CVS Health (NYSE: CVS) believes that its home-based care and primary care capabilities will unlock value and create long-term earnings power for the company.
Karen Lynch – CVS Health’s CEO – outlined that vision at the Morgan Stanley’s 21st Global Healthcare Conference Tuesday.
“As we step back and as we looked at all of our businesses, what we said was we needed to extend into other areas for growth,” Lynch said. “And we said we needed to build out national provider capabilities either through primary care or in the home.”
The company has done so in both areas, through its $8 billion purchase of the at-home and value-based care enabler Signify Health and its $10 billion purchase of the primary care provider Oak Street Health.
Those investments represent a complete shift in CVS Health’s business model, which has led to speed bumps.
In August, the company announced that it cut 5,000 jobs, or 1.6% of its overall workforce.
But, in the minds of CVS Health leaders, the strategic shift is necessary. The company wants to capitalize off of the shift to value-based care in the U.S., and believe it’s set up perfectly to do so.
“Oak Street Health and Signify, I would argue, are the two premier value-based care providers in Medicare today,” Lynch said. “Signify is a home health risk assessment company that is in three million homes annually. It has the power to unlock additional health services and has an interlocking connection with Oak Street Health. There’s value between the two businesses.”
In addition to connecting Oak Street Health and Signify Health together, CVS Health also wants to connect both with its pharmacy business.
“When we’re looking at Oak Street, we’ve been using our retail pharmacies to engage people when they don’t have a primary care physician,” Lynch continued. “Signify Health, when they’re in the home, and [a patient doesn’t] have primary care, we’re recommending Oak Street. … The results so far are promising and encouraging. There are two things that matter when you think about unlocking the value of those two businesses, one is membership and the second is lowering overall acquisition cost.”
Walgreens Boots Alliance (Nasdaq: WBA) is making the same connections with the primary care provider VillageMD, the at-home care technology platform CareCentrix and its own pharmacy business.
Walgreens has a U.S. Healthcare services segment now, which is led by CareCentrix’s former CEO, John Driscoll.
CVS Health is following a similar path, and announced last week that its CFO, Shawn Guertin, will be in charge of health care services moving forward.
“We always were going to have to have someone lead our health services division,” Lynch said. “I’m very excited that Shawn will be taking over the leadership role, which means Oak Street and Signify will report to Shawn, and he will be responsible for unlocking the long-term value, the revenue and earnings power of those businesses.”
CVS Health can believe in the value of unlocking at-home care and primary care, but it also needs those investments to pay off financially sooner rather than later.
Guertin will be tasked with that challenge moving forward.
“The health services strategy is really about accomplishing two objectives,” Guertin said. “One is to create more accretive earnings growth from year to year. But also, over time, to fundamentally change the growth rates inherent in this company as we build a new business that has more attractive long-term growth characteristics than the enterprise. That’s the big challenge, financially.”
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