THCB

Behind the CVS Health Decision

CVS Health large take 2
Last Tuesday at midnight, CVS officially changed its name to CVS Health and simultaneously cleared its 7,700 retail stores of tobacco products a month earlier than previously reported. Its stores will be called CVS Pharmacy with plans to expand its 900 primary care clinics to 1,500 by 2017, and its $90 billion pharmacy benefits management unit, CVS Caremark, continuing to play a key role in serving its 65 million customers(1).

And the following day, the CMS Office of the Actuary released its forecast of health spending, predicting that health spending will likely return to 6% annual increases for the next decade(2).

No doubt, the timing of the two is coincidental. But taken together, they paint a future state in healthcare that’s distinctly different from its recent past.

Higher spending in healthcare has traditionally benefitted the industry’s traditional stakeholders—doctors, hospitals, drug and device manufacturers, insurers and others. Since passage of the Affordable Care Act and during the economic downturn, the profitability of the health system remained strong. But the prospect of health spending escalation will fuel a growing mandate from employers and consumers that the system deliver more value.

If health spending takes off again, health insurance premiums will increase and fewer employers will provide coverage to employees. Those that do will limit their coverage to employees, eliminating dependents and retirees. And household budgets will be stretched thinner as their out-of-pocket costs for healthcare increase.

For CVS Health and others, it means opportunity. The status quo healthcare system caters to patients who are oblivious to costs and treatment options. It operates cost-plus business models with price transparency elusive to most consumers.

The market CVS Health and others foresee is one in which consumer choices matter. It’s a market that’s cost-conscious, value-driven equipping individuals to participate actively in diagnosis and treatment decisions with care teams that leverage evidence-based clinical analytics with precision.

In some markets, CVS Health and others will compete aggressively with well-known hospitals and medical groups that are entrenched in the status quo. In others, it might also partner, where leaders are not threatened by a view of the future in which consumer purchases and preferences are drivers of growth.

In U.S. healthcare, our biggest challenge might be the transition from patient to consumer: it’s easier to operate the former, and much more disruptive to implement the latter.

 

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Ray S.Don Levit@BobbyGvegasDougPeter1 Recent comment authors
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Ray S.
Guest

Who knows more about this “Affordable Care Act “? That a business must be compliant by Jan 1st 2015 or they get fined $3000 per employee?

John Ballard
Guest

Short question with a very elaborate answer, beginning with “It depends…” Not all companies are affected nor are all employees. Here is a link to all the gory details. Short excerpt— 96% of all firms in the United States – or 5.8 million out of 6 million total firms – have under 50 employees and Will not Be Penalized for choosing not to provide health coverage to their employees. 96% of those firms already cover full time workers. That means less than .2% of small businesses (10,000 out of 6 million) will actually have to provide insurance to full-time employees… Read more »

Don Levit
Guest

Perry wrote: “So we are left with many patients with high deductibles trying to get what value they can for their dollars. This means they will simply have to become informed consumers.” Perry, please inform the consumers that their high deductibles can be pre-funded through the pooling effect. and, it can make a huge splash! Every dollar not paid out in claims can go toward the insurer’s reserves. The insurer will share those reserves with their participants. Sharing means if you make claims, your Health Matching Insurance account goes down. If your claims are less than the growth in your… Read more »

Peter1
Guest
Peter1

“Work out the math for yourself. $300 a month paid for 57 months (with no claims) results in $50,000 of paid-for benefits.”

$300 x 57 = $17,100

Don Levit
Guest

Peter;
The difference in $17,100 and $50,000 is the HMI paid for benefit. The amazing HMI benefit is $32,900.

Peter1
Guest
Peter1

“The amazing HMI benefit is $32,900.”

Who pays for it? Who pays the $300/mth?

Don Levit
Guest

The employer and/or employee
The spouse gets the same accumulation for $210 a month. The children get the same accumulation as the employee for $180 a month. In effect, pooling is done at the family level , too.
Don Levit

John Ballard
Guest

This “health matching insurance” is what, exactly? Does the policy holder receive a reward for every year with zero claims? That 35% looks amazingly high. And just what are the chances of a regular person having zero claims for 57 months? And according to Mr. Google it’s “patented”. Hmm…
I can see where it might work.
Job related claims are covered by workers comp, auto accidents by auto insurance, accidents on someone else’s property by liability. What have I missed?

Peter1
Guest
Peter1

John, Mr. Levit never misses an opportunity to highjack this blog with a shameless personal product plug.

His “plan” leaves a lot to the imagination – so far. He makes it sound like he’s giving out free money.

John Ballard
Guest

Got it.
Somebody already mentioned Three-card Monte.

Don Levit
Guest

You make think it is free money compared to other plans available
But after three years of peer review at Milliman a world-class respected actuarial firm I assure you all parties win
Confirmation by the Texas Dept of Insurance will add to our credibility that the product is profitable and generous
Don Levit

Don Levit
Guest

The 35 percent return comes from our sharing a portion of our reserves with those whose benefits exceed their claims If a person makes a claim with a zero deductible our reserves are reduced but so is his HMI account balance by the same amount By lowering our risk for that claimant the employer assumes more risk for that person in the self funded arrangement For 80-90 percent of the typical group their benefits grow faster than their claims so more risk from the first dollar is shifted from the employer to NLPH With less risk the employer needs a… Read more »

Peter1
Guest
Peter1

Don, nothing “Amazing” about your plan. Lower risk lower premiums, lower reserves. The un-sick do well, the sick less so. The insured pays.

Instead of highjacking these blogs why don’t you get THCB to sell you some ad space.

Don Levit
Guest

Peter: You are right There is nothing amazing or magical about my Plan It Just works and should have been made available years ago While the healthy make out better those having consistent large claims still get a fully community rated premium which is a lot less than an experience rated premium In addition if a family group is involved the risk is spread among the family group itself If the employee has large consistent claims the spouse and children can build large HMI balances with corresponding premium reductions And they get the same $300 a month contributions at a… Read more »

bird
Guest
bird

cvs and minute clinics are there to milk money out of the worried well who think they need an antibx for every sniffle and cold. they will only increase overall cost to the system as a whole and will not make a dent in the real demographic that is soaking up 85% of the health care dollar. those with chronic conditions ie diabetes, cad, copd and general badness. Kudos for getting rid of tobacco but thats about it.

Peter1
Guest
Peter1

bird, when a company has investors their loyalty is to the investors (care to try and change that?).

Rid health care of investor financing and you’ll get closer to health care not money care.

Doug
Guest

CVS is going to broaden their services to include more clinics, lab tests… They may even create a health plan. The elimination of tobacco is market positioning – as a broader health care provider. (The announcement- good PR.) Oh, the comment about a transparent model – think again. Pharmacy is a sophisticated game of “three card Monty”.

Vik Khanna
Guest

Pharmacy is a game of three care Monty. That’s a great line. And totally on point here.

Peter1
Guest
Peter1

From the comments it’s clear the phrase, “no good deed goes unpunished” is true. I support the decision even if it may have some nefarious goal – I’ll take it at face value for now as a good first step. Notice there are no bad words here for Walgreens continuing to sell a known carcinogen. Surely Walgreens then must have lofty ideals.

Most here on THCB want competition in health care and to get patients out of high priced hospitals – why then are you all against CVS which provides some of the alternatives you want, sure beats the ER.

John Ballard
Guest

I, for one, support the move by CVS. “Bait and switch” notwithstanding, the more people scrutinize health care costs the better. It may only be at the retail level, but sooner or later that competition will find its way up the food chain to the big players. (See big box stores in strip centers displacing malls.) Of course America is and always will be the land of conspicuous consumption, but most of us are still forced to live within our means — or whatever credit limits we can stretch. I have been watching the process at the other post about… Read more »

Saurabh Jha
Guest
Saurabh Jha

That’s an interesting question Peter.

Briefly stated, I think the more expensive the segment of healthcare the more it is immune to competition. I doubt CVS will enter the market for cheap end of life provision.

The cheaper the segment of healthcare the more, theoretically, it is amenable to competition. Thus, retail clinics for coughs and colds. And one-to-one consultations with wellness experts, which is really psychotherapy by another name.

Certainly it’s possible to trim some fat. But trim is the operative word. But there will be sale of lots of marginal healthcare products. Supplier-induced demand.

Perry
Guest
Perry

Peter has a point. The days of Marcus Welby are, unfortunately long gone. Our medical care system has become one of fragmented care, dubious treatments, disaffected physicians and unrealistically expectant patients. Now we have in place a law that attempts to provide insurance coverage globally for Americans, but a flawed one. It does not provide necessarily good cradle to grave coverage for all, or even very affordable care. So we are left with many patients with high deductibles trying to get what value they can for their dollars. This means they will simply have to become informed consumers. I think… Read more »

Peter1
Guest
Peter1

Perry, I wish we had a PCP system as I understand the NHS has. But we’re going to have to pay appropriately for it, support it, and legislate it into the system. Won’t happen – so sad. It’s expensive without it; the price of “medical freedom”

Saurabh Jha
Guest
Saurabh Jha

I’m going to get over my urge to be permanently cynical and concede that urgent care clinics should reduce ED burden.

But how much of that burden contributes to the net costs?

Sure, every little drop counts.

The other thing, a conjecture really, is that those most likely to avail themselves of urgent care clinics are also the ones least likely to abide long waits in the ED – i.e. the more prosperous sections of society.

Perry
Guest
Perry

Here’s what I see happening. The prosperous will have private primary care through decent insurance or “direct care”. The middle class will be about the same, but in a pinch, may use the urgent care or CVS for convenience sake.
The lower middle/blue collar will very likely use these minute clinics because they will have high deductibles and/or skip insurance altogether.
The poor uninsured will still use ER, as will Medicaid because there won’t be enough physicians seeing Medicaid patients in the office setting.

Saurabh Jha
Guest
Saurabh Jha

Market segmentation? Yes, I think so, too.

Psychologist gold coast
Guest

The business sector CVS Health and others predict is one in which purchaser decisions matter. It’s a market that is expense cognizant, esteem driven preparing people to take an interest energetically in conclusion and treatment choices with forethought groups that power confirmation based clinical investigation with accuracy.

platon20
Guest
platon20

I argue that the most valuable thing a doctor does is explain to patients the natural course of illness and explain why a patient doesnt need a million dollar workup or lots of prescriptions.

Is CVS health going to do that? I doubt it. They will up sell everything they possibly can. I expect CVS health to put a cardiac cath lab in their pharmacies in the next 10 years so they can do on-site stent placements. $$$$$$$

Felix
Guest

Well CVS Health does sound more professional if your buying medicine and health products.

John Ballard
Guest

The market CVS Health and others foresee is one in which consumer choices matter. It’s a market that’s cost-conscious, value-driven equipping individuals to participate actively in diagnosis and treatment decisions with care teams that leverage evidence-based clinical analytics with precision.

Imagine that. People are beginning to pay attention to health care costs. If this keeps up costs may start inching down.

Vik Khanna
Guest
Vik Khanna

Not if the CVS model holds sway. This is all just a very elaborate bait-and-switch. No one is going to find health at CVS, they’re just going to find a lot more stuff to buy, much of which will not benefit them materially.

bird
Guest
bird

it was just released in the NYT that Jiffy Lube is getting into the digital rectal business, they already have the lubricant and male clientele.

Saurabh Jha
Guest
Saurabh Jha

CVS, like Willie Sutton, is following the money.

As Vik says, abandoning nicotine is good for PR. PR is good for business.

Here is a Law. You can cite it as the Jha’s Law of Healthcare Entrepreneurship.

“No body gets in to the healthcare business to sell fewer products.”

Once you acknowledge that you can be at peace with mankind.

Vik Khanna
Guest

I see it more plainly: CVS made two calculations. First, that getting out of the tobacco sales biz would get it much PR applause. Mission accomplished. Second, that the revenue lost can be made up making people into perpetual patients, selling screenings (most worthless) and encouraging people to use/overuse their seemingly low-cost clinics and to befriend the staff pharmacists who can recommend a broad range of prescription and OTC drugs and supplements. Public companies, especially those in the medical space, are only interested in selling, and CVS has calculated that they can sell more medical care, even of the marginal… Read more »

Perry
Guest
Perry

And if someone else sells the tobacco, they can still get the patient.

Vik Khanna
Guest

Good point. In fact, Walgreen’s has already said it will not follow CVS’s example.

@BobbyGvegas
Guest

BobbyG’s quick surreptitious iPhone CVS aisles-of-plentyYouTube tour in Vegas a while back. I guess people will now have to consume more of their junk food and booze in the wake of the loss of the appetite-suppressing tobacco.

https://www.youtube.com/watch?v=KWdAnPyVL_Y

🙂