|
| Sample Newsletters | MarketPlace AIS Products & Services |
|
AIS's Health Business Daily
Featured Story Nov. 18, 2009
Some Health Plans Are Concerned by CVS Caremark’s Contract Losses Reprinted from DRUG BENEFIT NEWS, biweekly news, data and business strategies for health plans, PBMs and pharmaceutical companies. By Jill Brown, Managing Editor, (jbrown@aispub.com) In explaining $2 billion in contract losses CVS Caremark Corp. suffered during the third quarter of 2009, CEO Thomas Ryan blamed marketing missteps, clients’ strategy changes and bidding snafus — everything but the company’s combined pharmacy benefit management (PBM)/retail pharmacy chain business model. The integrated model has come under fire from investors and union activists — and now is the subject of a Federal Trade Commission (FTC) investigation. But some health plans and consultants instead blame management distractions and poor pricing for CVS Caremark’s troubles.
Since the start of 2009, CVS Caremark has had $1.4 billion in contract wins and $4.5 billion in contract losses, Ryan said. As a result, “operating profit in the PBM will decline in 2010, perhaps as much as 10% to 12%,” he warned investors during a Nov. 5 conference call to discuss third-quarter 2009 financial results. Among major clients lost in the most recent quarter:
Adding to the company’s troubles, CVS Caremark disclosed the FTC investigation in a Nov. 5 filing with the Securities and Exchange Commission. CVS Caremark said it is cooperating in the “non-public” probe into antitrust practices. FTC has come under increasing pressure from several congressmen and the union-backed group Change to Win to re-examine the 2007 merger between Caremark Rx, Inc. and CVS Corp.
The antitrust allegations don’t worry Eileen Wood, vice president of pharmacy and health quality programs at Albany, N.Y.-based Capital District Physicians’ Health Plan, Inc. (CDPHP), which uses CVS Caremark as its PBM vendor. “The FTC claims have been around for a couple of years now,” she tells DBN. “What gets my attention is the other health plans that are exiting CVS Caremark.”
CVS Caremark’s integrated model merging a giant retail pharmacy network and a PBM may have distracted management, Wood says. The combination “basically doubled their competitors, not only with other PBMs, but with other retail chains….They have two different focuses — and they’re not necessarily in line 100% of the time with the health plan [clients].”
Of course, Wood adds, “neither is any PBM….No health plan should think that their PBM is aligned with their goals….Our approach is that we always need to be a tough customer for our PBM.”
The combined model does create some challenges for CDPHP, Wood adds. Although CVS’s retail pharmacies have high penetration among CDPHP members, “we have other valued network providers, so we have a strategy of reaching out to the other providers in ways that don’t offset the PBM.” For example, the health plan will start reimbursing all network pharmacists for medication therapy management services in 2010, she tells DBN.
Ryan defended the company’s integrated model during the Nov. 5 conference call, asserting that “we continue to have confidence in the combined model…because of what we are seeing in the marketplace from new clients, and the money and the time that we are saving not only the plan but the members.”
He added that the company would not try to underprice competitors in an effort to win back customers. “The pricing environment is relatively rational, sans a few big contracts, and I think that has been the policy of the program for PBMs for the last 10 years….The wins are really around the service level and the clinical opportunities and savings that we can provide our clients.”
But one consultant says CVS Caremark’s pricing practices helped contribute to the contract losses. “It’s their marketing cycle kind of catching up with them,” says Sean Brandle, national pharmacy practice leader at consulting firm The Segal Co. “They were bidding very aggressively [on pricing] when the acquisition first happened,” and now are correcting that.
CVS Caremark also said it made some management changes. Caremark unit President Howard McClure is retiring effective Nov. 27, and Ryan will serve as interim president until a successor is named. The PBM also added Len Greer, former executive vice president of marketing and product management at Aetna Inc. subsidiary ActiveHealth Management, as senior vice president of marketing.
And at the CVS Caremark corporate level, Dave Denton was promoted from senior vice president, controller and chief accounting officer to executive vice president and chief financial officer. |
| ||||||||
