CVS Health's tree of drug management and retail health is growing with grafts from a different, struggling retailer. It's a chance to expand the reach of CVS's primary care and low-cost generic medicines, among other things.
CVS Health is buying Target's pharmacy and clinic businesses for $1.9 billion. CVS, the nation's second largest pharmacy benefits manager and pharmacy health provider, will take over Target's 1,600 pharmacies in 47 states, rebrand them as "CVS/pharmacy" and operate them on a "store within a store" model.
Target's nearly 80 walk-in clinic locations will be rebranded as CVS MinuteClinics, and CVS Health will open as many as 20 new clinics in Target stores within three years, as part of the company's goal to have 1,500 clinics by 2017.
The deal comes as Target reels from a sales slump, the costs of its 2013 data breach and an unsuccessful expansion into Canada, which ended with 133 shuttered stores this spring. The company embarked on a restructuring that brought the elimination of 1,700 jobs, a freeze on hiring for 1,400 positions and, now, a reevaluation of its small but significant pharmacy and walk-in clinic network.
For CVS, the deal is another piece of its expansion in the pharmacy business and its growing retail primary care ambitions.
"When we introduced the new name for our company, CVS Health, we began a new era of growth with a broader healthcare focus and an appreciation of the rise of healthcare consumerism with consumer choice and accountability growing," said Larry Merlo, CVS Health President and CEO. "This strategic relationship with Target supports the highly complementary customer base, brand and culture we share."
"By partnering with CVS Health, we will offer our guests industry leading health care services, and at the same time, sharpen our focus on elevating the way we deliver wellness products and experiences to our guests," said Brian Cornell, Target Chairman and CEO.
The deal could extend the reach of CVS's clinic foot print as well as its pharmacy and medical management services, which include medication counseling and adherence and an emphasis on low-cost generic drugs.
CVS Health and Target said they also plan to develop five to 10 "small, flexible format stores" that will be branded as TargetExpress and include a CVS/pharmacy. This "strategic relationship also unlocks future joint development opportunities," the companies said.
"We operate in a rapidly changing healthcare and regulatory environment," said Merlo. "This requires companies like CVS Health to continually innovate, providing additional points of access, lowering costs and improving quality for both consumers and payers."
These are high times for retail health. Among other companies, CVS is competing against UnitedHealth Group, whose Optum subsidiary runs the third largest PBM and a growing chain of 150-plus walk-in clinics.