Tag Archives: Health Care

CVS Announces Plan to Stop Selling Cigarettes

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CVS to Stop Selling Cigarettes

On Feb. 5, CVS Caremark Chief Executive Larry Merlo said, “We’ve come to the decision that cigarettes have no place in an environment where healthcare is being delivered.” The company, he announced, will remove all cigarette and tobacco products from its 7,600 pharmacies nationwide by Oct. 1. The move is expensive, with up to $2 billion in projected lost sales. But CVS is betting on the long-run gains from doubling down on brand reputation and helping customers to live—and shop—far longer.

President Barack Obama personally took the time out to praise CVS, saying in a statement that the move will help wider efforts to “reduce tobacco-related deaths, cancer, and heart disease, as well as bring down healthcare costs.”

“CVS is now one of a small group of companies that have realized that their reputation is the most valuable asset they have and that building a stronger reputation by avoiding risks to that reputation can create a significant competitive advantage,” said Paul Argenti, professor of corporate communications at Dartmouth’s Tuck School of Business, in a column for the Harvard Business Review. “From the White House to the American Lung Association, CVS has received kudos for what seems to be a focus on shared value with society rather than the reckless pursuit of revenue at any cost.”

While CVS stock initially dropped the day of the announcement, shares have since risen 2.3%, success further bolstered when the country’s largest drugstore chain reported 2013 revenue of $126.8 billion—up 3% on healthy growth for drug plans and in-store pharmacies offset by weak growth in front-of-store sales.

“Its profit comes increasingly from health plans, which aren’t keen on carcinogens,” Jack Hough wrote in Barron’s. “Consider: CVS’ tobacco decision is expected to subtract six to nine cents from its yearly earnings per share. But a prescription deal with the Federal Employee Health Program, which expires at year’s end, is worth 16 cents to 21 cents a share, estimates investment bank Mizuho Securities. For CVS, a good chance at renewal just became better, and there’s plenty more business to be won.”

In Forbes’ CMO Shift blog, brand consultant Scott Davis wrote:

The $2 billion decision to boldly dump tobacco sends CVS’ boldest signal of commitment to the brand and to where it sees its future growth; it’s an unprecedented move and one that is wickedly smart. CVS is putting its money where its brand is, betting that this first mover advantage will pay off. I say “first mover” because no one truly owns health and wellness. Sixteen thousand health and wellness apps were downloaded last year. Over $1.4 billion was spent by people trying to learn more about the topic. The overall category is heading to $1 trillion in the next 3-5 years and the timing is right for someone to step in and lead the dialog and become the Amazon of health and wellness. Why not CVS?

Indeed, CVS has spent considerable time and money extending the legacy of pharmacists as community health experts by adding over 800 MinuteClinic walk-in facilities. In doing so, the company has become the largest U.S. pharmacy healthcare provider.

The chain’s competitors are also branching into anti-smoking efforts as they expand their role in the wellness market. Walgreens recently unveiled a partnership with GlaxoSmithKline Consumer Healthcare to launch a free, Internet-based smoking cessation program called Sponsorship to Quit.

Overall U.S. cigarette sales fell 31.3% from 2003 to 2013, according to Euromonitor International. Many health officials hope that the move will help continue to decrease the number of smokers and smoking-related deaths in the U.S. “I think CVS recognized that it was just paradoxical to be both a seller of deadly products and a healthcare provider,” U.S. Centers for Disease Control and Prevention Director Thomas Frieden told Reuters.

Working to build and maintain a strong reputation also boosts the bottom line. Studies from Argenti and a range of other researchers suggest that companies with a strong reputation enjoy price advantages, being able to negotiate lower prices with suppliers and higher charges to customers. They can also recruit better employees, have more stable revenues and, “when something bad happens, they are given the benefit of the doubt by their stakeholders.” Further, “highly reputed companies are more stable, which means they have higher market valuation and stock price over the long term and greater loyalty of their investors, which leads to less volatility,” according to Argenti.

Convenience stores account for 75% of cigarette sales nationwide, so the tobacco industry has yet to express concern about prospective losses from drugstore sales. But Dr. Richard Wender of the American Cancer Society said CVS’s move would have an effect. “Every time we make it more difficult to purchase a pack of cigarettes, someone quits,” he told Reuters. So far, CVS is betting on that for patients’ health, and its own.

The 10 Most and Least Expensive Health Insurance Markets in the U.S.

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Health Insurance

Under Obamacare’s new insurance marketplaces, people in Minnesota, northwestern Pennsylvania, and Tucson, Ariz., are getting the best bargains for health care coverage. Premiums in these areas are half the price of policies in the most expensive regions, based on the lowest cost of a “silver” plan – the mid-range plan most consumers are choosing.

“The cheapest cost regions tend to have robust competition between hospitals and doctors, allowing insurers to wrangle lower rates,” according to a report from Kaiser Health News and NPR. “Many doctors work on salary in these regions rather than being paid by procedure, weakening the financial incentive to perform more procedures.”

The 10 regions with the lowest premiums are:

$154: Minneapolis-St. Paul – Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, Sherburne and Washington counties.

$164: Pittsburgh and Northwestern Pennsylvania – Allegheny, Armstrong, Beaver, Butler, Crawford, Erie, Fayette, Greene, Indiana, Lawrence, McKean, Mercer, Warren, Washington and Westmoreland counties.

$166: Middle Minnesota – Benton, Stearns and Wright counties.

$167: Tucson, Ariz. – Pima County.

$171: Northwestern Minnesota – Clearwater, Kittson, Mahnomen, Marshall, Norman, Pennington, Polk and Red Lake counties.

$173: Salt Lake City – Davis and Salt Lake counties.

$176: Hawaii

$180: Knoxville, Tenn. – Anderson, Blount, Campbell, Claiborne, Cocke, Grainger, Hamblen, Jefferson, Knox, Loudon, Monroe, Morgan, Roane, Scott, Sevier & Union.

$180: Western and North Central Minnesota – Aitkin, Becker, Beltrami, Big Stone, Cass, Chippewa, Clay, Crow Wing, Douglas, Grant, Hubbard, Isanti, Kanabec, Kandiyohi, Lac qui Parle, Lyon, McLeod, Meeker, Mille Lacs, Morrison, Otter Tail, Pine, Pope, Renville, Roseau, Sibley, Stevens, Swift, Todd, Traverse, Wadena Wilkin and Yellow Medicine counties. In Chisago County, the lowest premium is $162.

$181: Chattanooga, Tenn. – Bledsoe, Bradley, Franklin, Grundy, Hamilton, Marion, McMinn, Meigs, Polk, Rhea and Sequatchie counties.

 

The 10 most expensive regions are:

$483: Colorado Mountain Resort Region – Eagle, Garfield and Pitkin counties, home of Aspen and Vail ski resorts. Summit County premiums are $462.

$461: Southwest Georgia – Baker, Calhoun, Clay, Crisp, Dougherty, Lee, Mitchell, Randolph, Schley, Sumter, Terrell and Worth counties.

$456: Rural Nevada – Esmeralda, Eureka, Humboldt, Lander, Lincoln, Elko, Mineral, Pershing, White Pine and Churchill counties.

$445: Far western Wisconsin – Pierce, Polk and St. Croix counties, across the border from St. Paul, Minn.

$423: Southern Georgia – A swath of counties adjacent to the even more expensive region. Ben Hill, Berrien, Brooks, Clinch, Colquitt, Cook, Decatur, Early, Echols, Grady, Irwin, Lanier, Lowndes, Miller, Seminole, Thomas, Tift and Turner counties.

$405: Most of Wyoming – All counties except Natrona and Laramie.

$399: Southeast Mississippi – George, Harrison, Jackson & Stone counties. In Hancock County, the lowest price plan is $447.

$395: Vermont*

$383: Fairfield, Conn. – The southwestern-most county, which includes many affluent commuter towns for New York City.

$381: Alaska.

*Unlike other states, Vermont does not let insurers charge more to older people and less to younger ones. Its ranking therefore will differ depending on the ages of the consumers.

Inefficient Health Care Bureaucracy Costs Physicians $27 Billion Per Year

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Everyone knows that the U.S. health care system is inefficient. This hurts both the nation and the employers that offer coverage to their workers. But a new study by researchers at Cornell University and the University of Toronto claims that the average U.S. physician pays $61,000 more in administrative costs per year than their Canadian counterparts.

In sum, this adds up to a $27 billion overage each year.

The U.S. health insurance bureaucracy costs doctors some $27 billion extra per year compared with Canada’s single-payer system, researchers found.

The study, published in the journal Health Affairs, found per-physician costs in the United States averaged $82,975 annually, while physicians in Ontario averaged $22,205 — primarily because Canada’s single-payer healthcare system is simpler.

The researchers also found that nurses and physicians staff spend nearly 21 hours per week on administrative duties. Those in Canada spend just 2.5 hours.

The systems, population and health factors of each nation are, of course, not identical. But these are staggering numbers — particularly on top of yesterday’s news that family health care coverage has eclipsed $15,000 per year for the first time.

The New York Times explains this in the “Survey of Employer-Sponsored Health Benefits, 1999-2011,” a joint study conducted by the Henry J. Kaiser Family Foundation and Health Research & Educational Trust.

A new study by the Kaiser Family Foundation, a nonprofit research group that tracks employer-sponsored health insurance on a yearly basis, shows that the average annual premium for family coverage through an employer reached $15,073 in 2011, an increase of 9 percent over the previous year.

“The open question is whether that’s a one-time spike or the start of a period of higher increases,” said Drew Altman, the chief executive of the Kaiser foundation.

The steep increase in rates is particularly unwelcome at a time when the economy is still sputtering and unemployment continues to hover at about 9 percent. Many businesses cite the high cost of coverage as a factor in their decision not to hire, and health insurance has become increasingly unaffordable for more Americans. Over all, the cost of family coverage has about doubled since 2001, when premiums averaged $7,061, compared with a 34 percent gain in wages over the same period.

Here is a link to the full study.

Talking Insurance With Wells Fargo Insurance Services CEO Neal Aton

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At RIMS 2011 Vancouver a few weeks ago, I got the chance to speak with Wells Fargo Insurance Services President and CEO Neal Aton to discuss the current state of the market and his company’s expansion over the past decade, something accelerated by the Wachovia merger at the end of 2008. Much like most other insurance executives I have spoken with over the past several months, he believes that the confluence of catastrophes and other market realities have led to a bottoming out of premium pricing for the P/C market.

“It seems that from a pricing standpoint, we’re finding the bottoms in the market,” said Aton. “There are a couple things I think are happening. We see global events that are going to drive reinsurance costs. You see local events which will drive direct losses in the marketplace. I think the property market is a place where there is … a sensitivity to events.”

In addition to the many, many loss events that have battered insurers, he sees a reactionary mentality developing across the industry. And he thinks that once pricing starts to go in the other direction, many carriers will follow suit.

“I think the psychology of the market is such that it seems to me that there is a willingness to follow a price leader,” said Aton. “While the facts may refute that, I think there’s just a mentality that the market’s finding a bottom. I wouldn’t call it a hardening of the market but I think there’s a firming of the market.”

Of course, the P/C industry is not some monolithic collection of policies all moving in unison. Different market segments will continue to behave differently. He doesn’t see the same level of firming in casualty as with property, for example. And he certainly doesn’t see it in D&O. “There’s still plenty of capital running around,” he said.

As for workers comp, he expects a drastic change.

“However, in workers comp, it’s hardening,” he said. “Clearly.”

For Wells Fargo, this will be the first major market shift that the company has undergone as a major player in the insurance market. It  jumped into the business with its acquisition of Accordia in 2001, and while it did navigate through the ensuing market cycle, it did not have nearly the same scale of operations as it does today. Its subsequent acquisition of ABD Insurance & Financial Services (in 2007) and merger with Wachovia (in 2008) have changed the game, turning it into the fifth largest brokerage in the world, according to Business Insurance.

While Wells Fargo Insurance Services is headquartered in Chicago, this growth has caused it to remain a very decentralized operation with 6,000 employees spread out in 200 offices. For Aton, that is a good thing, since the different offices can maintain “a deep commitment to a local market” but also retain “a window into a national resource.”

But you can be too decentralized to an extent that the mothership loses track of what each location is doing. So Aton thus spends a lot of his time trying to devise ways to maintain a good balance between a vast, dispersed network of employees who can reach all segments of the market and ensuring that the whole team remains connected with a common mission. Keeping this connectivity between company resources and the insurance buyer is not easy, but it is the goal.

“It’s hard to deliver, but when you deliver it, boy, it’s magic for a customer,” said Aton.

The main reason the company sees insurance as such a good area of business is that its banking operations allow different units to “cross sell” very easily. It already has so many corporate clients receiving financial services from other parts of the company that adding insurance to their portfolios seems like a natural fit. Right now, about 25% of the insurance side’s business comes from such cross sales with the remaining 75% coming from the market. “I aspire to have that grow to about half-and-half…not by shrinking that side but by making the pie bigger,” said Aton. “We’re on track to do that.”

Currently, Aton’s team supplies one out of every 13 to 15 of those customers who already do other business with Wells Fargo. Aton wants that number to be one out of every five. “That would imply somewhere around tripling our business,” said Aton, later adding that “getting to that is as much about marketing ourselves not only in the marketplace [but] marketing ourselves within Wells.

As the insurance side becomes more a core piece of Wells’ overall business, this will become increasingly easy, he believes.

“We start a conversation with another business [unit] not by saying ‘should we work together?’ It’s ‘how do we work together?’ It’s assumed that we’re working together. That’s the culture—we share our toys. That has taken building muscle memory.”

When I asked him if increasing revenue on the insurance side will also entail expanding through acquisition, he was unequivocal. “Absolutely,” he said. “Absolutely. I think it’s a good time to continue to acquire.”

Integration is never easy, but the Wachovia experience has left Aton optimistic for future opportunities. “In the insurance space, I don’t want to say [the Wachovia merger] was easy, but I wish they all worked so perfectly as that one did,” he said. The key benefits, aside from the integration ease (something they finished on the insurance side in 15 months) were the greater market reach the merger gave Wells Fargo into the Southeast and the complementary risk management and employee benefits talent that Wachovia brought.

Right now, 20% of Aton’s company’s business is in the employee benefit space. He wants to double that over the next five years. This is something that was evolving naturally on its own. And then health care reform came around and provided an even larger impetus to expand in the benefits area. “Number one, it’s a good business,” said Aton. “But the major driver is that our customers need help. There are just so many questions in flux in the health care space.”

So in health care, as in insurance and risk management services, he doesn’t see any end in sight to his company’s expansion.

“There is just a huge demand as customers, from small business owners up to CEOs and CFOs, say that the relevance of insurance and risk management is huge — huger than it’s ever been,” he said.