C-Suite Network™

Menu

Digital Transformation Drives Strange Bedfellows

The dust is clearing on the recent announcement that CVS is acquiring Aetna in a deal that surprised many observers. But it shouldn’t surprise you, if you have been paying attention to the way digital transformation is creating new threats and opportunities in formerly staid industries.

Aetna is in the health insurance business and has been trying to get bigger, but regulators have turned down that approach in recent years. So, for Aetna, it makes sense that, if you can’t acquire and you are concerned about competing at your current size, you would agree to be acquired.

What surprised people was who the acquirer was, because people still think of CVS as a retail chain. CVS is indeed a retail chain and it is clearly making this move because Amazon (and to a lesser extent, Walmart) are within striking distance of a broad attack on specialized retailers, such as drug stores. While many retailers are shrinking amidst this onslaught, CVS has an option to pivot from pure retail to healthcare, where it might be a lot easier to compete with a physical presence.

CVS has been sprinkling its MinuteClinic urgent care facilities in many of its retail locations and has become a powerhouse in the drug coverage market with Caremark, so adding Aetna  makes a lot more sense for a healthcare company that happens to have a retail presence. If that, in fact, seems like what Amazon is becoming, with its recent acquisition of Whole Foods, maybe that’s no mistake.

A joke has been circulating in recent years as to whether Amazon can become Walmart faster than Walmart can become Amazon. CVS has evidently heard that joke and beaten Amazon to the punch (line). CVS already has a deal with the Cleveland Clinic to provide a platinum option for the very best care that can be delivered through telemedicine. If Amazon jumps in, don’t be surprised to see clinics in Whole Foods with telemedicine options, too.

It would be one thing if this were all happening just to cut costs, but it is really the patient experience that is driving the changes every bit as much as cost. When you are sick, you don’t want to call the doctor and hope for an appointment during business hours. You want to make an appointment 24×7 as easily as you summon an Uber car and get your prescription at the same place you get your diagnosis. That’s the new experience that is possible already for minor problems. What CVS is betting is that major problems that need more than a nurse practitioner can be handled through in-network doctors and high-end specialist through telemedicine with the nurse practitioner right there to assist. Instead of being referred to a specialist, maybe they can summon a specialist on your first appointment.

Now there is a lot to be worked out, but you can see the direction it is going in. Healthcare is likely to be a very interesting space in the next few years. All the local practices have been bought up by the hospital health care networks who have bet heavily on local providers as though the current model will last forever and they just need to lower prices. My guess is the retailers will bet more on a low-cost MinuteClinic model with in-network doctors (like Aetna’s networks) and a high end telemedicine model. Over time, there should be considerable price pressure on the hospital networks getting squeezed in between.

If you’re not in healthcare or retail, maybe you think you’re off the hook. Guess again. The kinds of pressures causing these cross-industry mergers are the very essence of what digital transformation causes. If you aren’t staring down your customer experience and asking how digital can change the game, you are just waiting for someone else to disrupt you.

Latest posts by Mike Moran (see all)

More Articles by Author