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WOONSOCKET, R.I. If you judge CVS Caremark too harshly based solely on the handful of PBM contracts — even if they were some pretty big contracts — it lost in the short-term, as many investors did in the wake of the company’s Nov. 5 earnings call, you’re missing the big picture.
The key, according to Ryan, is that none of the contracts the company lost had anything to do with the integrated pharmacy/pharmacy services model, or the value of the offering. It was just selling it wrong. That’s something CVS can change about Caremark in time for the 2010 PBM selling season.
Experts say the problem has been that the company has been too focused on retail; when it sold Maintenance Choice, all many human resources execs could hear was, “go to CVS.” CEOs might get it; but the HR types who make the decisions on plan design didn’t. The focus needs to be more on the broader array of offerings CVS Caremark can provide payers to help them cut costs.
Maintenance Choice is a compelling offer, and, to be sure, it has been a solid program for the company. Already it has made a pretty significant impact on CVS’ retail sales — new scripts brought into the stores through Maintenance Choice contributed about 250 basis points to CVS’ pharmacy comps, up 8% in the third quarter, according to the company.
While HR executives may not have understood the story, and may only have heard the retail component of the message, Caremark has many other important assets at its disposal to help payers rein in costs. The PBM will undergo a change in leadership, with Ryan temporarily taking the reins from McClure, and new pharmacy services marketing chief, Len Greer, who has considerable experience selling PBM and disease management services to big payers, will help Caremark fine-tune its message.
The smart money says CVS jumpstarts PBM profitability over the next 18 months or so, when it has the benefit of a new team, telling a new and improved story in time for the 2010 selling season — and just in time for 2011, when it will be up against some pretty soft comparisons on the PBM side of its business.