Blog Post

This is a big deal: CVS buys Target's pharmacy business for $1.9B

June 15, 2015

    Dan Diamond, Executive Editor

    It's no secret that CVS Health has been aiming to capture more of the nation's pharmacy business. But the company just hit the bullseye.

    The ever-growing retail and health juggernaut on Monday morning announced that it will purchase Target's pharmacy and clinic operations for $1.9 billion.

    It's a "blockbuster" deal, Mike Troy reports at Drug Store News, with potential to help both companies—more revenue for CVS Health, and more opportunity for Target to sell wellness products.

    Under the terms of the acquisition:

    • Target will rebrand its nearly 1,700 pharmacies and almost 80 retail clinics under the CVS Health name.
    • CVS Health will commit to putting at least 20 more retail clinics in Target's stores.
    • The companies also plan to roll out up to 10 "Target Express" stores in the next two years, which will contain a CVS Health pharmacy.

    The deal—which remains subject to regulatory approval—would open up new markets in the West for CVS Health, analysts note, while ramping up consolidation in the pharmacy industry. Other pharmacy chains like Rite Aid are increasingly under pressure to sell to CVS Health or Walgreens, Bruce Japsen writes at Forbes.

    The New York Times notes that based on prescription revenue, CVS Health is the nation's largest pharmacy company: The company's combined retail outlets and pharmacy sales topped $72 billion last year.

    CVS Health a growing force in health care sector

    The Target deal is just the latest in a string of major moves by CVS Health.

    In the past year, the company has rebranded—note that we now write "Health" after every mention of "CVS"—and decided to stop selling cigarettes. And last month, CVS Health purchased pharmacy services provider Omnicare in a $10 billion acquisition.

    Meet the new 'CVS Health'

    CVS Health also has affiliated with more than 50 hospitals, as providers increasingly work to lower the cost of care under value-based payment models. As Japsen points out, pharmacies can play a key role in holding down costs by promoting generics and medication adherence.

    (And as the Advisory Board's Chief Medical Officer Lisa Bielamowicz writes, pharmacies' move into launching clinics should be a wake-up call for primary care practices.)

    "When we introduced the new name for our company, CVS Health, we began a new era of growth with a broader health care focus and an appreciation of the rise of health care consumerism with consumer choice and accountability growing," CVS Health CEO Larry Merlo said in a statement.

    "This relationship with Target will provide consumers with expanded options and access to our unique health care services that lead to better health outcomes and lower overall health care costs."

    What consumers actually want from primary care

    So what's the takeaway for health care leaders? (Other than CVS Health, like several other major players, is increasingly chasing the consumer health dollar.)

    Here's one way to think about it: Through the eyes of potential patients.

    My colleagues on the Marketing and Planning Leadership Council recently ran a large-scale primary care consumer survey that found that when patients choose among on-demand primary care providers, they are most concerned with access, convenience, and transparency—and not particularly attuned to brand or reputation. (Or existing relationships with providers.)

    And in that context, it's especially clear why the CVS Health-Target deal matters so much for providers. As Alicia Daugherty writes,

      As referral networks tighten, primary care is increasingly important for winning and protecting population share.

      Where a consumer receives care for her sore throat will likely influence where she receives her mammogram and knee arthroscopy.

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