Inside This Issue - News
CVS Caremark executives bullish about future opportunities
October 25th, 2010
NEW YORK – Despite warning that earnings and sales growth next year could fall below long-term goals, CVS Caremark Corp. executives told those who gathered for its annual analysts meeting that the company still has a bright future.
“We offer the most convenient access point for health care,” chairman and chief executive officer Tom Ryan said. “This is an opportunity for us, and we think it is a huge one.”
To fully maximize that advantage, however, CVS admits it will have to make significant investments in portions of its operations, including streamlining its pharmacy benefits management business.
CVS has said that from now until 2015 it expects to increase its earnings per share by 10% to 15% a year, excluding onetime items, and to grow its same-store sales by 3% to 5% a year.
However, CVS chief financial officer Dave Denton told analysts and investors that 2011 earnings growth would be below the five-year plan’s goals because of expenses the company faces to make its PBM business more efficient and because of the entry of fewer new generic drugs. Although generics cost consumers less, he explained, they provide retail pharmacies with higher margins than branded drugs.
CVS also said that while its same-store sales increased 2.5% in the third quarter — below what some analysts had estimated — the increase was higher than other drug chains saw during the period.
The continued sluggish U.S. economy is also impacting CVS’ business, executives said, causing more consumers to reduce their spending on prescription drugs and general merchandise.
All of these drawbacks, Ryan stressed, are short-term problems. In the long run, he said, CVS will only get better. “We clearly operate in a vibrant industry, and we are going to capitalize on the long-term growth opportunities that the demographics and changing health care system offer us,” he said.
For instance, he noted, the advent of health care reform will bring more patients into pharmacies. That could result in CVS filling as many as 2 million more prescriptions a year.
On top of that, Ryan and the other CVS executives at the meeting said the country’s aging population and the growing number of Americans with chronic conditions will also swell the ranks of people who rely on prescription drugs.
CVS, they stressed, is well prepared to meet the needs of the nation’s changing health care system.
“We recognized a long time ago that the role of the pharmacist would evolve from a dispenser of products to a provider of services,” president and chief operating officer Larry Merlo told the analysts and investors.
As result, CVS has been slowly revamping the way it treats patients, implementing a host of novel programs designed to improve outcomes as well as lower costs. The company’s MinuteClinic operation, for instance, is expected to increase in size to nearly, 1,000 walk-in health centers by 2015, Merlo said.
In its pharmacies, the company’s CustomeRx Savings Initiative — dubbed CSI — is aimed at improving patients’ lives by advocating for lower-cost treatment options. More than 18,000 patients are counseled very week on CSI options, Merlo said, with nearly half accepting the offers to switch to a lower-price drug. In addition, 65% of prescribers given the choice to switch their patients to the lower-price alternative do so.
These pharmacy interventions, Merlo noted, will save patients about $50 million in out-of-pocket expenses this year.
Going forward, the company will launch a program it calls Pharmacy Advisor in January. Merlo described Pharmacy Advisor as “a multichannel program that leverages our clinical intelligence and behavioral insights to identify interventions for members and deliver them at the right time in the right channel.”
The bottom line, he stressed, is that the program will lead to better patient care and the aforementioned reduction in health care costs.
Merlo noted that there are a wide variety of other efforts under way to enhance the productivity and effective of CVS’ pharmacy operation, with all of these initiatives designed to provide lower costs to payers and patients while helping to boost CVS' bottom line and increase the role it plays in the country’s burgeoning health care system.