CVS, Caremark to merge PBM services

December 1, 2006

National Reports-The recent merger move by retail pharmacy chain CVS and pharmaceutical service company Caremark Rx is not likely to have much near-term significance to the managed care industry, say experts, but over time, MCO customers are likely to experience some change as a result of the two entities' combining their PBM operations.

NATIONAL REPORTS-The recent merger move by retail pharmacy chain CVS and pharmaceutical service company Caremark Rx is not likely to have much near-term significance to the managed care industry, say experts, but over time, MCO customers are likely to experience some change as a result of the two entities' combining their PBM operations.

The merger between CVS and Caremark is expected to create benefits for employers and health plans with the combined company able to offer end-to-end services, from plan design to prescription fulfillment, as well as the opportunity to improve clinical outcomes, sources say.

"Both of these organizations historically have been very deliberate integrating previous acquisitions in order to minimize disruption to existing customers," according to Dave Borden, principal and co-owner, Pharmaceutical Strategies Group LP, Irving, Texas. "We would not expect them to deviate from this approach in this particular case. So existing customers are not likely to see much impact in the near term."

"Biotech and specialty drugs are an increasingly important variable in this equation as is getting buy-in and engagement from individuals with chronic disease states. To the extent their new business model is successful in accomplishing this goal, it is likely that MCOs will need to consider how this should factor into their own plans in meeting the needs of their customers."

The combined business is expected to fill or manage more than 1 billion prescriptions per year, double the 536 million prescriptions Caremark managed in 2005.

REDEFINED BOUNDARIES

This approach is unique in that the CVS/Caremark business model would invest more resources in the delivery and management of healthcare (e.g., enhanced disease management programs, medical clinics, clinical consultation, infusion, etc.), "a venue historically dominated by MCOs or physicians," Borden points out. "If successful, it has the potential to redefine the boundaries between PBM, provider and MCO."

The merger reflects three major pharmacy and healthcare trends:

The merger will provide a direct connection between the payer and the consumer, Morrison says. "CVS/Caremark will have the unique ability to mold programs and processes that will enhance the execution of a payer's pharmacy benefit with the delivery of those pharmacy services with actionable information to the patient. This is an incredible opportunity to drive an industry to improve pharmacy services."

The benefits of the merger are many, he says. "There is a tremendous upside for all stakeholders to improve clinical outcomes, resulting in better control over healthcare costs and developing the measurements that will quantify those savings for employers and health plans," he says. "CVS/Caremark will be the leader in specialty pharmacy and have unmatched capabilities in specialty disease management through [Caremark's] Accordant. CVS/Caremark will have access to greater information and personal interaction between pharmacists and consumers that will lead to improved prescription therapy compliance."

Additionally, Morrison says the combined enterprise will have the opportunity to offer broader health assessment and wellness services to manage risks and avoid costs. Pharmacy and healthcare services will also include CVS's growing network of walk-in MinuteClinics.

"Caremark has been focusing on moving services closer to the consumer as the consumer is being asked to become more involved in their own healthcare decisions through changes in plan designs, the adoption of consumer-directed plans and, of course, the introduction of Medicare Part D," Mac Crawford, chairman, CEO and president of Caremark, said in a press statement.

In the same statement, Tom Ryan, chairman, president and CEO of CVS, said: "In the past year, Mac and I have developed a shared view of where the healthcare market needs to go and how we can work together to get there first. Employers and health plans want to control costs, but also want their plan members to have access to a full range of integrated pharmacy services. Consumers of prescription drugs demand convenience and want to get more for their healthcare dollar."

This move could create interest on the part of retailers to seek partnerships with large PBMs if they believed it would better position them to compete and would add value for their shareholders, Borden says.