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Does CVS Health Have Aspirations To Be a Tech Company?

By Donna Fuscaldo – Updated Sep 16, 2019 at 5:06PM

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The drug store chain just hired an executive from Fitbit as it tries to expand beyond pharmacies and consumer product sales.

CVS Health (CVS 2.82%) is best known for prescription fulfillment and consumer product sales, but the company now appears to be branching into new areas related to last year's $70 billion acquisition of health insurance provider Aetna. 

According to an internal email obtained by Comcast's CNBC late last month and recently confirmed, the drugstore chain disclosed the appointment of Adam Pellegrini as senior vice president of transformation for consumer health products. Pellegrini comes from Fitbit, the maker of wearable fitness trackers, where he was the general manager and senior vice president for about three years. 

While at Fitbit, the executive said he led the company's healthcare business, designing health and wellness products. At CVS, Pellegrini will report to Alan Lotvin, the chief transformation officer at CVS. In the memo announcing the hire, Lotvin said the former Fitbit executive will "lead the ideation and incubation of consumer-focused health products and services that drive enterprise value and growth," reported CNBC. 

A pharmacist at a drugstore counter while looking at her laptop.

IMAGE SOURCE: GETTY IMAGES.

CVS wants to become a tech-enhanced healthcare services company 

The hiring of Pellegrini comes at a time when CVS is trying to overhaul the business to focus more on health services. To do that, earlier this year it announced it will roll out 1,500 HealthHUB locations at CVS Pharmacy Stores around the country by 2021. The HealthHUBs, which it had been testing at three locations in Houston, offers healthcare services, digital on-demand health tools, advice, and personalized care. With the format, 20% of the store is dedicated to health services including durable medical equipment, supplies, and products and services to help with sleep apnea and diabetes. The hubs also include learning tables equipped with iPads so customers can check out health and wellness apps and shop an expanded inventory on CVS.com. 

"We have a sense of urgency about the need to bring real change to healthcare," said Kevin Hourican, executive vice president of CVS Health and president of CVS Pharmacy in a press release this summer. "What's clear to us is that it will take more than incremental steps to fix what is broken in the healthcare system. That's why we're excited about how the combination of CVS and Aetna can establish an innovative healthcare model that will create an entirely new consumer experience and help people on their path to better health." 

CVS has other plans for tech

But CVS is also doing more to act as a digital company. It announced this week that it teamed up with Alphabet's Google Photos to offer a new same-day, print-to-store service in which consumers can order 4x6 prints from Google Photos and pick them up the same day at more than 7,000 CVS locations around the country. CVS is late to the photo printing party. Rival Walgreens has offered the ability to pick up photos on the same day for years now.

Through its partnership with Teladoc, CVS can also offer customers virtual doctor visits. 

CVS' latest move is more defensive

But CVS' hiring of Pellegrini goes beyond offering more healthcare experiences to customers and developing new medical devices. It's a defensive move to push back against Amazon.com (AMZN 4.50%), which is increasingly getting into the healthcare market.

In June 2018, Amazon spent $1 billion to acquire PillPack, the online pharmacy. With that acquisition, it gained the immediate ability to ship prescription medicine to customers overnight. Following the PillPack acquisition, it announced a healthcare venture with JPMorgan Chase and Berkshire Hathaway to provide health insurance to employees. That gives the company access to scores of people it can potentially service prescriptions for and offer healthcare services to. 

These efforts have all of the drugstore chains on edge. They've seen what happens when Amazon enters a market. They don't want the same competitive troubles forced on them that department stores and supermarkets have been dealing with.

"Amazon could use its expertise to disrupt everything from the pharmaceutical supply chain to Medicare management," wrote market research firm CBInsights in a recent report. The firm forecasts a $3 trillion market opportunity for the e-commerce giant. "The e-commerce behemoth is serious about entering healthcare, bringing with it a non-traditional business model, infrastructure in logistics and computing, and customer love."

If that CBInsights prediction turns out to be true, CVS may need more than one former Fitbit executive to succeed.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Donna Fuscaldo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Berkshire Hathaway (B shares), Fitbit, and Teladoc Health. The Motley Fool has the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares) and short January 2021 $200 puts on Berkshire Hathaway (B shares). The Motley Fool recommends Comcast and CVS Health. The Motley Fool has a disclosure policy.

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