PALM BEACH, Fla. — Three years before the Affordable Care Act was enacted in 2010, CVS Caremark Corp. began to position itself to respond to the changes that are currently transforming the health care system. The merger that brought together the nation’s second-largest drug chain and No. 3 pharmacy benefits manager (which has since become No. 2) promised to extend the continuum of care and, in so doing, improve patient access, enhance outcomes and lower the cost of health care. After some early missteps, CVS Caremark has hit its stride and is making that vision a reality.

That’s good for the company — earlier this month it reported a 21% increase in operating earnings for the first quarter — and good for the health care system, which, beginning in January, will see the gradual addition of 30 million individuals to the ranks of the insured.

“When you think about the Affordable Care Act and some of the things that are being talked about around ACOs [accountable care organizations] and primary medical homes, they point to a new, risk-bearing model,” CVS Caremark president and chief executive officer Larry Merlo said during an interview at the recent National Association of Chain Drug Stores Annual Meeting. “That will bring performance management into the equation in terms of pharmacy operators’ ability to demonstrate not only that we’re getting the patient on the clinically appropriate therapy, but also the lowest-cost therapy. We have to show that we can help patients stay adherent and close gaps in care. And that by doing so we can drive down overall health care expenditures.”

CVS Caremark’s management team is determined to meet those goals.

“With our retail pharmacies, pharmacy benefits management company and in-store clinics, we have the assets to be an important contributor to better health care delivery,” Merlo said. “Our objective is to bring integrated products and services into the marketplace that improve the health of those we are serving and, at the same time, reduce the cost of pharmacy care and, quite frankly, prevent people from requiring other, more expensive forms of treatment.”

The company has already had some notable successes in that regard. Its Pharmacy Advisor program offers people suffering from 10 chronic conditions, including diabetes, asthma and chronic obstructive pulmonary disease, extra attention from pharmacists, who work to make sure the patients take medications as directed.

“We have been able to demonstrate that we can effectively improve adherence rates among patients on maintenance medications and, at the same time, close gaps in care,” Merlo said. “For example, our pharmacists can help determine if a diabetes patient should be on an ACE inhibitor to protect renal health.

“We have seen pretty significant improvement in those patients, and we have been able to build an economic model for pharmacy care that extrapolates those metrics to overall health care savings.”

CVS Caremark’s Maintenance Choice program is another instance where the company has been able to enhance service by giving patients more options as to how they obtain their medications as well as limit expenditures for plan sponsors. The program enables PBM clients to realize the cost savings of 90-day prescriptions while at the same time giving their members the option of receiving maintenance medications by mail or at any CVS/pharmacy location.

“The two pieces of the business make this kind of thing possible,” Merlo said. “A few years ago we invested in technology that would create a seamless point of care across all CVS Caremark distribution channels. Now the patient can choose how to engage with us.”

The fact that the company is able to leverage those capabilities owes much to Merlo’s perspicacity, determination and management skill. In the months after he succeeded Tom Ryan as CEO in March 2011, Merlo was confronted with calls from some in the financial community to divest the PBM business, which they asserted was dragging down the performance of the company as a whole. Merlo chose to stay the course.

“Back in 2007 we believed that it made sense to bring a leading pharmacy retailer and a leading pharmacy benefit manager together,” he said. “We certainly had some challenges coming out of the gate, but none of us questioned the wisdom of that strategy.

“The task we faced centered on getting Caremark to do what it’s capable of being best at. We had some things that needed to be fixed, but everyone in the organization got focused and worked very hard to return Caremark to healthy growth. That has allowed us to execute against our strategy.”

CVS Caremark’s unique combination of resources should allow it to play a dominant role in the transformation of the drug store into a true neighborhood health care center.

“We’re going to see more change in health care during the next five or 10 years than we’ve seen in the past 50,” predicted Merlo. “New customer groups are emerging. Obviously the government is becoming a bigger player. At the same time, we see health plans and other providers becoming more significant customers. Pharmacies and other providers will grow in importance in terms of how we align, how we communicate and how effectively we can be an extension of the care directed by the physician.”

In performing that role, the professionals at CVS Caremark will likely expand the scope of their activities beyond what is common today.

“We have an opportunity to have both pharmacists and nurse practitioners [in MinuteClinics] practice to the top of their license,” said Merlo. “There are more things that they can be doing that are commensurate with their level of education, training and experience. The administration of flu shots is a good example.”

MinuteClinic is another weapon in CVS Caremark’s ­arsenal.

“We certainly see a role for MinuteClinic where we can complement and support the family physician by treating minor ailments and performing routine diagnostic tests,” Merlo said. “That’s an important part of our value proposition as we talk with payers.
“We’ve demonstrated the benefits of in-store clinics within our own organization. Those of our colleagues who have access and use MinuteClinic, when adjusted for age and health status, had 8% lower overall health care costs last year than those who didn’t. Everyone wants to ease the burden on primary care physicians and eliminate unnecessary trips to the emergency room. This is one way to do it.”

The company is currently participating in a variety of ACOs and emerging coordinated care models, as the silos that existed within the health care system continue to break down.

“A lot of learning is going to take place over the next few years as everybody gets to experiment and understand what works,” Merlo said. “CVS Caremark is a pharmacy innovation company — that’s always been our orientation. We intend to be part of the health care ­solution.”