The moment CVS transformed into a different kind of health care company
Larry Merlo knows the moment that CVS became CVS Health.
The CEO of a company that now combines a massive pharmacy chain with in-store retail options and a health insurance juggernaut to boot, Merlo pinpointed a critical moment of transformation during a conversation with Fortune editor-in-chief Clifton Leaf at the virtual Fortune Global Forum conference on Monday.
No, it wasn’t the mammoth $69 billion merger with insurer Aetna. The pivot began six years ago, and long before that megadeal, when CVS made the decision to discontinue sales of cigarettes and tobacco products.
“It’s a great story in the evolution of our company. We looked at our strategy at that time in terms of becoming more of a health services company,” said Merlo. “We had our CVS pharmacies; we had CVS Caremark as a leading pharmacy benefit management company; we were opening our retail clinics branded as MinuteClinic.”
With that cascade of changes, meant to provide broader medical services than simply being a place to refill your prescriptions, came a moment of reckoning wrought by discussions with potential health care partners.
“I could remember many of those discussions would be around halfway or two-thirds of the way through the discussion,” Merlo recalled, “and someone would say, ‘But don’t you guys sell tobacco at your CVS pharmacies?’ And that’s where you want to to crawl under the table, because there was really not a good response to that other than the economics associated with selling tobacco, which was a direct contradiction of our strategy.”
That commendable public health decision cost CVS some $2 billion in revenues. But it paved the way for the company to walk the talk and brought it closer to its long-term goal of becoming a front porch for community health services, including wide-scale coronavirus testing and, eventually, distribution of COVID-19 vaccines once one or more reach the market.
Merlo said that more than 5 million people have come to CVS Health facilities for COVID diagnostics. And the company is going to be a major link in the supply chain when a vaccine comes through.
“We were selected by the government to become an important part of the solution in making sure that the vaccine, once it’s available, is administered to long-term-care facilities, nursing homes, [and] assisted living facilities, where we have our country’s most vulnerable patients,” he said.