$3-billion federal PBM contract goes from Medco to CVS Caremark

This round of PBM competition goes to CVS Caremark, which announced in late May that it had won the mail-order (and ancillary) business for the Blue Cross and Blue Shield Government-Wide Service Benefit Plan, also known as the Federal Employee Program (FEP), representing some five million covered lives. CVS Caremark already has had the retail pharmacy business from FEP. On the news, CVS Caremark’s stock rose 3.5% in mid-day trading, representing its highest price since July 2008, and Medco’s stock dropped 9%, according to the Wall Street Journal. The CVS Caremark announcement stated that the contract win was “based on the best overall value,” which implies some significant discounting of service fees.

There have been a number of disputes and disappointments involving CVS Caremark since its 2007 merger, creating a $99-billion/yr retailing behemoth, mostly involving Caremark trying to steer PBM clients toward its retail pharmacies. Less-than-stellar financial results have made analysts call for the merger to be unwound. Now, some financial analysts are saying that the model might prove itself for the longer term.

Branded pharmaceuticals, with some notable exceptions (specialty drugs with exclusive distribution agreements) are mostly indifferent to which PBMs handle them, although all PBMs compete to get the best price from manufacturers. But PBMs and retail pharmacy are competing intensely to manage adherence programs, which could prove to be a differentiator over time.