CVS - CVS Health Corporation

[wolverine890]

https://www.wsj.com/articles/why-cvs-loves-obamacare-1527633490?mod=searchresults&page=1&pos=1

[Cigarbutt]

https://www.wsj.com/articles/why-cvs-loves-obamacare-1527633490?mod=searchresults&page=1&pos=1

 

If your business thrives on complexity and non-transparency, additional layers are welcome.

Another similar perspective:

https://politicalcalculations.blogspot.com/2018/05/bending-health-care-cost-curve-ever.html#.WxBYjUxFzid

[KCLarkin]

https://www.wsj.com/articles/why-cvs-loves-obamacare-1527633490?mod=searchresults&page=1&pos=1

 

If your business thrives on complexity and non-transparency, additional layers are welcome.

Another similar perspective:

https://politicalcalculations.blogspot.com/2018/05/bending-health-care-cost-curve-ever.html#.WxBYjUxFzid

 

Maybe I'm dense but isn't it obvious that if more people are covered by health insurance that the average expenditure on health is going to go up? Anyway, ignoring the ACA political war, this actually shows average drug expenditures going down.

[Cigarbutt]

 

 

Maybe I'm dense but isn't it obvious that if more people are covered by health insurance that the average expenditure on health is going to go up? Anyway, ignoring the ACA political war, this actually shows average drug expenditures going down.

 

BTW, I appreciate and learn when reading your posts.

Healthcare is kind of complex and the above reference I submitted is relatively poor.

 

The point is that CVS (now with Aetna) like other health insurers have shown in the past that they can adapt.

 

The potential insights from the politicalculations graphs are:

-All increases in healthcare costs are moderating (still above GDP) but some costs (administrative) keep rising ++.

-With insurance, the idea is to pool the risks with the understanding that there will be some administrative costs and with the expectation that for-profit organizations will obtain a reasonable return. The graphs would tend to corroborate data showing that administrative costs are very high and that insurers have been unusually efficient at capturing profits after the final ACA provisions were enacted.

 

Another potential insight is that the government is subsidizing more and more these "abnormal" profits.

 

The biggest risk is regulatory and I submit that this risk may be maximized when the government becomes your biggest client.

But who knows how this will turn out?

 

For interest, a recent link that says the same thing, using different words:

https://www.whitehouse.gov/wp-content/uploads/2018/03/The-Profitability-of-Health-Insurance-Companies.pdf

 

 

 

 

[DooDiligence]

 

 

Maybe I'm dense but isn't it obvious that if more people are covered by health insurance that the average expenditure on health is going to go up? Anyway, ignoring the ACA political war, this actually shows average drug expenditures going down.

 

BTW, I appreciate and learn when reading your posts.

Healthcare is kind of complex and the above reference I submitted is relatively poor.

 

The point is that CVS (now with Aetna) like other health insurers have shown in the past that they can adapt.

 

The potential insights from the politicalculations graphs are:

-All increases in healthcare costs are moderating (still above GDP) but some costs (administrative) keep rising ++.

-With insurance, the idea is to pool the risks with the understanding that there will be some administrative costs and with the expectation that for-profit organizations will obtain a reasonable return. The graphs would tend to corroborate data showing that administrative costs are very high and that insurers have been unusually efficient at capturing profits after the final ACA provisions were enacted.

 

Another potential insight is that the government is subsidizing more and more these "abnormal" profits.

 

The biggest risk is regulatory and I submit that this risk may be maximized when the government becomes your biggest client.

But who knows how this will turn out?

 

For interest, a recent link that says the same thing, using different words:

https://www.whitehouse.gov/wp-content/uploads/2018/03/The-Profitability-of-Health-Insurance-Companies.pdf

 

Here's to hoping that the Guv doesn't turn it all into a Davita/ESRD, loss leader, type payment schedule.

 

Unless, of course, that system actually makes quality healthcare super cheap or free to all of us (without shifting the burden back to us as taxpayers) & offsets the investment losses (I know, right?)

 

---

 

On another note, I believe this was mentioned before but,

 

https://www.healio.com/nephrology/home-dialysis/news/print/nephrology-news-and-issues/%7B143b37ed-6aa6-4d1a-b1a0-4230811fe01d%7D/cvs-health-reveals-more-details-about-plans-for-ckd-care-home-dialysis

[DooDiligence]

I was recently reminded in a post about insurance, that I didn't write anything about my visit to the Minute Clinic, so here goes.

 

As many of you will remember, and would like to forget, I had a stye on my eye and had visited a Baptist Hospital Urgent Care Clinic, twice, with no cure.

 

In the shipping world this would be a "no cure, no pay" situation but I still had to make a copay.

 

It finally dawned on me that this was an opportunity to experience a CVS Minute Clinic first hand.

 

Initially, I was underwhelmed.

 

I checked in through an electronic kiosk emblazoned with signs and ironically, one of the signs said that they are affiliated with Baptist Healthcare system, so I wasn't expecting my stye to get any better as a result of the visit.

 

Next, I looked over to the waiting room which was just a row of chairs along the back wall in a way which screamed "this is NOT a doctors office"

 

The "waiting room" was facing an isle of nostrums that did not instill further confidence in my upcoming medical consultation (it also did not attract me to any kind of impulse purchase.) Somehow, I believe I should have been staring at a gigantic magazine rack surrounded by a well thought out display of ???

 

On another note, this particular CVS location is the only Minute Clinic in Pensacola and it is a poor choice for a clinic as there are others which have layouts that would give a better "doctors office" feel (I sent a message to the BOD about this recently.)

 

BTW, even though the waiting area was poorly thought out, there was standing room only and a steady trickle of new patients were coming in.

 

The person who treated me was a PA and she was very professional and knowledgable and more importantly, she prescribed a different set of oral antibiotics and an antibio cream, which subsequently made the stye go away.

 

I walked straight over to the pharmacy counter and picked up my prescription.

 

This is not necessarily a ringing endorsement of the Minute Clinics and it is obvious from this one anecdotal experience that they have a lot of work to do.

 

The end?

[Cigarbutt]

The end?

CVS recently reported decent results with significant free cash flow generation. They seem to meet the usual acquisition hurdles and, maybe, the best is yet to come. Will watch.

 

They seem to have some willingness to try things.

Interesting example:

https://www.bizjournals.com/bizwomen/news/latest-news/2018/11/cvs-pharmacy-launches-pilot-membership-program.html

It smells like a reactive move to a certain competitor but reaction is probably better than inaction and a lot of first movers will fall.

 

For your case (if you want to disclose the info), what was your part of the bill (co-pay and deductible) and what was the total amount of the bill?

 

For a superficial and visually apparent condition such as yours, online consultation seems like a good option. In my area where healthcare is "free", innovation sometimes comes from the embryonic private sector. Recently, a dermatologist started to offer a consultation option based on an online platform which seems to be quite efficient (to make an appointment, list data, upload photos and virtually "meet" the specialist). The fee, which does not cover the prescription costs, is 180$ (CDN) to get an appointment within 72 hours and 250$, within 24 hours.

I understand that this is also becoming available in the Great Again country, hear that fees as low as 59$ (USD) are advertised and that CVS may have showed an interest:

https://cvshealth.com/newsroom/press-releases/cvs-healths-minuteclinic-introduces-new-virtual-care-offering

 

But they will have to work on their bill length.

https://nypost.com/2018/11/02/woman-gets-6-foot-cvs-receipt-after-buying-3-items/

 

[DooDiligence]

The end?

CVS recently reported decent results with significant free cash flow generation. They seem to meet the usual acquisition hurdles and, maybe, the best is yet to come. Will watch.

 

They seem to have some willingness to try things.

Interesting example:

https://www.bizjournals.com/bizwomen/news/latest-news/2018/11/cvs-pharmacy-launches-pilot-membership-program.html

It smells like a reactive move to a certain competitor but reaction is probably better than inaction and a lot of first movers will fall.

 

For your case (if you want to disclose the info), what was your part of the bill (co-pay and deductible) and what was the total amount of the bill?

 

For a superficial and visually apparent condition such as yours, online consultation seems like a good option. In my area where healthcare is "free", innovation sometimes comes from the embryonic private sector. Recently, a dermatologist started to offer a consultation option based on an online platform which seems to be quite efficient (to make an appointment, list data, upload photos and virtually "meet" the specialist). The fee, which does not cover the prescription costs, is 180$ (CDN) to get an appointment within 72 hours and 250$, within 24 hours.

I understand that this is also becoming available in the Great Again country, hear that fees as low as 59$ (USD) are advertised and that CVS may have showed an interest:

https://cvshealth.com/newsroom/press-releases/cvs-healths-minuteclinic-introduces-new-virtual-care-offering

 

But they will have to work on their bill length.

https://nypost.com/2018/11/02/woman-gets-6-foot-cvs-receipt-after-buying-3-items/

 

The Minute Clinic receipt was printed on an 8.5 x 11 sheet & listed a charge of $129. (my co-pay was $33.)

The prescription consisted of Tobramycin 0.3% eye drops ($12.57) & Cephalexin 500mg capsules ($4.29).

 

Baptist Urgent Care cost $33 x 2 & the prescription was for Bacitracin 500 unit/gm OPHTH ointment ($75 & ineffective).

 

---

 

I'm betting that CVS will be successful in the long run & will have it's ups & downs (whether the Minute Clinics will ever be anything WTFK?)

I don't need the money ATM & am feeling very patient so we'll see.

[Cigarbutt]

I'm betting that CVS will be successful in the long run & will have it's ups & downs (whether the Minute Clinics will ever be anything WTFK?)

I don't need the money ATM & am feeling very patient so we'll see.

Thanks for the follow-up.

20 years ago, I also bought a pharmacy retailer (one of my first stocks, pharmacy chain based in Canada) and sold it around 2004 because of a planned expansion in what I considered to be Fortress Retail, USA. Then, the #1 was Walgreens and the #2 was CVS. As 2018 nears its end, the #1 is still Walgreens and the #2 is still CVS. The more it changes... So your "bet" is reasonable for the long run to come. Fascinating though, because the parallel path is possibly reaching a juncture because the two are taking 2 fundamentally different directions.

 

An exercise I've done over the years is to follow the two, side by side (à la Ben Graham) and submit the following report for your interest:

https://www.fungglobalretailtech.com/wp-content/uploads/2018/08/CVS-and-Walgreens-AUG-20-2018.pdf

 

If I'd be a betting man, I would go with Walgreens but I'm not.

 

PS Bacitracin is still in use but has a nice historical feature. The drug was named because of a girl named Traci (misspelled in fact).

https://web.archive.org/web/20140428190211/https://files.nyu.edu/jmm257/public/other/bacitracin.html

Talk about an enduring moat.

[DooDiligence]

I'm betting that CVS will be successful in the long run & will have it's ups & downs (whether the Minute Clinics will ever be anything WTFK?)

I don't need the money ATM & am feeling very patient so we'll see.

Thanks for the follow-up.

20 years ago, I also bought a pharmacy retailer (one of my first stocks, pharmacy chain based in Canada) and sold it around 2004 because of a planned expansion in what I considered to be Fortress Retail, USA. Then, the #1 was Walgreens and the #2 was CVS. As 2018 nears its end, the #1 is still Walgreens and the #2 is still CVS. The more it changes... So your "bet" is reasonable for the long run to come. Fascinating though, because the parallel path is possibly reaching a juncture because the two are taking 2 fundamentally different directions.

 

An exercise I've done over the years is to follow the two, side by side (à la Ben Graham) and submit the following report for your interest:

https://www.fungglobalretailtech.com/wp-content/uploads/2018/08/CVS-and-Walgreens-AUG-20-2018.pdf

 

If I'd be a betting man, I would go with Walgreens but I'm not.

 

PS Bacitracin is still in use but has a nice historical feature. The drug was named because of a girl named Traci (misspelled in fact).

https://web.archive.org/web/20140428190211/https://files.nyu.edu/jmm257/public/other/bacitracin.html

Talk about an enduring moat.

 

Thanks, I just got through the Walgreen v CVS report (and the Tracy story.)

 

Hmmm...

[DooDiligence]

CVS completes the purchase of Aetna.

 

It's the latest merger between two major healthcare players that could affect tens of millions of Americans. Last week, CVS and insurance giant Aetna finalized a nearly $70 billion merger. The deal could impact where people get their care, how they get their drugs and how much choice they have. Judy Woodruff discusses with Larry Merlo, CEO of CVS Health.

 

 

Managements value proposition for this merger? Merlo says (in the last part of the interview) that $300B a year in drug spend is wasted due to patient non-conformance to prescriptions and he wants to use the merger of Aetna to increase adherence by reinforcement with face to face interactions.

 

---

 

Merlo said Wednesday that he expects one of the first initiatives of the new company would be to roll out some expanded clinics and “learn from our customers in terms of what they value and what perhaps we need to go back to the drawing board on.”

 

https://www.courant.com/business/hc-biz-cvs-aetna-closing-20181128-story.html

 

---

 

Here's another older pre-merger interview of Merlo & Bertolini on CNBC where they discuss the merger. They go into their ideas on the regulatory & political aspects of healthcare delivery.

 

 

---

 

I'd like to hear any & all negative ideas to counterbalance, and even overwhelm, my bullish sentiment for the next decade.

[Cigarbutt]

CVS completes the purchase of Aetna.

 

It's the latest merger between two major healthcare players that could affect tens of millions of Americans. Last week, CVS and insurance giant Aetna finalized a nearly $70 billion merger. The deal could impact where people get their care, how they get their drugs and how much choice they have. Judy Woodruff discusses with Larry Merlo, CEO of CVS Health.

 

 

Managements value proposition for this merger? Merlo says (in the last part of the interview) that $300B a year in drug spend is wasted due to patient non-conformance to prescriptions and he wants to use the merger of Aetna to increase adherence by reinforcement with face to face interactions.

 

---

 

Merlo said Wednesday that he expects one of the first initiatives of the new company would be to roll out some expanded clinics and “learn from our customers in terms of what they value and what perhaps we need to go back to the drawing board on.”

 

https://www.courant.com/business/hc-biz-cvs-aetna-closing-20181128-story.html

 

---

 

Here's another older pre-merger interview of Merlo & Bertolini on CNBC where they discuss the merger. They go into their ideas on the regulatory & political aspects of healthcare delivery.

 

 

---

 

I'd like to hear any & all negative ideas to counterbalance, and even overwhelm, my bullish sentiment for the next decade.

Not much to add but read the following this AM:

https://www.law.com/nationallawjournal/2018/11/29/justice-dept-lawyer-faces-wrath-of-judge-whos-still-weighing-cvs-aetna-deal/?slreturn=20181101081336

 

This seems to be a simple case of an over-sensitive judge but underlines a potential underlying driver: arrogance.

 

In the stuff that you submit above, Ken Langone politely suggests to not forget the customer and mentions that, so far, the "bragging" of the industry about their results (which are financial in nature) has not translated in better quality/cost for the "consumer". It's hard to believe Mr. Langone's personal and anecdotal direct experience with CVS but maybe the lesson here is to maintain the connection with main street even when you reach the high spheres of power. Keeping both feet on the ground is compatible with reaching higher grounds but it means you may need to "share" your margin expansion that comes with increasing market concentration.

 

So investing in CVS for the long term means that you believe that they (combined entity) are ready to adapt to an environment where the end result will be a better and more affordable product for the end user. Arrogance, if it persists, will make the achievement of that goal more difficult.

[DooDiligence]

CVS completes the purchase of Aetna.

 

It's the latest merger between two major healthcare players that could affect tens of millions of Americans. Last week, CVS and insurance giant Aetna finalized a nearly $70 billion merger. The deal could impact where people get their care, how they get their drugs and how much choice they have. Judy Woodruff discusses with Larry Merlo, CEO of CVS Health.

 

 

Managements value proposition for this merger? Merlo says (in the last part of the interview) that $300B a year in drug spend is wasted due to patient non-conformance to prescriptions and he wants to use the merger of Aetna to increase adherence by reinforcement with face to face interactions.

 

---

 

Merlo said Wednesday that he expects one of the first initiatives of the new company would be to roll out some expanded clinics and “learn from our customers in terms of what they value and what perhaps we need to go back to the drawing board on.”

 

https://www.courant.com/business/hc-biz-cvs-aetna-closing-20181128-story.html

 

---

 

Here's another older pre-merger interview of Merlo & Bertolini on CNBC where they discuss the merger. They go into their ideas on the regulatory & political aspects of healthcare delivery.

 

 

---

 

I'd like to hear any & all negative ideas to counterbalance, and even overwhelm, my bullish sentiment for the next decade.

Not much to add but read the following this AM:

https://www.law.com/nationallawjournal/2018/11/29/justice-dept-lawyer-faces-wrath-of-judge-whos-still-weighing-cvs-aetna-deal/?slreturn=20181101081336

 

This seems to be a simple case of an over-sensitive judge but underlines a potential underlying driver: arrogance.

 

In the stuff that you submit above, Ken Langone politely suggests to not forget the customer and mentions that, so far, the "bragging" of the industry about their results (which are financial in nature) has not translated in better quality/cost for the "consumer". It's hard to believe Mr. Langone's personal and anecdotal direct experience with CVS but maybe the lesson here is to maintain the connection with main street even when you reach the high spheres of power. Keeping both feet on the ground is compatible with reaching higher grounds but it means you may need to "share" your margin expansion that comes with increasing market concentration.

 

So investing in CVS for the long term means that you believe that they (combined entity) are ready to adapt to an environment where the end result will be a better and more affordable product for the end user. Arrogance, if it persists, will make the achievement of that goal more difficult.

 

I agree and did catch the admonition by the Mr. Langone but I didn't extrapolate what you so wisely pointed out.

 

---

 

I'm looking further into Merlo, the man, and found the following.

 

https://moneyinc.com/cvs-health-ceo-larry-j-merlo/

 

The link is a pretty quick read but here's my takeaways.

 

His Dad died of tobacco related cancer which may have been more of a driver in halting cig sales at CVS. I had thought it was because he wanted to make CVS look more like a healthcare facility, which may still be true but...

 

He started out as a pharmacist, which gives him direct insight into operations at the customer level but still doesn't answer the question of whether he'll act to lower costs.

 

---

 

For a slightly more in depth, and possibly biased look:

 

https://www.courant.com/business/hc-biz-larry-merlo-ceo-cvs-20171228-story.html

 

To me, the following quote shows how he wants to make more money for CVS by selling more drugs, and save costs for Aetna by targeting adherence.

 

“He understands how sometimes spending more money on drugs makes the overall cost of a disease less,” she said. “So if someone is taking their diabetes medicine, for instance, the diabetes medications are going to cost more money, but the reality is they may stay out of the hospital. So the overall cost is lower.”

 

The invitation to sit with Michelle Obama at the inauguration is interesting too.

 

"The same year, CVS’ decision to stop selling cigarettes drew plenty of positive attention, including an invitation to sit with former First Lady Michelle Obama at the next State of the Union address. At the White House, Obama advocated healthy living and President Barack Obama struggled to kick the smoking habit."

 

and this one could be BS but leads me to believe he's a thoughtful guy:

 

"Muskin likes to tell the story of a swing through California last year with Merlo and other CVS executives to visit big investors in the company. A Suburban pulled up to transport Merlo and the others and Merlo was pulling on the lever to go into the third row of the vehicle."

 

“This guy is running a top S&P 500, Top 25 company, billions of dollars and there he is crawling into the back of a Suburban,” Mushkin said. “It’s kind of who he is.”

 

---

 

I have to get back to studying for finals & a jury for piano proficiency but will delve back in to Ken Langone to see if he has anything new to say on CVS because he seems sharp. The following story may just be him claiming to have dodged Madoff but if it's legit, he'd be the one to smell a rat in Merlo.

 

https://www.reuters.com/article/us-madoff-langone-sb/langone-says-steered-clear-of-cool-madoff-report-idUSTRE50L0NU20090122

[DooDiligence]

Ken Langone puts his money where his mouth is.

 

https://finance.yahoo.com/news/ken-langone-americas-worsening-doctor-shortage-serious-national-problem-143650539.html

 

---

 

https://www.cnbc.com/2016/10/25/i-dont-see-prosperity-in-the-world-says-billionaire-businessman-ken-langone.html

 

---

 

I wish this guy was the Chairman at CVS.

He'd hold Merlo's feet to the fire for sure.

[Cigarbutt]

...

I'm looking further into Merlo, the man, and found the following.

https://moneyinc.com/cvs-health-ceo-larry-j-merlo/

...

For a slightly more in depth, and possibly biased look:

...

https://www.courant.com/business/hc-biz-larry-merlo-ceo-cvs-20171228-story.html

...

Character assessment is difficult but may be an important variable to consider. The CVS chief certainly deserves a high CEO to average Joe ratio but he does often appear on television.

 

Apart from whom one partners with, another aspect you may want to consider is to look at the competitive landscape (present and future). I tend to follow this area and a recent video I watched perhaps is worth a listen when you have time. The video features John Doerr, a guy who acknowledges mistakes but also who has had an unusual ability (can't be just luck) to be at the right place and at the right moment.

 

https://www.cnbc.com/2018/11/29/john-doerr-convinced-amazon-will-roll-out-prime-health.html

 

The video is not really about a specific Prime healthcare option, it's about all this capital looking for "entrepreneurs" and the huge potential from the "liberation" of all data lying within the "proprietary" models of the established players. If you watch the video, you will find that Mr. Doerr fails to come up with a satisfactory answer in relation to a relatively straighforward question coming from the audience (addiction specialist). However, there is a lot of people with boots on the ground who have actionable ideas that do not involve MinuteClinics and who are looking for capital. Opinion: the bridge between capital and ideas is about to be completed and there will be a lot of failures but the moat around the castle will be challenged, perhaps sooner than you (or Mr. Merlo, who is also featured in the link) think. A potential conclusion at the end of the video is to wonder if any of this information technology stuff is relevant and that may be the biggest risk of all. Take that with a grain of salt since I thought that this Bezos guy did not stand a chance against Barnes and Nobles in the 90's.

[DooDiligence]

...

I'm looking further into Merlo, the man, and found the following.

https://moneyinc.com/cvs-health-ceo-larry-j-merlo/

...

For a slightly more in depth, and possibly biased look:

...

https://www.courant.com/business/hc-biz-larry-merlo-ceo-cvs-20171228-story.html

...

Character assessment is difficult but may be an important variable to consider. The CVS chief certainly deserves a high CEO to average Joe ratio but he does often appear on television.

 

Apart from whom one partners with, another aspect you may want to consider is to look at the competitive landscape (present and future). I tend to follow this area and a recent video I watched perhaps is worth a listen when you have time. The video features John Doerr, a guy who acknowledges mistakes but also who has had an unusual ability (can't be just luck) to be at the right place and at the right moment.

 

https://www.cnbc.com/2018/11/29/john-doerr-convinced-amazon-will-roll-out-prime-health.html

 

The video is not really about a specific Prime healthcare option, it's about all this capital looking for "entrepreneurs" and the huge potential from the "liberation" of all data lying within the "proprietary" models of the established players. If you watch the video, you will find that Mr. Doerr fails to come up with a satisfactory answer in relation to a relatively straighforward question coming from the audience (addiction specialist). However, there is a lot of people with boots on the ground who have actionable ideas that do not involve MinuteClinics and who are looking for capital. Opinion: the bridge between capital and ideas is about to be completed and there will be a lot of failures but the moat around the castle will be challenged, perhaps sooner than you (or Mr. Merlo, who is also featured in the link) think. A potential conclusion at the end of the video is to wonder if any of this information technology stuff is relevant and that may be the biggest risk of all. Take that with a grain of salt since I thought that this Bezos guy did not stand a chance against Barnes and Nobles in the 90's.

 

Provocative.

 

I'm mostly concerned with preservation of capital and CVS is a gamble for sure.

 

It's a bet based on the belief that they have the will and ability to deliver value based care, competitively,

and my basis for that belief is not rooted in fact as much as it is in faith, which may make this an iffy wager.

 

Thanks for taking the time to help!

 

I'm looking for candidates to trim or close out after the 1st of the year & CVS is on the list along with SoftBank.

(Way too many moving parts with that wild man Masason.)

 

When I look at everything I own, the only thing I truly understand is my home, which still presents occasional surprise expenses.

 

At present, valuation is not so important since my home is very utilitarian (and you can't move in with Uncle Warren just because you own BRK)

but valuation could become a concern in another 2 years, depending on where I finish up my degree.

Liquidity, although good due to the location, is not nearly as good as equity markets.

 

Since I'm liquid enough to meet the next 3 or 4 years expenses, it may be best to turn what I own in the equity markets into real estate.

But then, there's all that extra labor involved in rental ops & maintenance (which can be offloaded to a property manager.)

And the potential that I may leave the area.

 

I only need to make a small amount of passive income every year to maintain ACA assistance eligibility & this could be done with equities or a rental home.

Both methods have dubious potential and contain many pitfalls but real estate is definitely more tangible & relatable.

 

A friend & his wife, 2 houses down, do weekly rental of their place on FaceBook & it stays occupied throughout the summer (they visit from GA occasionally.)

 

I'm considering doing this & renting a place closer to school.

A cheap commercial property, with kitchen & shower facilities would be great.

Not concerned with making money from it, I just need a larger room to work with.

 

When I really think about it, all the equities I own, including Berkshire, are a leap of faith based on scant knowledge.

 

Trimming & closing equity positions over the next 2 years sounds like a plan.

Resultant cash will go where it goes, after much consideration, and may

wind up in real estate wherever I go for the last 2 years of a BA.

 

WTF has all this got to do with whether CVS is an investment or speculation?

Context = Everything, and writing about it shines light on potential paths.

 

---

 

I get by with a little help from my friends, on COBF  :)

[DooDiligence]

This sounds great for CVS!!!

 

https://www.forbes.com/sites/brucejapsen/2018/05/01/aetna-adds-250k-medicare-advantage-enrollees-ahead-of-cvs-deal/#7ec6989a4e64

 

Yep, sounded great until I Googled "Aetna civil investigative demand (CID)" and came up with this:

 

https://www.nytimes.com/2017/05/15/business/dealbook/a-whistle-blower-tells-of-health-insurers-bilking-medicare.html

 

The government pays insurers extra to enroll people with more serious medical problems, to discourage them from cherry-picking healthy people for their Medicare Advantage plans. The higher payments are determined by a complicated risk scoring system, which has nothing to do with the treatments people get from their doctors; rather, it is all about diagnoses.

 

Diabetes, for example, can raise risk scores by varying amounts, depending on a patient’s complications.

 

...data-mining projects that he had monitored could raise the government’s payments to UnitedHealth by nearly $3,000 per new diagnosis found. The company, he said, did not bother looking for conditions like high blood pressure, which, though dangerous, do not raise risk scores.

 

---

 

and this from Aetna:

 

http://www.aetnafeds.com/pdf/Fraud_Brochure.pdf

 

This brochure, which is produced by Aetna, talks about eliminating fraud perpetrated by patients & providers but I find no mention of efforts to eliminate the gaming of Medicare Advantage risk scoring.

 

---

 

A potentially large clawback and fines + increased scrutiny and lower revenues from Medicare Advantage could seriously damage the business.

 

I'm probably making a mistake by not getting out of CVS now but I want to wait until the 1st trading day of 2019.

The proceeds will, more than likely, go into Berkshire.

 

---

 

FWIW, this decision is a result of watching an episode of PBS "Playing by the Rules - Taking Advantage"

 

https://www.pbs.org/video/medicare-advantage-taking-advantage-aldeae/

[Cigarbutt]

^Similar dynamics were described for Medicaid in replies #125-129 above with the following link:

https://www.whitehouse.gov/wp-content/uploads/2018/03/The-Profitability-of-Health-Insurance-Companies.pdf

 

This game of cat and mouse has been going on for a long time. And will continue until it doesn't.

Insurers will continue to explore the grey areas and a very effective way to maximize profits has been to inflate the complexity of enrollees using risk adjustment techniques which take some tweaking with new government programs but that eventually result in "healthy" profits, effectively benefitting from the concept of adverse selection through "upcoding".

 

Conveniently not mentioned in the references mentioned above is the fact that physicians' own reimbursements may be tied to the diagnostic complexity codes used, thereby aligning the "interests" of providers and payers and reinforcing the creative process leading to risk inflation.

[DooDiligence]

^Similar dynamics were described for Medicaid in replies #125-129 above with the following link:

https://www.whitehouse.gov/wp-content/uploads/2018/03/The-Profitability-of-Health-Insurance-Companies.pdf

 

This game of cat and mouse has been going on for a long time. And will continue until it doesn't.

Insurers will continue to explore the grey areas and a very effective way to maximize profits has been to inflate the complexity of enrollees using risk adjustment techniques which take some tweaking with new government programs but that eventually result in "healthy" profits, effectively benefitting from the concept of adverse selection through "upcoding".

 

Conveniently not mentioned in the references mentioned above is the fact that physicians' own reimbursements may be tied to the diagnostic complexity codes used, thereby aligning the "interests" of providers and payers and reinforcing the creative process leading to risk inflation.

 

Another factor in my decision to get out of CVS is a possible busted thesis with regards to the Minute Clinics.

 

https://www.forbes.com/sites/brucejapsen/2018/02/23/urgent-care-industry-hits-18b-as-big-players-drive-growth/#2d138d7b4d89

 

I've noticed multiple urgent care clinics popping up in my area.

 

They all have advanced treatment & diagnostics (x-rays, broken bones, etc.) which CVS would be hard put to compete with.

 

Urgent care clinics also seem to have an advantage by being closely tied to hospital labor pools.

 

CVS would likely have problems staffing up if they decided to offer expanded services which require actual physicians & trained nursing staff.

[dwy000]

^Similar dynamics were described for Medicaid in replies #125-129 above with the following link:

https://www.whitehouse.gov/wp-content/uploads/2018/03/The-Profitability-of-Health-Insurance-Companies.pdf

 

This game of cat and mouse has been going on for a long time. And will continue until it doesn't.

Insurers will continue to explore the grey areas and a very effective way to maximize profits has been to inflate the complexity of enrollees using risk adjustment techniques which take some tweaking with new government programs but that eventually result in "healthy" profits, effectively benefitting from the concept of adverse selection through "upcoding".

 

Conveniently not mentioned in the references mentioned above is the fact that physicians' own reimbursements may be tied to the diagnostic complexity codes used, thereby aligning the "interests" of providers and payers and reinforcing the creative process leading to risk inflation.

 

Another factor in my decision to get out of CVS is a possible busted thesis with regards to the Minute Clinics.

 

https://www.forbes.com/sites/brucejapsen/2018/02/23/urgent-care-industry-hits-18b-as-big-players-drive-growth/#2d138d7b4d89

 

I've noticed multiple urgent care clinics popping up in my area.

 

They all have advanced treatment & diagnostics (x-rays, broken bones, etc.) which CVS would be hard put to compete with.

 

Urgent care clinics also seem to have an advantage by being closely tied to hospital labor pools.

 

CVS would likely have problems staffing up if they decided to offer expanded services which require actual physicians & trained nursing staff.

 

I'm not sure this is a direct competitor to CVS.  The urgent care clinics are really playing at taking patients away from hospitals and diagnostic center clinics focused on urgent care (i.e. reducing emergency room visits).  They need to have big equipment and doctors in place to prescribe meds and give diagnoses.  CVS is coming at it from the other end focusing more on wellness at the patient level.  Preventative flu shots, blood pressure etc.  I don't know that the pharmacy locations will ever try and get into diagnostics, x-rays, broken bones etc.  They simply don't have the space for all the big equipment. 

 

I actually really like these urgent care clinics because they make treatment more accessible and affordable which plays very well into a pharma provider.  Now if the urgent care clinics start putting pharmacies in place it would be more concerning - but that seems more like a partner opportunity than a threat.

[DooDiligence]

^Similar dynamics were described for Medicaid in replies #125-129 above with the following link:

https://www.whitehouse.gov/wp-content/uploads/2018/03/The-Profitability-of-Health-Insurance-Companies.pdf

 

This game of cat and mouse has been going on for a long time. And will continue until it doesn't.

Insurers will continue to explore the grey areas and a very effective way to maximize profits has been to inflate the complexity of enrollees using risk adjustment techniques which take some tweaking with new government programs but that eventually result in "healthy" profits, effectively benefitting from the concept of adverse selection through "upcoding".

 

Conveniently not mentioned in the references mentioned above is the fact that physicians' own reimbursements may be tied to the diagnostic complexity codes used, thereby aligning the "interests" of providers and payers and reinforcing the creative process leading to risk inflation.

 

Another factor in my decision to get out of CVS is a possible busted thesis with regards to the Minute Clinics.

 

https://www.forbes.com/sites/brucejapsen/2018/02/23/urgent-care-industry-hits-18b-as-big-players-drive-growth/#2d138d7b4d89

 

I've noticed multiple urgent care clinics popping up in my area.

 

They all have advanced treatment & diagnostics (x-rays, broken bones, etc.) which CVS would be hard put to compete with.

 

Urgent care clinics also seem to have an advantage by being closely tied to hospital labor pools.

 

CVS would likely have problems staffing up if they decided to offer expanded services which require actual physicians & trained nursing staff.

 

I'm not sure this is a direct competitor to CVS.  The urgent care clinics are really playing at taking patients away from hospitals and diagnostic center clinics focused on urgent care (i.e. reducing emergency room visits).  They need to have big equipment and doctors in place to prescribe meds and give diagnoses.  CVS is coming at it from the other end focusing more on wellness at the patient level.  Preventative flu shots, blood pressure etc.  I don't know that the pharmacy locations will ever try and get into diagnostics, x-rays, broken bones etc.  They simply don't have the space for all the big equipment. 

 

I actually really like these urgent care clinics because they make treatment more accessible and affordable which plays very well into a pharma provider.  Now if the urgent care clinics start putting pharmacies in place it would be more concerning - but that seems more like a partner opportunity than a threat.

 

Good thoughts.

 

Still, I'm having nagging doubts.

 

I probably ought to quit staring at it until 31 December & then decide to sell some or all, or do nothing.

[Spekulatius]

So, what is the thought after CVS calibrated expectations for 2019 downwards? The stock looks cheap with a midrange earnings expectation of $6.78/ share but a lot of key performance indicators (profit/claim, operating margins etc) seem to be in a LT downtrend.

 

I am tempted to buy cheap durable business like CVS, but I am wary to buy a business in the need to a serious restructuring, since my experience is that they in most cases really cheap anymore when all is said and done.

[DooDiligence]

There are bound to be problems with such a large integration.

 

I probably shouldn't own such a complicated business & the fact that the entire industry is operating in a minefield makes this doubly so.

 

I believe that the healthcare superstore concept is something that can be used to deploy a lot of capital.

For a great-mediocre-poor return? IDK, it's a leap of faith for me that it'll turn out well.

 

That dirty word "synergies" seems like a real opportunity.

It's definitely going to be competitive.

 

"I'm going with my gut." - Bagholder Quote

[Spekulatius]

There are bound to be problems with such a large integration.

 

I probably shouldn't own such a complicated business & the fact that the entire industry is operating in a minefield makes this doubly so.

 

I believe that the healthcare superstore concept is something that can be used to deploy a lot of capital.

For a great-mediocre-poor return? IDK, it's a leap of faith for me that it'll turn out well.

 

That dirty word "synergies" seems like a real opportunity.

It's definitely going to be competitive.

 

"I'm going with my gut." - Bagholder Quote

 

The problem for CVS in the last quarter wasn’t with Aetna, it was with CVS core business (PBM and retail), I don’t think that CVS has done much work on integration with the acquired Aetna business yet.

 

The whole talk it’s CVS health care reminds me a bit of the Citicorp financial superstore concept of the 90’s and we all know how this worked out. I actually think that the integrated health care is the future - I have seen it (as a customer ) and it’s called Kaiser HMO... I just don’t think it will be easy to achieve with acquisitions rather than grow it organically over time.

[Cigarbutt]

There are bound to be problems with such a large integration.

 

I probably shouldn't own such a complicated business & the fact that the entire industry is operating in a minefield makes this doubly so.

 

I believe that the healthcare superstore concept is something that can be used to deploy a lot of capital.

For a great-mediocre-poor return? IDK, it's a leap of faith for me that it'll turn out well.

 

That dirty word "synergies" seems like a real opportunity.

It's definitely going to be competitive.

 

"I'm going with my gut." - Bagholder Quote

 

The problem for CVS in the last quarter wasn’t with Aetna, it was with CVS core business (PBM and retail), I don’t think that CVS has done much work on integration with the acquired Aetna business yet.

 

The whole talk it’s CVS health care reminds me a bit of the Citicorp financial superstore concept of the 90’s and we all know how this worked out. I actually think that the integrated health care is the future - I have seen it (as a customer ) and it’s called Kaiser HMO... I just don’t think it will be easy to achieve with acquisitions rather than grow it organically over time.

FWIW I am unable to see the synergies with the combination.

IMO high market share in the pharmacy retail segment, slow change and continuing free cash flow generation capacity should make it an average performer (compared to the S&P) at today's price.

Their debt is quite high but probably will not become existential under any economic scenario.