How CVS makes its money

The collapse of retail may be grabbing the news, but despite the Amazon phenomenon, some companies are still thriving. Even as Amazon’s entry into the retail pharmacy business becomes real, CVS Health doesn’t just want to survive, it wants to grow. In May 2018, CVS made progress on its $69 billion acquisition of Aetna Inc., an American health insurer. In June 2018, millions of dollars worth of shares were reportedly bought by companies such as Personal Resources Investment & Strategic Management Inc. It had 23,629 shares, CapWealth Advisors LLC had 23,629 shares and Sentry Investments Corp. had 23,629 shares. with 153,800 shares—according to the latest filings.

Shares of CVS Health and Aetna rose on July 11, 2018, following a report that the Justice Department would not challenge their merger. Bloomberg first reported the news, citing trade publication Reorg Research.

On August 8, 2018, CVS reported second quarter earnings with net revenue of $46.7 billion, up 2.2% from the same quarter last year.

A bit of History

CVS Health Corp (CVS) (originally Consumer Value Stores) can trace its origins back to 1963, a value store founded by brothers Stanley and Sidney Goldstein and partner Ralph Hoagland. The company did well and expanded over the next few years until it was acquired by the Melville Corporation, a general merchandiser, in 1969. In the mid-1990s, the company now known as CVS sold all of its units, excluding its profitable pharmacy operations. Shortly thereafter, it began acquiring rival chains—Eckerd, Osco, Sav-On and Longs. Today CVS has over 9,900 retail locations operating in 49 US states, Washington DC and Puerto Rico. The company employs over 300,000 people.

For accounting purposes, CVS maintains four business divisions. In descending order of size, these are pharmacy, retail, healthcare benefit and corporate/other. According to the company’s 2021 year-end filing, revenue totaled $292 billion.

Recipes and more

CVS’s pharmacy division accounts for more than 67% of its revenue. The term “pharmacy” in this context is a bit misleading and this particular area of ​​the business should probably be called “retail”. It includes not only filling prescriptions and giving flu shots, but also all the conveniences/miscellaneous sales normally associated with pharmacy visits. everything from candies and cookies to “As Seen on TV” novelties like Snuggies and Slap Chops.

CVS’s MinuteClinic medical clinic operations include 1,100 retail clinics in 33 states. CVS entered this industry relatively late, but has already become the market leader.

Benefits Management

Pharmacy benefit management is the part of CVS’s business that processes prescription claims. Known as Caremark, it differs from CVS’s pharmacy operations in that the former is a high-volume operator that deals directly with drug manufacturers, sets prices, handles mail order, and more. In other words, all the administrative intangibles that seem to define advanced economies in the early 21st century.

Finally, CVS’s specialty division handles high-quality, complex, life-sustaining and expensive drugs that operate at low volume but gigantic prices. For every 1,000 patients who need a routine prescription of Paxil or Xanax, there are one or two who need a $6,000 vial of Soliris to stimulate red blood cell production and keep them alive. Because such drugs are so rare, expensive and specialized, they require a CVS section to themselves. CVS’ specialty business divisions include Accordant, which offers an insured care plan to patients with any of 17 specific serious conditions (eg, hemophilia, cystic fibrosis). Coram, whose nurses will come to your home and soak your veins to help treat hemophilia, chronic congestive heart failure, etc. and Novologix, which builds and maintains claims software. Nearly five million people a day patronize CVS stores, and Coram serves more than 45,000 patients each month.

CVS earns so much revenue from so many sources that it could remove a high-margin product like tobacco from its stores, a measure taken at least primarily for public relations, and suffer no lasting damage. Granted, idealism only goes so far before butting heads with pragmatism. The company has not announced plans to stop selling beer and wine.

The bottom line

Everything from anxiety to restless legs syndrome now has a corresponding pill or injection to relieve or eliminate symptoms, and companies like CVS are leading the way in bringing these medications to users. As the number of newly diagnosed medical conditions continues to outpace those being eliminated, the amount of money spent on pharmaceuticals will likely increase — a development that should be ringing music to CVS shareholders.

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