millions of newly insured customers in the almost $3 trillion health care industry, CVS saw that there were more profits to be made handling prescription drugs than selling diapers. But while its transformation from drugstore to health care company began a decade ago, CVS has more recently taken on a new advocacy role, that of a public enemy of cigarettes.”

Indeed, she writes, “ Last year, CVS became the first major pharmacy chain to stop selling tobacco, a business that brought in $2 billion a year. And on Tuesday, CVS said that it would resign from the United States Chamber of Commerce after revelations that the chamber and its foreign affiliates were engaged in a global lobbying campaign against antismoking laws.” And, she adds, “Its stand against smoking has allowed CVS to make alliances with health care providers and rebrand itself fully as a health care company. But with smoking rates on a steady decline, and cigarettes sales slumping, CVS also saw that future profits lie not with Big Tobacco but in health and wellness.”

I remember when CVS made the announcement back in early September of last year. At the time, many observers noted how much of a risk the company was taking in ceasing to sell cigarettes and other tobacco products.  After all, CVS was leaving $2 billion a year on the table in tobacco sales—and that’s a lot more than the company could ever make up selling chewing gum. But really, it was a genius move, because, when coupled with the company’s branding change to CVS Health, and the opening of hundreds of minute clinics—potentially thousands, over time—such moves have now positioned CVS as a very major player in healthcare delivery.

Indeed, leaders of many hospitals, medical groups, and integrated health systems are becoming seriously worried about how CVS’s minute-clinic push will affect their own outpatient businesses; and they have reason to be concerned.

The reality is that healthcare delivery is changing very rapidly now. Not only are retail pharmacies pushing into the rapid-care market that only a few years ago had primarily been dominated by so-called “doc-in-a-box” care locations; their entry into the market in a big way is shaking up U.S. ambulatory care overall. And combined with the growth of telehealth and the growth of e-visits and other channels for care delivery is going to continue to shift the landscape of healthcare for years to come.

So the bottom line is this: the era of major disrupters in healthcare is upon us. There is no question about it: leaders of hospitals, medical groups, and health systems are going to have to constantly anticipate surprises, disruptions, and shifts of all kinds.

And this is where interoperability, authentic health information exchange, clinician messaging, and clinical integration, will all become increasingly important. Because as this consumer-focused revolution gains speed, the ability to share information in the immediate interest of serving patient/consumer needs, will only accelerate. Yes, it’s very awkward to go into one’s neighborhood CVS to buy toothpaste or napkins and realize that, yes, indeed, that neighborhood pharmacy is indeed a market competitor, on certain levels. But healthcare and healthcare IT leaders had better get used to this bold new world, because it’s only going to become bolder and newer in the coming decade.

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