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Will CVS Caremark split up?

Posted May 20 2010 12:43am

CVS is the second largest pharmacy in the U.S. with over 7000 stores.  Caremark Pharmacy Services is a pharmacy benefit management (PBM) company, providing benefit management services to health plans.  In March of 2007 the two firms merged.  The combined firm not only has $99 billion in sales,  CVS Caremark also has the ability not to recommend drugs to health insurance plans and to dispense them.

Fortune Magazine wonders whether CVS Caremark should in fact be split up .  The Federal Trade Commission is not investigating as to whether the merger results in a conclict of interest.  Critics say this is in fact the case “because PBMs are supposed to be drugstore-agnostic–and Caremark can’t help but favor CVS.  Five pharmacists (NCPA members) have told Fortune that Caremark steers members into CVS stores by offering lower co-payments or automatically filling prescriptions there.”  This follows an earlier $370 million lawsuit that that accused the PBMs (including Caremark) of “…encouraging doctors to switch to brand-name medications and keeping the rebates.”

Regulators may not, in fact, be the ones who break up the organization.  Caremark lost $4.8 billion in contracts this year.  Thus, CVS may not be willing to shoulder these losses much longer and a self-imposed breakup may be in the works.  This breakup of a PBM with a drug supplier will not be the first.   Medco and Merck ended their merger in 2003.

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