It’s not about Amazon, it’s about CVS.

7 min readMar 28, 2020

COVID-19 is the focus right now. But there are other ongoing trends, and CVS is quietly shaping up to be the next big force in healthcare services delivery.

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If you’re not Amazon (Haven, Amazon Care, Pillpack), it’s pretty tough to come by good press saying you’re doing something innovative in healthcare delivery. The question across panels and podcasts has been “When is Big Tech going to start dominating healthcare?” While that may very well happen someday, Big Tech, specifically Amazon, won’t impact consumers in the short or medium-term.

First, their initiatives have been slow to get off the ground. This is not a contrarian opinion. If you haven’t followed Haven that closely, it’s been subject to lawsuits and leadership changes, all with little-to-no roll out of actual services. Even when they do get started, in the beginning it will just be for their 3M employees. With 300M+ people in the US, a <1% impact is not a game changer.

On top of that, Amazon rolls out services slowly over long periods of time, with diligent testing and experimentation to ensure the right consumer experience and margin accretion. Amazon Care is only for it’s Seattle-based employees and it’ll take at least a year of testing (if not way longer) before they roll this out to non-employees or other geographies. I do think this model of care will be watched closely and can have a ripple effect across the industry…but virtual primary care has been hot and was already getting hotter. Plus COVID is giving tele-health its day in the sun. All that to say….the adoption curve on this model is due to accelerate dramatically with or without the tech giant.

Here’s my tongue-in-cheek assessment of the big player’s current “innovation” strategies. Notice how only CVS and United will actually impact healthcare delivery in the short-run. Everyone else’s strategy is sexy but less tangible:

We need to stop looking to Amazon, when the real healthcare game-changer is right in front of our noses.

When I say “looking at” Amazon, I don’t just mean paying attention to and letting them dominate our conversation. I also mean the millions of dollars that get lost when healthcare company’s stock prices go down, for fear that Amazon is about to take over. I think that fear for CVS is largely unfounded.

So, why CVS? Pretty simple.

Physical proximity to most Americans = ability to impact their daily lives right now. “While CVS can’t compete with Amazon on the internet, it owns nearly 10,000 drugstores across America. Those stores put it within a 5-mile proximity of 227 million people in the US — 71% of the country’s population. In a rough comparison, only 34% of US households are within 5 miles of a Amazon-owned Whole Foods stores.” (source). Now, 62% of Americans are on Amazon Prime, but Prime is a ways away from impacting your healthcare delivery.
CVS’ growing customer base with Aetna allows it to experiment in delivery mechanisms and drive towards measurable results. And I’m not talking about the data, or whatever story Mr. Merlo has been telling folks for years pre- and post-merger.
CVS understands that access and convenience is the ultimate driver for behavioral change in healthcare. Apple did it with technology, and CVS is going to do it with the 80% portion of routine healthcare services delivered everyday in American, to millions of chronic-disease patients.

I’m no analyst (also I’m restricted from buying any healthcare stocks due to my current job)…but I think now is the time to buy CVS stock and hold for a while. Looks like analysts generally agree. Here’s CVS’ ticker performance over several periods:

A more nuanced view to my arguments:

> Aetna has about 40M members. This now allows CVS to drive those members into their stores, which it’s already doing. That’s millions of members, who definitely already live near a CVS, but maybe haven’t considered it for every-day care needs, now being incentivized through low/no co-pays. They eventually not only buy healthcare supplies, but consume higher-margin healthcare services out of sheer convenience.

> Medicare Advantage (~3M members) will be a leading indicator for how CVS will measure what’s working. For MA members, CVS can experiment with delivery mechanisms in-store, while Aetna handles the risk-scores, health risk assessments and claims cost analysis. Combined, the entities can compare cohorts across age/race/sex/geo to determine what is working, how and where. This does not need “big data” or any fancy AI to execute. Once they figure out the Master Patient Index, any solid actuarial firm can help them determine winning/losing strategies.

> Health Hubs are comfortable with lower-margin, higher-volume medical activities, that no one is doing at scale. Margins are in specialty care, we all know that. But CVS isn’t playing that game. They are going after stuff like checking A1C, blood pressure and wellness. It’s not sexy, but it’s the stuff that needs to happen every day with millions of people across the country. The lower-end of the pyramid is profitable too. Hell, Amazon taught us that.

> CVS is making it so easy to use and interact with them, you can’t help yourself. Apple showed us how beauty and easy of use are multiplier effects for adoption. CVS ain’t pretty, but it’s damn sure becoming one of the most convenient companies in America. On top of that, they are making the right brand-moves that show you they understand convenience. Evidence:

CVS vending machine in a NYC train station (I took this pic!)

> They have the capital, willingness and execution ability to try new things which their competitors lack the nimble-ness to do. For example, they are leaning into digital health prescriptions with five new partnerships. They are getting into dialysis (an oligopoly begging to be broken up by the gov.), with partnerships emphasizing in-home care and transplanting. They are pairing opiod patients with SDOH resources. And much much more.

Lastly, the recent COVID-crisis shows us two, very important things you want to see in any company you’re long on.

#1 — They understand they need to be on the right side of history.

Doing the right thing always pays out, even if your income statement takes a hit in the short run. “Aetna is among the first national insurance companies to waive cost-sharing and co-pays for inpatient hospital admissions related to COVID-19.” (source)

#2 — CVS is ROBUST to the crisis, and it’s HIRING workers during this crisis.

“The company plans to immediately hire 50,000 people for full-time, part-time and temporary jobs, including store positions, home delivery drivers, distribution workers and customer service representatives.” (source) For Taleb fans out there, let’s debate their anti-fragility another day. Suffice to say it’s short list of companies who grow stronger through a global pandemic.

Ways in which I could be wrong:

Wall Street doesn’t respond to this line of thinking. Even though analyst’s recommendations line up with me for now, the Street is unforgiving and its timeline ruthless. CVS’ window for execution is tight and margin for error is low. At least in Medicare Advantage, if they don’t start showing gains by the 2021 plan year, that would spell trouble. Probability: Medium/High, we’ve already seen the slow integration timetable of the two companies.
CVS’ cash flow goes down with (A)the US Gov attacking PBM market dynamics or (B) consumers go to Amazon more for their regular CVS purchases. CVS’ ability to re-invest capital in their business and build from <10 to 1500 HealthHubs in two years goes down. Probability: Medium, both are already occurring.
Amazon’s PillPack, mail-order Rx in general, scales up way faster than we all think, and the weekly person-to-person interactions CVS benefits from starts to erode. People have less of a reason to walk into the store. Probability: Low, PillPack focuses on poly-chronic complex seniors and just doesn’t have the market share — also CVS is serves 4.5M pharmacy customers per day. Don’t expect that to change fast.
The increase in tele-health from COVID becomes a more permanent feature of American healthcare, and “consumerism” in healthcare really means digital, not in-person. We leapfrog the in-person consumerism phase, to the detriment of CVS. Probability: Low, habits are hard to change and we aren’t as tech-savvy as China.
Walmart beats them to it. CVS has only built a few of it’s HealthHubs. Walmart has one as well. Post-crisis, Walmart doubles down on its healthcare investments and drastically moves up the time-table. They hasten their pivot to healthcare and do things like stop selling cigarettes (like CVS did in 2014). Probability: Low; why would the O.G. King of Retail change horses all of a sudden change the way they do business.

I’ve got no dog in the hunt here. Will check back in a year and see if I got this right!

As always, I’d appreciate your thoughts and feedback. Drop a comment here, or find me on twitter @RSiddhanti.