CVS Health’s revenue increased by 2.2% in Q2 2018, to $46.7 billion – coupled with a net loss of $2.6 billion (a combination of operating loss, a long-term care goodwill impairment charge, and transaction and integration costs associated with the proposed Aetna acquisition). Second quarter Retail/LTC segment sales were $20.7 billion, up 5.7% from Q2 2017. Sales were boosted largely by success at the pharmacy: same-store prescription volume increased 9.5% (30-day equivalent basis) – which in turn drove up pharmacy and total store comps (up 8.3% and 5.9%, respectively). On the other hand, front end comps were negative, with a 1.0% decline vs. Q2 2017. This was driven by persistent diminished customer traffic and by a quarterly shift in the Easter holiday (from Q2 in 2017 to Q1 in 2018), but also partially counterbalanced by growth in basket size.
CVS continues to make very clear that its primary focus today is on building its identity as a healthcare innovation company. In fact, issues related to the front store took a back seat to health service and pharmacy initiatives during this quarter’s earnings call. From a CVS Health strategy perspective, three themes were consistent throughout the earnings call and should be highlighted:
New healthcare capabilities
In conjunction with the Q2 earnings release, CVS announced its new telehealth offering, MinuteClinic Video Visits. The service will be accessible 24/7 through the CVS Pharmacy app and is being enabled by technology from telehealth company Teladoc. Importantly, the tool is integrated with local providers: Video Visit practitioners can refer patients to their primary care doctor or a MinuteClinic location, and can submit prescriptions to local pharmacies. The local integration piece is important, as CVS wants to be sure that it is inserted into patients’ and providers’ own healthcare ecosystems as a crucial cog in the cycle of care. This addition of a telehealth service also fills an important gap in CVS digital offerings overall, and fulfills CVS’ mission of meeting patients where they are – whether that’s in a CVS (or Target) retail location or in their own homes. Despite the convenience, the $59 fee may be a barrier to use (though the potential for insurance coverage will be added as the service ramps up).
Back in March, CVS and Aetna shareholders approved the transaction with over 95% approval from each side, and CVS is operating with the expectation that the deal will fully close in the latter half of 2018. That said, integration planning has begun, and senior-level executives from each company have joined to create the Integration Management office. Also underway is the process of rethinking and reinventing the healthcare system under a CVS-Aetna union. This has involved the identification of key patient populations of focus (at least initially), and the development of tools that will be used to serve these populations. Chronic disease patients in five key areas (diabetes, hypertension, hyperlipidemia, asthma, depression), transitional care patients, and high-risk patients will be served with a range of solutions that span CVS stores, patients’ homes, and the digital sphere. For CVS, its customers now are more patient-shopper, or caregiver-shopper hybrids, with unique health and wellbeing needs that drive their trips, purchase decisions, and service utilizations.
The growth initiatives that CVS called out as part of its Q2 earnings were, again, centered around healthcare solutions. The retailer/care provider is placing significant focus on driving growth via improving health services and lowering the cost of care. One way is through an increased focus on data to predict patient need-states and provide support earlier in patients’ diagnoses. Another is an expansion of services to provide home dialysis solutions, which improves patient outcomes by allowing longer, more frequent sessions. Increasing access to and affordability of prescription drugs is another area of focus, and one aimed at driving growth through adherence. CVS cites its Saving Patients Money program and Rx Savings Finder as two ways in which it is making drugs more affordable for customers, increasing price transparency, and thus improving adherence. Overall, CVS Health sees these growth-drivers as important “boundary-pushing” initiatives that further secure their identity as a healthcare innovation company.
For more detail around CVS Health’s Q2 2018 earnings, click here.