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MEDCO AND PCS AWARDED GM DRUG BENEFIT CONTRACTS

Executive Summary

MEDCO AND PCS AWARDED GM DRUG BENEFIT CONTRACTS to provide formulary, rebate and drug utilization (9 review services for retail prescriptions for the 1.3 mil. General Motors workers, retirees and their dependents. Under a contract with GM and the United Auto Workers union awarded Nov. 17, Medco Containment will manage scripts for employees and retirees outside Michigan and management workers in Michigan. PCS was awarded a contract by Blue Cross/Blue Shield of Michigan to manage benefits for hourly workers living in the state of Michigan. The Medco contract begins Feb. 1. Medco will continue to provide mail-order services for all GM employees, meaning that the company will have integrated mail- order/pharmacy services for the majority of GM workers. McKesson's PCS subsidiary previously had managed benefits for about 40,000 of GM's non-Michigan employees. PCS estimates that its new BC/BS contract covers about 400,000 workers. GM's EDS unit will process claims for both contracts. The GM business generates 11 mil. prescriptions annually representing more than $400 mil. in annual drug spending, Medco said. Medco maintained that it does not expect a "significant change" in the ratio of mail-order to retail prescriptions in the GM plan, which currently stands at about 20% mail-service, 80% retail. In discussions with the financial community, Medco has suggested that it would attempt to steer business in its integrated plans toward the higher margin mail-order business. During Medco's merger into Merck, however, the company has focused on the importance of retail pharmacy to prescription drug management. The GM contract was highlighted by Medco as evidence that the merger with Merck is not affecting its ability to win business. The company disclosed a list of 16 "select accounts" gained since the merger agreement was announced in July. In addition to GM, new accounts include UPS, Sony, Continental Airlines and Blue Cross of New Jersey. Medco maintains that its ability to negotiate supply contracts with other drug manufacturers also has not been adversely affected by the merger announcement. Medco said it has added three new contracts with top-20 drug manufacturers and that none of its contracts have been canceled.
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