A DSN SPECIAL REPORT n 2012, DSN presented an in-depth report on CVS Caremark’s integrated pharmacy business model — part big retail pharmacy chain, part big PBM, part big retail clinic operator — and the innova- tive products and solutions that were coming out of the organization, particularly where the three parts of Ithe business came together, its “integration sweet spots,” as company executives referred to them. It was clear at the time that the company had emerged as a “category of one,” which was the cover theme of that special issue. Now, a year later, as the company completes its 50th year in business and the country awaits a period of change in health care unlike anything seen in at least that time, CVS Caremark executives are quite confident that its unique hybrid structure and its ability to leverage the three core parts of its business — either individually or together, in varying combinations to serve a multitude of needs — aligns more effectively with the long-term trends in health care and puts the company in a unique position at a singular moment in history. In an exclusive interview with DSN, CVS Caremark president and CEO Larry Merlo talked about what that means, why it’s important to both public and private pay- ers of all sizes, health plans, patients and providers, as well as how the company is using behavioral economics and predictive analytics to more effectively engage clients and customers and how they are building new clinical capabilities to address the new models of care, new cus- tomers and new quality standards that will guide the new payment models that will emerge through health reform. “We’re going to see more change in the healthcare industry over the next 10 years than we will have seen in the past several decades,” Merlo said. CONTINUED ON PAGE 20 THE POWER OF By Rob Eder 18O • DECEMBER 16, 2013 NEDRUGSTORENEWS.COM POWER OF ONE CONTINUED FROM PAGE 18 Call it the New New Math: One plus one plus one equals one. That’s more or less the formula behind CVS Caremark’s channel-agnostic, enterprise-driven growth strategy. That’s the power of one. Its Maintenance Choice program is a prime example. A traditional standalone PBM with a mail-order business would typically work hard to keep patients bound to mail. But for CVS Caremark, even if the PBM loses some mail- order scripts, it still captures those lives to man- age, and CVS/pharmacy gets the scripts; CVS Caremark the enterprise wins. Meanwhile, its PBM customers — and their members — save money and maintain access to retail pharmacy. In today’s market, with the headwinds currently facing the nation’s healthcare system and the massive changes to come, that’s a powerful message. It is no newsflash that America is facing a massive shift in health care, changing the way care is delivered, who gets it, how it is paid for and who pays for it as a result of health reform and other forces. With or without the Patient Protection and Affordable Care Act, health care had already been on a trajectory of mass retail- ization, driven by the economics of consumer- directed health care. This is only expected to intensify under health reform; with the growth that is expected in the individual plan market, millions more people will have a lot more skin the system. in the game. And this will sharply influence the Specialty pharmacy spending continues “We believe our enterprise model choices they make. to climb. By 2016, it is projected that 8-of-the- CAN DELIVER SERVICES AND CAPABILI- Consider some of the changes that will occur top-10 branded drugs will be in the specialty TIES THAT WOULD BE VERY DIFFICULT FOR in health care in the years ahead. class — up from 3-of-10 in 2010. Currently, spe- A STANDALONE PBM OR STANDALONE RE- America is aging rapidly — 15 million more cialty drugs represent about 20% of the total TAIL PHARMACY TO OFFER ON ITS OWN,” seniors will enter Medicare by 2020, with Medi- drug spend, and it is expected to reach more MERLO SAID IN LATE NOVEMBER. “When care drug spending expected to rise more than than 30% by 2016, growing at 13% a year. YOU THINK ABOUT THE NEW CUSTOMER 8% in that time. The average senior, ages 65 Health reform will result in newly covered GROUPS EMERGING, … obviouslY THE years to 74 years old takes about 27 prescrip- lives, new sources of funding and massive GOVERNMENT BECOMES A GROWING tions a year; those 75 years and older average shifts between patient segments that will play CUSTOMER SEGMENT WITH THE GROWTH more than 31 prescriptions a year. out over the next few years. By 2016, it is ex- IN MEDICARE AND THE EXPANSION OF Obesity and chronic disease continue to spike pected that 17 million of the previously unin- MEDICAID. We’re WELL POSITIONED. ” out of control. By 2015, it is estimated that 149 sured will enter the healthcare system either LARRY MERLO, PRESIDENT AND CEO million people — roughly half the country — through the private exchanges or Medicaid, will suffer from one or more chronic conditions. which is expected to grow 24% in that time, in the next few years to 52 million — and re- Patients with chronic disease spend five times adding 11 million more lives. sulting in a huge spike in the individual payer as much as the average person, with chronic It also is expected that a number of employ- market, expected to grow 150%, adding 21 mil- disease accounting for more than 84% of total ers will begin to shift retirees into Medicare and lion lives by 2016. healthcare costs. move current employees into the private ex- New care and payment models already are And the $300 billion a year adherence changes, further contributing to the rise in the emerging. More than 4-of-10 physicians believe problem continues to leak avoidable costs from Medicare population — expected to grow 18% CONTINUED ON PAGE 22 20 • DECEMBER 16, 2013 DRUGSTORENEWS.COM POWER OF ONE Channel-agnostic Approach: Enhances Patient Access 4 And Drives Enterprise Share CONTINUED FROM PAGE 20 CVS/pharmacy share of retail network claims and U.S. retail market they will be reimbursed under a pay-for-perfor- CVS/pharmacy share of Caremark retail network claims 31% mance model in the next few years — some of 30%30% 31% 28%28% them already are being compensated that way CVS/pharmacy share of U.S. retail market to some degree. Both government and private 23%23% 21% payers are pushing the development of such 19% 19% 19% 20% 18% 19% 18% 19% 19% new delivery systems as patient-centered medi- 16% cal homes and accountable care organizations. These models also require providers to assume more risk. In a frank and wide-ranging discussion, Merlo explained why he likes his company’s chances to be able to pivot against each of these 2007 2008 2009 2010 2011 2012E 2007 2008 2009 2010 2011 2012E challenges, levering and ratcheting up and Source: CVS Caremark down its offerings in varying configurations as CVS/pharmacy Share Of Caremark Retail Network Claims needed to serve the changing needs of payers plan clients, as well as on a carve-out basis as of a client’s pharmacy volume, the client’s per- CVS/pharmacy Share Of U.S. Retail Market and health plans. a standalone PBM where we have direct pre- member costs tend to go down. The company “We believe our enterprise model can deliver scription benefit offerings on the exchange uses the example of two PBM clients — both services and capabilities that would be very dif- products,” Merlo told analysts, duringCVS/pharmacy the are using share CVS of CaremarkCaremark’s bookspecialty of businessoffering, ficult for a standalone PBM or standalone re- Nov. 5 earnings call. growing fasterbut only than one, overall Client A,retail also marketis using Mainteshare - tail pharmacy to offer on its own,” Merlo said Notes:Additionally, its PBM will “participate in nance Choice and Pharmacy Advisor. Client A in late November. “When you think about the the1. 2011andpublic 2012E exchanges for CVS/pharmacy through share ofour Caremark health retail plan network claimsachieves excludes a Aetna generic and CCRx dispensing claims. rate of 77%, an 2. Includes all 90-day claims filled at retail under the Maintenance Choice program. 17 new customer groups emerging, … obviously clients on a carve-in basis, where the health average medication possession ratio (i.e., the the government becomes a growing customer plan offers integrated medical and pharmacy key metric used to measure patient adherence) segment with the growth in Medicare and the benefits and we provide the PBM services,” of 83.5% and gross costs per member of $2,305. expansion of Medicaid. We’re well positioned. he added. By comparison, Client B achieves a generic rate We currently have the No. 1 share in the man- But there is another very good reason that of 68.4%, an MPR of 80.3% and spends $2,697 aged Medicaid space — with about 30% market Merlo is so bullish about the company’s future: gross per member as a result. In these scenar- share — and we expect that segment to grow its recent past. ios, CVS Caremark manages 86% of Client A’s [about] 40% between now and 2016. We’re in The fact is its unique, integrated structure total prescription volume versus just 55% for a very good place when you look at the assets and the offerings that have come out of it thus Client B.