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November 22, 2021

Why CVS is closing 900 stores

Daily Briefing

    CVS Health on Thursday announced that it would close around 900 stores—while investing in more health-focused sites—over the next three years as part of a major strategic shift to expand its health care offerings.

    Our take: Why providers must embrace telehealth now

    CVS announces store closures

    CVS Health's plan to close around 9% of its more than 9,900 retail pharmacy locations—with plans to close roughly 300 stores each year for the next three years—came in response to changes in consumers' buying patterns, population, and future health needs, according to a statement made by the company. At the same time, the company said it will expand its retail clinic presence originally helmed by its MinuteClinics and establish both in-person and virtual locations where customers can access its health care services with the goal of "making health care more affordable, accessible and convenient for consumers."

    Specifically, according to the New York Times, CVS will essentially "remake" many of its retail locations as more explicitly health care-focused sites. Those sites will take the shape of three new, standardized store formats, according to a company press release: Along with retaining some traditional pharmacy stores, one model will focus on offering primary care services, while another will be an "enhanced version of HealthHUB locations" focused on "everyday health and wellness needs."

    While CVS has not yet decided which locations will close, the company said it would consider factors such as local market dynamics, population shifts, storefront density, and the number of Aetna and CVS Caremark customers in each area to determine which locations will close, according to Modern Healthcare. In addition, to prevent further staffing shortages, CVS said it plans to offer employees affected by the planned closures other positions within the company, the Wall Street Journal reports.

    The closures will not affect CVS pharmacies located within Target retail stores, a spokesperson said. Overall, according to the company, the store closures—which are set to begin in the spring of 2022—will result in between $1 billion and $1.2 billion in impairment charges.

    CVS also made personnel announcements in conjunction with the shift: Succeeding Neela Montgomery, the chain's current retail and pharmacy chief, who is slated to depart at the end of 2021, will be Prem Shah, EVP of specialty pharmacy and product innovation, who will take the new role of chief pharmacy officer, and Michelle Peluso, chief customer officer, who will oversee front-store strategy.

    "We remain focused on the competitive advantage provided by our presence in thousands of communities across the country, which complements our rapidly expanding digital presence," said CVS Health President and CEO Karen Lynch.

    CVS' transformation reflects broad industry trends

    According to Suzanne Delbanco, executive director of Catalyst for Payment Reform, with increased demands for digital health services and decreased foot traffic in many of its retail stores, CVS will likely focus on closing its least profitable stores and invest in growing its other health care offerings. "It just reflects a broader understanding of what the American health care consumer wants and expects, especially post-pandemic," she said.

    Separately, Matt Wolf, director and health care senior analyst at RSM, pointed out that CVS' shifting retail strategy mirrors the broader trends in the health care industry. While some health care companies are trying to become the "Facebook or Amazon of health care," Wolf said he doesn't "get the sense that [CVS is] exiting markets so much as they're just removing some of the more redundant locations and shifting some of their attention and investment from physical presence to virtual presence."

    Ultimately, Delbanco said this transformation "has the potential to provide a broad array of services to an individual health care customer who might be getting their insurance through Aetna, and convenient services through CVS." She added, "The ability of CVS and Aetna to share data about that patient could lead to better care coordination and efficiency." (Marcos, New York Times, 11/18; Knutson, Axios, 11/18; Devereaux, Modern Healthcare, 11/18; Terlep/Dabaie, Wall Street Journal, 11/18)

    Why providers must embrace telehealth now

    Essential moves to secure a place in the future of virtual care

    telehealth

    Telehealth is a versatile suite of tools that can help solve care delivery problems. Providers must make progress now on integrating it into care delivery if they intend to have a hand in shaping the future of virtual care utilization—and reaping its benefits.

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