Inside This Issue - News
CVS expands Medicare Part D business
January 17th, 2011
WOONSOCKET, R.I. – CVS Caremark Corp. agreed late last month to acquire the Medicare Part D business of Universal American Corp.
However, some say the pending $1.25 billion deal for the Rye Brook, N.Y.-based company could open CVS up to further charges of engaging in anticompetitive practices.
The deal that was announced on December 31 will more than double CVS’ presence in the fast-growing Medicare Part D market, taking it from 1.2 million members to 3.1 million, or approximately 20% of those covered by Part D prescription drug benefits.
If approved, the combination of the two companies’ Part D businesses would make CVS the nation’s second-largest provider of prescription drug services for Medicare recipients and provide a boost to the company’s financial results.
According to analysts, CVS’ performance over the past year has been hurt in part by its shrinking base of Medicare Part D members.
In the third quarter CVS’ revenue fell 3.1% to $23.9 billion. Profits dropped 19.8% to $820 million over the same period. As a result, the company’s stock started the year more than 6% below its 52-week high.
Those who follow CVS Caremark closely say that getting Universal American’s Medicare Part D business makes strategic sense. “This is a rapidly growing market; there is symbolic resonance that the deal was announced the day before the oldest members of the baby-boom generation turn 65,” analysts at Goldman Sachs wrote in a research note.
Analysts who follow CVS say that expanding its Medicare business is a natural move for a company that relies on prescription sales for so much of its revenue. They point out that Medicare patients fill an average of 40 to 50 prescriptions a year and place a high value on face-to-face interaction with a pharmacist. The increased size of CVS’ Medicare business will also give it more leverage to negotiate with drug manufacturers and the federal government, analysts say.
CVS executives said that all of these factors indicated that the time was right to expand the company’s presence in the Medicare market.
“This transaction furthers CVS Caremark’s position as a significant player in one of the nation’s fastest-growing segments of the pharmacy benefit management industry,” Caremark Pharmacy Services president Per Lofberg said. “A growing portion of the country’s population will receive their prescription drug coverage under Medicare plans.
“The Medicare Part D program is integral to CVS Caremark’s long-term growth strategy,” he said. “We believe that bringing together these two businesses will strengthen our competitive offerings, enabling us to provide Medicare beneficiaries with expanded products and services and lower the cost of pharmacy care.”
The expansion of CVS’ Medicare business comes as federal and state regulators are scrutinizing the company’s operation amid claims that its Caremark pharmacy benefits management business is steering customers away from competing pharmacies.
The Federal Trade Commission and attorneys general in 24 states are investigating whether CVS engaged in anticompetitive practices by having Caremark charge higher co-pays to patients who fill their prescriptions at pharmacies other than those operated by CVS.