Helping CVS Caremark navigate changing industry

By Sarah Parsons
Contributing Writer
The U.S. health care industry is in the midst of unprecedented transition. Implementation of the Patient Protection and Affordable Care Act is poised to significantly alter the country’s health care delivery system. Add to that an aging population, a growing incidence of chronic diseases and a shortage of primary care physicians, and it becomes clear that we’re in for an industrywide shift. More

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Helping CVS Caremark navigate changing industry

PBN PHOTO/RUPERT WHITELEY
EMBRACING CHALLENGE: CVS Caremark executive Vice President and CFO David M. Denton has helped the retail pharmacy and benefits giant get back on track while pursuing new growth opportunities.
By Sarah Parsons
Contributing Writer
Posted 4/8/13

The U.S. health care industry is in the midst of unprecedented transition. Implementation of the Patient Protection and Affordable Care Act is poised to significantly alter the country’s health care delivery system. Add to that an aging population, a growing incidence of chronic diseases and a shortage of primary care physicians, and it becomes clear that we’re in for an industrywide shift.

Many in the health care industry are understandably approaching this period with trepidation.

David M. Denton isn’t one of them.

The executive vice president and chief financial officer of CVS Caremark Corp. only has eyes for the opportunities this era offers. Denton believes that a changed industry – one that centers around a business-to-consumer relationship rather than business-to-business – holds great promise for CVS, the nation’s largest pharmacy health care provider.

“In the next five years, the health care industry is going to change more than it has in the past 25,” Denton said. “We’re very nicely positioned to take advantage of this changing environment, and we’re pretty excited about the next few years.”

It isn’t totally surprising that Denton would feel this way – he’s already had a fair amount of experience navigating CVS through challenging times.

Denton came onboard as CFO in 2010 after spending a decade in various managerial roles within the company. The son of two pharmacists, Denton has spent the majority of his finance career in the health care and drug-retail industries.

But when Denton took the helm of CVS Caremark’s financial operations, the company wasn’t exactly thriving: CVS struggled financially as it exited 2009 and 2010 wasn’t a significant growth year, either. Denton’s job was to turn things around.

He started by making a few strategic decisions. First, he set an ambitious target, promising investors they would see a 10 to 15 percent increase in earnings. Next, he identified places to cut costs – in particular, the company’s inventory. Denton believed the company carried too much safety stock, so he reduced it by about $1.5 billion. This reduction freed up money that could be invested in the types of projects that would grow the business. Denton also made a few key investments, developing a strategic partnership with Aetna and acquiring two Medicare businesses.

The tough decisions have paid off: CVS revenue increased 11.8 percent in 2011 over 2010 and 14.9 percent in 2012 over 2011, reaching a record $123.1 billion. And while net income increased 0.9 percent from 2010 to 2011, the increase totaled 12.1 percent in 2012 to $3.9 billion. At the same time, earnings per diluted share increased even more, by 3.2 percent in 2011 and 17.9 percent in 2012 to $3.03.

Denton, a laid-back Kansas guy, says that any company achievements are the result of a team effort. Other employees aren’t so modest about Denton’s role in CVS increased revenue.

“Under Dave’s leadership, the company has returned value to shareholders while strengthening the company’s balance sheet and deleveraging,” said Carole DeNale, CVS Caremark’s senior vice president and corporate treasurer.

“The past few years have been incredibly exciting, as our company has continued to grow not only in size, but in scope,” said Eileen Howard Boone, the company’s senior vice president of corporate communications and community relations. “The only word that comes to mind is ‘transformative.’ As we have evolved into the pharmacy innovation company we are today, Dave has been instrumental in that evolution.”

Now that the company is on a strong growth path, Denton says CVS plans to capitalize on the opportunities presented by a changing industry. “In the future, consumers are going to play a much more significant role in their health care decisions,” Denton explained.

Therefore, lowering costs and improving customers’ health outcomes will be central to the company’s strategy moving forward. Denton says CVS Caremark plans to grow a few of its newer programs that already focus on improving the customer experience.

For example, Denton sees great promise in expanding CVS Caremark’s MinuteClinics, in-store family health care practices led by nurse practitioners or physicians assistants. CVS Caremark’s nearly 650 MinuteClinics already service about 15 million people, and Denton sees them becoming increasingly relevant. CVS is adding about 150 MinuteClinics each year, with a goal of exceeding 1,500 around the country by 2017.

CVS’s Maintenance Choice is another program that Denton thinks will play a critical role as the health care industry shifts. Maintenance Choice provides members with the option of receiving their 90-day mail-order prescriptions by mail or by picking them up at their local CVS. Customers receive the savings of mail-order refills but have the ability to obtain medication at the store and consult with a pharmacist. CVS data shows that for customers new to a particular drug therapy, 30 percent more stayed on therapy after 180 days in the Maintenance Choice program than those using traditional prescription mail-order programs.

While capitalizing on a changing health care industry is a key component of Denton’s growth plan for CVS, it’s not the only tool in his toolbox. Under Denton’s leadership, the company recently made its first foray overseas, acquiring Onofre, a small pharmacy chain based in Sao Paolo, Brazil.

Like so many other initiatives Denton spearheaded, staffers attribute the Brazilian project’s success to their CFO’s personality and top-notch finance chops.

“An international acquisition is a complex proposition,” said Boone. “You have to navigate language barriers and cultural differences and a completely different regulatory environment. It poses a unique set of challenges, particularly for a company almost entirely based in the United States. And, let’s just say the down-to-earth guy from Kansas – whose financial expertise seems incongruous to his disarming, quirky sense of humor – brought us into South America successful and unscathed.”

In fact, that’s a good way to sum up Denton’s impact on the company after three years as CFO: successful and unscathed. •

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