CVS' Primary Care Venture Treads On Providers, Pharma

As more consumers turn to retail pharmacies for care, the market is ripe for disruption.

CVS revealed during its most-recent earnings call that it plans to become a bigger provider of medical services by the end of the year by acquiring its own primary care practices and physicians, and by also expanding its in-home health presence.

Deloitte predicted this type of strategy from nontraditional players in its report,  Increasing consumer engagement through retail pharmacy services. Deloitte reports that the increased attention on value-focused healthcare, combined with the primary care physician shortage, creates a perfect opportunity for retail pharmacies to disrupt the status quo.

"Fueled by healthcare reform, increasing competition, and shrinking margins, retailers are faced with the reality that their health and wellness business should consider adapting to the changing landscape," the report says.

And adapting is what CVS – and others, such as Amazon, Walmart and Walgreens – is doing, perhaps disrupting healthcare even more than the pharma and the healthcare industries themselves. During the Wednesday earnings call, which also reported an 11% increase in earnings year over year for the second quarter, CVS Health president and CEO, Karen Lynch, said the company's strategy of adding more health services has led to rising sales and deepening customer relationships.

CVS is also looking to boost its in-home care presence by acquiring Signify Health, a public, home health company featuring a value-based healthcare platform enabled by advanced analytics, technology and nationwide healthcare networks to provide more care at home. It has been reported that CVS was hoping to buy One Medical, but Amazon beat them to a deal. According to the Wall Street Journal, Signify is exploring strategic alternatives, including a sale, and CVS is expected to face competition from private equity firms and care providers in the bid for acquisition.

Why is this a threat?

For many years, CVS has been vowing to change the way U.S. healthcare is delivered, including reducing the need to visit a physician's office or be admitted to a hospital.  Today, health market conditions and patient behavior are just two of the reasons that retailers are securing a foothold in the health services arena.

For example, Bain & Company's new study shows that innovative primary care models from nontraditional players will deliver more efficient care, improve patient outcomes and lower costs. Bringing new care and reimbursement models to the market along with a bigger focus on virtual care, these nontraditional players are gaining traction and have the potential to grab as much 30%  of the U.S. primary care market by 2030, the new report says.

The study also says that retailers will grab market share with full-scope primary care and the big retail pharmacies could account for 5-10% of total primary care by 2030. Traditional fee-for-service will still be the predominant method of care in 2030, but it stands to lose 15-20% of market share to models that provide enhanced patient experiences, better physician experiences and more collaborative team-based care.

Beyond its nearly 10,000 brick-and-mortar drugstores, CVS, with a market value of $134 billion, owns Aetna insurance and pharmacy benefits manager CVS Caremark, and currently provides patient care at its MinuteClinics.

As a sign that it is planning to expand its efforts through technology, CVS hired its first senior technology role to focus on tech strategy and business growth, the company states. Tilak Mandadi, formerly chief strategy, innovation and technology officer at MGM Resorts, stepped into the role at the end of July as executive vice president, reporting directly to Lynch.

"Technology is a catalyst for value-creation and growth at CVS Health," Lynch says in a prepared statement about the new hire. "We're confident Tilak will drive these efforts as we prioritize serving consumers wherever and whenever they need healthcare."

This is just the beginning of an emerging mindset of major retailers that will continue to impact the primary care market and influence how pharma distributes its products, and to whom, in the future.