CVS Health's Larry Merlo: Efforts already underway with Aetna to 'remake' healthcare

During a presentation at the 37th Annual J.P. Morgan Healthcare Conference, CVS CEO Larry Merlo announced the company's first of a series of concept stores would open in February in the Houston market. They are planned to be as a testing ground for a new consumer-central retail engagement model, he said. (CVS)

In the wake of its $69 million merger with Aetna, CVS Health is preparing to open its first concept store next month, one of the company's first public efforts to "remake" the consumer health experience with Aetna.

During a presentation of the 37th Annual J.P. Morgan Healthcare Conference, CVS CEO Larry Merlo described the integration efforts that have already taken place to integrate Aetna into its business.

"While it's only been six weeks, we are absolutely off and running," Merlo said. 

The company's first of a series of concept stores will open in February in the Houston market as a testing ground for a consumer-central retail engagement model that can target Aetna's membership and focus on managing chronic illnesses, extending primary care and reducing avoidable hospital admissions.

​​​​​​RELATED: CVS closes $69B acquisition of Aetna in a 'transformative moment' for the industry

The concept stores are part of portfolio of products aimed at changing the healthcare experience by harnessing CVS' reach among American consumers with Aetna's data and background as one of the leading payers in the U.S.

That portfolio includes ideas such as harnessing the value of Minute Clinics to include more services such as healthcare screenings and in-store blood testing. It also includes ventures such as a pilot program that allows Aetna care managers to help schedule follow-up visits in Minute Clinics within 14 days of a patient's discharge from the hospital if they are unable to see their primary care provider.

The company also plans to roll out what Merlo called "Care Concierge" services.

"We already engage with one in three Americans. We have become part of their normal everyday routines," Merlo said. "This is critically important because as we think about this, we don’t have to build new routines. We simply have to build our programs and services into the existing routines that already exist.” 

Merlo said he expects the integration with Aetna will begin resulting in financial benefits this quarter.

The company has said it expects to achieve $750 million in savings by 2020 and has already begun reducing corporate expenses in the integration of operations under a single leadership structure. They have also created a combined purchasing organization for stronger purchasing power and are aligning their drug formulary and plan design.

RELATED: CVS expects to close Aetna deal by Thanksgiving, floats ‘simpler’ PBM models

He said he expects medical cost savings to begin accruing by the end of 2019.

"Of the $2 trillion in annual U.S. spending on healthcare, a quarter is estimated to be preventable. That is what the integrated company will be targeting, he said. “Addressing just 5% to 10% of this opportunity results in a savings opportunity that is in the tens of billions of dollars,” Merlo said. “If you apply this same methodology to the Aetna book of business, the opportunity still starts with a ‘B’ as in billion."

He said the company plans to refrain from any additional M&A activity this year as it seeks to improve its debt ratio. As part of the merger, CVS assumed $76 billion in debt from Aetna. Merlo said CVS also has $1.2 billion in debt maturing this year.