CVS & Walgreens Adapt
CVS & Walgreens, like independent retail pharmacies, are facing immediate pressure from all fronts: reimbursements from PBMs, retail sales from Amazon, and losing volume to growing mail-order pharmacies (Amazon/PillPack, PBM pharmacies). As such, they have adopted a few different strategies to ensure they survive and, if all goes well, thrive.
Market Dominance
CVS and Walgreen began their march to growth in the 90s and by the mid-2000s had established themselves firmly, with 6,000+ stores. Today, each company boasts over 9500 stores with roughly $60 billion dollars each in chain drugstore revenues.
Increasing Pressure
As the chain drugstores get bigger, they also became bigger targets across the pharmacy supply chain.
PBM
Early 2012 marked a paradigm shift in the pharmacy industry as Express Scripts and Walgreens went toe-to-toe in a headliner fight. Unfortunately for Walgreens, they severely underestimated how much power Express Scripts held, being higher up on the supply chain (and food chain) than the pharmacy. In the six-month dispute, Walgreens lost 5.7 to 6.5 million prescriptions to CVS, per the Drug Channels Institute.
This event concretely demonstrated the power that PBMs hold over their downstream pharmacy partners.
Retail
Another pressure that CVS and Walgreens are being faced to endure is Amazon. While CVS’s sales fell by 1% in Q2 2018, Amazon sales grew by a staggering 39% or $15 billion year-over-year.
Pharmacy
We extensively covered Amazon’s acquisition of PillPack in June 2018 (
read here) – here is an example of what filling a “PillPack Prime Prescription” might look like: upload your prescription, one-click payment, an Amazon pharmacist approves prescription, and, potentially, have it delivered two hours later with Amazon Prime Now. As Amazon integrates PillPack into its stable of offerings, we can expect it to be widely popular, as consumers continue to flock to all aspects of the Amazon platform.
CVS Caremark holds the silver medal in Mail/Specialty Pharmacies with $38.6 billion in annual revenues, behind Express Scripts, the largest Mail/Specialty Pharmacy, with $44.8 billion in annual revenues, per Drug Channels Institute. As Cigna, Humana, and other industry titans make moves, that volume could prove to be a liability, more so than an asset.
PBM
PBMs have faced quite a bit of backlash over the past few years for aggressive tactics and lack of transparency on revenues and profits. In 2018 alone we saw:
New York pharmacies united to fund a lobbying effort (
read here);
Ohio auditors released a report that showed PBMs collected more than $2.5 billion in 12 months ($225 million coming from spread pricing); and CVS Caremark and Express Scripts finally rolling over for a fully transparent model where they earn money on management and service fees, rather than spread pricing. Accordingly, CVS Caremark might feel a squeeze in revenue and profits over the new few years.
Adaptation and Improvisation
In response, CVS and Walgreens have each implemented strategies that include reaching across the healthcare continuum.
Next Day Delivery (Amazon + PillPack)
Walgreens Express® and CVS Same-Day RX Delivery Services are each of the companies’ offerings for Next-Day delivery. Walgreens partnered with FedEx and CVS with USPS to assist in the add-on delivery fee for same-day and next-day delivery of prescription drugs.
CVS Labeling (PillPack)
CVS Pharmacy debuted its new ScriptPath Prescription Label and Prescription Overview to its more than 1,100 locations in California. The system simplifies and organizes key information, increasing patients’ ability to understand their prescription information and dosing. The label features larger text and clear refill details that make reordering a snap. “By providing [patients] with a clear and concise dosing schedule on their prescription label and overview, along with an easy-to-understand prescription schedule, we can help improve medication adherence and overall health,” stated Dr. Troyen Brennan, chief medical officer at CVS Health.
CVS & Aetna (Defense)
There are a number of advantages that CVS Caremark will have with Aetna:
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CVS retail store can be exclusive/preferred for retail drug dispensing on Aetna plans
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CVS Specialty can be exclusive/preferred for specialty drug dispensing on Aetna plans
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CVS MinuteClinic® can be exclusive/preferred for telehealth and some primary care services on Aetna plans.
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Caremark builds out massive knowledge base on intricacies of insurance plan and payor operational dynamics
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CVS can acquire a Medical Benefit Manager and leverage knowledge/experience of PBM into managing the healthcare benefit.
CVS Health Services (Growth)
CNBC recently reported that CVS Caremark CEO Larry Merlo committed to providing health services:
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Managing five common chronic conditions — diabetes, cardiovascular disease, hypertension, asthma, and behavioral health.
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Optimizing and extending primary care, including to expand the scope of services available at CVS’ MinuteClinics to help identify and manage chronic diseases.
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Reducing avoidable hospital readmission by combining Aetna’s clinical programs with CVS’ stores to guide patients when they’re discharged.
Managing complex chronic diseases, such as kidney disease. MinuteClinics are staffed by nurse practitioners who can screen/diagnose, treat and write prescriptions for common illnesses, dermatological conditions, and chronic diseases. Additionally, the clinic can treat minor wounds and abrasions, sprains, strains, and joint pain. Common vaccinations are also available. The concept allows for a quicker, easier, and more cost-efficient model than primary care doctors, given the limited scope of offerings.
The new profit and revenue stream will allow the company to be less dependent on General Retail although increased traffic would bode well for Retail Pharmacy, CVS Specialty and General Retail segments.
Walgreens Partnerships (Growth)
Outside of some retail efforts (such as their Birchbox partnership), Walgreens has made some headway into providing healthcare services. Specifically, Walgreens has co-located Labcorp Diagnostic centers with their storefronts. The locations offer a secure environment for specimen collection. In total, there will be 26 LabCorp at Walgreen sites across the United States once the expansion is complete.
Additionally, Walgreens has partnered with Humana to develop senior clinics, exactly inline with CVS’s MinuteClinic efforts. The clinic will be designed to complement the prescriptions and pharmacy services offered at Walgreens with Humana’s “Partners in Primary Care” center.
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