Corporate Research Group’s Weblog

The Financial Times reported today that WellPoint has put its pharmacy benefit management division on the block—or “up for auction” to quote the FT.  The potential price?  “Anywhere from less than $1bn to five times that amount,” the FT says.  WellPoint had no comment.

I suppose you can argue that any company—in whole or in part—is up for sale at the right price.  But barring someone making a mad stupid bid, the main conclusion I would draw from the PBM unit’s sale would be that the pressure to “do something” got to WellPoint CEO Angela Braly and her management team.

Managed care companies that own PBMs pitch a simple concept to employers and other clients: if you let us manage both your medical and drug benefits, we’ll create an integrated program that better controls total healthcare costs. 

The problem is that it’s difficult, if not impossible, to prove that integration works.  Nor do health plan-owned PBMs typically enjoy the same purchasing power as giant standalone companies like Medco, CVS Caremark and Express Scripts.  Furthermore, health plan-owned PBMs struggle to win business from anyone other than their own captive medical members.

But WellPoint’s PBM is different.  It actually has been pretty successful at winning outside clients, which account for nearly a fourth of its membership.  It also has the scale to wield considerable purchasing power.  And most importantly, it fits neatly into WellPoint’s broader corporate strategy around integration. 

So what’s changed?  Shares in WellPoint have fallen 60% since Braly became CEO in June 2007.  In fairness, a lot has happened in the world since June 2007, and other managed care company stocks have been hit even harder. 

But you either believe in your company’s strategy or you don’t.  While there’s nothing wrong about divesting a PBM unit (many analysts argue that it’s in fact the right move), my guess is that the sale of WellPoint’s PBM would be mostly about appeasing weary shareholders.  Whether it leads to a viable new strategic vision remains to be seen.

This entry was posted on Thursday, March 5th, 2009 at 2:14 pm and is filed under Managed Care. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.