By Jackie Kimmell, senior analyst
When CVS Health CEO Larry Merlo kicked off a meeting with investors in June, he was quick to outline a vision for the company's health care future. "We are going to be the driving force for change in our health care system," he said.
Such an expansive vision was unsurprising from the leader, who last year closed a $70 billion merger with Aetna. While the merger signaled the company's plans to make big waves in the health care industry, Merlo has struggled to assure investors of the company's future since it closed. Stocks have tumbled over 25% since the deal was announced in December 2017.
The company is facing several uphill battles. Vince Martin, a contributor at Investor Place, notes that the pharmacy business model CVS has relied on "has moved from being perceived as a strength to seen as a weakness." Meanwhile, investors are keeping a ready eye on new entrants into the market, such as Amazon in the wake of its PillPack acquisition. On top of that, the Aetna deal is still tied up amid ongoing legal scrutiny.
Therefore, Merlo has been trying to reset the tone around both the merger and the future of the company, and he's doing so by highlighting one of the most crucial gains he expects from joining Aetna: data. "The breadth and depth of consumer data we have access to is unmatched," Merlo said.
One way CVS expects to capitalize on this data is by opening hundreds of "HealthHUB" concept stores. On June 4, the company announced it plans to open 1,500 HealthHUB locations by the end of 2021. The placement of these hubs and the services they provide will be highly strategic—informed not just by market performance, but by Aetna's data on its members' health conditions.
What is a HealthHUB?
The HealthHUB stores are a step-up from CVS' initial foray into retail health, the MinuteClinic. MinuteClinics—of which CVS currently operates about 1,100—mostly focus on low-acuity services like minor colds and immunizations. The HealthHUBs, conversely, focus more on chronic disease management, providing deeper services like sleep apnea assessments and blood draws.
In the stores, a "care concierge" directs customers to providers like nurse practitioners or nutritionists, and over 20% of the store's space is dedicated to areas for these consultations, as well as a more expansive shelf of durable medical equipment and other medical supplies. In all, the HUBs are more staff-intensive, and aim to offer a more comprehensive and personalized experience to visitors.
CVS piloted the HealthHUB concept in Houston and found that the stores drove more foot traffic, front-of-store sales, prescriptions dispensed, and MinuteClinic visits per day. The company said 60% of the "care concierge" interactions led to a sale or health care service. While the stores are undoubtedly more expensive to staff, CVS leaders seem to be convinced that this in-store value (and their broader strategic significance) merit the extra costs. The company is expanding the concept to stores in Atlanta, Philadelphia, Tampa, and southern New Jersey, converting a total of 50 stores this year—or 15% of the stores in each market.
Where do HealthHUBs fit into CVS' broader strategy?
In its 2018 Annual Report, CVS listed common chronic disease management as the number one strategy in its "core suite of transformation initiatives." Specifically, CVS wants to focus on the 25% of annual U.S. spend on chronic conditions that is avoidable, and target five conditions—diabetes, cardiovascular disease, hypertension, asthma, and behavioral health—as opportunities for better management.
The HealthHubs—and CVS' pending merger with Aetna—will be core components of this strategy. For instance, CVS' decision to launch HealthHUBs in Atlanta, Philadelphia, Tampa, and southern New Jersey was driven by the number of Aetna members in those cities struggling with chronic diseases, according to a CVS spokesperson.
Analysts predict that Aetna's 22 million members will slowly be guided to HealthHUBs as the central venue for chronic disease management. In particular, CVS will likely expand on a pilot that directs patients unable to see their provider in the 14 days post-discharge to a HealthHUB for follow up instead.
CVS will also likely leverage HealthHUBs in two other ways. First, they'll likely use them to push for greater prescription spend. As new generic drugs have rolled out and branded drug prices have risen less than expected, CVS' pharmacy business has been facing a revenue slump. But the HealthHUBs allow CVS to exert more control over which medications are prescribed, and also increase the total number of prescriptions filled by patients. Additionally, pharmacists serve as key touchpoint for patients—patients usually see their pharmacist more than any other health care provider (including their primary care doctor)—and can support better patient management by steering patients back to the conveniently-located HealthHUB providers.
Second, CVS will likely use the stores to fight back against competitors like Walgreens and Walmart, which have both pursued a similar retail clinic strategy. Walgreens in particular has launched a multi-faceted retail strategy with over 400 health clinics across 31 markets, and the company's s been working with a number of cross-industry partners. In April, Walgreens announced a partnership with provider group Village MD to open primary care clinics directly next to Walgreens stores in five Houston locations, and in November 2018 the company announced a pilot to open two geriatric-focused clinics with Humana.
Walmart, meanwhile, has been testing a broad retail clinic strategy since 2014. So far the company has just 19 clinics. However, recent reports indicate it is considering opening health clinics as part of its parking lot expansion strategy.
Combatting these competitors and increasing prescription spend is essential to allow CVS to generate new revenue. CVS Health's finances took a hit with the purchase of Aetna. While their revenues increased 5% from 2017 to 2018, their operating income fell 58% and net income fell 109%—leaving them $596 million in the red. While they may eventually be able to recoup the investment, they'll need to replace struggling stores with the HealthHUBs—and have the HUBs perform well—to truly revert course.
What do the HUBs mean for providers?
HealthHUBs are yet another sign that the "retailization" of medicine is not slowing down. Rather, as vertical integration of major industry players continues, and new industry giants gain access to new troves of data about patients' health, providers could see major market shifts.
It's worth noting that research shows that many of those who visit retail clinics tend to be younger, located in areas with a high density of health care resources, and without a primary care physician. While many assume that the ease of access to retail clinics reduces unnecessary ED or physician visits for low-acuity conditions, RAND research has shown that high availability of retail clinics does not have a meaningful impact on emergency department utilization, nor does it lower health spending. Rather, 58% of all visits reflected new utilization, rather than a replacement of other visits.
That means that payers and integrated networks can't expect to accrue costs savings just by sending patients to retail clinics alone. It also means that providers will still play an essential role in meaningfully impacting spend on low-acuity conditions and in reaching underserved populations.
However, the emergence of HealthHUBs and other retail clinics are raising the threshold for consumer-focused care, giving patients greater access to virtual care, expanded hours, and the co-located medical supplies, pharmacy services and wellness offerings. Many strategies that were considered innovative for health systems just a few years ago, such as expanded appointment availability and centralized scheduling, have become so widely used that they are now baseline expectations in many markets.