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Larry Merlo named Health Care Exec of the Year

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CVS Health CEO honored for dedication to better Rx care


CVS’ Merlo: “With more decision making and accountability shifting to consumers, the cost of care will become more important to them.”

WOONSOCKET, R.I. — As Larry Merlo sees things, health care delivery in the United States is a tale of two incompatible models, a costly, inefficient one rooted in the past, and another focused on a future of increased patient access, improved outcomes and lower costs.

“At the moment, it’s as if we have two health care systems operating side by side,” he told the Executives’ Club of Chicago last autumn, “the health care system of yesterday, in which insufficient competition leads those who produce goods and services to produce more and charge more with no accountability for outcomes. And the health care system of tomorrow, in which consumers are empowered with more choices and more information to improve quality and outcomes, while driving down costs.”

Merlo has done as much as anyone to foster the new paradigm, transforming CVS Health, the organization he leads as president and chief executive officer, from a traditional drug chain into a pharmacy innovation company and, in the process, helping accelerate the shift to value-based health care, where financial returns are based on efficacy of treatment, not the quantity of products and services delivered.

For that work and his thoughtful stewardship of CVS Health during a period of profound change, the editors of Chain Drug Review have named Merlo the publication’s Health Care Executive of the Year for 2016.

Growing capabilities

Merlo has been a builder since becoming CEO of the company in 2011, harmonizing and strengthening existing assets while extending CVS Health’s reach across the health care continuum.

Two deals struck in the spring of 2015 reflect the company’s trajectory during his tenure. In May of that year CVS Health agreed to pay $12.7 billion for Omnicare, the nation’s leading provider of pharmacy services to assisted living and long-term-care facilities. A month later CVS Health announced that it would buy Target Corp.’s pharmacy business for $1.9 billion, and operate its 1,660 prescription counters, along with 80 health care clinics, using a store-within-a-store format.

“Both acquisitions were extremely important as we think about our priorities, where health care is headed and the opportunities that this creates for us going forward,” says Merlo. “The Target acquisition expanded our pharmacy presence by about 20%, including markets where we’re weren’t well represented, places like Seattle, Portland, Denver and Salt Lake City.

“It also allowed us to increase our presence in existing markets, where we’ve been operating for less than 10 years. Minnesota, where we essentially doubled our pharmacy count, is a perfect example of that. So the deal was extremely important in that regard.”

Merlo reports that the integration process has proceeded according to plan. During the first seven months of 2016, all Target pharmacies were converted to the look and feel of CVS Pharmacy, and health care technology was upgraded. That work leaves CVS Pharmacy in a position to raise the level of patient care at the new locations.


Merlo at CVS headquarters in Woonsocket, R.I.

“We don’t think of ourselves as just another retail pharmacy operating inside a Target store,” he explains. “We think of the opportunities that this creates in terms of enhancing the experience for patients with not just access but quality. So we’re in the process now of implementing our patient care programs. As we move into 2017, we’ll begin to see the difference that will make.”

While the Target deal increased CVS Pharmacy’s location count and geographic reach in a sector where it was already a dominant player, the acquisition of Omnicare broke new ground for the company.

“Omnicare opened the door to an entirely new delivery channel for us,” Merlo says, “namely providing pharmacy care to skilled nursing, assisted living and independent living ­facilities.

“Think about the fact that 10,000 Americans turn 65 every day. That will go on for another 14 or 15 years. And the fact that 70% of people 65 or older will require some form of long-term care over the remainder of their lifetimes. It may be episodic in nature, or it may be something of a more permanent nature, based on a life-changing event. So we think that the Omnicare acquisition opens the doors to managing patients across the continuum of care.”

While always useful, the mastery at bringing acquired properties into the fold that CVS Health has developed over the past quarter century isn’t directly applicable in the case of Omnicare.

“It’s a different type of acquisition, where there are assets and technologies that we must retain, because we weren’t in that business before,” Merlo notes. “I’m happy to say that things have gone well, and we think that there’s a big opportunity for growth and, more important, for coordinating care as we go forward.”

In what has become standard practice under Merlo’s leadership, CVS Health is already at work developing synergies between Omnicare and its existing retail pharmacy operation.

“We’ve begun to launch pilot programs to test some of our different thought processes around how we can enhance the experience, both for the facility operator and the residents,” he says. “For example, one of the biggest challenges for the facility operator is getting needed medications for a resident who is discharged from the hospital after noon. By the time they get to the long-term-care facility, it’s late in the day, but this resident may still need a medication starting at 6:00 p.m.

“Previously, it was logistically challenging to ensure that prescription need was met within the specified time frame.

“Now, any of our 9,600 pharmacies across the country can satisfy those emergency fill requirements. That can dramatically enhance the experience for everyone. We’re in the process of rolling out that capability across the country.”


In-store health clinics are another tool CVS Health is using to augment its impact on patients’ well-being by addressing what Merlo characterizes as the “retailization” of health care, a growing trend that puts more responsibility on the consumer to determine the most cost-effective option for obtaining appropriate care.

Staffed by nurse practitioners, the company’s 1,100 MinuteClinics offer treatment for the most common acute conditions and play a significant and expanding role in the management of chronic conditions. In addition, MinuteClinic is demonstrating the positive effect the clinics have on access and cost in a number of pilot programs, including one with the Veterans Administration Palo Alto Health Care System in California.

“Retail clinics are important today, and their importance will continue to grow,” asserts Merlo. “With more decision making and accountability shifting to consumers, the cost of care will become more important to them. That wasn’t always the case with the traditional fixed co-pay structure.

“We provide tools so that patients can make informed decisions about where to obtain the right level of care. MinuteClinic is a great example of the opportunity to think differently about health care, and help achieve the goal of delivering quality care in a convenient setting at a reasonable cost.”

CVS Pharmacy

Like MinuteClinic, CVS Pharmacy seems destined to assume an even more prominent position in the health care system. Merlo, who trained as a pharmacist at the University of Pittsburgh and worked in the field before taking on various management roles at Peoples Drug and CVS, is determined to help the profession evolve beyond the status quo.

“It’s critically important for pharmacists to be recognized as an integral part of the health care team for a number of reasons,” he says. “First, pharmacists consistently rank at or near the top of public surveys of the most trusted professionals.

“Second, we have a shortage of primary care physicians, and that shortage is only going to grow over the next decade. For that reason, the roles of both pharmacists and nurse practitioners, like those at MinuteClinic, are going to become increasingly important for delivery of care.


Merlo and CVS Pharmacy president Helena Foulkes on stage at one of the company’s annual Retail Leadership Conferences.

“Third, pharmacists are highly educated and highly trained. The regulations that govern the practice of pharmacy haven’t kept up with the capabilities of these professionals. We need to modify those regulations to align with those capabilities.”

Merlo cites the emergence of flu shots delivered by pharmacists as a precedent.

“Back in 2009, when we had the H1N1 flu scare, everyone was panicked about how we were going to get the population immunized as quickly as possible. Until that time, only a handful of states permitted pharmacists to provide immunizations, and some had significant age restrictions.

“All of a sudden, pharmacists presented a solution to the problem, and the regulations curtailing what they could do changed like dominos falling. Today 25% of all immunizations are administered by pharmacists across the country.”

To help speed that transition and free its pharmacists to spend as much time as possible with patients, CVS Health has leveraged its unique integrated assets to establish a range of innovative patient care initiatives. Prominent among them are programs for patients whose pharmacy benefits are handled by CVS Caremark, the company’s pharmacy benefits management division.

These programs include Pharmacy Advisor, which provides special counseling for patients with such chronic conditions as diabetes, asthma and hypertension, and Maintenance Choice, which gives customers a choice in how they want their 90-day prescriptions filled, either through the mail or at retail. Another program, Specialty Connect, offers patients choice and flexibility in how they access their specialty medications, while providing centralized, expert clinical support.

“Specialty medications are one of the most important components of pharmacy practice today,” Merlo says. “Only a few years ago specialty represented 20% to 25% of the pharmacy drug spend, and most estimates have that number going to 50% before the end of this decade.

“For a variety of reasons — whether it’s the cost associated with these treatments or the complexities of the health of many of the patients that are on a specialty med — specialty patients benefit from having clinical as well as administrative support to start and stay on their medications.”

Specialty Connect bundles the full range of capabilities needed to support that patient population. Moreover, it makes them accessible at the retail pharmacy level.

“With Specialty Connect patients choose where to pick up their medications — in-store, where they can interact with their local pharmacist, or delivered to their home or business. Interestingly, customers are almost evenly split in their preference. In either case, patients benefit from centralized clinical support.

“In fact, we’ve shown an 11.4 percentage point improvement in medication adherence among Specialty Connect patients, and 17.5 percent of them were more likely to refill their first ­prescription.”

CVS Caremark

In addition to ensuring that patients get the greatest possible benefit out of specialty medications, CVS Caremark is working with its PBM clients to maximize their return on investment in those products and the full spectrum of ­pharmaceuticals.

“If you ask what’s top of mind for clients these days, the answer is the cost associated with the care of their employees and members. We’ve done a variety of things to address that, including developing plan designs that encourage the use of lower-cost treatment ­options.

“We’ve also been ahead of the market in launching formulary innovations as the most effective way to manage drug trend while ensuring member access to appropriate clinical care. It all begins with our P&T committee, which is a group of independent practitioners who help to decide which drugs we need to have included in our ­formulary.

“We then negotiate with drug manufacturers to drive down costs. Over a five-year period, our approach to formulary management has saved our clients almost $9 billion in reduced drug costs.”

The efforts of CVS Health and competing pharmacy benefits managers have helped limit increases in branded drug prices, he adds. “In addition, because of our efforts to encourage and incentivize the use of generic drugs through our formulary strategy, generic usage is at 85%, resulting in significant savings. While it’s clear that our cost-management strategies are working to mitigate the impact of rising drug costs — for our PBM clients through September 2016 drug trend increased at an annual rate of 3.3%, which is well below the rate experienced in 2015 despite rising drug prices — we are continuing to develop new solutions to keep costs affordable for our clients and their members.”

Merlo is confident that, with its unique range of assets and tremendous scale (last fiscal year the company generated $153.3 billion in revenue), CVS Health has much more to contribute in reforming the nation’s health care system and, in the words of the company’s purpose statement, helping people on the path to better health.

“At the end of the day we’d like our patients, customers and clients to view us as an organization that has a health focus and that is an important part of helping them solve the challenges they face in regard to access, quality and cost as the three variables in the health care equation. We can contribute in all three of those areas.”


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