CVS STEPS UP
Health is moving to diversify with its purchase of major health insurer Aetna. The bid would make the Woonsocket-based firm the nation’s second largest company — and that could mean big things for the Valley’s economy
WOONSOCKET – Scott Gibbs has been an economic development professional most of his adult life, but ask him what the trickle-down might be for the regional economy in the proposed $69 billion mega-merger of CVS Health and Connecticut-based Aetna, and he’s still scratching his head.
“I have no idea, I really don’t,” says the president of the Economic Development Foundation of Rhode Island, the organization that manages Highland Corporate Park, where CVS Health maintains its corporate headquarters in roughly a million square feet of office space. “What happens after this I don’t know, and I don’t think many people do.”
But as CVS Health makes a highstakes gamble that it can forge a new, cutting-edge and consumer-friendly model for the delivery of health care in the U.S., Gibbs says one of the biggest upsides for the region may come from being known as the locale where these heady innovations are taking place. As Gibbs puts it, “Being at the epicenter of this is not a bad place to be.”
Perhaps because CVS Health has been growing right under our nose in this Northern Rhode Island enclave since the early 1960s, the scale of the pharmacy and healthcare benefits manager is often taken for granted. But CVS Health is already the nation’s seventh largest company, with some 9,700 pharmacies and $177 billion in annual revenue. And if the merger is approved by shareholders and regulators, it would become the second-largest – bigger than Apple,
Exxon and Berkshire Hathaway, trailing only Walmart among the corporate giants.
The company employs more than 7,000 people in Rhode Island, roughly 5,300 of them at its campus-like headquarters in Highland Corporate Park, straddling the Woonsocket-Cumberland line.
Michael DeAngeles, a spokesman for CVS Health, says the company has no intentions of relocating its corporate headquarters from Rhode Island after the merger. He also says the CVS Health/Aetna marriage will result in new career opportunities for existing employees and the creation of new jobs.
“CVS Health will continue to be headquartered in Woonsocket, Rhode Island,” DeAngelis said. “Over the years, we’ve seen career development and job opportunities open up for colleagues following our previous acquisitions of companies including Caremark, Coram and Omnicare, and we would expect similar opportunities to occur following the acqui- sition of Aetna.”
When the merger was announced, CVS Health President Larry Merlo said the transaction would fill a need to “redefine access to high-quality healthcare” in lower-cost local settings. CVS already made a bold move in shifting basic healthcare away from emergency rooms and urgent care centers several years ago by launching “Minute Clinics,” staffed by nurse practitioners, in many of its stores. In teaming up with Aetna, which provides customers with myriad health insurance products, CVS Health appears poised to deliver a broader range of medical services from pharmacy locations, redefining itself as a health care company while reducing its reliance on traditional retail products – a sector under increasing threat from competitors like Amazon.
“This combination brings together the expertise of two great companies to remake the consumer health care experience,” Merlo said. “With the analytics of Aetna and CVS Health’s human touch, we will create a health care platform built around individuals. We look forward to working with the talented people at Aetna to position the combined company as America’s front door to quality health care, integrating more closely the work of doctors, pharmacists, other health care professionals and health benefits companies to create a platform that is easier to use and less expensive for consumers.”
The company says the use of Aetna’s health care database will also improve patient care throughout the health care system, partly by reducing hospital readmissions. Combined, the two companies will be positioned to better monitor and manage post-hospital homecare, as well as the treatment of chronic ailments such as diabetes, a condition that afflicts 30 million Americans at a cost of about $245 billion a year. Between doctor visits, for example, diabetes sufferers could obtain counseling at “a store-based health hub” and remote monitoring at home, the company says.
These are the types of interventions the traditional health care system should provide. Merlo said, but it “lacks the key elements of convenience and coordination” needed to engage consumers in their own health. “That’s what the combination of CVS Health and Aetna will deliver.”
Christopher Bouley, a vice president of wealth management at UBS Financial Services, says that what impresses him most about the proposed acquisition is that CVS Health isn’t reacting to changes in the market dynamics for healthcare – it’s shaping them. Some of the nation’s legacy brands – J.C. Penney and Sears come to mind – are proof that companies need to be strategically proactive to remain relevant.
“They’re not waiting around for somebody to come along and eat their lunch,” said Bouley. “It’s great leadership by Merlo and the people at CVS.”
———
LIKE GIBBS, however, Bouley says it’s too soon to tell how the benefits of the merger filter down to the local and state level – except in making the company stronger overall. And that, he says, is no small thing.
For Bouley, the merger serves as a reminder of just how important a bulwark of the economy CVS Health is for Rhode Island, and it underscores the need for government officials to continue providing resources that make the state a hospitable place for the company to be.
“It’s important that we have facilities for them, to make sure they feel valued and that there’s a partnership,” said Bouley.
When Gov. Lincoln Chafee proposed eliminating the jobs-creation tax credit several years ago, for example, Bouley thought that was exactly the wrong thing to do. “You don’t want to make a deal with somebody and then renege on it,” he said. “That’s the kind of thing you want to avoid.”
Gibbs couldn’t agree more.
The company’s employment base in Highland Corporate Park alone may be bigger than the population of some of the state’s towns, but Gibbs says there is no such thing as a company that’s too dug-in to move if the economic conditions are enticing enough elsewhere.
Even if the acquisition doesn’t result in CVS Health expanding its already considerable footprint in Highland Corporate Park – and he doesn’t expect it will – state and local leaders cannot afford to take CVS for granted, said Gibbs.
“We have to be extremely diligent about maintaining our relationships with CVS – they are the 800-pound gorilla,” he said. “It is absolutely essential to our economy, and the state’s economy. This isn’t just a local company, it’s a global company, with major business units scattered all across the United States.”
Gibbs urged policymakers and elected officials to think of CVS Health not only as an important job creator, but as “our customer.” Depending on how it’s served, the Aetna acquisition “could be a great opportunity for Rhode Island, or not so great,” said Gibbs.
Mayor Lisa Baldelli-Hunt says her administration stands ready to assist CVS Health in any way it can. She said she’s “excited” that some of the most promising changes in health-care reform are happening in the city and she’s proud to see a homegrown company answering the call.
“I often wonder if the health care industry understands the consumer’s needs,” said Baldelli-Hunt. “But here we have a company that’s demonstrating the ability to have high-quality health care which is reasonably priced.”
John Gregory, president of the Northern Rhode Island Chamber of Commerce, says corporate acquisitions and mergers tend to raise questions about where the reorganized company will land. But he was pleased to hear that CVS intends to maintain its headquarters in Northern Rhode Island.
“I guess the good news is, they’re the acquiring company,” he said.
Upon the closing of the transaction, three of Aetna’s directors, including Aetna’s Chairman and CEO Mark T. Bertolini, will be added to the CVS Health Board of Directors, CVS Health said. In addition, members of the Aetna management team will play significant roles in the newly combined company. Aetna will operate as a stand-alone business unit within the CVS Health enterprise and will be led by members of its current management team.
CVS Health was founded in 1963 by two brothers from Woonsocket, Stanley Goldstein, his late brother, Sidney and another partner, Ralph Hoagland. They opened their first “Consumer Value Stores” location in Lowell, Mass., stocking shelves with off-price candy, shampoo, shaving cream and other personal care products.
“They’re not waiting around for somebody to come along and eat their lunch. “It’s great leadership by Merlo and the people at CVS.” – Christopher Bouley