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THREATS TO HOSPITALS EMERGING ALREADY FROM CVS-AETNA COMBINATION

CVS has vowed to change the way U.S. healthcare is delivered, including efforts to give patients less need to use the hospital and its ancillary outpatient services.

KEY TAKEAWAYS

This competition will come down to who can better deliver medical care in the right place, at the right time, and in the right amount.

When CVS isn't launching services that compete with hospitals, it's trying to prevent unnecessary hospital care.

With its acquisition of Aetna complete, CVS Health is rolling out a menu of new health services and programs that are an immediate threat to U.S. hospitals and health systems.

CVS Health CEO Larry Merlo has begun disclosing new health programs as well as pilots to test new medical services to keep patients healthy and treat them for chronic conditions, such as heart disease and diabetes, inside the pharmacy chain's more than 9,700 stores. Merlo has also taken to the road to explain the benefits of the drugstore chain's $70 billion acquisition of health insurer Aetna now that the deal is closed.

"These businesses working together as an enterprise create a uniquely powerful new platform that will enable us to transform the consumer healthcare experience," Merlo said at last week's JPMorgan Healthcare Conference in San Francisco.

CVS has vowed to change the way U.S. healthcare is delivered, which includes efforts to give patients less need to use the hospital and its ancillary outpatient services.

Part of Merlo's mission is to funnel Aetna-insured patients to CVS pharmacies and retail clinics as well as to provide new services and pilot programs that will refer patients away from hospitals and health systems.

A 'NEW FRONT DOOR' TO U.S. HEALTHCARE

"Larry Merlo is saying, 'We want to create a new front door to American healthcare,' which is a shot across the bow of hospitals in America," Ken Kaufman, managing director and chair of consulting firm Kaufman Hall, said of the CVS chairman and CEO. "For the last year 50 to 60 years, the front door to American healthcare has been America's hospitals."

But CVS is looking to change that, opening new front doors for patients at the drugstore's pharmacy counter and in its more than 1,100 MinuteClinics staffed by nurse practitioners. Though some services have yet to be announced, CVS disclosed at the JPMorgan Healthcare conference there is "potential to allocate up to 20% of space to healthcare service offerings by scaling back on underperforming categories/products while scaling up new categories."

Beginning this month, Merlo said the combined company will begin guiding Aetna health plan enrollees to health and wellness services at CVS pharmacies and MinuteClinics. And Merlo said patients will be more closely monitored thanks to integrated management of prescription claims via the CVS Health Caremark pharmacy benefit management (PBM) company and medical claims from Aetna.

"To prevent avoidable hospital readmissions, this month we're piloting a program to enable Aetna care managers to facilitate the scheduling of MinuteClinic follow-up visits within 14 days post-discharge when patients are unable to see their provider," Merlo said. "And we're also piloting a program that leverages CVS pharmacists to provide face-to-face interactions to educate Aetna members on the available care management programs as well as provide patient-specific strategies to mitigate the risk of nonadherence, side effects, or gaps in care."

And when CVS isn't launching new services that compete with hospitals, health systems, and their outpatient facilities, the healthcare giant will be trying to prevent unnecessary hospital care and working to prevent patient readmissions to hospitals, Merlo said.

"We will work to reduce unnecessary emergency room visits through the early identification of frequent ER users and education on the care setting options that are available to them," Merlo said. "We're developing a series of comprehensive programs to better manage complex chronic diseases, such as kidney disease where the goal is to reduce hospitalizations and delay the progression of the disease or oncology where our objective is to align provider incentives to focus on quality and outcomes while enhancing patient support."

Merlo says that CVS is also testing "health concept stores" in Houston.

"We are piloting concept stores that offer health care services and products," Merlo said Monday at an address at the National Press Club Monday in Washington. "These concept stores will enable us to meet a range of basic healthcare needs, including monitoring for chronic conditions, lab tests, eye exams, and hearing tests. And we'll be able to do all of this—not in a fragmented way—but seamlessly with patients, their doctors, and the many other players in the healthcare system it takes to coordinate care."

With Aetna's more than 22 million health plan members covered by commercial, employer, and Medicaid and Medicare insurance, CVS sees a captive audience for its services.

CVS 'KNOWS THE CASH BUSINESS'

"There's no doubt that CVS wants to attach themselves to outpatients in a whole different way," Kaufman said. "They feel that the outpatient business is rotating from a semi-inpatient business to a retail business, and they're thinking, 'We know the retail business and that's a great rotation for us.' "

Though CVS owns Aetna and will integrate more services into its health plans, many of the new services CVS is offering will be attractive to those patients who have to pay cash because they have high-deductible health plans. These cash patients could be lost to CVS, analysts say.

"CVS knows the cash business," Kaufman says. "We think there's a fight for the patients here."

To be sure, American consumers are paying more out-of-pocket costs as deductibles and co-payments rise. Across all health plan types, the "median in-network deductible" for 2018 was $1,500 for employee-only coverage and $3,000 for family coverage, according to the National Business Group on Health's 2019 Large Employers' Health Care Strategy and Plan Design Survey.

Though CVS still has to follow through and execute Merlo's strategy, those who provide health benefits say the ability of hospitals and health systems to compete with this disrupter in the medical care business will come down to who can better deliver medical care in the right place, at the right time, and in the right amount.

"The follow through and execution, particularly in better integration and coordination of medical and pharmacy claims data and clinical management, will be important," National Business Group on Health Vice President of Public Policy Steve Wojcik said. "Hopefully that leads to smarter care and enhances value and lowers costs for patients and payers, including employers. It is part of a larger trend that even hospitals and health systems are embracing: the move to value-based care and population health management."