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CVS’ Larry Merlo Brings Recipe for

Success to NACDS Chairmanship

By Mark Hendricks

W hen he steps to the po-dium April 27 to address the National Association of

Chain Drug Stores Annual Meeting in Palm Beach, Florida, incoming NACDS chairman Larry Merlo will bring with him a clear vision of where the orga-nization should focus its efforts in the foreseeable future. “Our top priority this year needs to be on the impact healthcare reform will have on our industry,” Merlo says. “We need to continue to have a seat at the table to help shape the rules that have yet to be written around how healthcare will be managed and administered. “Closely aligned with that is examin-ing the trends in the delivery of healthcare and the role that community pharmacy can play in a reformed healthcare delivery

system. Through this process, we will work to assure that all involved parties — including legislative and regulatory — un-derstand the value pharmacy provides.” With more than 31 years of experi-ence in retail pharmacy, Merlo is a sea-soned industry veteran who certainly understands the important role pharmacy plays in today’s healthcare environment. He presently serves as president for CVS/pharmacy, the retail pharmacy division of CVS Caremark and one of America’s largest retail drugstore operations with $55.3 billion in retail revenues in 2009. Merlo has spent the last two decades as an executive with CVS, which has more than 7,000 locations in 41 states, the District of Columbia and Puerto Rico. The company also operates 18 dis-tribution centers strategically located

across the country to service its 7,000 stores. A new distribution center slated to open in 2011 is presently under con-struction near the Pennsylvania border in Southern New York. “Nine of our distribution centers handle pharmaceuticals and I am very proud that they have all received Verified Accredited Wholesaler Distributor cer-tification from the National Association of Boards of Pharmacy,” Merlo says. “In fact, our DC in Indiana was the first retail facility to receive VAWD certification.” The VAWD program is designed to preserve the safety and integrity of the pharmaceutical supply chain. The pro-gram seeks to assure consumers and regu-lators that wholesale distributors operate legitimately with the requisite licenses, employ appropriate security and utilize the best practices for safely distributing prescription drugs to pharmacies and other licensed healthcare facilities.

Leadership Brings Responsibility As the senior executive overseeing the company’s retail division, Merlo is responsible for store and pharmacy

operations, including merchandising, logistics, inventory replenishment, marketing, field operations support and information systems. Under his leadership, CVS has completed some of the most successful acquisitions in the history of retail phar-macy, including its recent acquisition and conversion of more than 500 Longs Drug stores. He also orchestrated the com-pany’s acquisition of nearly 700 Osco/Sav-on locations in 2007 and more than 1,260 Eckerd stores in 2004. Merlo was also at the forefront of the industry’s larg-est-ever acquisition deals in 1997 when he helped CVS more than double its store count by integrating 2,500 Revco drug-stores into the company fold, a move that transformed CVS into one of the top drug store chains in the nation. These accomplishments have earned Merlo a reputation as a high-energy, de-tailed and customer-focused leader who consistently delivers results. He credits his parents with planting the seeds for these traits when he was growing up in Charleroi, Pennsylvania. “My father was a laborer in a glass factory while my mother ran the house-hold,” Merlo says. “My parents taught me values to live by as a person — under-standing who you are and what you want to be — as well as the value of an educa-tion and being the best you can be.” Merlo started down the pharmacy career path in 1975 when he worked as an intern at Thrift Drug. In 1978 he earned a degree in pharmacy from the University of Pittsburgh School of Pharmacy, which

will honor him as a distinguished alumni in June. Immediately after graduation he went to work for Peoples Drug in Washington, D.C. Since that time, Merlo says, many people have helped him culti-vate the traits his parents sowed when he was growing up. “I’ve had the good fortune to work for many talented managers,” Merlo explains. “They taught me an awful lot about business and how to be successful, always with a focus on taking care of your customers.” One of the people who have made a significant impact upon Merlo’s career is Tom Ryan, CVS Caremark chairman, president and CEO. “Many of the unique programs our

company has developed through our integrated model are the direct result of Tom’s leadership and foresight,” Merlo says. “He is a passionate advocate for utilizing pharmacy healthcare services to lower costs and improve outcomes. All of us at CVS Caremark work hard every day to achieve this and it is an outlook I will bring to the chairmanship of NACDS.”

Innovative Solutions & Services Merlo says CVS Caremark is con-stantly seeking ways to provide inno-vative pharmacy solutions and quality services that will enhance service and outcomes for clients and customers. “We invest regularly in systems and technology in order to continue deliver-

HealthCare Distributor  April/May 2010 17

The CVS Caremark Headquarters building in Woonsocket, Rhode Island.

A leader in specialty pharmacy, CVS Caremark offers a broad range of services including managing patients pharmacy benefits, filling prescriptions by mail, or offering the industry’s deepest clinical capabilities by mail.

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ing a high level of customer service while controlling costs and increasing efficien-cy,” Merlo points out. “In our retail pharmacies, we are committed to providing prescriptions that are filled accurately and ready when promised by professional pharmacists using the latest tools and technology,” Merlo emphasizes. Last year the com-pany began the rollout of Rx Connect, which is reengineering the way CVS pharmacists communicate and fill pre-scriptions. The rollout of Rx Connect will be completed this fall. “We are also very proud of our Assisted Inventory Management, or AIM system, which is designed to more effectively link our stores and distribu-tion centers with suppliers to speed the delivery of merchandise to our stores in a manner that both increases in-stock positions in the stores and lowers our investment in inventory,” Merlo adds. “And our Visible Improvement in Profits, Execution and Results — or VIPER system — is a transaction-monitoring ap-plication designed to mitigate inventory losses attributable to process deficiencies or fraudulent behavior by providing vis-ibility to transactions processed through

our point-of-sale systems. VIPER has en-abled us to manage inventory loss ratios, or shrink, at best-in-class levels.” “We were one of the first in the in-dustry to introduce both Drug Utilization Review technology that checks for harm-ful interactions between prescription drugs, over-the-counter products, vita-mins and herbal remedies; and a chain-wide automatic prescription refill system — CVS Rapid Refill — which enables customers to order prescription refills 24 hours a day using a touch-tone telephone. We also have our online pharmacy, CVS.com, where you can order prescrip-tions and pick them up at the CVS/phar-macy location of your choice.” Merlo says CVS Caremark is also committed to providing clients and their health benefit plan membership superior results in healthcare cost management. One way the company does this is by leveraging its expertise in core pharmacy benefit management services, such as plan design and administration, for-mulary management, drug purchasing arrangements, mail order and specialty pharmacy services, retail pharmacy net-work management programs, Medicare Part D benefits and a sizable menu of

other clinical services. “Through our unique integrated model, CVS Caremark is able to offer our clients and their plan members a variety of new programs and plan de-signs,” Merlo explains. “Some examples include Maintenance Choice, a flexible fulfillment option that affords eligible plan members the convenient choice of picking up their 90-day supply of main-tenance medications at any CVS/phar-macy store or obtaining them through mail order — in either case at the lower cost of mail; enhanced medication adherence programs and disease man-agement programs; and the ExtraCare Health Card program, which offers discounts to eligible plan members on certain over-the-counter healthcare products sold at CVS/pharmacy.” Merlo says CVS serves approximately 5 million customers each day and that 75 percent of the U.S. population lives within three miles of one of the 7,000 CVS/pharmacy stores. The CVS goal, he adds, is to be the easiest pharmacy retailer for customers to use because ease of use translates to convenience for cus-tomers who are often strapped for time. Each store is designed to provide a clean, well-lit environment stocked with a broad assortment of easy-to-access, quality merchandise at competitive prices. “We are especially proud of our CVS Store Brand program that provides our customers high-quality products at a great value, which is especially important in the current economic climate. Our store

A key component to the CVS/pharmacy retail business is the ExtraCare card program,

which, Merlo says, is the largest and most successful retail loyalty program in the U.S.

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Larry and LeeAnn Merlo at the 2009 NACDS Annual Meeting in Palm Beach, Florida.

From left: Matt and Jeanmarie Leonard, CVS Caremark; Larry Merlo; and Ralph Petri, Kerr Drug at the 2006 NACDS Annual Meeting in Palm Beach, Florida

Merlo takes to the podium during the 2007 NACDS Annual Meeting in Phoenix, Arizona.

A candid photo of Larry Merlo at company headquarters in 2007.

Merlo at the 2006 NACDS Annual Meeting in Palm Beach, Florida.

Merlo and Michael Talbot, area vice president, CVS/pharmacy, take part in dedicating ceremonies at the opening of the company’s 7,000th CVS/pharmacy in Little Canada, Minnesota.

Snapshots of the Incoming Chairman

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About the AuthorMark Hendricks earned his Bachelor of Arts degree in journalism from West Texas State

University and has spent more than 17 years as a communicator and writer for private industry, non-profit organizations and academic/research institutions. He also works as a freelance writer; his stories and articles have been published by a variety of newspapers, magazines and trade publications.

Minute Clinic has been a part of the CVS Caremark family since 2005 and plays an important role in CVS Caremark’s drive to lower the cost of healthcare for insurance plans and self-insured employers. Every CVS/pharmacy offers a complete selection of national and CVS store brand over-the-counter remedies. All are FDA tested and approved using the same standards.

brands include our own private label products across almost all categories, as well as many proprietary brands that are available exclusively at CVS/pharmacy. Our store brands save customers up to 40 percent compared to national brands and all CVS/pharmacy brand products have a 100 percent money-back guarantee.” A key component to the CVS/phar-macy retail business, Merlo continues, is the ExtraCare card program, which is the largest and most successful retail loyalty program in the U.S. ExtraCare cardholders receive a bevy of benefits, including automatic sale prices, custom-ized coupons and Extra Bucks rewards. The program has more than 64 million cardholders who earned more than $1.9 billion in savings and rewards in 2009 In summary, Merlo says CVS Caremark is “uniquely positioned to pro-vide greater access, to engage plan mem-bers in behaviors that improve their health and to lower overall healthcare costs for health plans, plan sponsors and their members” through its integrated offerings that run the gamut of the entire pharmacy

care industry. And it is the people who work behind the counters, and behind the scenes, that Merlo credits with making CVS a model in the industry. “We are successful because of our people, who we believe to be the most talented and dedicated professionals in our industry,” he stresses. “We are com-mitted to providing unparalleled custom-er service, whether it is in our retail phar-macies or mail order facilities, whether it is taking care of the needs of our PBM clients or supporting our stores. CVS Caremark colleagues recognize that to be successful and to differentiate ourselves from competitors, we need to be the best at taking care of our customers.”

Serving the NACDS Membership Merlo has been a member of NACDS for 16 years and has served on the organization’s board since 2007. He was NACDS treasurer in 2008-09 and vice chairman in 2009-10. He also chaired the group’s Finance Committee in 2008-09 and its Political Action Committee in 2009-10.

Merlo believes diversity is a key strength for NACDS’ success because the organization has the ability to engage re-gional and national companies —includ-ing traditional chains, supermarkets and mass merchandisers — on the chain side while also engaging those on the sup-plier side of both front-end and pharmacy companies of all sizes. “NACDS is focused on several ‘big picture’ issues,” Merlo explains. “One is getting ‘wins’ in government af-fairs; another is communicating phar-macy’s role as the face of neighborhood healthcare; and still another is creating a business community, with forums through which buyers and sellers come together and through which industry partners learn, network and address in-dustry challenges together. “We also want to ensure that value is recognized by payor reimbursement poli-cies for both the products and services we provide. And we need to focus on how we, as an industry, can continue to lever-age technology to improve efficiencies along with patient safety.” To address these important issues as NACDS chairman, Merlo will count on a strategy that has served him well during his long and successful career. “It is really about surrounding your-self with a group of very capable and talented individuals.”

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CVS Caremark Gives Back

“Giving back to our communities is an important part of CVS Caremark’s culture,” Merlo

says. “Our vision as a company is to strive to improve the quality of human life and our many philanthropic programs help to support this commitment.” As CVS Caremark has grown, so has the size and scope of its giving. In 2009, the Company contributed $79 million in cash and in-kind contributions to enhance the quality of life in its com-munities. The corporate giving programs include monetary grants, in-kind dona-tions, volunteerism, in-store fundraising, the CVS Samaritan Van, and funding for healthcare research. The company provides support through grants to deserving organizations from its foundation, the CVS Caremark Charitable Trust. Last year, more than 90 grants were awarded to non-profit agencies in 27 states and Washington, DC.

Supporting Disabled Children A primary focus of the CVS Caremark Charitable Trust is helping to make life easier for children with disabilities and their families through a program called CVS Caremark All Kids Can™. The program was devel-

oped with input from customers, colleagues and nonprofits and is a five-year, $25 mil-lion commitment that provides grants and other resources. Through this signature program, CVS Caremark and its Charitable Trust support nonprofit organizations that provide inno-vative programs and services in local com-munities focused on helping children with disabilities learn, play and succeed in life. The goals of CVS Caremark All Kids Can are to raise awareness in schools and in local communities about the im-portance of inclusion; build barrier-free playgrounds so children of all abilities can play side-by-side; and provide medical rehabilitation and related services to chil-dren with disabilities. “In addition to our focus on children with disabilities, our grants help provide medical services for the uninsured, funding

for pharmacy schools and scholarships for the chil-dren of CVS Caremark colleagues,” says Merlo. “We also support the spir-it of volunteerism among our colleagues through our Challenge Grant Program, which provides cash grants to nonprofits where our colleagues vol-unteer.” More than 300 of these grants were awarded by CVS Caremark in 2009.

The All Kids Can program is a primary focus for CVS Caremark.

A Look at CVS Caremark’s Past and PresentT he combined history of CVS

Caremark and its business units is one of innovation and leadership.

Since its establishment in 1963, in both the PBM and health clinic industries, the company has maintained a passion for cus-tomer service and a commitment to creat-ing a better future in healthcare. “Our first store opened in Lowell, Massachusetts, in 1963, selling health and beauty products under the name Consumer Value Store,” Merlo says. “The company was started by brothers Stanley and Sidney Goldstein and partner Ralph Hoagland as an outgrowth of their merchandising busi-ness in which they supplied products to groceries and other retailers.” The store concept was a hit with the public and a year later there were 17 Consumer Value Store locations. The com-pany logo — the letters CVS placed inside a shield — eventually became the common name by which the stores were recognized. “In 1967 we opened our first two pharmacies inside of stores in Rhode Island and the name of our retail busi-ness evolved into CVS/pharmacy,” Merlo continues. “We continued opening more stores in additional states, and in 1969 CVS was bought by the retail conglom-erate, Melville Corporation. In 1996, Melville sold all of its retail assets except for CVS/pharmacy and Melville was re-structured as CVS Corporation.” In 2007, CVS Corporation merged with the pharmacy benefits management company Caremark. The merger spawned CVS Caremark, the nation’s only fully integrated pharmacy healthcare provider. Today CVS/pharmacy is the retail divi-sion of CVS Caremark. The modern footprint of a typical CVS/pharmacy store ranges between 10,000 and 13,000 square feet, though some of the acquired Longs and Sav-on stores on the West Coast are 18,000 square feet and larger. Some older CVS stores may also be smaller because they are located within strip shopping centers, but Merlo says CVS follows an aggressive real estate strategy that relocates those stores to new and larger freestanding locations. CVS also lays out its stores to cater to the female shopper, its largest cus-tomer demographic.

“More than 80 percent of our custom-ers are women, which is why we design our stores with them in mind,” Merlo says. “Specifically, our beauty and skincare departments are easily acces-sible near our front entrance and in most stores our standard shelf height is 60 inches to accommodate women’s average height of 5’4”. This lower profile allows them to see across the store and easily find the products they are looking for.” CVS also operates more than 500 MinuteClinic retail health clinics that are staffed by nurse practitioners and physician assistants who employ nation-ally recognized protocols to diagnose

and treat minor health conditions, perform health screenings and deliver vaccinations. Merlo says many of the MinuteClinic locations also treat a vari-ety of chronic conditions.

Larry Merlo with Per Lofberg, executive vice president of CVS Caremark.