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CVS Sees Potential Partner if Amazon Health Launches

News  |  By John Commins  
   February 08, 2018

The pharmacy giant saw net revenues up 4% to $185 billion in 2017, and anticipates at least $1.2 billion in cash benefits in 2018 from the Tax Cuts and Jobs Act, half of which will be used to pay down debt.

CVS Health CEO Larry Merlo says he "absolutely agrees with the goals and objectives" laid out in the healthcare partnership announced last week by Amazon, JPMorgan Chase and Berkshire Hathaway.

Now, like everyone else, he wants to see the details.

"We all saw the announcement last week," Merlo said in an earnings call with analysts on Thursday. "We absolutely agree with the goals and objectives that were outlined in that press release, but it’s important to acknowledge that the press release had few details and acknowledged that there isn't a plan."

Meanwhile, he says, the Woonsocket, RI-based company’s proposed $69 billion acquisition of Aetna will achieve many of the goals that Amazon/JP Morgan/Berkshire Hathaway hinted at, and that a potential partnership could emerge with Amazon if the proposal ever becomes reality.

"What that group aspires to is what we are going to deliver as part of this CVS/Aetna combination," Merlo says. "We have the infrastructure. We have the assets. We certainly have the healthcare expertise resident in both companies. And, we've demonstrated that we can execute on goals and objectives."

"We are chomping at the bit to get started," he says. "We want this new CVS/Aetna combination to be an open source model that, as we build out these capabilities, we can make them broadly available in the market. We are looking forward to partnering with all groups of individuals, including this new combination of Berkshire, JP Morgan and Amazon."

Thursday’s hour-long conference call was supposed to be about fourth quarter earnings and 2017 financial results. The company saw fourth quarter net revenues increase 5.3% to $8.4 billion, when compared to the fourth quarter of 2016.

For 2017, net revenues increased 4.1% to $185 billion. The company also expects a $1.2 billion windfall from the Tax Cut and Jobs Act. Half of that will be used to pay down debts, and the remainder will be used for in-store employee pay raises, and capital improvements.

However, the Aetna deal dominated the questions from analysts.

Merlo says the acquisition could create a broader, deeper footprint for the company’s Minute Clinic service line.

"Today we’ve got just over 1,100 clinics in 33 states and the District of Columbia," he says. "We see an opportunity to expand the breadth and the scope of practice that exists in Minute Clinics. There are a number of things we are thinking about, whether it's broader management of chronic diseases, or even the ability to do blood draws in the clinics."

Expanded services are needed, he says, to keep pace with an evolving retail environment.

"We are beginning a broader rollout of audiology and optical," he says. "We're making healthcare a retail option, recognizing that healthcare is becoming local. We are looking to deliver healthcare to where people are, whether it's in their local community or in many cases perhaps even in their homes."

Merlo also downplayed any concerns about the Department of Justice's request last week for more information about the deal.

"There is nothing that has surfaced that has come as a surprise. Things are moving forward as planned," he says. "Obviously, we've begun discussions. There is a good level of engagement. We feel good in terms of how the process is moving along at this point."

CVS's existing pharmacy benefits clients, which include Aetna competitors, are curious about the acquisition, Merlo says, because they understand that "the lines between competitors and partners are blurring like never before."

"We have examples of that in our own business today when you think about Medicare Part D and the fact that we manage the Part D component for more than 40 health plans," he says.

COO John Roberts says CVS is in an ongoing dialog with health plan clients about the Aetna acquisition "and I would describe the dialog as constructive."

"We serve Aetna today as a PBM and our goal would be to continue to serve Aetna and all of our healthcare clients," he says. "We have firewalls in place today that allow competition to occur as we support health plans on the pharmacy benefit to compete with each other."

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


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