WOONSOCKET, R.I. — Throughout the course of its history, CVS Health has demonstrated the ability to adapt to changes in the marketplace.

Larry Merlo introduces CVS Health as the company’s new corporate identity.

The company made the transition from a retailer of health and beauty aids to a full-line community pharmacy shortly after it was founded. In succeeding years, CVS developed the scale it needed to compete at the highest level in that sector, and in 2007 the company made a bold move to extend the continuum of care by merging with a top pharmacy benefits manager.

Now, as the U.S. health care system is undergoing the biggest transformation since the establishment of Medicare and Medicaid in the mid-1960s, the company is once again redefining itself and the contributions it can make to the well-being of patients.

“CVS was founded 51 years ago, and the basic values it had at that time continue to exist today,” says president and chief executive officer Larry Merlo. “But there have been points in time when the company has had to reinvent itself.”

Perhaps the most dramatic departure was the merger with Caremark Rx, which recast CVS from a drug store operator into an integrated pharmacy services provider.

“At the start there were a lot of questions about what this new combination would mean,” Merlo recalls. “What could it do? Over the past seven years we’ve been able to establish the fact that our integrated retail/PBM model can improve access to care and enhance the health of those patients we serve. At the same time it is reducing the overall cost of care by bringing innovative products and services into the market. The recent change in our corporate name to CVS Health underscores our intention of playing a bigger role in health care delivery.”

The need for the company’s expertise has never been more urgent. Already a problem, the shortage of physicians in the United States is expected to reach 130,600 — half of them primary care doctors — by 2025, according to the Association of American Medical Colleges, even as a growing and aging population makes greater demands on the health care system.

Cost is another major concern. The Centers for Medicare and Medicaid Services reports that in 2012 health care spending increased 3.7% to reach $2.8 trillion, or 17.2% of gross domestic ­product.

Merlo is confident that CVS Health, which also includes MinuteClinic, which currently runs more than 900 walk-in medical clinics staffed by nurse practitioners in CVS/pharmacy stores, has the wherewithal to help address those problems.

“There are a lot of things that we’re doing right now to make health care more efficient and cost effective without compromising on quality,” he says. “MinuteClinic is a good example. A few years back we did an analysis of our CVS Health colleagues who had utilized MinuteClinic using de-identified data. After adjusting the results for age and health status, we found that their overall health care costs were 8% lower than those of the control group. A big driver of that was taking acute care visits — many of which occur on nights and weekends when physicians’ offices aren’t open — out of the emergency room and shifting them to MinuteClinic. Stakeholders across health care delivery need to take a hard look at all those visits for acute care that are being addressed in an emergency room today that could be handled at a walk-in medical clinic at a fraction of the cost.”

The migration of more health care services to innovative practice settings will not, Merlo stresses, hurt quality, and in some instances may actually improve it.

“MinuteClinic recently participated in another study that focused on quality of care. It showed that care delivered at MinuteClinic for common acute conditions like ear infections and strep throat was the same as, or in some cases better than, care delivered at emergency rooms or ambulatory care facilities,” he says. “So it’s a mistake when people think that if we reduce the cost of care, we’re going to be reducing the quality of care.
“To me it’s not an ‘either/or,’ it’s an ‘and.’ We’re bringing products and services into the market that are demonstrating that you can lower the cost of care and, in many respects, improve quality at the same time,” he notes.

The same principles guide the evolution of CVS/pharmacy and CVS/caremark, where the goal is to equip members of the pharmacy profession to practice at the top of their license and play a more integral part in the delivery of health care. The Pharmacy Advisor program illustrates the process. Launched in 2011, Pharmacy Advisor helps PBM plan members who suffer from chronic conditions achieve better outcomes. CVS Health pharmacists engage members diagnosed with a broad and growing range of health problems, including asthma, depression and osteoporosis, face to face when they fill prescriptions in-store or by phone when members choose to use mail service.

“Pharmacy Advisor’s goal is to enhance the health of those we’re serving by improving patients’ adherence to their prescribed medications and, at the same time, closing gaps in care,” Merlo explains. “A recent study in Health Affairs showed that diabetes patients in the program had a 3.9% improvement in adherence to their prescribed medications compared to members of the control group that involved individuals who are not CVS/caremark members. While the additional counseling cost $200,000, the participating employer saved more than $600,000 through the avoidance of other health care expenditures, a return on investment of $3 for every $1 spent. So I think the evidence is there.”

Such results promise to speed the transition in the way CVS Health and other providers are compensated.

“Size and scale are important in this business because of the margin and cost pressures we face,” says Merlo. “There continues to be an intense focus on reducing costs, and that’s largely come about by cutting reimbursement across all stakeholders in health care ­delivery. You hear the physicians talking about it. You hear the hospital systems talking about it.

“Health care delivery is migrating away from a fee-for-service model to one that is tied to outcomes. We see it with the Star Ratings associated with the Medicare program. Many of those metrics focus on improving clinical outcomes. And medication adherence and pharmacy care are a big part of that.

Another source of change is the Affordable Care Act. In addition to extending health coverage to millions of previously uninsured Americans, the legislation has accelerated cost containment efforts and the emergence of new models for health care delivery.

“In terms of the ACA, we’re still in the very early stages,” says Merlo. “At the start of the year we thought that it would be a modest benefit to our business, and that’s exactly how it’s played out. The biggest benefit has been from the expansion of Medicaid. We can see that in our numbers.

“With 7 million more Americans having health care coverage and that number expected to grow to more than 9 million by next year, ACA has made a difference in health care access. What hasn’t been addressed, however, is cost and quality — and we are seeing a much greater focus on cost and quality from the payer and provider communities.”

In light of those dynamics, CVS Health is as well positioned as anyone to help patients and payers navigate through what the company terms the retailization of health care.

“The challenge that we face is to figure out what exactly is going to change in health care delivery and how we can help provide a solution,” says Merlo.

“The fact is that consumers are going to have more choice, and that choice is going to bring with it a level of accountability and decision making that has been absent from health care in the past. CVS Health can do a lot to assist them.

“The PBM business has historically been B-to-B. CVS/pharmacy has been a B-to-C business. From our experience with consumers, we are able to partner with clients and health plans — whether we are their PBM or not — and our consumer expertise is being welcomed by health plans.

“We understand how to communicate with consumers and what motivates changes in their behavior to improve their health. That’s important, especially recognizing the ­relationship a pharmacist has with a patient and the level of trust that exists between them.”