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The nation's largest drugstore chain, CVS, wants to acquire the pharmacy benefit manager known as Caremark. If this deal goes through, the combined company would handle 25 percent of all U.S. prescriptions. That's about a billion prescriptions per year. Yet investors' response to the deal has been unenthusiastic.
NPR's Snigdha Prakash reports the companies are betting on big changes in how we buy our prescription drugs.
SNIGDHA PRAKASH: Historically, they've been rivals. Caremark negotiates for the lowest price on drugs from drug makers and pharmacies; it passes those discounts to its clients: insurance companies and employers. And more and more, traditional pharmacies like CVS have been losing business to mail order pharmacies, such as the one Caremark owns. But now the two companies want to join forces. CVS wants Caremark's benefit negotiating and mail order business.
And analyst Andrew Speller of A.G. Edwards & Sons says Caremark wants face-time with CSV's consumers.
Mr. ANDREW SPELLER (Analyst, A.G. Edwards & Sons): I think that Caremark believes the market is moving more towards the consumer and away from the payers controlling the majority of how the spending is going to occur. And therefore, having a bigger customer-facing company is beneficial.
PRAKASH: New vehicles, such as health savings accounts and high-premium insurance policies, increasingly give consumers more incentive to watch their health-care dollars and shop for the best deals on their drugs. Speller and others say the CVS/Caremark combination can woo those empowered consumers more effectively than either company could alone. For example, by giving consumers the option to pay the same price for prescriptions whether they're delivered by mail or picked up at the local CVS. Right now, mail-order prescriptions are cheaper.
But health policy experts such as Paul Ginsburg of the Alliance for Health Reform say CVS and Caremark are just wrong about what the future will look like.
Mr. PAUL GINSBURG (Health Policy Expert, Alliance for Health Reform): I see the future of consumer-directed health care with an important managed care component.
PRAKASH: In which its insurers, not individual consumers, that choose drug benefits and package them with other healthcare benefits. Then consumers choose which insurance package to buy. So Ginsburg says he doesn't see the advantage to the CVS/Caremark combination.
Analyst Michael Baker of Raymond James Financial doesn't agree. He adds the merger may also be a very smart defensive move on the part of CVS against the 800-pound gorilla Wal-Mart, which recently announced a plan to sell selected generic drugs for $4 apiece. Baker says it just got a lot harder for Wal-Mart to compete in the prescription drug business without buying a pharmacy benefit manager, or PBM, of its own.
Mr. MICHAEL BAKER (Analyst, Raymond James Financial): You know, it's still not clear as to whether or not healthcare, they plan that to be meaningful to them. But if they do, basically the price of admission to the new game is to buy a PBM.
PRAKASH: Still, analyst Andrew Speller acknowledges the CVS/Caremark deal has risks.
Mr. SPELLER: There's a first mover advantage. There's also a first-mover risk if the growth in this marketplace doesn't come as quickly or the market doesn't change as quickly to embrace your new product offer.
PRAKASH: In that case, the marriage of Caremark and CVS can be expected to end like other similar alliances - in divorce.
Snigdha Prakash, NPR News, Washington. Transcript provided by NPR, Copyright NPR.
