CVS Caremark Corp. has been awarded a three-year contract to provide integrated pharmacy benefit management services for the Blue Cross and Blue Shield Governmentwide Service Benefit Plan, also known as the Federal Employee Program (FEP).


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CVS' PBM lands major federal Rx contract

May 27th, 2011

WOONSOCKET, R.I. – CVS Caremark Corp. has been awarded a three-year contract to provide integrated pharmacy benefit management services for the Blue Cross and Blue Shield Governmentwide Service Benefit Plan, also known as the Federal Employee Program (FEP).

CVS said Friday that it landed the contract "based on the best overall value." With the win, the company will continue to provide FEP's clinical programs and retail PBM services as well as mail-order pharmacy and specialty pharmacy services to the program's more than 5 million federal employees, retirees and dependents.

Published reports noted that CVS beat out Medco Health Solutions Inc. (MHS) in getting the $3 billion contract. In late morning trading on Friday, CVS' stock was up 88 cents to $39.04.

CVS has been administering FEP's retail pharmacy benefit program since 1993, and in late 2009 the contract was extended through the end of 2011. With the new agreement, which runs through 2014, the company now will provide mail-order pharmacy and specialty pharmacy services on top of retail pharmacy benefit services, including network contracting and management of customized clinical programs.

The company, which operates more than 7,000 retail drug stores nationwide, noted that the pact brings the relationship between CVS Caremark and FEP to more than 20 years. "FEP is a highly-valued client and we are committed to continuing to deliver the same high level of service and patient satisfaction that we have provided to FEP's federal employees, retirees and their families for many years," Per Lofberg, president of CVS' PBM business, said in a statement.

CVS Caremark president and chief executive officer Larry Merlo commented, "We are very gratified that FEP has recognized that CVS Caremark's unique integrated model for pharmacy care provides the best overall value and offers their plan members innovative, cost-effective pharmacy benefit management services that improve health outcomes."

Earlier this month at the annual shareholders meeting, Merlo said "no one else can match" CVS Caremark's integrated pharmacy model, which besides retail pharmacies and the PBM includes a growing Medicare Part D business and MinuteClinic retail health clinics.

The previous week, in a conference call with financial analysts on CVS' first-quarter results, Merlo said the PBM's 2012 selling season is "off to a good start." Though acknowledging that the PBM's growth has been "disappointing," he stressed to analysts that its performance isn't due to the integrated model and that a solid strategy is in place. The five-point plan, he said, centers on driving new clients wins and customer retention, new and expanded clinical offerings, growth in 90-day mail choice and generic dispensing, a focus on high-growth areas such as Medicare Part D and specialty pharmacy, and cost-efficiency efforts.

"I am confident that 2012 will be the year that our PBM breaks trend and demonstrates healthy operating profit growth," Merlo told analysts in the call. "We believe that improving the performance of our PBM is the most effective and fastest way to increase shareholder value and that breaking up the company would be a step in the wrong direction for plan members, retail customers and, certainly, our payers."

In a research note on Friday, Sanford Bernstein & Co. analyst Helene Wolk said CVS' win with the FEP contract was expected and stands to add 8 cents to the pharmacy company's earnings per share in 2012.

"Although the integrated FEP contract win is positive for CVS Caremark, we remain sidelined as we see risk to 2012 estimate achievability given heavy contract renewals," Wolk wrote. "Our CVS Caremark estimates remain unchanged, as we had already projected the FEP win, and we reiterate our market-perform rating and $37 price target." 

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