Since I’ve been hammering CVS Caremark for its recent missteps — a direct result in my view of the ill-conceived merger of the CVS drugstore chain with the Caremark pharmacy benefit management operation — it’s only fair I acknowledge some good news for the company. The Wall Street Journal reports that CVS Caremark has won a two-year renewal beginning September 2010 of its contract to provide PBM services to the Teacher Retirement System of Texas, a pact valued at about $1 billion. The contract comes with four additional one-year options — bringing the total potential to six years.
Notes Lisa Gill of J.P. Morgan:
We view this win as a nice positive for CVS Caremark, mainly from a sentiment standpoint….The company’s ability to retain this contract is important given the heightened concern over business losses.
But Gill also points out that, “As is typical in the PBM industry, we believe pricing will be slightly lower than that of the previous contract.” If Gill is correct, then the news is that CVS Caremark didn’t loss a big client but will be making less money off said client — which is still a lot better than the alternative. Our calls to CVS and the Texas TRS went unreturned, but I’ll update if I do hear back.
Update (Dec. 15, 2009): Texas TRS provided some additional details via an email on Dec. 11, as follows:
In FY 2011, the PBM benefits and fees are projected to be $480 million, according to TRS’ health care consultant, Gabriel Roeder Smith & Company. At this time, we are projecting an 8% trend, so the value of the contract in 2012 would be about $518 million. The contract amount is the amount that will be paid to local pharmacies and the PBM for Rx costs.
Regarding pricing, TRS says, “we will negotiate the best possible contract for our members.”
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