When CVS Health pitched the benefits of its planned acquisition of Aetna to investors today, the pharmacy giant said the $69 billion merger could turn its drugstores into local “health hubs.” Those hubs, the company says, could help reduce healthcare costs by delivering medical services in a convenient place and reducing patients’ needs for pricey hospital visits. If nothing else, the move says a lot about the rise of retail health clinics and their growing role in the healthcare ecosphere.
Both CVS and Aetna say the acquisition—slated to close during the second half of next year—could help CVS’s more than 9,700 pharmacies offer services like in-store medical exams and counseling on the chronic conditions that make up the bulk of healthcare spending. People with diabetes, for instance, could get advice on nutrition and medication in the same place that they buy medical supplies, the companies said in a statement. And thanks in part to better data sharing, patients released from the hospital could stop by CVS for help in understanding their medications, something the companies say will reduce the chance they’ll have to be readmitted.
“These types of interventions are things that the traditional healthcare system could be doing,” said Larry Merlo, CEO of CVS Health, “but the traditional healthcare system lacks the key elements of convenience and coordination that help to engage consumers in their health.”
More than 1,100 CVS locations are already home to in-store MinuteClinics, with some offering hearing- and eye-care services as well. Rival Walgreens also has its own line of more than 400 in-store clinics, including some run by local healthcare practices.
But so far, experts say patients who tend to use in-store clinics, as well as the growing number of standalone urgent-care centers like CityMD, are mostly younger and healthier than medical patients overall. While young adults looking for help with scrapes or the flu find the clinics a convenient alternative to scheduling a visit with a primary-care doctor, older people with long-term conditions are more likely to stick with their regular physicians.
Meanwhile, studies show that in-store clinics deliver care on par with traditional medical offices. But although they were initially conceived partly as a way to reduce medical costs, they may—so far, at least—actually increase total spending. “That’s primarily been driven by the woodwork effect,” says Ateev Mehrotra, an associate professor at Harvard Medical School. “People who otherwise would not have sought care come out of the woodwork and come and get care.”
That may change if the retail clinics can, in fact, be reinvented as centers for people managing long-term diseases over years or decades. “As the two CEOs emphasized, the money is not in low-acuity care,” says Mehrotra. “The money is in chronic illness.”
One challenge for the combined company could be making CVS feel more like a medical office and less like a convenience store, says Eric Coldwell, a senior equity research analyst covering CVS for Robert W. Baird and Co. In 2014, CVS stopped selling tobacco, which it said conflicted with its role of improving customer health, but the stores still sell soda, sugary snacks, and, in some locations, alcoholic beverages—not exactly items you want to see at at your doctor’s office.
“I think that if they’re really going to do what they say they’re going to do, they have to totally change the store,” Coldwell says. “It has to be fresh, healthy, more medical.”
The Specter Of Amazon
Like nearly all brick-and-mortar retailers, drugstores are facing competition from online sellers, especially Amazon, which has lately been rumored to be mulling its own entrance into the pharmacy business. And if people stop by CVS for a medical consultation—as the more than 44 million people served by Aetna might be incentivized to do—they’ll naturally be more likely to fill their prescriptions there and potentially buy other items like laundry detergent or over-the-counter medical items they might have otherwise bought online.
“They’re all designed that the customers who use the clinics will also purchase items in the store,” says Bruce Carlson, publisher of healthcare research firm Kalorama Information, of in-store clinics.
Of course, the planned CVS-Aetna deal isn’t all about in-store clinics. The companies point to $750 million in savings from “near-term synergies,” but they’re also likely looking forward to having more negotiating power with other players in the medical industry, particularly pharmaceutical companies, says Jeffrey Loo, a healthcare equity analyst at investment-research firm CFRA.
CVS already has its own prescription benefit management company, called CVS Caremark, which manages drug plans on behalf of insurers including Aetna. The combined company might be able to negotiate better prices from drug makers and wholesalers, which could even help lower prices for consumers.
“What we have been seeing across the entire healthcare spectrum is consolidation amongst many players in an effort to get bigger, in an effort to get more leverage, in an effort to negotiate better,” Loo says.