CVS Caremark locks up GE contract for ’09

WOONSOCKET, R.I. Drug Store News learned that the company had scored another big win for its PBM business, wrestling the GE prescription drug benefit plan account away from Medco Health Solutions.—It appears CVS Caremark’s “power of one” pharmacy benefit model continues to gain favor among big healthcare payers—not to mention share in the PBM market. Early this month,

GE confirmed that administrators informed company employees that their pharmacy benefit plan would change from Medco to CVS Caremark starting Jan. 1.

Roughly a year ago, when CVS merged with Caremark Rx, creating a PBM powerhouse, Tom Ryan, chairman, president and chief executive officer, described the move as “game-changing” with the vertical integration marking a new paradigm for retail pharmacy. That’s exactly how it is playing out.

“We believe this demonstrates CVS’ strength in its broad healthcare offerings and expansive network that no other PBM or drug retailer can replicate, and will allow CVS to continue to gain market share,” said Citi Investment Research analyst Deborah Weinswig.

The GE contract marks the third-largest PBM contract win for CVS Caremark. It has already won the PBM contracts to service the Employee Retirement System of Texas and the BellSouth portion of the AT&T contract.

The Employee Retirement System of Texas and the consolidated AT&T contracts combined are worth nearly $1 billion in annual revenues, Weinswig noted. Including other smaller contracts, new contract wins to date represent about $3 billion in year one revenues, in addition to the potential $1 billion from the GE contract.

Currently, Medco Health Solutions administers benefits for 310,000 active GE employees and dependents, plus 235,000 retirees and dependents. CIR’s managed care analyst, Charles Boorady, estimated revenues of $1,500 per person per year from actives and $2,500 per person per year from retirees, yielding $1 billion to $1.1 billion in annual revenue potential.

While, it is unclear whether CVS Caremark secured the contract on price or total service offerings, it still marks a major win.

“Even if Caremark did win the GE contract by virtue of an aggressive bid, it is still an important victory,” said Goldman Sachs analyst John Heinbockel. “It should further payers’ and investors’ perception of the attractiveness of the CVS Caremark business model.”