What’s next for CVS?
After acquisition of health insurance giant Aetna, Woonsocket firm is now 3rd-largest in the nation
WOONSOCKET – When CVS Health completed its acquisition of Aetna on Wednesday, this city – and the state – instantly became home to the nation’s third-largest corporation, with some $245 billion in combined revenues.
CVS Health had long been a huge presence – previously ranking seventh on the Fortune 500 list, but the $70 billion acquisition of the Hartford, Conn.-based insurance company means only Walmart and Exxon Mobil are now bigger.
“I think it’s pretty cool,” said Northern Rhode Island Chamber of Commerce President John Gregory. “To have one of the largest companies in the country be located in Northern Rhode Island, in Woonsocket, obviously is something that we can be proud of.”
Industry analysts say the merger of CVS Health, one of the nation’s largest pharmacy benefits managers, and Aetna, which offers a range of health insurance products, could affect the way millions of consumers access health care, though it may take time to see exactly how.
With about 8,000 workers, CVS Health is the state’s third-largest employer, and the company has suggested previously that the merger could create opportunities for even more growth. But even if it doesn’t, Scott Gibbs, president of the Economic Development Foundation of Rhode Island, says the merger is a strategic repositioning of CVS Health in the healthcare market that increases the likelihood that existing jobs aren’t going anywhere.
“CVS Health always was a big company,” said Gibbs. “Whatever they rank now – three, 10, 20 – doesn’t make a difference, other the
fact that by making these strategic moves the company is going to grow and prosper and I think that is good. Staying still is not a solution for longevity.”
Mayor Lisa Baldelli-Hunt has little doubt that CVS Health is poised to grow new jobs in the area as a result of the merger with Aetna – and that’s good news, she says.
“As a healthcare innovation company, it seems only natural that they’re going to be bringing in more talent to the city – and the region,” said the mayor.
The organization Gibbs heads up – EDFRI – manages and markets Highland Corporate Park, the 450-acre facility straddling the Cumberland line where CVS Health occupies about a million square feet of office space in multiple buildings. That’s about half of all the commercial space in the industrial park, where about two-thirds of CVS Health’s statewide workforce is employed.
About a half dozen other tenants of Highland Corporate Park do business within the orbit of CVS Health’s massive market gravity, according to Gibbs. As the company grows, he says, state and local officials should pay heed to potential opportunities for capitalizing on that expansion, and consider strategies to make sure Rhode Island is a place where the company belongs.
“Johnson & Johnson, Procter & Gamble, Uniliver, Novartis...Bayer Health Care – none of those companies would be here if not for CVS Health,” said Gibbs. “Clearly you have to pay attention to what kinds of opportunities are associated with CVS.”
Gregory says CVS Health has been a rock-steady presence in Rhode Island for many years and all signs indicate that it will continue to call home the state where it
was founded nearly six decades ago. But Gregory and Gibbs says the state should make sure it can provide what the company needs to operate here successfully.
“We should always be concerned about any major employer,” said Gregory. “They’re always other states that are looking to attract them. Look what’s happening to Hasbro.”
Many people thought the Pawtucket toymaker would never leave the city, but now Mayor Donald Grebien is trying to assemble a coalition of policy influencers to dissuade the company from pulling up stakes.
Gibbs say the most daunting hurdle – not just in keeping CVS at home, but in attracting new companies – may be in providing a workready stable of labor to do the sorts of jobs that CVS Health needs to fill.
“The biggest challenge is the human capital,” said Gibbs. “These companies live and die on workforce.”
Gibbs, who also serves as Mayor Baldelli-Hunt’s interim economic development director, says state policy is front-loaded with tax incentives and other sorts of subsidies to entice employers to set up shop in Rhode Island. Incentives are part of the equation, Gibbs says, but he thinks there’s too little emphasis on putting labor first.
If Rhode Island were the sort of place that could attract young, well-educated workers for opportunities and experiences beyond the workplace – the companies would follow, says Gibbs.
It’s a complicated calculus, says Gibbs, but ultimately the solution should equal a high quality of life. The state has to offer a heady mix of affordable housing, a clean, attractive environment, effective public schools, exciting recreational opportunities –
and jobs – to become a destination where young people want to live.
“If you look at the Rhode Island population, it’s been fairly stagnant,” said Gibbs. “We have to ask ourselves why.”
Gibbs added, “We spend too much time trying to attract what we don’t have as opposed to nurturing what we do. We’re not going to be Austin, Texas, or Seattle, Washington. They’re experiencing in-migration. People are moving there because they want to live there. The companies are following the people. In the old days you could chase a company and assume people would move there for the jobs. Now human capital is so critical, you tend to look at where the people are living and where they want to live.”
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IN ANNOUNCING the completion of the merger, CVS Health CEO Larry Merlo stressed that it will create a company with enormous potential to make the healthcare system simpler, more accessible and cheaper for consumers.
Calling CVS Health “the nation’s premier health innovation company,” Merlo said, “Today marks the start of a new day in health care and a transformative moment four our company and our industry. By delivering the combined capabilities of our two leading organizations, we will transform the consumer health experience and build healthier communities through a new innovative health care model that is local, easier to use, less expensive and puts consumers at the center of their care.”
The two companies combine assets that have never been grouped under a single roof before. In addition to operating some 9,500 pharmacies, CVS Health is one of the nation’s largest pharmacy benefits managers, while Aetna’s business revolves around employer insurance and Medicaid and Medicare managed-care products.
Exactly how the synergies of the unified companies will play out in the marketplace remains to be seen, but CVS envisions new products and services that will be “broadly available.” The company says it will introduce these new products fairly quickly, focusing in particular on more efficient management of chronic conditions, such as diabetes, high cholesterol and elevated blood pressure.
“Enhanced health services in the community will include a range of services focused on self-management for patients with chronic conditions, expansion of service at MinuteClinic, nutritional and behavioral counseling and benefit navigation support, as well as assistance with durable medical equipment, digital health apps and connected devices,” the company said in a statement.
Some market watchers speculate that the merger gives the reinvented CVS Health the wherewithal to provide medical care from its existing network of roughly 1,100 MinuteClinics, currently equipped to treat only minor conditions that don’t require a physician.
CVS Health was founded in 1963 as Consumer Value Stores by two brothers from Woonsocket, Sidney and Stanley Goldstein, and another partner, Ralph Hoagland. The first CVS store opened in Lowell, Mass., that year, as an offshoot of another company, Mark Steven Inc., which was in the business of helping other retailers manage health and beauty products – no pharmaceuticals.
It wasn’t until 1967 that the growing chain opened its first stores with pharmacies in them – in Warwick and Cumberland.
After a period of rapid expansion, many saw CVS mainly as a pharmacy chain whose direct competition was Walgreen’s. All that began to change in 2014, however, when CVS embarked on a campaign to rebrand itself as a company focused on health. Then known as CVS Caremark, the company announced in September of that year that it would no longer sell tobacco products, and a short time later changed its name again – to CVS Health.
In its acquisition of Aetna, CVS appears to be doubling down on its bet that its future is in the healthcare business, a highly uncertain and unstable sector of the economy that many say is crying out for a makeover.
As Forbes magazine put it, “The CVS-Aetna deal is a case of a sector self-disrupting before an actual disruptor shows up.”