By James O’Donnell

For JP Weiss, a pharmacy technician at a CVS store in California, he’s seen first hand that business has been booming for the healthcare giant. What he’s less confident about is whether CVS is setting up its stores and employees to handle that growing demand for fast-filled prescriptions, retail healthcare products, and tests and shots at the company’s MinuteClinic locations.

Chronic understaffing and technology issues have meant longer wait times at its in-store and drive through services in recent months, Weiss said. “Pharmacy unfortunately has been stooped down to the fast food of healthcare, and this leaves customers with very little patience,” Weiss said. “It’s very frustrating to us as we just want our services delivered effectively and safely.”

The pandemic has granted CVS steady demand and the company continues to smash expectations. The firm earned $81.2 billion in its most recent quarter, beating estimates by more than $4 billion. By year end, analysts expect the company will bring in $315 billion in revenue and $8.63 earnings per share.

The growth is fueling chief executive Karen Lynch’s vision of more acquisitions and a vertically integrated health giant, kicked off in September with its acquisition of home health giant Signify Health for $8 billion.

The company is betting that it can be an omnipresent Dr. CVS with hands touching nearly every slice of the healthcare pie, including prescription drugs and at-home hospice, primary care doctors and selling antacids. But to build it, the company will face a crowded field of competitors in its acquisition spree including hungry private-equity firms and big tech companies like Amazon. Constructing the healthcare system of the future will also demand a next-generation playbook from a fairly 20th-century boardroom.

More than $30 billion has changed hands in healthcare M&As year to date. That’s a year of big deals, but still down from a surge in 2021 that saw M&A activity rise 54%. Analysis from McKinsey found that steady demand for healthcare services but ever rising costs means consolidation is all but inevitable, with players “placing big, bold bets on vertical integration, digital enablement, and the development and scaling of healthcare ecosystems.”

CVS’s competitors have been busy. Amazon snatched up One Medical in July for $3.9 billion, Humana purchased 60% of Kindred at Home for $5.7 billion in August, and Walgreens announced this month that its brand Village MD will purchase Summit Health for nearly $9 billion. For CVS, following its foray into home health, the company’s main target is primary care providers.

“Primary care physicians are the lynchpin where other meaningful healthcare decisions are made,” said John Boylan, senior equity analyst for healthcare at Edward Jones. “The more access you have to patients, and the more data you can generate from that access, the better off you are.”

CVS unveiled its plan to be bold on mergers and acquisitions last December, announcing it will deploy at least $20 billion to drive growth, including through M&A. In an earnings call in August, Lynch expressed expansion into primary care as the key focus, adding, “we cannot enter primary care without M&A.” To do so, CVS nearly doubled its cash on hand from the first quarter of 2021 to the $15 billion announced Nov. 2.

But even with cash, the challenge striking the right deal for an acquisition can pale in comparison to successfully integrating that new company into a healthcare giant, according to McKinsey.

A primary challenger for CVS will be private equity. PE firms have been rapidly buying up physician and primary care practices in recent years thanks to the desire to gain economies of scale and little regulation, according to Dr. Jane Zhu, a researcher at the Oregon Health and Science University School of Public Health.

Family doctors and regional networks of physicians are dealing with rising costs due to complexities in billing, electronic health records and reporting, leaving many looking for an exit. Zhu said private equity can offer a more tempting package to these companies than giants like CVS.

“Often, private equity can structure a deal where physician owners can still retain some equity,” she said, whereas selling to a health giant like CVS usually means doctors are converted to salaries instead.

Primary care practices might be bought and sold among private equity groups two or three times before ultimately being sold to a giant like CVS or its insurance business Aetna. While the companies might be better managed by that time, they’re also burdened with millions in debt.

CVS will also be contending with big tech’s ambition to dust the cobwebs off the healthcare industry and modernize it with better scheduling and data collection. After announcing its acquisition of One Medical, Amazon’s senior vice president of health services Neil Lindsay lamented the modern experience of visiting a doctor.

“Waiting weeks or even months to be seen, taking time off work, driving to a clinic, finding a parking spot, waiting in the waiting room then the exam room for what is too often a rushed few minutes with a doctor,” needs to be reinvented, he said. “We see lots of opportunity.”

That Silicon Valley ethos to disrupt old ways is built into the DNA of Amazon and other tech companies entering the health space, like Microsoft, which acquired healthcare AI company Nuance for $19.7 billion in April last year. But the ethos is less present in CVS, a company seen as a mostly sleepy Rhode Island-based drugstore chain up until the early 2000s.

The makeup of the company’s board of directors does not signal a major drive to embrace big tech. Members brought on for their brand and marketing experience often come from legacy names, like Roger Farah of Tory Burch and Ralph Lauren and Fernando Aguirre of Chiquita. Others bring mostly policy and medical expertise, with experience at any major tech firm a glaring gap. Dr. Jeffrey Balser, the most recent board member, joined in September from the Vanderbilt University Medical Center, signals a drive from the company to stick to its roots.

The company did not respond to requests for comments about its priorities and strategies for new board members.

Until now, the company has been nimbly balancing what it calls a three-legged stool strategy: pharmacy benefits management represents nearly half of sales, while insurance premiums and sales from pharmacies and retail stores each make up about a quarter.

The mixed strategy is evident in the company’s stock performance. Down 4.5% for the year, it’s ahead of pharmacy competitors like Walgreens but lags behind insurer competitors like UnitedHealth, up 8.5%, and Cigna, up 38%.

While its competitors race to reinvent the healthcare playbook, CVS will be tasked with making aggressive acquisitions without disrupting its balancing act.

“They have the three legs of the stool. We see them eventually becoming part of a healthcare service ecosystem,” said Boylan. “But that takes time.”