The pharmacy chain could be a threat to hospitals and health systems by entering into the urgent care market.
CVS Health, which already has more than 9,800 locations with space allocated for healthcare services, may soon get into the urgent care business.
And that could be a threat to hospitals and health systems and the growing market share they have been building in the urgent care space.
CVS CEO Larry Merlo has been saying for the last year that the drugstore chain plans to add more healthcare services and is "exploring more ways to collaborate with physicians" in its drugstores and 1,100 MinuteClinic retail clinics staffed by nurse practitioners.
With CVS' acquisition of the health insurer Aetna nearing its close, Merlo is expected to update Wall Street analysts Tuesday on the company's strategy during the company's third-quarter earnings report.
Industry analysts expect it's only a matter of time before these additional services turn into urgent care or at least mimic what such centers have to offer.
"The main question for the on-demand industry boils down to whether CVS will transition from the MinuteClinic model to a full-service primary and urgent care model," says Bernie Kuhn, principal and CFO at Merchant Medicine, a retail healthcare consulting firm. "We believe this transition is a real possibility."
Urgent care is similar to retail health clinics already operated by Walgreens, CVS, and Walmart in that they are open daily, evenings, and on weekends to treat routine maladies. But urgent care centers also generally offer more in the form of x-rays for potential broken bones, have the ability to provide intravenous fluids and phlebotomy services, and have closer ties with physicians.
"If CVS expands the MinuteClinic scope of services into urgent care … by adding x-ray and suturing, this would place a great deal of pressure on the urgent care industry," Kuhn says.
CVS Health's main rival, Walgreens Boots Alliance, is already opening urgent care centers with UnitedHealth Group's MedExpress urgent care unit. There are now 15 locations in six states that have MedExpress urgent care centers connected to Walgreens stores as part of the pilot that Walgreens and UnitedHealth have been evaluating this year on whether to expand. So far, the markets include Las Vegas, Dallas, Minneapolis, Omaha, two cities in West Virginia, and Martinsville, Virginia.
In the Walgreens-MedExpress pilot, the urgent care center and the drugstore have their own entrance along with a door inside that connects each. Walgreens says that is designed for a medical care provider to guide a patient to either facility depending on whether they need a prescription or primary care.
"This is just part of developing an overall higher-performing local health system," UnitedHealth Group CEO David Wichmann said of the MedExpress-Walgreens urgent care partnership earlier this year. "It'd just be one component that may be nested inside a local care delivery market with ambulatory surgical capacities and house calls and things of that nature. This is the future health system that we see delivering considerable value to people."
For hospitals, this not only means competition from well-capitalized players like CVS and Walgreens, it could have an immediate impact on health system revenues particularly given each chain has thousands of locations across the country on what is considered prime real estate.
"Drug stores have great commercial retail locations, ample convenient parking, and consumer trust," Merchant Medicine's Kuhn says. "Depending on how far into primary care the venture goes, the primary care versus urgent care artificial constructs also get deleted from contract terms, and non-aligned health systems or medical groups should get nervous."
The expected entrance of CVS into the urgent care business comes just as hospitals and health systems are opening more such facilities and expanding their market share.
"The urgent care industry's ownership mix has shifted significantly since inception," the Urgent Care Association said in a report earlier this year. What "emerged as a physician or physician group strategy" has since become an integral part of a hospital and health system growth strategy, according to a report earlier this year by the Urgent Care Association.
A decade ago, 54.1% of urgent care centers were physician-owned while hospitals represented 24.8% of the total in 2008, the Urgent Care Association said. "By 2014, physician ownership had dropped to 40% and hospital ownership increased to 37%," the Urgent Care Association said.
There were more than 8,200 urgent care centers in the U.S., according to the Urgent Care Association, citing figures as of June 2018, up from 7,639 in 2017. "The $18 billion industry is expected to grow 5.8% in 2018, offering services beyond a typical primary care office," the Urgent Care Association said in its report, pointing to the move away from fee-for-service medicine toward population health and value-based payment of medical care providers that emphasizes health outcomes and lower-cost outpatient care.
But Merchant Medicine executives say there could be as many as 12,000 urgent care centers because not all such facilities are members of the urgent care trade group.
Depending on the size of the market where hospitals have opened urgent care centers, the entrance of CVS and Walgreens could hurt the revenue of hospital-owned urgent care centers.
Kuhn compares the trend to the impact Walgreens, CVS, and other national drugstore chains had on smaller independent and mom-and-pop drugstores.
"As Walgreens, CVS, and Rite Aid grew over the past few decades, all of the smaller pharmacy operators were moved out, grocery stores being the exception," Kuhn says. "Provider operations are a different business, but it seems reasonable that the less-sophisticated operators get moved out in a saturated market."
This merger's strategy may up the ante for rival health insurers as they try to show employers and consumers they are controlling costs and managing populations with the best data.
When it comes to information needed to improve patient care and control costs, CVS Health CEO Larry Merlo vows to draw from the drugstore chain's "thousands of locations and touch points" and Aetna's millions of medical claims.
It's a strategy that may up the ante for rival health insurers as they try to show employers and consumers they are controlling costs and have the ability to manage populations of patients with the best data.
"There is no doubt that all of the players in the healthcare ecosystem are striving for a more data-driven and personalized experience for their members," says Scott Rabin, partner in the healthcare practice of Mercer, a health benefits consultancy.
"There are some systemic challenges today in that there is less standardization of healthcare data than in other mature industries, but to the extent providers and patients can be empowered with data they can use when they need it, we will begin to unlock the inefficiencies in the system," Rabin says. "The ability to integrate data on direct patient preferences and experience will differentiate these solutions going forward."
CVS executives think they have the right answer when it comes to the value-based approach of getting patients the right care in the right place at the right time. And gathering patient prescription data from its pharmacy benefit management subsidiary, customer and patient experience from its drugstores, and information from Aetna's medical claims will help improve care before patients get sick.
"Our focus will be at the local and community level, taking advantage of our thousands of locations and touchpoints throughout the country to intervene with consumers to help predict and prevent potential health problems before they occur," Merlo said last week following the U.S. Department of Justice's announcement that CVS' acquisition of Aetna has been granted preliminary approval.
"Together, we will help address the challenges our healthcare system is facing, and we'll be able to offer better care and convenience at a lower cost for patients and payers, "he said.
CVS has more than 9,800 drugstores and 1,100 MinuteClinic retail health centers staffed by nurse practitioners at the drugstore chain. Meanwhile, Aetna has more than 20 million health plan members who, in the future, are expected to be guided to low-cost services that are part of the larger company.
As the U.S. healthcare system moves toward value-based models, insurers are more aggressively reaching out into the community, and CVS has stores and retail clinics in 49 states, Puerto Rico, and the District of Columbia.
"We know there is meaningful improvement in cost, outcomes, and patient experience when we can identify, predict, and prevent higher-acuity episodes," Mercer's Rabin says. "While data in-and-of-itself is just a piece of a higher-functioning healthcare ecosystem, it is an essential component to changing the way the system operates today."
To be sure, health insurers that are buying more medical providers are taking different paths into the community and using data they glean from these relationships to develop solutions to better quality at lower costs.
Ken Kaufman, managing director and chair of consulting firm Kaufman Hall, said CVS-Aetna is looking to make its platform more convenient and affordable.
"A focus on prevention and early intervention fits well into that objective and CVS's 10,000 stores and 70 million loyalty program members provide a good foundation. However, only time will tell whether they can make good on the level of transformation they promise," Kaufman said.
Some see CVS and Aetna trying to play catch-up to health insurer UnitedHealth Group, which already owns Optum, a medical care provider with a vast network of doctor practices and MedExpress urgent care centers. Optum also sells its population health management services to scores of employers and insurers, helping them to better manage care.
Other major insurers, such as Anthem and Humana, have been handling their PBM workload internally as well, so this type of PBM-insurer coordination is happening across the board, said Michael Levinson, JD, MD, a Miami-based partner with Berger Singerman and leader of the firm's healthcare practice.
"It's a chicken-and-egg issue here. Which one came first? I'm not sure," Levinson told HealthLeaders. "The whole idea is that, to better control your cost to be more competitive and not be reliant on another company for one of your major expenses, you have to bring that business in-house, which is what we're seeing."
By bringing the power of an insurer under the same umbrella as a pharmacy chain and PBM, the CVS-Aetna deal could capitalize on a powerful set of rich data about consumer behavior.
"And data is king in today's economy," Levinson said.
Health insurer Cigna plans to integrate more patients' pharmacy experiences to their medical membership with its acquisition of the larger PBM, Express Scripts.
"With Express Scripts, we'll be better equipped to understand, support, and inform physicians based on the breadth of data the combined company will be able to generate from the billions of customer touchpoints we'll have," Cigna CEO David Cordani told analysts in May on the company's first quarter earnings call.
"While we have existing tools in place today, this wider and deeper data set will meaningfully accelerate our progress and provide us with more actionable insights into both customer and physician behavior. And as a result, we'll be even better positioned to provide best-in-class cost performance, clinical quality, customer and physician service, and predictability," he says.
Analysts say it's too early to say which company has the answer given that healthcare costs continue to rise and these mega deals are just getting finalized, but payers are trying to find the patients where they are and keep them in a low-cost setting. And they are stepping up their mergers and acquisition to reach deeper into the community in a variety of locations.
"Over the next year," Humana CEO Bruce Broussard said earlier this year, "we plan to leverage Humana predictive modeling to identify additional clinical interventions, integrate Humana Pharmacy resources to conduct comprehensive medication reviews, and extend our care management best practices from Humana at Home into the Kindred at Home homecare environment."
This CVS-Aetna combination and others like it seem to be "the first volleys" of a trend that's here to stay, said Rod Hochman, MD, president and CEO of Providence St. Joseph Health, based in Renton, Washington.
"I think we're going to see a tremendous amount of these mix-and-matches that are going on out there," Hochman said. "And I think for the first time, we're going to also see the provider health systems working together around specific goals and projects, whether it's around data, advocacy, potentially even with certain insurers."
"It's an exciting time," he added.
Editor's note: An earlier version of this article referred to Ken Kaufman, of the consulting firm Kaufman Hall, by the wrong name on second reference. It has been corrected.
Health system M&As may be necessary as insurerswith greater access to capital are expanding low-cost outpatient centers into Texas to capture patients.
The proposed merger of two giant Texas health systems illustrates the escalating pressure health insurance companies are bringing to bear on hospitals threatened by narrowing provider networks and a flood of new competition from health plan–owned outpatient providers.
Dallas-based Baylor Scott & White Health and Houston-based Memorial Hermann Health System this week said they've signed a letter of intent to create a 68-hospital system that draws tens of thousands of patients from Oklahoma to the Gulf of Mexico.
And even as big as they are, the deal may be necessary as even larger companies with greater access to capital are expanding low-cost outpatient centers into Texas to capture patients, as fee-for-service medicine gives way to value-based models that emphasize population health outside of the inpatient hospital.
"These two health systems are concerned about increasing market concentration amongst insurers, as well as vertical integration between providers and between insurers and providers," said Vivian Ho, an economics professor and the director of the Center for Health and Biosciences at Rice University's Baker Institute for Public Policy in Houston. "They are aiming to preserve their negotiating power in the midst of a rapidly consolidating landscape."
To be sure, in general, hospitals that decide to merge say they need to consolidate to gain influence against insurance companies like Humana, which is buying providers in Texas; and UnitedHealth Group, which owns Optum, and is gobbling up doctors and clinics and expanding its MedExpress brand urgent care centers across the country. Meanwhile, drugstore and retail clinic operator CVS Health is buying Aetna, and plans to develop more healthcare services beyond the 1,100 MinuteClinics that the pharmacy chain already owns.
All three of these health insurance companies are part of an escalating trend by health plans to form narrow network health plans designed to guide patients first to their own low-cost outpatient care centers before they would go to hospitals or other providers owned by Baylor or Memorial Hermann.
With Baylor and Memorial Hermann touting their established brand, Humana has gone so far as to rebrand all of the medical care provider operations it owns in Texas and Florida under the Conviva model, hoping to attract patients to both its clinics and its insurance offerings like Medicare Advantage plans for seniors.
"We are moving to an integrated model and are building a platform that will consolidate these brands in South Florida and Texas under a one payer-agnostic physician brand called Conviva," Humana CEO Bruce Broussard told analysts on the company's fourth-quarter earnings call in February of this year.
"Our strategy is for Conviva to provide local depth and drive both healthcare service and Medicare Advantage growth opportunities with greater member access and engagement in health over the long term," Broussard said. "We believe this new, simplified structure will help us to continue to build trust throughout Florida and Texas markets, improving operations while continuing to make strategic investments in the business."
To compete against the effort of insurers to package insurance and the provision of medical care, the two Texas health systems hope to make the combined system a "national model for integrated, consumer-centric, cost-effective care." The merger of Baylor Scott & White with Memorial Hermann will cast a wide net with more than 1,100 medical care delivery sites; nearly 14,000 employed, independent and academic physicians; and two health plans the systems own. The two systems say they "record nearly 10 million patient encounters annually."
"Together, we believe we will be able to accelerate our commitments to make care more consumer-centric; grow our capabilities to manage the health of populations; and bend the unsustainable healthcare cost curve in the state," Memorial Hermann President and CEO Chuck Stokes said.
Analysts say any healthcare providers that hope to compete will need "size, scale, presence, and concentration," says Kevin Holloran, Fitch Ratings senior director and leader of the firm's not-for-profit hospital and healthcare group. "There is always the hoped-for economies of scale, and there is also typically an underlying need to have more touch-points should population health really take off," Holloran said.
It also sets up a battle in Texas that is perhaps a more difficult market to compete in than other areas of the country because health insurance companies and medical care providers are fighting to divvy up a smaller percentage of paying patients.
Texas has the highest rate of uninsured Americans in the country with more than 17% of the state residents who were without coverage in 2017, according to the latest U.S. Census Bureau report on the uninsured, which was released last month.
Texas is the latest of the remaining 17 states that have yet to expand Medicaid under the Affordable Care Act. Of the 28 million Americans without coverage last year, 4.8 million of them were in Texas, the 2017 census figures show.
"Texas hospitals are facing a tougher financial situation than elsewhere, because the state did not elect a Medicaid expansion under the Affordable Care Act," Rice University's Ho said. "The absence of those funds, combined with the highest rate of uninsured patients in the nation, may have pushed Baylor and Memorial Hermann to consider this merger."
There's a building threat from the nation's two retail drugstore giants to hospitals and health systems as providers move toward value-based care and lower-cost outpatient services.
Even with Amazon threatening to compete with retail drugstore chains CVS Health and Walgreens with its own online pharmacy, these retailers aren't giving up on brick-and-mortar as a way to attract more patients into their stores.
And that's bad news for the nation's hospitals and health systems.
There's a building threat from the nation's two retail drugstore giants to hospitals and health systems as medical care providers move away from fee-for-service medicine to value-based care and lower-cost outpatient services.
Walgreens and CVS are looking to healthcare as a way to keep customers coming into their stores, particularly in an era where consumers are fleeing brick-and-mortar to shop online via Amazon.
As front-end retail sales have fallen in recent years, CVS and Walgreens are moving more rapidly into healthcare from simply their historic role of filling prescriptions beyond the pharmacy counter and treating routine maladies with nurse practitioners in their retail centers to more services.
They are partnering more closely with health insurance companies that will work harder to funnel more patients to outpatient healthcare services inside the stores that will make them direct competitors of U.S. hospitals and health systems.
CVS has more than 1,100 retail MinuteClinics compared to 800 five years ago and 400 a decade ago.
CVS was opening 100 clinics per year 10 years ago, and that has slowed because they are now focusing on expanding healthcare services in the clinics as well as their stores generally. The same goes for Walgreens.
Walgreens has increased the services in its retail clinics, advertising the ability of nurse practitioners to conduct routine exams and student physicals and has been aggressively lobbying states across the country to change scope-of-practice laws to allow pharmacists to administer an array of vaccines.
"Why not use those locations as a strategy for healthcare?" Walgreens Chief Medical Officer Dr. Patrick Carroll says of the drugstore chain's nearly 10,000 locations across the country. "We have the space. We should use it."
To be sure, Walgreens is looking to provide more physician services like x-rays and procedures by partnering with UnitedHealth Group's Optum to connect its MedExpress brand urgent care centers to an adjacent Walgreens. Like most retailers, Walgreens' sales of general merchandise in the front end of the store is falling just as pharmacy sales, personal healthcare, and wellness revenues rise.
In the first such ventures, the Walgreens store and the MedExpress center each have their own entrance with a door inside connecting the urgent care center with the drugstore. It's designed for a medical provider to guide a patient to either facility depending on their prescription or other needs.
For now, there are 15 locations in six states that have MedExpress urgent care centers connected to Walgreens stores as part of the pilot. The markets include Las Vegas; Dallas; Minneapolis; Omaha, Nebraska; two cities in West Virginia; and Martinsville, Virginia.
"We're working closely with a number of partners in the healthcare community to bring services closer to our customers," Carroll said. "With our stores serving as more of a neighborhood health destination, we can best meet the changing needs of our customers, while also complementing our expanded pharmacy services."
Meanwhile, CVS plans to offer more healthcare services inside its stores after its merger with Aetna closes. CVS executives say they aren't ruling out developing urgent care centers as well.
CVS' network of nearly 10,000 pharmacies and over 1,000 retail clinics, and Optum's growing network of ambulatory facilities like the MedExpress urgent care centers are emerging as a model health insurers want to do business with as fee-for-service medicine gives way to value-based care that keeps patients out of the hospital.
And in CVS' case, the pharmacy will soon own Aetna, a health plan with more than 20 million members. That combination, which is currently wending its way through the regulatory process, is expected to lead to more narrow network health plans that encourage patients to use providers in the Aetna-CVS network over other health systems' facilities.
Health systems should be concerned, healthcare analysts say.
"CVS and Aetna, in their own words, are promising to reinvent the front door of American healthcare," says Kenneth Kaufman, managing director and chair of the consulting firm Kaufman Hall. "That promise should be of serious concern for legacy hospital providers since those providers have occupied that front door for the past 75 years."
CVS Health President and CEO Larry Merlo is beginning to offer some details to their strategies.
While cautioning that it's "very early" in the development of new programs the combined company will develop, Merlo has said the larger company plans to first focus on three primary patient populations: those patients with any of five chronic diseases: diabetes, hypertension, hyperlipidemia, asthma, and depression.
CVS and Aetna will also focus on "patients undergoing transitions in care," and a third "broader focus on managing high-risk patients," Merlo told analysts on the company's second quarter earnings call in May.
"By extending our new health care model more broadly in the marketplace, patients will benefit from earlier interventions and better connected care leading to improved health outcomes," Merlo said on September 20 at a CVS Health town hall meeting in Los Angeles.
"Think again about that senior leaving the hospital, knowing that the care plan prescribed by her doctor is being seamlessly coordinated by CVS and her caregiver. By fully integrating Aetna's medical information and analytics with CVS Health's pharmacy data and our 10,000 community locations, we can enable more effective treatment of the whole patient," he says.
