CVS Health’s Merlo touts focus on engagement, reimbursements

BY Sandra Levy

Alongside CVS Health’s fourth quarter and full year operating results, president and CEO Larry Merlo told analysts Wednesday that 2019 is shaping up to be a year of transition as it continues its integration of health insurer Aetna into its business.

As that takes place, the company has ventured into a new HealthHub format that it’s testing in Houston as part of a push to better leverage its enterprise capabilities.

“We will focus on key pillars of our growth strategy, creating a more consumer-centric healthcare experience,” Merlo said. “As an example, our first three concept stores were unveiled earlier this month. There is a lot of excitement around the consumer engagement and response.”

Merlo also said that while it’s still early, and the company is “in the learning phase,” it’s an example of the work underway.

He also said the company is working to combat headwinds — largely in its long-term care space, but also pertaining to reimbursements, which impact across the business.

“Many of these issues we talked about previously, most significant is the ongoing pharmacy reimbursement pressures in our businesses and the reduction in offsets to those pressures,” Merlo said. “What we are experiencing in 2019 is a declining benefit from new generics through branded inflation and the ongoing questions around rebates, along with some structural and CVS-specific challenges in the long-term care space.”

While these factors will negatively affect the business in the short term, Merlo outlined actions the company has taken in response.

In its retail business, CVS Health is continuing to develop product and service initiatives that it believes will accelerate top line revenue and profitability.

“We are winning from a growth perspective, and we expect to continue on those positive trends. In the front store, this includes introducing new product lines in the health and beauty areas, along with the expansion of higher margin service offerings. In the pharmacy, we will continue to deliver market leading top line growth through our network relationships and clinical care programs,” he said.

Additionally, Merlo said CVS Health is developing a new retail contracting strategy that better aligns reimbursement to the value that its clinical products provide, “enabling adherence improvements and star enhancements, while saving patients money.”

In the PBM arena, Merlo said, “We’ve created a new contracting model that provides for more transparency, simplicity for and alignment with our clients. In this model, clients will receive 100% of rebates, while we leverage our core strengths of contracting expertise in utilization management to drive lower net costs for clients and members without compromising on the quality of care.”

Merlo said that in August, the company outlined a four-point plan to get its long-term care business back on track, and said it is beginning to see improvements. “We’ve already begun to see some progress, realizing nearly $80 million in process improvement savings with more to come.”

Finally Merlo pointed out the key pillars the company expects will drive above market growth going forward, which includes working to expand the reach of its government business with Medicare positioned to lead the way. Looking ahead, Merlo also said he expects a strong and growing pipeline of new business opportunity within group Medicare for 2020 as well as within Medicaid, building upon success in Kansas and Florida.

“We’re creating differentiated products and services at the community level, driving meaningful value for both consumers and payers while improving the bottom line, Merlo said. “Applying new technologies will be a component of our consumer-centric approach to improving health.”


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