CVS Health expects 2019 to be a year of transition as it integrates Aetna and focuses on its growth strategy, “creating a more consumer-centric health care experience,” said president and CEO Larry Merlo.
Last November, the drugstore chain completed a $70 billion acquisition of health insurance company Aetna and now the retailer has been working on transforming the customer experience, as seen by its first three concept stores unveiled earlier this month.
“There's a lot of excitement around the consumer engagement and response,” said Merlo. “Now it's still early, as we're in the learning phase and working to define a hub-and-spoke approach, but it's an example of the work underway.”
- Revenues increased 12.5% and 5.3% for the three months and year ended December 31, 2018, compared to the prior year. Revenue growth was primarily driven by increased pharmacy network claims in the Pharmacy Services segment, increased prescription volume in the Retail/LTC segment and the addition of Aetna.
- Operating income declined in both the three months and year ended December 31, 2018 compared to the prior year
- Front store revenues remain approximately 23% of total Retail/LTC segment revenues. Front store revenues increased in the three months and year ended December 31, 2018 compared to the prior year primarily driven by increases in health product sales.
In CVS’ retail business, it is developing product and service initiatives, which, in the front store, includes introducing new product lines in the health and beauty areas along with the expansion of higher margin service offerings.
“2018 was a milestone year for CVS Health as we successfully completed our transformational merger with Aetna, began effective implementation of our integration strategy, and took important steps toward building the integrated healthcare model that will bring substantial value to our various stakeholders,” noted Merlo.
“With the completion of the Aetna acquisition, we have set the stage for CVS Health to excel in a market that is rapidly transforming,” he continued. “We strongly believe in the long-term value that the full breadth of our capabilities can provide.”
Merlo did note the company must address the impact of “headwinds” including the ongoing pharmacy reimbursement pressures in the businesses and the reduction in offsets to those pressures.
“What we're experiencing in '19 is the declining benefit from new generics, lower brand inflation and the ongoing questions around rebates, along with some structural and CVS-specific challenges in the long-term care space,” he explained.
Going forward, CVS said it will invest in initiatives that will set the foundation for future new product offerings. Investments are being made to further CVS's analytics and digital capabilities, develop new programs, and enhance Aetna's clinical platform.
CVS breaks the spending into "supporting transformation" and "digital." Investments in supporting transformation include work on the clinical platform to engage members, chronic care initiatives, and other initiatives aimed at improving outcomes and lowering costs. Digital investments include improving the digital and mobile experience for members and customers, as well as investments in the company’s Health Cloud software platform.
CVS expects its incremental investment spending to be between $325 million and $350 million in 2019. According to EVP and CFO Eva Boratto, while the investments will step down over time, CVS will continue to invest in its business as it evolves to its new model with the consumer at the center.