CVS Health CEO Larry Merlo said the company is ready to compete against Amazon, touting its capabilities to roll out something similar to the delivery service PillPack, which Amazon's bought for $1 billion in June. "The goal being, don't leave any white space for Amazon to disrupt," he said.
The executive said of the pharmacy chain's 1,100 MinuteClinics that half of the roughly 40 million patients seen don't have a primary care physician. Merlo spoke days after federal regulators cleared CVS' $69 billion buy of Aetna at an Economic Club of Washington event in D.C. on Monday.
Potentially the biggest healthcare deal in history, the merger is still expected to close by year's end, pending numerous state regulatory approvals, he said. Merlo also noted expanding worldwide could be a longer-term goal. "We think about international being in our future," he said, "somewhere down the road."
With the Aetna deal nearly done, CVS can more firmly take steps to potentially take on Amazon, which has made incremental steps into health but nonetheless spooked markets and incumbent players.
CVS is looking to open about 150 new stores this year and Merlo expects to see that trajectory for growth continue over the next few years, with an expanded pharmacy and more health services in store.
He doubled down on the $69 billion megamerger's justification of simplifying an overly complex healthcare system and lowering costs, all as a boon to patients.
But there's little evidence that consolidation helps consumers. Critics and skeptics argue any potential savings usually pad a company's bottom line instead of trickling down to its customers.
Advocates for the deal argue that Aetna's wealth of patient data, in tandem with CVS' giant footprint and access to consumers, has the potential to lower costs and improve care at the community level.
The executive, who worked as a pharmacist in D.C. at the beginning of his career, said it's the "most accessible healthcare profession that exists" and that will help the company communicate with customers about necessary interventions.
Merlo also told Economic Club of Washington President David Rubenstein and a packed ballroom of members and reporters that the idea for the CVS-Aetna merger came about from a dinner he had with Aetna CEO Mark Bertolini. The two fell to discussing deepening their existing partnership. "We have the opportunity to make it simple," Merlo said.
In his prepared remarks for the event, Merlo also revived his defense of pharmacy benefit managers, an oft-lambasted player in the healthcare arena and a favorite villain of the Trump administration.
The allegation that PBMs retain profits from the discounts they negotiate with pharmaceutical companies is "simply not true," Merlo said, declaring "almost all" of the difference flows back to employers and other prescription drug plan sponsors as discounts. He also reported that, in 2018, CVS projections had their PBM clients receiving almost 98% of the rebates CVS obtains from manufacturers.
At the end of the day, healthcare is a $3.5 trillion industry and, as growing numbers of the elderly drive increased demand for services, "we have not reached the pinnacle of costs associated with healthcare," Merlo said. "I think that’s a good reason to buy our stock."
Merlo called the pharmacy giant's focus on health a "point of differentiation" from its competitors. Under his almost eight-year leadership, CVS halted the sale of tobacco products and restricted products with photoshopped or deceptive advertising found to give teenagers a skewed body image.