CVS Health CEO Larry J. Merlo speaks at the National Press Club t. 19, 2017 - The Best Documentary E

Well, thank you John for that warm welcome, and good afternoon everyone. Today I'll focus on transformative changes in healthcare and their impact on consumers, employers, providers, and government. I'll describe solutions to the cost, quality, and access conundrum, and how CVS Health is evolving as an integrated healthcare company, leading to our decision to stop selling tobacco products. CVS celebrated its 50th anniversary last year, since the first store opened in Lowell, Massachusetts in 1963. We have over 7,700 CVS pharmacy stores serving 5 million customers daily. But we are more than retail: we provide prescription benefit coverage to nearly 65 million people, operate over 900 Minute Clinics that have treated 21 million patients, and run Coram for specialty pharmacy, treating 20,000 patients monthly. This unique combination creates value for patients, customers, and clients. Our purpose is to help people on their path to better health, guiding our business decisions. The healthcare system is stressed. Health spending as GDP share will rise from 17.2% in 2012 to over 19% by 2023. This makes accessing quality care challenging. Coverage has been employer-funded, but millions remain uninsured. Medicare is growing due to the 'silver tsunami' of 10,000 baby boomers eligible daily. Chronic disease affects half of Americans, accounting for three-quarters of healthcare spending. Medication non-adherence costs $300 billion annually. The system is evolving with the Affordable Care Act, leading to more insured Americans. Payers and providers are innovating with outcomes-based payment models. Retailization of healthcare means consumers are more involved through private and public exchanges. Digital transformation is underway. Pharmacy care is key to improving quality, cost, and access. Pharmacists are trusted professionals. A major opportunity is addressing medication non-adherence. Studies show half of Americans suffer from chronic diseases, but adherence is poor: one in three stop before first refill, less than half take doses as prescribed. Our Pharmacy Advisor program helps manage chronic diseases through pharmacist interventions, showing a 3-to-1 ROI. Specialty Connect offers flexible access to specialty medications. Minute Clinic addresses access issues, planned to expand to 1,500 by 2017, providing convenient care. We are also using digital tools for medication management. Tobacco is a major health issue: 42 million adults smoke, causing 480,000 deaths annually. We wrestled with selling tobacco in a healthcare setting. After thoughtful debate with our team and board, we decided to quit tobacco for good, announced in February and completed a month early. We are the first national pharmacy chain to take this action. Health organizations support our decision, and studies show reducing access decreases tobacco use. We launched a comprehensive smoking cessation campaign. On September 3rd, we announced our new name, CVS Health, signaling a fundamental shift. The private sector must lead on tobacco. Pharmacy can bring solutions to improve health and affordability. Our 200,000 colleagues commit to providing better, more affordable care. Thank you.

Well, you know, when you think about 7,700 stores coast-to-coast, there's a lot of work to transition the space that previously had tobacco. We thought it would take us until October 1st to get that work done. I have to say I'm proud of the CVS team that mobilized and got everything together. It was simply a situation that we were able to execute it a little quicker than what we had thought.

Well, that's a great question. When we made our announcement back in February, we were pretty transparent in terms of the financial impact—the fact that it was two billion dollars in revenues. At the same time, we firmly believe it's the right thing to do for the long-term growth of our company. As CVS Health plays a bigger role in healthcare delivery, whether with health systems, physician practices, or health plans, we saw that tobacco sale was an obstacle to forming new partnerships. The financial community understands the value proposition associated with CVS Health and the growth trajectory. It's hard to point to a single event, but collectively, we've been humbled by the outpouring of support, and it's resonating with investors, consumers, and potential clients.

Yeah, John, that's another great question, and something we're asked a lot. We have never sold e-cigarettes, and we do not plan to. I think one of the things that we're troubled by is if you go in a store that sells e-cigarettes, you see devices branded as Hello Kitty or liquid that is bubble gum flavor or Tootsie Roll. It raises the question of the role e-cigarettes are playing and who the target consumers are. So we don't sell them today, and we have no plans to sell them as we go forward.

Well, John, I think it goes back to the statement I made earlier. We think of ourselves as a pharmacy innovation company, a healthcare company. Think about those 10,000 baby boomers that turn 65 every day. Folks over 60 take three times the number of medications as the younger population. We see a much bigger opportunity to grow the health segment of our business, certainly the pharmacy. Many elements of our CVS pharmacy stores offer opportunities to extend the pharmacy experience into the front of store, whether OTC products or beauty products, recognizing more products today for healthy skin, etc. That's where our focus will be.

You really want me to answer that question? I certainly can't speak for our competitors. I think they've got to go through the same process we went through. We had to ask the hard questions, look in the mirror, use our purpose in terms of how we saw ourselves as a company. We came to the decision we did. Somebody had to be first, and we're proud to say that it was CVS.

I think that too is a question we get asked a lot. As we've had many discussions with leading health experts, whether you're talking about a candy bar, a bag of chips, or soda, or in some places we sell wine or a glass of red wine, I think those products...

Taken in moderation or the occasional use, if you're talking to your physician, a dietitian and nutritionist, they would tell you that they have not been proven to cause medical harm. And by the way, the emphasis is on occasional, moderate use. There is, you can't say the same thing about tobacco. There is no amount of tobacco use that can be considered safe. At the same time, we do think we have an opportunity to educate consumers in a more holistic way about healthier choices. And I think as we go forward, you will see the introduction of healthier products. We just launched a new product line within the last couple months. It's a snack line that's called Abound, and it is a healthier alternative to some of the products. So you'll see those things as we go forward. There'll be more information at the point of decision when the consumer is picking those products off the shelf. So that's where our focus will be. We do not have plans to carry our tobacco decision and eliminate other categories within the store.

Yeah, we have no plans to get into that line. You may find it interesting because I've been asked this question many times. I think that people believe that in some of the states where the law has passed, because you operate a pharmacy, if you choose to sell marijuana, you can do that. But the licenses that we have within pharmacy do not permit us to sell marijuana. We would have to go out and be relicensed as another provider, and we have no plans to get into that line of business.

Yeah, I mean, let me take the second question first. I think as we looked at 2014, and this is information that we've disclosed in the financial community, that we thought that from a business point of view, the Affordable Care Act would be a modest benefit to our business this year. And as we fast forward, we're almost nine full months into the year, that's pretty much how it has played out. We are seeing more of a benefit from the Affordable Care Act as a result of Medicaid expansion than we are from the enrollment in the exchanges. I think there are many studies out there that when folks are trying to answer the question of the six million-plus that have enrolled in exchanges, how many of those enrollees are new to health care coverage, the numbers are all over the board. They're as low as 25% to as much as 80%. So I'm not sure we know the numbers in terms of what percent are really new to insurance. That's not the same in Medicaid. So we're seeing more of a benefit to our business for Medicaid expansion at this point in time. I think as we think about the tobacco decision, the Affordable Care Act really did not play a role in that decision. I think it goes back to one of the comments that I made in my prepared remarks that the Affordable Care Act does deal with access, those thirty million uninsured and the fact that they should have the same opportunity for care just like all of us in this room have. But at the same time, we've got to begin to focus on cost and quality. Our current health care trajectory, when you think about what percent of healthcare makes up GDP, it is not sustainable.

Well, you know, I think some of this goes back to the role that prescriptions play in chronic disease. And the fact that, think about whether it's someone who has high cholesterol. And by the way, when you think about the role that generic prescriptions play, I don't know if you'll be surprised to hear this, but when we look at all prescriptions that we dispense today, about between 83 and 84 percent of all prescriptions are generics at a much lower cost than branded products. And as you look across those chronic diseases that I mentioned earlier, I think in every one of those disease conditions there is a generic drug available to treat that particular disease, whether we're talking about high cholesterol or hypertension or diabetes and the list goes on. So I think that we all believe and the studies substantiate the fact that prescription medication is very effective from a cost-benefit point of view. That if keeping someone on a statin to lower their cholesterol prevents a heart attack, I think the average cost of a heart attack today is $30,000. So remember that example that I use, that for every dollar invested in keeping a diabetic adherent to their prescription regimen, there is a three-dollar return in terms of reducing overall healthcare costs. We were very excited about what, less than two years ago, the Congressional Budget Office actually came out and scored that keeping people adherent to their medications will reduce overall healthcare costs. So we will work diligently, we will work tirelessly to make sure that our patients, our clients, and every one of the stakeholders across the healthcare delivery system understands the role that prescription therapy, prescription adherence plays not just in keeping people healthier but at the same time reducing overall healthcare costs.

Well, I think for years it's been commonly known that the prices of prescription medications here in the U.S., those same products in another country cost significantly less, and the fact that the U.S. subsidizes the cost of research and development and what it takes to bring a particular drug to market. And the pharmaceutical manufacturers are rewarded with 17-year patents on those products. Now, I don't want to mislead anyone; by the time they get it to market, they've burned up many of those years through clinical trials, etc. I do think that there is more competition entering the pharmaceutical space, whether it's coming from generic drugs as drugs lose their patent protection and at the same time there are more new products entering the market that are clinically effective but think of them as me-too products within a clinical disease state. And much like all of us here, we're consumers and competition in the marketplace drives where we choose to shop. And I think we will see increased competition because of more me-too product introductions that will hopefully work to reduce the overall cost of pharmaceuticals.

Well, I think that's a great question. I'll give you an example because we have two hundred thousand of my colleagues at CVS Health, so it's a great opportunity for us to use our own employee population as our Learning Lab. So many years ago, we looked at those of our employees that had access and utilized one of our minute clinics, and we went out and did a study. We looked at their overall health care costs against a control group adjusted for age and health status, and what we found was that those of our employees that utilized Minute Clinic had eight percent lower overall healthcare costs. Now, if you turn around and say, 'Well, what's driving that?' Well, remember earlier I mentioned about 50% of all minute clinic visits occur at nights and weekends, so one of the key drivers is getting that visit out of the emergency room and into the clinic. The average cost of an emergency room visit varies geographically but it could be as much as $800; average visit at a minute clinic is about $80. So my answer to that question is, I think in the healthcare system, someone made a comment to me that quality, how do you define quality, how do you define cost, and someone said it's really health care value. And health care value is defined as the intersection of quality and cost. So you think about the fact that we are delivering high quality, low cost care at minute clinic across our health care delivery system. We've got to begin to think about health care value as being where should that care be administered at the lowest possible cost. And I think that's my answer. We don't, as I mentioned earlier, we do not want to replace the primary care physician, but there are things that we can perform more effectively or more costly, okay, and more accessible and more convenient for the patient. Think about the role that pharmacists play in vaccinations today. Five years ago, it was the exception that a pharmacist administered a flu vaccine or a shingles vaccine; it's becoming much more commonplace all across the country. So I think some of this gets back to once again the fact that pharmacy is extending the front lines of health care, and there's a role for pharmacists to play. There's certainly a role for nurse practitioners to play.

That's another great question. We don't have any short-term plans as you think about the role that we may play. Although one of the services that our nurse providers provide, folks that come in and may have a dental abscess, and once again it becomes one of those emergency visits until they can get to their dentist or endodontist. I think the fact that our health care system is evolving, we continue to evaluate broadening our services. I think we're doing more today than what we were doing three or four years ago. I think that there are some things that we're going to begin to pilot next year that will broaden our services, but once again, we do not see those services as being complementary to primary care. We do not see replacing the role of the primary care physician.

Yeah, that's a great question and one that I think has all of us in the pharmacy profession worried. There's a number of things that we're doing today. I think as an industry, we're working together across the country in terms of things like shared databases so that we can separate, I'll describe it as the liars from the outliers if you will. I think we're participating in drug take-back programs, and that's something I'd encourage all of you. You go home, you look in your medicine cabinet, how many painkillers are sitting there? Maybe you had a dental procedure or a simple procedure and the physician wrote a prescription and you took a few and started feeling better, don't need this anymore but yet they're sitting there, and it's not good to flush them down the sink or in the toilet. And we're sponsoring drug take-back programs across the country. We're working with police departments to make sure that we get those out of the home and at the same time we get them destroyed in an environmentally friendly way. I think one of the other things that as a pharmacist, I never thought I would see this day, but we have built some technology in our shop that looks at the fact that there are some licensed prescribers that are not running ethical practices and they're licensed but they're writing those narcotic prescriptions for all the wrong reasons. And to date, we have stopped filling prescriptions for over 100 physicians because they have not been able to validate the legitimacy of their practice. And we'll continue to work to support our pharmacists so that they're doing the right thing in terms of making sure that the right people are getting the medication that they need. And at the same time, working with all the stakeholders whether it's the DEA, law enforcement, and others that are involved to make sure that we get rid of this other segment of pharmacy that is really driving this problem across the country.

No, I do think that's a concern. I think there are, I think the folks in this room know there are many universities all across the country that are research-oriented with many grants from NIH and other government entities, and those grants have led to some terrific innovations in the market. I think that's certainly something that has those universities concerned and other research stakeholders across the system, and I think that's something that must continue to receive ongoing attention and in management. I think we've got to make sure that we don't cut to the bone that we compromise future research. You think about we have not found a cure for Alzheimer's as an example, and I think we want to see the research supporting cures for that, for ALS, that are just debilitating diseases and more to come on that.

No, there's no question the technology plays an important role in solving the challenges that I mentioned earlier. I talked about our focus on digital. We are experimenting with telemedicine. We actually have 28 sites in Southern California and in Texas. They're staffed by licensed nurses and so a patient comes in and they're actually through technology actually seeing a nurse practitioner or a physician assistant. And by the way, the consumer feedback, patient feedback is off the chart positive. And the reality behind that is that in the site that they're being seen, there is a TV monitor that patient is able to look at the same thing that nurse practitioner is looking at miles away. So for the first time, someone can, all these years we've gone to the doctor and 'open your mouth, look in your ear', they're actually seeing what that physician is looking at, and there's an education that's taking place in terms of why it's an infection, why it may not be an infection. So the feedback is terrific there. And so I think that we're in, as I always describe things, we're on the top of this inning in terms of where that's headed, but I think we're off to a terrific start. I do believe that telemedicine will play an important role, John, especially when you talk about the rural areas of the country that do not have access to a primary care physician.

which is in the healthcare environment and what that really means for employers, community leaders and importantly healthcare consumers. So why don't we start with the current health care environment because it's clear that the system today is pretty stressed. According to the independent office of the actuary at CMS, the Centers for Medicaid and Medicare services, the health share of gross domestic product will increase from 17.2 percent in 2012 to more than 19 percent by 2023. And while this is slower than the growth experienced over the last two decades, health spending is still growing faster than average economic growth. The real world translation to those numbers is that it becomes more challenging for people to quickly access quality care through the traditional care channels. If you ask the question, how did we get there, if you look back over the past 15 years, I think it shows us that health care coverage has been dominated by employer-funded insurance. And while employers and insurers and health care companies have worked hard to bring innovation to the market in terms of improving the quality of care, we also know that millions of Americans remain uninsured and often without needed medications. At the same time, there's tremendous growth in Medicare. It's driven in large part by what we like to call this silver tsunami: the fact that there are 10,000 baby boomers who become eligible for Medicare every day. Now this means over 16 million new people becoming Medicare eligible by 2019, and it also means we're facing a long-term increase in the demand for services and the use of medications. Another challenge is the increasing prevalence of chronic disease. Does it surprise you to know that half of all Americans today suffer from one or more chronic diseases, and this is expected to continue to rise for the next 20 years. Chronic disease today accounts for nearly 3 out of every 4 dollars being spent on health care. They're working to create value and constantly innovating to meet customers' needs. Now, I'm sure you know us best through our CVS pharmacy stores. We have more than 7,700 locations all across the country. We actually serve about 5 million customers each and every day. However, we are much more than a retail pharmacy business. We provide prescription benefit coverage to nearly 65 million people across the country, ranging from large and small employers, health plans and government-sponsored care when you think about both Medicare and Medicaid. We also operate more than 900 retail medical clinics; they're branded as Minute Clinic and our nurse practitioners to date have now treated more than 21 million patients. And then finally, specialty pharmacy, it's one of the fastest growing areas in health care, and we operate Coram which is a leading national provider of infusion services. We actually treat more than 20,000 patients a month; we treat them at home or at one of our ambulatory infusion sites. And for those specialty patients who are managing oftentimes multiple and complex disease, we offer Accordant case management services. We have 17 specialized programs that focus on whole patient care. So when you think about all those businesses, it's really this unique combination of assets working together as a single integrated model that allows us to create real value for our patients, our customers and our clients all across the country. Now I'm sure many of you in this room have seen work for companies that have their mission, they have their vision. At CVS Health, we call it our purpose, and that purpose is simply: we work hard to help people on their path to better health. And all across the organization, it serves as our guideposts as we think about business decisions and focus on health care innovation. And I'll come back to that in just a bit. So with that as a backdrop, I wanted to spend just a few minutes looking at some of the dramatic change.

Well, thank you, John, for that warm welcome and good afternoon, everyone. Today I'll focus my remarks on the transformative changes taking place in our health care system and the impact that that's having on consumers, employers, health care providers, certainly our government, also describe some of the solutions that we're bringing forward to address what many have referred to as this cost, quality, access conundrum that health care is facing today. And then I'll share more about how CVS Health is evolving as an integrated health care company and how that led to our decision to stop the sale of tobacco products. Now, I think everyone is familiar with the CVS brand, but let me share a little bit of our history because last year we actually celebrated a significant milestone. It was our 50th anniversary, and we've come a long way since that very first store opened up in Lowell, Massachusetts back in 1963. And all along the way, we have worked hard to stay true to our focus on the customer.