Changing dynamics: The CVS Health-Aetna merger forces the industry to adapt
Another year, another pending merger that promises to shake up the retail pharmacy business as we know it. Only, unlike the scrapped merger between Walgreens and Rite Aid, CVS Health’s proposed acquisition of health insurer Aetna has the potential to upend the whole healthcare landscape, putting it in competition with other retailers on one front and with leading insurers on another.
In light of the trends the retail pharmacy has seen in the past several years, the merger seems like a natural move. The announcement came at the end of a year that saw companies facing a confluence of headwinds. Generic pricing — which Valley Forge, Pa.-based wholesaler AmerisourceBergen projected will continue to decrease by 7% to 9% in fiscal year 2018 — and lower store traffic, with RetailNext reporting that store traffic for November 2017 fell 11.4%, offer a one-two punch of pressure on retailers’ bottom lines. And, with healthcare costs making up 17.9% of the United States’ GDP in 2016, according to the Centers for Medicare and Medicaid Services, companies are under pressure to contain costs eating into profits.
As a result, the past year was rife with efforts from retail pharmacy giants to innovate by being more involved with pharmacy benefits managers and payers to strike deals that would increase their bottom lines. Notably, last April Walgreens created AllianceRx Walgreens Prime, a combined central specialty pharmacy and mail services company it formed with PBM Prime Therapeutics, which is owned by the nation’s 14 leading Blue Cross and Blue Shield Health Plans.
Even before the merger, Woonsocket, R.I.-based CVS Health forged new partnerships — from providing prescription fulfillment, claims processing and other support services to Anthem’s new PBM IngenioRx to creating its own limited performance-based network through its CVS Caremark PBM that included CVS Pharmacy, as well as Walgreens and 10,000 independent pharmacies.
Not even the specialty space has been immune to margin pressures, with leading specialty pharmacy Diplomat moving into a new approach to its business. In November, the Flint, Mich.-based company acquired two PBMs in two weeks, bringing together the claims processing platform from National Pharmaceutical Services and the mail-order, specialty pharmacies and clinical programs of LDI Integrated Pharmacy Solutions
“With 90% of traditional medications now filled as generics, it’s specialty pharmacy costs that are driving pharmacy spend for payers,” Diplomat president Joel Saban said. “To offer real solutions to today’s challenges, a new model with a diverse set of assets is needed. The need for specialty benefit management solutions has never been more urgent.”
The state of health care is an open question — though a repeal of the Affordable Care Act fell flat in August, an as-yet unreconciled tax bill contains a repeal of the ACA’s individual mandate, and CMS has slashed the budget for open-enrollment advertising. The retail pharmacy industry has a big role to play, and it’s one that the CVS Health-Aetna merger seems intent to fill, while expanding its offerings.
Paula Wade, principal analyst for market access insights at global healthcare data and market intelligence firm Decision Resources Group, said that the Aetna merger is as much about fighting retail margin pressures as it is about becoming a competitor to such companies as UnitedHealth — which has been expanding the reach of its Optum business beyond its OptumRx pharmacy benefits manager, including the acquisition of 300 DaVita infusion centers — and Express Scripts, which in October paid $3.6 billion for medical benefits management company eviCore.
“I think just as the insurance industry is chasing UnitedHealth’s very successful diversification model with Optum, on the other end of things the PBM industry is having to chase diversification, as well, so I think it’s both of those pressures coming together,” Wade said.
All this is to say that the state of retail pharmacy is one that is being forced on the offensive from several angles — most acutely the combination of CVS and Aetna, but on a more existential level, the potential impact that Amazon will have when, not if, it moves into the pharmacy space.
Given the plans that CVS Health has for an expanded role of the pharmacy, experts say the industry in the coming years will need to up its game to compete with the enhanced capabilities through the Aetna merger — and the still unknown threat from Amazon.
The new store
As a preamble to the announcement of its proposed Aetna acquisition, CVS Health spent most of 2017 steadily expanding its store footprint and building up its pharmacy services. It acquired 14 Doc’s Drugs stores in Illinois in July, 20 Indiana and Illinois Fagen Pharmacy locations in August and six Ohio ProMedica locations in September. It also revamped its front-end with a massive focus on health-and-wellness offerings across OTC and consumables, and a natural focus in its beauty aisles. It introduced ScriptPath, a new way for patients to visualize their daily medication that put its own twist on medication adherence efforts, and its promised next- and same-day delivery across various nationwide markets, rolling out same-day delivery in Manhattan in early December.
In a conference call that CVS Health president and CEO Larry Merlo conducted with Aetna chairman and CEO Mark Bertolini on Dec. 4, the two made clear that in retrospect, the yearlong buildup of CVS Pharmacy’s offerings was just the beginning.
“Think of an idea where we have 10,000 new front doors to the healthcare system, where people can walk in, they can ask for some help, [and] get guided through the system,” Bertolini told analysts. “We can make the insurance the back room of the operation, we can waive prior authorizations, we can waive copays as people use the system in a way that’s more effective so we can reduce costs. It’s simpler, it’s customized for the individual based on what they need and it’s cheaper.”
The companies plan to make CVS Pharmacy locations into healthcare hubs, where patients can ask questions about their health conditions, health benefits and prescription drug coverage. The pharmacy also will become even more of a resource for patients in need of medication evaluations, home monitoring and durable medical equipment, the companies said, noting that the merger brings the potential to offer remote monitoring to patients with such chronic conditions as diabetes.
[pb]“That is a huge thing from the care perspective, because when you imagine that you have all these people with various types of home diagnostic monitoring equipment and they see a reading that is troubling to them or maybe the equipment isn’t working right, they can call their number and be told you don’t have to go to the hospital, just go to your CVS Pharmacy clinic,” Wade said. “They’ll … solve that problem without that person having to go to the emergency room, which is a much more expensive level of care.
The hub will serve, ultimately, as a way to create more patient engagement and healthy outcomes that will cost the healthcare system — and ideally, patients — less money, with Merlo saying that the company’s biggest opportunity lies in the Medicare and Medicaid populations.
Bertolini sees the potential for stores to offer guidance to Medicare and Medicaid patients. “On the Medicare/Medicaid side, I think people are confused — they’re wandering through the system [with] multiple doctors, multiple medications,” he said. “And the opportunity [is there] to help them navigate that system, put them on a plan and actually make this a place … people want to go.”
DRG’s Wade noted that it’s still unknown what federal regulators might require the companies to divest, if anything, as part of a potential approval, but she pointed to Aetna’s Medicare Part D enrollment as a potential target. However, she sees likely increased traffic to stores from Aetna’s Medicare Advantage patients — for whom CVS Pharmacy is already a preferred provider — as well as big potential for MinuteClinic.
“It would absolutely encourage them to maximize and expand the whole MinuteClinic business to become more of a provider partner with Aetna — and Aetna is very enthusiastic about using telehealth and telemedicine,” she said. “I can see telemedicine suites going into these clinics that would, I think, vastly expand the utility and the range of care services that could be provided there, even with nonphysician providers and staff. That is going to take a while. The downside, I think, for both partners, is just how long it will take to combine those and make all of that happen. That’s not a quick thing to bring up operationally.”
Connected health and beyond
Despite the potential logistical difficulties, DRG principal analyst Matthew Arnold noted that demand is there for more connected health solutions. Arnold said that the company has tracked adoption of virtual consults among patients, and has found that since last year, use of virtual consults has increased from 20% to 24% who have used the technology.
Connected health represents a burgeoning space among pharmacy retailers. Walgreens, in a December partnership with NewYork-Presbyterian, brought virtual health kiosks to its New York City Duane Reade Banner, as well as consults through its website. This builds on the company’s other telehealth efforts, which include a pre-existing partnership with telemedicine provider MDLive.
“We’re already seeing pretty substantial use, and it speaks to the enormous demand for these services,” Arnold said. “The No. 1 reason people give for using virtual consultations right now is to renew a prescription, which fits right into CVS’ [MinuteClinic] business model.
Even if it takes time, Kantar Retail vice president Brian Owens, who spearheads the Norwalk, Conn.-based company’s health and wellness and drug channel research, highlighted the potential for the deal to allow CVS to bring its resources to bear on the entire healthcare continuum.
“If you think about CVS’ focus on the last mile of care, now it has the first mile of care, too,” he said. “Think about the ability to insure people and potentially leverage that last mile of care to influence the first mile.”
This effort complicates efforts for such retailers as Walmart, which Owens noted has put an emphasis on the first mile of care in a similar manner to CVS Pharmacy. But he sees the opportunity for Walmart as laying in a focus on diet and nutrition — particularly given its product assortment.
“They have the real estate, they have the traffic, they have that ability to influence the first mile of care — and I know they want to influence the last mile, too,” he said. ”But I view diet as the biggest challenge, and I think their ability to explain trade-offs in terms of lifestyle and have everything in the store to provide the solution is where Walmart’s focus is, and where it’ll continue to be. … I think their bigger opportunity [is] in providing acute care solutions, as well as education and lifestyle management relevant to all the things they have in the store and the traffic they have in the store.”
Nutrition is an area where grocers also have a chance to shine, according to Owens. Indeed, it is a growing trend among such retailers as Hy-Vee, Tops Markets, ShopRite and Publix, that keep dietitians on staff as a way to build out its offerings and help make an impact on public health. The imperative for these retailers is similar to Walmart’s, which Owens said is building up its Wellness Day health screening service to offer a more wide-ranging resource to more customers.
“The evolution for them is how they create wellness days for their low-income shopper[s], who [are] struggling to understand … how to best spend [their money] so they don’t get sick.”
And retailers might want to get moving, as Owens said that CVS Health could decide to offer health plans directly to patients and tie their premium to their buying habits. “[The company could say] ‘If you shop CVS exclusively, we’ll give you this plan, and if you buy or behave a certain way — whether it’s through the MinuteClinic or healthy buying behavior, your premium goes down in years two, three and four.”
And while he noted the risk that CVS Health could close off Aetna members from frequenting other pharmacy chains, the company seems willing to keep its doors open, even to its competition. It is working with Walgreens and 10,00 independents for CVS Caremark’s new performance-focused network, and Merlo signaled to analysts that ultimately, the question is why its competitors wouldn’t want to partner with it.
“Our ability to build a model that customers want to use because of the value it provides, I think, becomes a key guiding principle of bringing these companies together,” Merlo told analysts. “Our goal is to apply those capabilities broadly across the industry. Think about our other partners in achieving that goal — why wouldn’t they want to participate in those capabilities? Because it’s something their members, the consumer, are going to want to participate in. … I think it’s an important proof point in that guiding principle, that if you’re able to create something of value, people are going to want to engage and participate.”
Atkins names actor Rob Lowe brand spokesperson
Atkins Nutritionals last week named actor Rob Lowe as the company’s new brand spokesperson. Having followed an Atkins low carb approach for many years, Lowe appears in a series of broadcast, print and digital creative that reflects the benefits of a low carb lifestyle and how it’s helped him, and other people, eat and live well.
In the creative, Lowe discusses the flexibility of the lifestyle, noting that “this is Atkins today.”
[quote-from-article] “It all starts with how you feel on the inside, and when you feel good, you look good. Eating low carb has helped me feel and look my best,” said Lowe. “Life is too short to eat a bad protein bar, and Atkins has great tasting bars and shakes that satisfy my sweet tooth. Today’s Atkins focuses on foods that are rich in healthy protein and low in carbs and sugar. It’s a simple approach that tastes delicious and is a real way to live.”
“While people have different health goals, they all want to lead healthy lives and not feel like they’re missing out, whether spending time with family or eating a delicious meal. The new campaign follows our ‘Today’s Atkins’ creative launched this past fall and continues to show that Atkins extends way beyond a diet,” said Scott Parker, chief marketing officer, Atkins Nutritionals. “Rob is a great representative of this lifestyle, as he has followed an Atkins low carb approach for years. Rob shows that living a low carb lifestyle can be healthy, yet still allows for enjoyment of great tasting food.”
Created by Acme Idea Company of Norwalk, Conn., the national advertising campaign is an integrated mix of advertising, marketing, public relations and social media.
SpartanNash introduces Our Family brand in Michigan retailers
SpartanNash has unveiled a new brand titled, Our Family to its Michigan-based retailers. The line will launch in 87 locations including Family Fare Supermarkets, D&W Fresh Market, Forest Hills Foods, ValuLand and VG’s stores — and in more than 300 independent retailers throughout the state.
“We are excited to offer Our Family products to our store guests and independent retail customers in Michigan because it reflects on SpartanNash’s commitment to great products at affordable prices,” vice president of private brands, John Paul said. “Our Family is here for yours, whether you’re planning a quick and easy dinner for your on-the-go family or a weekend party with friends and neighbors.”
Our Family products will be located in all aisles of the store. Food and non-food items, such as batteries aluminum foil, milk, peanut butter, breakfast bars, sparkling water and Greek yogurt will be included in the offerings.
Grand Rapids, Mich.-based SpartanNash will distribute Our Family products to all of its corporate-owned retail stores in nine states, as well as its independent retail customers throughout the country.
“Our private brands are one of our true competitive advantages in the crowded marketplace today, and we have already begun rolling out the Our Family brand to all stores serviced through the company’s Grand Rapids Distribution Center, with many items already in stores for customers to enjoy,” SpartanNash president and CEO Dave Staples said. “One key element of our future success has been streamlining our supply chain and creating the ability to deliver the largest variety of quality products from any distribution center, to any customer.”