CVS Thomas Moriarty on Whether Law Firm Experience is Needed for General Counsel

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In-House Legal

CVS Thomas Moriarty on Whether Law Firm Experience is Needed for General Counsel

12/12/2016

Intro: Welcome to In-House Legal, where we cover a variety of issues pertinent to the general counsel and in-house legal departments of small, mid-size, and large organizations.

Join host Randy Milch each month as he discusses the latest developments, trends and best practices for this very busy and often complicated area of law. You are listening to Legal Talk Network.

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Randy Milch: Hello. My name is Randy Milch and I am the host of In-House Legal on the Legal Talk Network. I am honored and happy to have as our guest today Tom Moriarty, Executive Vice President, Chief Strategy Officer and General Counsel of CVS Health.

Tom has spent over 15 years as a Senior Lawyer and General Counsel in a number of pharmaceutical and pharmacy companies and he has been deeply involved in legal and business issues in healthcare, which is of course one of our nation’s most important business sectors. We are going to have a lot of fun with Tom today. So thank you for joining us.

Tom, welcome to In-House Legal.

Thomas Moriarty: Well, thank you very much. Great to be here, looking forward to it.

Randy Milch: So Tom, that’s a huge set of responsibilities and a wide range of issues that you are going to confront. Let’s step back a little bit, because our listeners frequently like to know how General Counsels become General Counsels. I know that you went to Law School at UVA and then you started off, like so many of us do, in a law firm. Was that an important decision in your mind to go get training in a law firm before you went in-house, or was that simply happenstance that’s the route you took?

Thomas Moriarty: Yeah, the initial fork in the road for me was whether to go with a law firm in New York or come back to New Jersey, which is where my home has really always been, and I made the decision to go to New York first, because my feeling was you could always work your way back from New York to a larger New Jersey firm; you cannot really do the reverse.

So I started with the Wall Street firm of Mudge Rose and did that for not too long, and I ended up going out to a smaller trial firm in New Jersey, because I really wanted to get in the courtroom and get experience. So I made the transition from New York to New Jersey more quickly than originally anticipated, but it was definitely the right move to make, because the experience, the practical experience I received with that smaller firm really has held me in good stead over the years.

Randy Milch: So at Mudge Rose, were you doing litigation or were you doing deals?

Thomas Moriarty: Yeah, I was originally recruited to do white-collar criminal defense work with Jed Rakoff, who is now the Federal Judge, and like most large firms the original intent gets sort of dashed because of new workloads that come in, and I ended up getting assigned to this just mammoth multi-state litigation, where it literally took about 25-30 associates on to the case, so I got swept into that.

And rather than doing white-collar criminal work, I found myself in a warehouse and depositions across the country in hot spots, like us, we go to New York and some other very fun places. So the original plan got derailed a little bit, but I did get some good practical litigation experience at Mudge Rose.

Randy Milch: So Tom, your own experience of going to a law firm, going to two law firms before you went in-house, would you recommend that as a course for folks starting out if they want to become an in-house lawyer that they get some valuable experience at a law firm first?

Thomas Moriarty: Yeah, I think the practice has changed a lot over the years, and I go back and forth in my own mind in terms of how we hire, because historically I think corporations largely have looked for folks having at least five years firm experience before they would bring folks in-house, because they wanted that training that happens at the law firm and not have to do the training within the in-house legal department.

And I think as a practice of law has, A, gotten so specialized; and B, the in-house practice has grown so much, that trend I do believe is shifting. So it is now very possible to come in as a first year into a large corporate legal department. We have not done that yet at CVS. We are evaluating whether to do it or not, because what we are seeing is a lot of the firms now don’t have the luxury of making the investments in training and other things that they had historically, because it would be the cost pressures, time pressures, or otherwise.

Randy Milch: Yeah, it is a potential shift that I have noted with other guests we have had on the show that many people are considering hiring first years or people out of clerkships into their legal departments. Very few have actually taken the leap because of the considerations of training that you then take on, and most corporate legal departments aren’t built for that sort of very close handling of new lawyers. But I will be interested to see whether CVS does this, because I know that you would be able to — as a large department, you would be able to figure this out. How many lawyers do you have in your department Tom and where are they located?

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Thomas Moriarty: We have grown over the last several years, obviously because of some of the acquisitions, but also from a shift frankly of outside spend into investments internally, and so we are now just over about 115 lawyers. We have three or four main centers. One would be at our Headquarters in Rhode Island; the other will be out in Scottsdale, Arizona, where we have the PBM Headquarters. We have another large group outside of Chicago, where we have large PBM operations as well. And then we have a group just outside of Dallas, again, centered around a combination retail and Pharmacy Benefit Management (PBM) Center there.

And then we have four lawyers down in Brazil with an acquisition we made in Brazil about 3.5 years ago now, and they are charged with all the legal issues for that operation.

Randy Milch: And Brazil is your only foreign outpost at this point?

Thomas Moriarty: It is. It is. It was the initial step out to try and learn and we have not expanded it. We have been expanding so quickly in the US and there’s still plenty of room to go. We are continually evaluating when and how do we extend outside the US.

Randy Milch: One of the interesting aspects of your job Tom these days, and you have had this in the past is that you have taken on what some might consider to be business activities in addition to the traditional legal roles.

At Medco you were President of the Global Pharma Strategies and here at CVS you are also the Chief Strategy Officer. Has that been an important part of you for personal development to have those additional roles and how do you square those with your role as the General Counsel?

Thomas Moriarty: It’s a great question. I mean, it is something obviously I enjoy an awful lot. I was lucky at Medco, where I actually stepped out of the legal department and moved to the business side for about two years in the M&A and corporate development role. And the ability to step out and see in much more depth all the issues that confront the business and how you manage them, not only made me a better lawyer, because I had a greater appreciation than you might have had otherwise for those issues and how they get managed, but I think it has made me a better corporate manager as well by doing it.

So I mean, the one hard and fast rule I have is that where I have the business responsibility, I am not the lawyer. I have a dedicated lawyer who is essentially the general counsel for that business unit and they make the legal decisions, I do not, because you really have to watch that line and make sure you are not blurring the legal and the business, obviously for privilege and other reasons.

But on a personal level and professional level I have really enjoyed it. It’s challenging. It makes for long days, but it makes for fun days too.

Randy Milch: How did being on the business side change your perception of risk when it comes to doing your General Counsel job because that frequently is the tension point between the lawyers and the businesspeople when you get right down to it. You don’t make money if you don’t take risks and lawyers tend to regard themselves, rightly and perhaps sometimes too zealously, as the protectors of the corporate FISC and reputation and every other thing about the corporation which tends to be an anti-risk position?

Thomas Moriarty: Right, right. No, exactly. I mean, an early, early mentor and an early lesson I learned at Mudge Rose was the concept of, it’s not what the law says, it’s what the law means. And your best counselors, your best lawyers will tell you not only what the law says, but apply it and translate it for a business context.

I think the biggest lesson I learned by sitting on the business side was the real need and thirst for that from the business leaders, because a lot of areas of the law can be confusing, counterintuitive to business folks, and gaining that skill set of applying the law in a practical way was probably the single biggest benefit of sitting on the other side.

Randy Milch: How does your role at CVS translate into the external functions? In other words, general counsels have an external role obviously, but with your business roles and otherwise, do you find yourself externally focused more than you think other general counsels do or about the same?

Thomas Moriarty: I would say probably more so, because of the combination roles and also because of where we sit in the healthcare issues and the healthcare system, and the prominence those issues have and have had over the last several years with the passage of the Affordable Care Act, its application, and all the different public policy questions and regulatory questions that has spawned.

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So I find an awful lot of my time being down in DC, down in Washington, or in the state capitals talking about issues, talking about policy. And so because of the prominence of all the healthcare issues today, as well as over the last several years, it is much more, I think, externally focused than you might see other general counsels have in their roles.

Randy Milch: And how do you meld the external and internal, do you have a special team that you convene in order to ensure that the external statements are geed really well with your internal policies or is this sort of an ad hoc effort?

Thomas Moriarty: No, it’s very, very coordinated. One of the groups that I have responsibility for is our Government Affairs and Public Policy teams. So all of our positioning at the regulatory level, at the legislative level, and at the policy level runs through a process to make sure we are fully aligned across the company.

And then no one can speak publicly without their remarks being reviewed by the Communications and the Public Policy team, because we need to speak with one voice, and so it is very organized and very consistent across the board.

And a great example is I gave a speech yesterday morning in DC at Politico, the magazine Politico Breakfast and it was on drug pricing, and it’s an event we have sponsored for the last six years. It’s a series of conversations. And that’s probably the best example of how you bring to bear the policy, regulatory and communication messaging to a single voice.

Randy Milch: I am glad you brought up drug pricing, because there’s nothing when you get down to it that’s as complicated I think as the healthcare marketplace, which comprises so many different types of businesses, from doctors, to pharmacy businesses, to pharmaceutical companies. You had a stint as the General Counsel of a pharmaceutical company, one that actually produced drugs at Celgene. How did that experience translate into your experience now at CVS? Do you feel that you are empowered in a different way because you sat on the other side of a very important table?

Thomas Moriarty: Yes. And also, earlier in my career I was with Merck, the pharmaceutical company for a long time before my assignment up to Medco, which was a company at Merck and then it spun out. But I have the benefit of understanding almost a full spectrum now of pharmaceutical development, all the way through the approval process, the discovery process, as well as then the marketing and sales process.

So that background is extremely valuable, and I think it’s one of the reasons I was given responsibility at Medco and now at CVS for our pharmaceutical supply chain, that’s all the negotiations with the branded and generic manufacturers, as well as serving as Chairman of the Board of Red Oak Sourcing, which is the generic joint venture we have with Cardinal. So that experience at Celgene as well as at Merck, it’s invaluable each day as we go forward here at CVS.

Randy Milch: So let’s take that one second, because given your government affairs and public policy role and your experience with the actual manufacturers leads us into what could be a thorny reputational issue, because we have all seen that the manufacturing companies, the pharmaceutical companies are a favorite whipping boy for the price of drugs and there have been some notable bad actors or perceived bad actors given price raises that don’t seem to make any sense for older drugs. How do you ensure that CVS stays out of that sort of a mall, that sort of a bad public relations problem?

Thomas Moriarty: Yeah, and pharma, the branded pharma companies try each and everyday to bring us into that mall. So there’s a lot of finger-pointing and that drug pricing discussion, et cetera. And what we have to do, and we do it all the time is we talk and stick to the simple value proposition that we have as a pharmacy provider.

Drug trend, the drug spend inflation of branded drugs has been running at roughly between 11 and 13% over the last five to six years, where if you look at what the actual price being paid for by PBM clients is, it’s a delta of — it can be a double digit delta in terms of the savings, and that is billions and billions of dollars of savings to the clients because of what the PBMs do. And the data shows that it’s $6 of savings for every $1 invested in PBM services.

So when we boil it down and get to the hard facts, the noise that pharma tries to create about PBMs really starts to fall apart, but it’s an everyday battle and we have to be on it everyday, Randy, so it’s a great question.

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Randy Milch: Let’s talk for a second about a big decision that CVS made a few years ago about what its sold in its corner stores, and that is the decision about tobacco. Give us a background, some background on this and lead us through the kind of decision making that went into such an important and big decision for CVS.

Thomas Moriarty: Sure, it was a very big decision, and really I think is a great demonstration of leadership. So I have been at CVS now for a little over four years and when I joined, the conversation was already started internally about how to address the transition from really becoming a true healthcare company, which is what the strategy has been and is for us going forward here in the United States, as well as if we do extend outside the US, and the conundrum that cigarettes posed given even one puff of a cigarette can be damaging for an individual.

And so, really I have to give credit to our CEO Larry Merlo and his leadership on this question, because it was $2 billion in revenue and obviously a significant contributed to EBITDA, and we were able to do it when we made the decision without changing our guidance to Wall Street. The only number that changed was our revenue number, but we were not — but we did not change any of the other key metrics that the street measures on, which I think is a key barometer, not just from the economic, but the social side of things, because we are convinced that by making that decision and repositioning the company that we have been able to grow even faster than we may have been able to do otherwise.

And so it was Larry’s leadership and obviously other leaders throughout the company who were able to accomplish that, and then real board support in driving that. And the key message from the board was this is such an important decision, don’t be second in making it. And it was that strength that really allowed us to go forward across the entire enterprise.

Randy Milch: And about how long did it take, I know the discussion was already ongoing when you arrived, but once the decision was made to pull the trigger, how quickly were you able to get all the arrows in the corporation aligned toward the same goal?

Thomas Moriarty: We made the decision relatively quickly. It really catalyzed pretty quickly, maybe two to three months before the actual announcement was made. And then in order to accomplish it, because we have now over 9,000 locations across the country, and if you recall, those cigarettes were fairly prominent at the checkout counters at every one of the stores.

And so if you think of the logistics of switching that out across 9,000 stores and so that planning took time, and we announced that we would do it within a year, and we actually were able to accelerate and accomplish it in about nine months. And the way we did it was we took the long Labor Day weekend to do all the re-facing at our stores and get that done.

And then the first opening after the Labor Day weekend we rang the bell at the New York Stock Exchange and at the same time announced the rebranding and renaming of the company from CVS Caremark to CVS Health. So the one thing the organization is truly very, very good at is operational excellence and re-facing and redoing the stores, and it really showed with taking tobacco out and repositioning the stores as more of a healthcare center.

Randy Milch: So your board told you it was important to be first and you were. Is there a second yet or are you guys alone in this?

Thomas Moriarty: We are still alone. We are the only national chain pharmacy to have made this decision.

Randy Milch: Do you think that others will follow or do you think that they are simply figuring that they have got more of a market now in tobacco products and they might as well just double down?

Thomas Moriarty: Well, I can’t speak for our competitors. I just know that if you look at how our country is evolving and the rule that pharmacy will play as we demand manage or manage the demand rather for healthcare, pharmacy is going to play an increasingly important role in that. That inconsistency I think will only have further light shone on it. So they will have to make their own decisions, we made ours, and we are moving forward.

Randy Milch: Let me ask you one final aspect of this decision that you made. Was there any concern that you were setting foot on a slippery slope and that there would be calls that you would have to seriously consider to take other things out of the store, like sweet drinks, for instance?

Thomas Moriarty: There was. There was an awful lot of discussion around that, and where we are very comfortable and still are very comfortable is that all those other products, whether it’s chocolate, sodas, et cetera in moderation are fine from a healthcare perspective. There’s no amount of tobacco or tobacco products that is fine, and the research truly shows that.

But we are taking steps in our stores as well to promote healthier eating, healthier food products and you will see that as we roll that out across the enterprise, across the chain over the next year or so.

(00:20:00)

So there’s kind of a de-emphasis of soda and candy and more of an emphasis on health bars and fresh food and those sorts of things, in a lot of the geographic areas that we are serving. But it definitely was a conversation and it definitely was a concern that once you took a decision, you are going to have to keep going down the slope.

Randy Milch: Let’s turn to what you think might happen next year when we have a new president and a new Head of HHS in Congressman Price.

Thomas Moriarty: Obviously there are going to be changes. There’s no question about it. I think the larger question is how much change and how quickly will we see things. And obviously, the Republican platform has been for a while now the repeal of the Affordable Care Act. The key question is though, repeal and replace.

And if you look there are two or three different plans that are out there in terms of replacing the Affordable Care Act, and it’s not a wholesale replace obviously. President-elect Trump has announced there are 4, 5, 6 conditions within the Affordable Care Act that he will not change, and so those will be worked around as well.

I think there’s no disagreement at the national level on the national priority and need for healthcare. The debate has always been about in what form and will it be more of a private solution, an industry-based solution, or will it be more of a government solution. And I think the changes you will see will be around it being much more of a privatized private industry solution and less so being centralized at the national government.

And so things like block grants for Medicaid are clearly being talked about. Turning Medicare into more of a private offering; we already have it with Medicare Part D, that has been very, very successful and a lot frankly in Medicare advantage too. And so I think all those issues will be on the table, but a lot of this will come from the Congress. There will be proposals that will obviously come out of HSS, but a lot of this takes legislation, not just regulation. And so it’s that legislative change that will have to happen first before you can see a wholesale redoing of the Affordable Care Act.

Randy Milch: So as head of CVS’ Public Policy team, are you expecting to spend quite a bit of time down in Washington in the New Year for the legislative battle?

Thomas Moriarty: Yes. And frankly, I have reoriented a lot of my time commitments over the last six to eight months to be much more DC focused as we were gearing up to the national election and what would flow out of that. And we have a very robust team at the federal level and the state level, because these issues are obviously core to our business. And we will be very active in the dialogue with proposed solutions, depending on what the actual legislative and regulatory changes are.

But yes, I will be there a lot and we obviously are making the investments we need to, to make sure that our voice can be heard.

Randy Milch: I know you will be there and doing a great job. I guess one further question is whether you think that the coalitions that existed to get the Affordable Care Act passed back in 2008 have shifted over time or will we see the same groupings of private and public players?

Thomas Moriarty: I think you will. I think you will see those types of coalitions. They may morph some with different players, but I think by and large, most folks who supported the Affordable Care Act knew that it did need some changing and certain things weren’t working, whether it was on the risk pools or in funding or other things. But I do think it will still be a quasi-publicly funded and privately executed solution, and so, again, while some of those coalitions will morph, I think a lot of the same issues on the table and the same discussions will be had.

Randy Milch: And do you see your tremendous storefronts, your 9,000 storefronts all throughout the country as an anchor for taking on further responsibilities in the healthcare arena as time goes forward, and proffering those as part of any sort of legislative solution?

Thomas Moriarty: We do. And I think the first sort of showing of that is the MinuteClinics that we have now in roughly about 1,500 locations across the country. And that’s where you can get care for infections, minor health related issues. We are extending those to be more of a chronic care management type program; so weight loss, diabetes management, cardiovascular management and the like.

We also have and purchased, acquired rather, a home infusion company that deals with the transition of patients out of hospital to home and the infusible therapies that can be administered at the home. We have a pilot going on now in Texas, actually just ended, where we were repositioning some of the MinuteClinic locations to be able to do infusible therapies and use them as a healthcare center for infusible therapies.

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And the whole push to lower cost sites of care, out of the higher cost centers into lower cost centers, that push will continue. It is a true economic need and national need. And so even as we deal with changes under the Affordable Care Act and replacements, that push will continue and we will continue to morph our retail footprint to match the demand management that needs to happen.

Randy Milch: Well, that’s a tremendous challenge for you and the company, I am sure. Let’s turn to a different challenge that you are going to face and that is the one on cybersecurity; I know that you have been facing it for quite some time. What are the steps that you have taken at CVS to ensure that the important health data that you have remain safe from cybersecurity problems?

Thomas Moriarty: Well, it has been multifaceted, as I am sure you can appreciate given the role that you have played for a number of years. We have a very close working relationship with our Chief Technology Officer and our privacy and security areas and the Office of Privacy sits within the Office of the General Counsel. And so that interrelationship between those groups is critical in terms of the information flows, access to information by folks and where the information resides and then how it can be accessed by those who need it.

And so it is multifaceted, because we have some of the most sensitive information on folks in terms of healthcare records, as do our competitors and others who play in the healthcare space. And so the commitment we have around cybersecurity and ensuring the security of the records that we have is paramount for the company.

Randy Milch: Have you taken steps to ensure that you have lawyers on staff who have technical chops or do you leave that to the technical folks under the information people or the CISO?

Thomas Moriarty: No, we have the internal expertise within the legal department. I would think one or two of the lawyers on our team understand our systems and our systems’ capabilities and limitations almost as well as the folks who are responsible for those systems.

And what’s really interesting is giving a good trial lawyer a challenge of learning something new and seeing what they can do with it, that’s the way we have approached it. We have almost looked at it from a trial perspective and develop that skill set with that mindset involved. And so that has proved incredibly valuable, not only as we have negotiated with vendors and clients and others, but also how we work the data flows and who should have access and who should not based off work responsibilities, as well as legal and regulatory obligations that flow with that.

Randy Milch: And how have you created and sustained board reporting on the cybersecurity issue, which is a critical problem that people face. Did you have to change the way you report to the board or what have you been doing to keep them abreast?

Thomas Moriarty: We have not changed the way it has been reported or managed at the board level, but we clearly have increased the frequency at which we are talking about these issues with the board.

And so, if you look at our Audit Committee, we are lucky that we have several folks who have a very good background in these areas, either because of their defense background or their management background at very large corporation. And then we have obviously a very good Chief Technology Officer; he is one of the best out there, as well as our privacy folks. And so the level of detail that we can get to with the board and their understanding of the issues has really increased over the last several years.

Randy Milch: Yeah, it’s critical to have someone on the board who can approach cybersecurity as an expert.

Tom, thank you very much for speaking with us today on In-House Legal! It has been a hugely informative half hour and we appreciate it.

Thomas Moriarty: Great. I appreciate the time. Thank you very much.

Randy Milch: And I want to thank all of you who have listened to our podcast today. For any of you who would like more information about what you have heard today, please visit  HYPERLINK “www.legaltalknetwork.com%20” www.legaltalknetwork.com or follow us on iTunes, RSS, Twitter and Facebook. That brings us to the end of our show.

I am Randy Milch and thank you for listening. Join us next time for another great episode of In-House Legal.

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