Credit Suisse, https://www.credit-swiss.com an international organization, presented a detail review of the “CVS Health Investor Day” held June 4, 2019. CVS Health https://cvshealth.com reaffirmed their 2019 outlook along with their expectations for growth for 2020 and beyond.
CVS provided an update for their expectations for various initiatives concerning integration synergies, enterprise modernization, and transformation. CVS updated its year two synergy target from their original $750 million goal to $800 million of synergies in 2020 anticipated to grow up to a $990 million run-rate in 2021 and beyond.
The largest source of synergies will come as the company adopts standardized programs, streamlines corporate functions including vendor contracting and consolidates many corporate areas. The company expects to realize meaningful synergies particularly from medical cost savings.
Also, the company has developed an “Enterprise Modernization” initiative which seeks to improve productivity by bringing together knowledge, technology, and capabilities to improve the way CVS works without having to build new platforms or undertake significant reengineering.
In addition to the company’s modernization initiative, CVS sees significant value coming from its “Transformation Initiative” expected to accelerate, augment, and amplify growth by delivering products, services, and capabilities.
As for health care benefits, the company expects 2020 membership growth to be generated primarily from continued expansion in government services. The company by serving 2.2 million Medicare Advantage (MA) members, reports that MA represents a compelling long term growth opportunity for the company with both an aging U.S demographic and an under-penetrated marketplace.
CVS/Aetna continues to see Medicaid as another growth opportunity. The company has plans to expand its Medicaid business by deploying demonstrated leadership to manage highly complex populations at the local level. The company currently covers nearly two million members across both insured and administrative service contracts across 16 states currently.
Aetna now has opportunities to grow their Medicaid business through the expansion of their existing relationships with current partners, expanding into new states, and expanding services to the dual special needs population particularly the LTSS population.
In the Retail/LTC segment, CVS expects strong growth driven by prescription growth which is continuing to outpace industry growth. These projections are fueled by CVS’ patient care programs which improve adherence as well as CVS continuing to collaborate with payers around preferred networks.
The company also expects to benefit from services such as expanded durable medical equipment, wellness, and dietitian services. Omnicare is expected to improve in 2020 with higher customer retention and lower operating costs.
CVS expects to optimize the pharmacy supply chain as to 1) size, scale, and expertise, 2) traditional generics, 3) specialty and biosimilars, 4) pharmacy and medical benefits, and 5) innovative contracting.
CVS sees biosimilars as a growing opportunity. While specialty manufacturers have historically faced very little competition, biosimilar approvals have gained momentum as the FDA works to lower the cost required for a manufacturer to bring them to the market’.
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