CVS Health is about to turn hundreds of its drugstores into health care super-clinics

The CEO who’s pledging to reshape the way health care is delivered in America is unveiling her biggest Big Idea yet.

On Feb. 1, Karen Lynch became the chief at CVS Health, the fourth-biggest company in the country—and the largest in health care, America’s biggest and in many ways most backward industry. She started fast with a daring gambit: putting CVS at the heart of the pandemic response, as a hub for COVID tests and vaccines. Tens of millions of people who visited their nearby CVS saw for the first time that they could also get a cholesterol screening or full physical inside those same four walls, without waiting weeks to see a doctor in a faraway office park.

Lynch’s second bold move is the one she’s describing now. On a late-summer Friday morning, Lynch, fresh from her daily Peloton workout, is on a Zoom call from her home on Cape Cod, giving Fortune an exclusive look at her new strategic blueprint. It’s a plan to transform CVS’s vast network of neighborhood pharmacies into the new front door for primary care.

At the heart of the strategy: remaking hundreds of stores into outlets 100% devoted to primary care, capable of collectively serving tens of thousands of patients a day—thus breaking through one of the most stubborn bottlenecks in medicine. “We’ll be far more than the corner drugstore,” says Lynch. “We’re pivoting to become more central to America’s health care.” 

Since CVS bought insurer Aetna for $69 billion in 2018, it has been moving in this direction. That acquisition helped turn the combined company into a behemoth with $268.7 billion in 2020 revenue; its sheer scale, and the rapidity of its evolution, help explain why Lynch is No. 1 on Fortune’s list of the Most Powerful Women in business this year.

To expand its health care presence, CVS Health has already remodeled roughly 1,000 of its 9,600 stores into “HealthHUBs”—creating the nation’s biggest network of urgent care outlets. Those venues offer communities such vital preventive services as glucose and retinopathy tests for diabetes and blood-pressure screenings for hypertension, along with flu shots and an array of health care products. 

Still, the clinic-only strategy is a major shift. A typical CVS covers 8,000 to 13,000 square feet, two to three times the size of the average stand-alone urgent care clinic. Not long ago, Fortune toured a vast HealthHUB in the working-class hamlet of Spring, Texas, near Houston, that featured four examination suites and a pharmacy consultation room, offering physicals and an array of testing. Yet snacks, beauty products, and other drugstore fare still covered half the square footage. Eliminating retail from such stores would free up far more space for testing, counseling, and wellness. 

“Think of our footprint as a series of concentric circles,” Lynch says on our call. The “inner circle,” she explains, will be what we’ll call the super-clinics: They’ll offer “all the things HealthHUBs do now on a bigger scale, plus lots of new services such as mental health counseling.” 

“The second circle would resemble today’s HealthHUBs,” says Lynch. A large proportion of CVS patients would still be getting their testing and counseling at these hybrid locales, which would continue to fill prescriptions and sell consumer products in the front aisles. Lynch sees a more limited role for the third or outer circle that now dominates the CVS network. It comprises the drugstores that sell everything from soda to toothpaste, dispense prescriptions, and often feature pocket “MinuteClinics” where customers get flu shots and pharmacists counsel them on their medications in a single meeting room. The drugstores will remain a core presence in America’s communities, but their numbers won’t grow. 

As big a leap as it is, Lynch’s plan represents a logical strategic move for a company that combines one of the nation’s largest retail footprints with the resources and patient data of a giant insurer. It could also unlock the biggest pot of untapped savings in health care, by helping prevent chronic conditions from getting worse and more costly. Five long-lasting illnesses—diabetes, hypertension, cardiac disease, asthma, and depression—account for 80% of the nation’s annual $3.8 trillion in medical costs. Half of adult Americans suffer from one or more of those conditions. CVS’s super-clinics could help more of them get preventive care. That in turn could create a flywheel effect across the company, as care at the clinics lowered costs for Aetna and new patients filled their prescriptions at CVS. “What Lynch is doing is a big deal,” says Charles Rhyee, a Cowen analyst who covers CVS. “It moves the ball in the direction of proactive care, not reactive as the system is today.” 

The super-clinics’ biggest focus will be seniors—especially Medicare Advantage (MA) members, the fastest-growing group in patient services and one of the most lucrative. Lynch grew CVS Health’s MA business exponentially during her seven years at Aetna. Today, Aetna covers 2.9 million MA members, 11% of the total. Lynch sees the first-circle clinics as a way to boost MA enrollment, and she says their eventual locations are “really going to be based on demographics,” pinpointing areas with a high mix of seniors in general—implying a strong tilt toward Sunbelt states.

In the first phase of the conversion, CVS will launch “several hundred” super-clinics, Lynch says; it will maintain the number of HealthHUBs at around 1,000. Just as important: Lynch intends to use only its existing locations for these health centers, enabling them to go live faster. “What may be CVS’s single biggest edge is its real estate, its presence in so many markets,” says Rhyee. CVS stores blanket the country—85% of Americans live within 10 miles of one—and Lynch is racing to convert them to their highest and best use. 

“One thing the pandemic taught us is how quickly we can move to serve customer needs,” Lynch says. “I don’t think we can ever go too fast.” 

“Health care is a contact sport”

Six months ago, Shawn Guertin was living a life most corporate warriors would envy. After over three decades in health care and finance, including a stretch as CFO alongside Lynch at Aetna, Guertin had moved to Hawaii to enjoy semiretirement. But early this year, Lynch came calling with an offer he couldn’t turn down. “I convinced Shawn to trade the beaches of Hawaii for the beaches of Rhode Island,” jokes Lynch. But as Guertin tells Fortune, what really sold him was Lynch’s commitment to lead a health care revolution, spearheaded by a pledge to launch the super-clinics. “I asked, ‘Are you really ready to make the big changes that need to be done?’” Guertin recalls.

She’s more than ready; indeed, Lynch is leading the single biggest offensive in primary care delivery today. CVS’s 1,100 HealthHUBs and MinuteClinics already comprise the nation’s biggest network of outlets providing urgent care services. In a number of locales, the two providers closest to CVS are second-ranking Concentra, a division of Select Medical, at over 518 sites in 41 states, and Walgreens, which operates over 52 Village Medical at Walgreens clinics in partnership with VillageMD, as well as several hundred health care sites within its stores. But CVS’s position as the only huge retail chain that owns an insurer cushions the risks posed by rapid expansion, since Aetna, the industry’s third largest player, is designing coverage that channels patients to the local CVS. 

Lynch stresses that “health care is a contact sport” and that as the pandemic has taught us, many medications can only be delivered, and conditions evaluated, by face-to-face meetings with nurses, therapists, and doctors. But growing CVS’s medical footprint via the clinics, she says, is only “part of a broader clinical strategy.” Lynch is pioneering a fully integrated model where CVS uses telehealth, texts, home care, and Aetna’s vast trove of patient data, along with regular visits to its clinics, to provide all of a patient’s primary care in a combined digital and on-site, one-stop package. Aetna recently rolled out a product called Virtual Primary Care, through which patients hold Zoom calls instead of in-person visits with doctors and get their tests at the HealthHUBs. The product is an excellent example of how Aetna steers its enrollees to the CVS clinics.

CVS pharmacies message patients’ cell phones if they haven’t refilled, say, their prescription for an ACE inhibitor or antidepressant. It’s dispatching technicians to patients’ homes to conduct dialysis and deliver injections for “specialty” drugs for diseases such as multiple sclerosis and rheumatoid arthritis. When Aetna’s data flags that a physician just prescribed a drug regimen to someone with three chronic conditions that conflicts with another therapy, it texts the patient and their doctor to alter the clashing medications. “How do I keep you healthy?” asks Lynch. “It can be in a CVS, or when we connect with you digitally to get that blood pressure check or mammogram or vaccine that you haven’t gotten.”

Lynch also made a pivotal decision to reenter the Obamacare or ACA marketplaces, beginning in January of 2022. Aetna had exited the program in 2018 after taking big losses. “It’s a market of 10 to 15 million people where we need to be a player,” says Lynch. Membership in the exchanges has grown rapidly as Americans lost their jobs and employee coverage in the pandemic, and Lynch notes that the Biden administration has stabilized the plans by providing additional subsidies that have increased premiums, lowering risk to insurers such as Aetna. The CVS offering in the ACA exchanges will be an Aetna-CVS co-branded product.

Lynch’s North Star is doing for health care what’s already happened in banking, entertainment, and shopping—bringing the product or service to the consumer’s community, home, laptop, or smartphone so that it’s a breeze to use. “We’re breaking the mold,” says Lynch. “We’re centering health care where it’s never been centered before, around the consumer. Our goal is becoming part of everyday health care as no other company can be.”

Filling a primary care gap

For Lynch, it was the pandemic that accelerated the timetable for reforming the broken system. It made consumers demand much more convenient care, and more impatient to get it. “The pandemic was a watershed moment for CVS,” says Lynch. “It really put us on the map as a health care company.” The reason is twofold, she says. “First of all, far more consumers have put their health care front and center now. Suddenly, they’re interested in getting monitored much more frequently. Just look at the growth in Peloton and the interest in getting fitter.” That trend led to a huge increase in telemedicine, virtual conversations with nurses and therapists at CVS, that Lynch believes is here to stay. 

Second, Lynch saw that the virus furnished a matchless opportunity to spotlight what a CVS can do. Since May 2020, the company has administered 32 million COVID-19 tests and over 34 million vaccine doses; CVS has delivered almost one in 10 of America’s virus-blunting jabs. “All of a sudden, people were thinking about us not as a corner drugstore but as a place to go for all their basic health care needs,” she notes. 

A pharmacy technician waits for 15 minutes after receiving the COVID-19 vaccine to make sure she doesn’t have an allergic reaction at a CVS in East Boston in February 2021.
Erin Clark—The Boston Globe/Getty Images

In terms of profit and loss, the pandemic is creating what the company calls “a modest headwind” for 2021. CVS is on course for $400 million to $500 million in profit from the government’s payments for the vaccines and tests, and extra merchandise sales and prescriptions at its clinics. It’s suffering a slightly bigger decline on the insurance side as Aetna pays a wave in claims from patients who have rushed for elective procedures they had delayed in the crisis. For CVS, the enduring legacy of the pandemic is a new hunger for convenient care, and the recognition that a CVS can be the place to get it.

The current system lags way behind the service at a click, Zoom call, or neighborhood clinic that the pandemic made consumers crave. Today, most routine medical services are still administered the old-fashioned way, in doctors’ offices and hospitals. That legacy system is inconvenient, expensive, and baffling to patients. A major reason is America’s painful shortage of primary care physicians. They’re the bulwark of the managed care networks that insurers engage to cover the vast majority of Americans in private plans. But because the number of medical residency slots is essentially frozen, the ranks of internists, pediatricians, and family practitioners is stuck at around 300,000. That number has gone virtually unchanged in two decades, a period in which the volume of procedures has exploded, and spending almost tripled. “The primary care doctor shortage is getting even worse,” says Matt Borsch, an analyst at BMO Capital Markets. “Baby boomer doctors are retiring, and not enough new ones are entering to replace them.”

The result is that in many places, patients endure long waits and time-consuming travel to see a doctor. According to a 2017 study by Merritt Hawkins, America’s leading physician recruiting firm, it took 28 days to get an appointment with a primary care MD in Miami, 42 Los Angeles, 72 in Manchester, N.H., and 109 in Boston. “Health care has been centered around the provider, and making it easier for the provider,” says Lynch. Adds Rhyee of Cowen: “Many of the routine tests that doctors perform in their offices or hospitals do in the ER could be done at much lower cost at a CVS or other clinics.” The picture is so cumbersome for young people that an increasing number don’t have a primary provider at all. A late 2018 survey by the Kaiser Family Foundation found that almost half of the millennials polled didn’t have one or, apparently in most cases, want one.

The market is working to fill the void. While the physician count stayed almost flat, the ranks of nurse practitioners has exploded by over 70% in the past four years to 325,000, roughly equal to the number of primary care doctors. Last year, 36,000 NPs completed training, more than the total number of physicians exiting residency programs. It’s those NPs who provide much of the care in the HealthHUBs, and will be a cornerstone of the new super-clinics. 

34 million

COVID-19 vaccine doses administered to date by CVS Health

Lynch’s goal isn’t to compete or take business from primary care providers. In our conversations, in fact, she said that working closely with doctors is central to her playbook. Today, CVS doesn’t employ primary care doctors on staff at the HealthHUBs. Nor does it have many partnerships where MDs send their patients to CVS for preventive care. But Lynch tells Fortune that in some markets, it will for the first time hire MDs full-time as it rolls out the super-clinics. An example, she says, might be a rural area suffering from a dearth of physicians.

In other places, particularly where the supply is more plentiful, Lynch plans to forge strong contractual ties with doctors. A promising area for collaboration, she notes, is “value-based care” or “at risk” programs that are especially common in Medicare Advantage. Under MA, the federal government pays a fixed monthly dollar amount to insurers like Aetna that offer the plans to seniors. The insurers attract members by providing such benefits as low or no premiums and co-pays, free dental care, and rides to clinics. The plans are required to allocate 85% of premiums collected to medical services. But in value-based offerings, an insurer channels that portion of the payment––say $850 from a total Medicare monthly payment of $1,000––to a medical group as a fixed amount that remains constant, whatever the member’s actual costs turn out to be. In exchange, the group provides all the member’s care. If the docs can do testing at low cost and deploy preventive care to ensure that their populations stay healthier than average, they will spend a lot less than that $850 per member, and get to keep the difference. 

Lynch also will introduce innovative arrangements where doctors outsource preventive and routine care to the CVS clinics and telehealth, virtual, and home services. CVS can conduct the tests and counseling at far lower cost than doctors can in their offices, in part because CVS can use expensive equipment to screen much larger volumes of patients. The ease of stopping at a neighborhood CVS for checkups, and all the virtual services, should keep patients healthier and lower the surgeries that cut or erase the physicians’ fixed payments under value-based plans. The template would free doctors to practice using the top skills honed in their training, enabling them to focus on coordinating care among, say, cardiologists, endocrinologists, and urologists for patients with multiple chronic conditions. “We’d share the savings with the doctors,” says Lynch. 

CVS would exploit the high costs of today’s system by getting handsomely paid for providing routine care far more cheaply. Aetna could plow the extra profits into plans that offer better benefits than its competitors, swelling its MA enrollment. And offloading routine care to CVS would clear physicians’ appointment books to take on more MA members, raising their incomes. “Lynch wants to take a system that’s been run for the convenience of the physicians, and turn that on its head,” says Borsch. “But in a way that also benefits the doctors.”

It all comes down to repositioning CVS to capture the holy grail in medicine: intervening before something goes wrong.

No shortage of competition

The rub is that to make her plan succeed, Lynch needs to both run at warp speed, and execute superbly. Her vision of making basic care a lot more accessible and affordable may be bold, but it isn’t unique. A multitude of competitors are crowding the space. Besides the challenge from the Walgreens-VillageMD partnership, Walmart currently operates 20 in-store clinics in Georgia, Arkansas, and Illinois, and plans to enter the Florida market next year. The retail giant reportedly has big plans in the space, but isn’t disclosing the number of Walmart health centers it’s eventually aiming for.  

Insurance colossus UnitedHealth Group owns a broad range of primary care providers, including WellMed, a big player based in Texas. It also operates 250 MedExpress urgent care centers in 19 states, and many of its multi-specialty practices under the Optum name also provide primary care. The arms race is especially fierce in Medicare Advantage. Family-owned ChenMed operates nearly 100 primary care clinics across 12 states that cater to seniors, while publicly traded Oak Street runs a network of over 100 sites in 18 states, forming a nationwide footprint that’s especially strong in Texas, the Midwest, and Northeast.

CVS clearly enjoys a head start because it’s already operating those 1,000 HealthHUBs. But the model for offering convenient service to Medicare patients, one of CVS’s top targets, already exists. Plus, the rival clinics benefit from having doctors on-site, and CVS is just beginning to establish partnerships with primary care practices. “Private equity is throwing tons of money into expanding the number of clinics for Medicare Advantage,” says Nick Herro, a partner at consulting firm the Chartis Group, which advises PE firms on those acquisitions. “It’s fueling a rocket ship,” he adds. “The MA clinics are building the airplane while they’re flying it, but they’re building and flying fast.” Herro says that the gap between CVS and other clinics is already narrowing, and that CVS will need to race to exploit its “unique differentiator,” its huge retail footprint, and blanket the nation with clinics. 

Lynch acknowledges that such outfits as Oak Street and ChenMed are already successfully delivering a menu of services to seniors. But she insists CVS has the edge. “They don’t have national scale, and we’ll have national scale,” she says. 

The big-time move into primary care is Lynch’s Rx for reaping the promise of the Aetna acquisition, and powering CVS’s earnings and share price. CVS sits on three big legs. The first is retail, encompassing the chain of drugstores that generate 20% of their revenues from merchandise sales, and the balance from filling prescriptions, and now, testing, treating, and counseling patients in the HealthHUBs and MinuteClinics. The second: pharmacy services, the Caremark pharmacy benefit management (PBM) unit that administers pharmaceutical plans for companies and insurers. The third is health care benefits, the Aetna insurance franchise that establishes and oversees medical plans for corporations, a role that encompasses securing the networks of physicians and hospitals where employees are treated.

Most of CVS’s businesses are solidly profitable, but mature and slow-growing. Its “front of store” sales are getting hit by competition from the Walmarts and Targets on one side and e-commerce giant Amazon on the other. Until recently, its prescription business was highly profitable because new generics were rapidly replacing high-price branded drugs, and the margins on those newcomers were extremely rich. Today, the flow of new generics has slowed dramatically, and insurers are fighting the rising prices of expensive, branded drugs by curbing reimbursements to the pharmacies. In pharmacy services, CVS’s Caremark is vying for business with the in-house PBMs at titans UnitedHealth Group, Anthem, Humana, and Cigna. The stiff competition is putting a tight cap on fees and margins. The best performer since the acquisition has been Aetna, in large part because of the Medicare Advantage business that generates approximately $20 billion a year in sales, and some of CVS’s richest margins.  

Lining up for a drive-thru COVID-19 test at a CVS Pharmacy on May 15, 2020, in Carver, Mass. CVS’s nationwide reach gives it an edge over competitors in the primary care space, but the edge may not last long.
Maddie Meyer—Getty Images

The goal is building the fast-growing health services side that not only generates the best returns, but also feeds the other businesses. The more patients get their preventive care at a HealthHUB or super-clinic, the more prescriptions the pharmacy will fill, and the more merchandise folks will buy. The more members Aetna can channel to CVS for testing and the like, the more they will like the service, driving more enrollment in Aetna-CVS plans. Offering infusions of “specialty drugs” for rare diseases in the clinics could raise sales of those therapies, lifting profits for the PBM segment that sells them.

Recently, CVS’s organs are displaying robust vital signs. In the past four quarters, enrollment in Aetna’s highly profitable Medicare Advantage plans grew by around half a million members. Overall, sales and profits are also advancing steadily. In the opening two quarters of 2021, CVS generated revenues of $142 billion and operating profits of $9.1 billion, gains of 13% and 20% respectively over the same period in 2019, pre-pandemic. After a rough patch following the merger, CVS’s stock is also faring well. In the past year, it’s gained 50% to $87 a share, outpacing the S&P at 32%. “We’re seeing the proof points showing that the integrated platform is working,” says Lynch.

Still, many on Wall Street think it’s too soon to declare Lynch’s new model a winner. Ashtyn Evans of Edward Jones has a hold rating on the stock. “They can prosper if they can lower health care costs and improve outcomes,” says Evans. “But it will take time to see if those goals play out. In the meantime, they’re trying to do a lot of things to integrate the businesses at the same time. Because of the complexity, the road ahead could be difficult. They’ll have to show they can execute.” Evans likes CVS’s strategy of moving to higher-margin medical services, but questions if its progress on that side will surmount the drug industry’s hobgoblin, which she describes as “constant pricing pressure” and the “political risk” that U.S. authorities will impose price controls on drugs.

Defining well-being broadly

To an unusual degree for such a huge enterprise, the future of CVS is riding on the shoulders of its leader. Lynch melds a deep knowledge of the industry’s intricacies with strong operating skills. After starting her career as a CPA, auditing health insurers, she showed her mettle at Aetna by successfully integrating its giant acquisition of fellow insurer Coventry and growing the Medicare Advantage book, then headed the campaign to merge the Aetna and CVS businesses. 

She’s renowned for setting towering goals and making big changes. As CEO, Lynch replaced three of the top 11 management slots, the heads of HR, marketing, and the PBM, with women. When she persuaded Guertin, the former Aetna CFO, to come back to the company, Wall Street applauded. “There’s something in Karen that convinces her she can do what everyone else says can’t be done,” says Guertin. Laurie Havanec, who heads HR and worked alongside Lynch at Aetna, marvels that the boss “wants to leave her fingerprints on something transformative.” 

Lynch’s most personal crusade is her drive to make mental health counseling just as user friendly as a session with a pharmacist. Lynch’s mother took her own life when Karen was 12, and she’s made promoting behavioral well-being just as big a goal as safeguarding physical health throughout her career. Lynch speaks frequently about the importance of countering the “deadly undertow effect” and “deadly currents that can’t be seen” spawned by the mental health crisis gripping America. “During the pandemic, we saw a big increase in drug abuse, domestic violence, anxiety, and depression,” she says. Lynch found that primary care doctors often simply prescribe antidepressants or other medications to mental health sufferers. In many instances, only in such severe cases as bipolar disorder, suicidal thoughts, or substance abuse will the doctor refer the patient to an expert, and it’s usually a psychiatrist or psychologist. “Karen wanted to provide easy access to licensed therapists just as patients can see or talk to nurse practitioners on a regular basis,” says Cara McNulty, who heads the behavioral health initiative at Aetna.

To that end, CVS has started a pilot project at 34 sites in Houston, Tampa, Philadelphia, and other metros. Patients can either see the therapists in a counseling room at a HealthHUB or hold a virtual session. The therapists are ready to talk 24/7. The rates are $65 to $120 for sessions between 30 and 45 minutes. Lynch plans to expand the service to hundreds of locations starting next year. 

The CEO is always available to encourage employees suffering from dark episodes. “I got a note from one of my colleagues about her experience, and I did a video call with her,” says Lynch. “She told me she’d written a suicide note to her manager that said, ‘This is the day.’ She said her manager was able to kick into action, tell her this wasn’t a stigma, and get her all the resources she needed.” The patient received counseling from a therapist paid for by her Aetna plan, and the suicidal thoughts are gone. “Holy moly!” says Lynch. “It shows the collateral damage from the pandemic, and how desperately these services are needed.”

So how is Lynch coping with the stress of running the world’s biggest health care enterprise in the throes of a pandemic while leading the charge to remold America’s largest industry, and in sundry ways the one most in need of a fresh model? “Thank God for Peloton!” she says. “I work out every morning on the bike. Then there’s my new puppy”—the adorable canine is a Portuguese water dog born on Christmas Day. “It came from a litter of nine, and with the two parents, that’s eleven,” says Lynch. “So we named her Piper for the ‘11 pipers piping’ in ‘The 12 Days of Christmas.’”

Piper seems to spread a circle of calm in the Lynch household. Part of her owner’s considerable charm is the pleasure she takes in simple things. Her mission is making a system that’s a costly, confusing maze to navigate far simpler and more affordable. The pandemic readied America for a new kind of health care that puts consumers first. And no one’s found a better prescription than Karen Lynch.

More must-read business news and analysis from Fortune:

CVS Health CEO Karen Lynch took the No. 1 spot on Fortune‘s 2021 Most Powerful Women list.

Read More

COVID VaccinesReturn to WorkMental Health