What does CVS see that others don’t?

The following is an excerpt from Navigant Healthcare’s Pulse Weekly. Click here for a complete copy of this week’s article. 

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.

Paul

(1)Rachel Abrams, “CVS Stores stop Selling all Tobacco Products,” New York Times, September 3, 2014; Paul Ziobro, “CVS Changes Name as it Halts  the Sale of Tobacco Products,” Wall Street Journal, September 3, 2014; Jayne O’Donnell, Laura Ungar, “CVS Stops Tobacco Sales,” USA Today, September 3, 2014

(2)CMS Office of the Actuary, “National Health Expenditure Projections, 2013–23: Faster Growth Expected with Expanded Coverage and Improving Economy,” Health Affairs, September 2014

The opinions expressed in this article are those of the author and do not necessarily represent the views of Navigant Consulting, Inc. The information contained in this article is a summary and reflects current impressions based on industry data and news available at the time of publication. Any predictions and expectations noted herein are inherently uncertain and actual results may differ materially from those contained in this article. Navigant undertakes no obligation to update any of the information contained in the article.

© 2014 Navigant Consulting, Inc.