Understanding how the game is scored

A couple of issues back I wrote a column about a question a guy asked me at conference earlier this fall: “So, who’s bigger—CVS or Walgreens?” Ironically, it was the week each company opened its 7,000th store. The point: If you’re measuring these companies based solely on who operates the most stores, if that’s the way you’re keeping score, you’re watching the wrong game.

I still believe that.

I also believe that if you judge CVS Caremark too harshly based solely on the handful of PBM contracts it lost in the short-term, as many investors did in the wake of the company’s Nov. 5 earnings call, then you might not even really understand how this game is scored. Kind of like trying to score a baseball game using tennis’ wacky “Love-15-30-40-Game” point system.

First, there are a whole lot of positives to focus on with CVS Caremark. For one thing, its retail division—still, the biggest part of the business—under long-time operations veteran Larry Merlo continues to put up strong numbers, with same-store sales up 5.7% in the third quarter. As for the PBM side of the business, Maintenance Choice has been a solid programfor the company, contributing about 250 basis points to CVS’ pharmacy comps, up 8% in the third quarter.

While human resources executives may only have heard the retail component of the message, Caremark has many other important assets going for it. And if you have been watching CVS as long as I have, you probably get a pretty strong sense that Tom Ryan is going to get this thing figured out. The PBM will undergo a change in leadership, and it is expected that a new marketing chief, Len Greer, with considerable experience selling PBM and disease management services to big payers, will help Caremark fine-tune its message.

Ryan says he believes in Caremark; believes it will be a big part of the company’s growth going forward. It’s a good model, he says. They have just been selling it wrong.

I believe him.

If you have been watching this game as closely as I have, you know there’s still plenty of time on the clock for CVS Caremark to turn things around in time for the 2010 PBM selling season. And if it does, it’s going to be a whole new ballgame in 2011.

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