By Lewis Krauskopf
NEW YORK (Reuters) - Shares of CVS Caremark Corp (CVS.N: Quote, Profile, Research, Stock Buzz) have soared 35 percent this year, but you might excuse investors for wishing their money had been elsewhere in 2007.
The share price gains of CVS Caremark -- the newly merged drug-store chain and pharmacy benefit manager -- have been outpaced by the 80 percent increases of independent benefit managers Medco Health Solutions (MHS.N: Quote, Profile, Research, Stock Buzz) and Express Scripts Inc (ESRX.O: Quote, Profile, Research, Stock Buzz).
As investors mull which business model is best for future returns, leaders of Medco and CVS Caremark staked their claim on the value, or drag, of owning a retailing arm in separate interviews at the Reuters Health Summit in New York.
CVS shook up the healthcare world with its $24 billion takeover in March of Caremark, leading to speculation that the combination of major retailer and a benefit manager -- which administers prescription benefits for employers and health plans -- could create a defining strategic model.
But Medco CEO David Snow has no such designs. Snow said he sees a possible conflict of interest with such a combination, and flatly declared that he does not want to be a retailer.
With a chain of pharmacies, a pharmacy benefit manager would be motivated to lure people to their stores, as opposed to other pharmacies in their network, Snow said.
"I always worry about conflict of interest," Snow said.
"If all of a sudden, I'm beholden to a 20 percent of the retail network ... am I going to be managing that set of brick and mortar assets the same way I would if I were Switzerland and I had equal relationships across the 60,000 stores?"
PBMs also operate large automated pharmacies that deliver medicines by mail, and Snow questioned whether being responsible for retail stores would undermine the mail operations.
"Are you driving people away from the cheapest scenario and the higher clinical value scenario -- which is mail -- back to the retail brick and mortar because you want the foot traffic and you want the front-end sales?" Snow asked.
CVS CEO Thomas Ryan brushed off any such conflict as a "non-issue."
"I've met with all our clients. We never talk about conflict of interest," Ryan said.
"The payor doesn't care about channel conflict," Ryan said of retail versus mail. "What they care about is: What's my per member per month fee, are you taking care of my employees or members, and are you helping me lower my overall healthcare costs."
Ryan said a retail arm gives an edge over rival PBMs because it better enables a personal touch.
"Our biggest advantage to existing PBMs: We have everything they have and more and we have 6,500 stores, 20,000 pharmacists where they can get face to face." Continued...
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