During his 15 years as CEO of CVS (CVS), Tom Ryan transformed the company from a New England drugstore chain into a national health-care colossus with $76.3 billion in annual sales. He did that through a string of major acquisitions, paying $27 billion for drug middleman Caremark in 2007 and $2.9 billion for West Coast regional chain Longs Drug Stores (LDG) last October.
CVS/Caremark is now one of the 20 biggest companies in America, surpassing Boeing (BA), Target (TGT), and Johnson & Johnson (JNJ). The Woonsocket (R.I.) outfit is the largest single buyer and dispenser of prescription drugs in the nation. The Longs deal extends the chain's retail presence from Maine to Hawaii, with nearly 7,000 stores and more than 50 million users of its CVS loyalty card in the U.S.
What does Ryan intend to do with his drugstore empire? His goal, he says, is to help transform America's expensive and often ineffective health-care system. Seeking to take advantage of President Barack Obama's commitment to health-care reform, Ryan wants to use CVS's vast prescription database and burgeoning network of in-store clinics to treat patients with chronic diseases and help keep them out of the hospital, where most medical costs are incurred. "I don't think our health-care system is broken," Ryan says. "We are just spending too much, and it's unproductive."
Few industry experts would argue. Hospital visits prompted by chronic illnesses such as diabetes, heart disease, and arthritis impose an immense burden on health resources in the U.S. The total annual bill for diabetes alone is upwards of $170 billion, according to the American Diabetes Assn. Many of these costs would evaporate if patients simply complied with their doctors' orders and took their medications. In fact, about one-third of all patients who begin a drug regimen never refill the prescription, either because they don't feel sick, they forget, or they don't want to spend the money.
Ryan believes CVS could help solve this problem and, in the process, boost its own bottom line. As a pharmacy benefit management company, the Caremark unit handles drug coverage for large employers and health plans, negotiating discounts with drugmakers. It owns a treasure trove of prescription drug data, as does CVS. The merged company is thus an info tech Goliath, filling or managing more than a billion prescriptions a year. It can use that information to figure out which customers require a gentle reminder to come in for a refill. As a result, customers would buy more drugs, make ancillary purchases in the store, and maybe even visit the clinic. Ryan's challenge is convincing CVS customers that such refill reminders aren't just marketing tactics. He is encouraged that the Obama Administration recognizes the importance of drug compliance and will support private sector initiatives. As debates over health-care reform heat up this spring, Ryan will argue that his aggressive strategies also make good medical and economic sense.