CVS Caremark’s Part D Plan Acquisition Includes NCPA Partnership, For Now
Executive Summary
The Universal American Medicare Part D plans that CVS Caremark is aiming to acquire have operated through a long-standing partnership with the National Community Pharmacists Association, which would seem an awkward fit for the large drug chain.
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The Universal American Medicare Part D plans that CVS Caremark is aiming to acquire have operated through a long-standing partnership with the National Community Pharmacists Association, which would seem an awkward fit for the large drug chain. CVS Caremark announced Dec. 31 it is making a major play for growth through Part D with the planned purchase of Universal American’s nationally marketed stand-alone drug plans, Community CCRx (Also see "Growth Through Part D: CVS Caremark May Be Second Leading PDP Sponsor With UA Purchase" - Pink Sheet, 3 Jan, 2011.). The transaction, valued at $1.25 billion, is expected to close by the end of the second quarter 2011. Universal will retain its smaller Medicare Advantage business. Explaining the move, CVS Caremark described the Part D market as “one of the nation’s fastest growing segments of the pharmacy benefit management industry,” driven by age demographics and retirees shifting from employer-based coverage to Medicare as a result of health care reform. The Community CCRx plans are among the largest PDPs in the market. They were originally conceived by former Part D sponsor MemberHealth in collaboration with NCPA and have been marketed with an emphasis on active involvement by independent pharmacists. MemberHealth sold the business to Universal American in 2007 and UA has maintained the relationship with NCPA. Two-Year Contract In Effect CVS said it will honor the existing marketing agreement between UA and NCPA but did not comment on future contracts. “We will be proceeding in a business as usual manner following the terms NCPA negotiated with United American,” a spokesman said. In an e-mail, NCPA Executive VP and CEO Kathleen Jaeger said “we understand that CVS Caremark is committed to maintaining the same plan design that Universal American-MemberHealth has had with independent community pharmacies for at least the next two years, including no mail-order component.” But whether that relationship will continue longer-term remains to be seen. NCPA has been a vocal critic of CVS Caremark’s combination business model as anti-competitive toward smaller independent pharmacies (Also see "NCPA Seeks FTC Investigation Of CVS Caremark, With Merck-Medco As Model" - Pink Sheet, 18 May, 2009.). The acquisition is expected to more than double CVS Caremark’s Part D business. The Community CCRx plans covered 1.9 million members as of the end of November, according to the most recent Medicare enrollment figures, while CVS Caremark’s plans had enrolled about 1.2 million. Although those figures do not reflect the outcome of the 2011 enrollment period, which ended Dec. 31, 2010, or the auto-assignments of low-income beneficiaries to drug plans by CMS, they suggest the combination will give CVS Caremark more than 3 million stand-alone prescription drug plan members. That would put the PBM second among the top PDP sponsors – which traditionally have included large insurers. UnitedHealth has led the market since Part D began in 2006 and currently enrolls 4.5 million. Humana also has been a leading sponsor, and covered about 1.7 million in its PDPs at the end of November. Big PBMs Have Taken Low-Key Approach The big three PBMs have until now taken a fairly low-key approach to the Part D market in terms of sponsoring their own plans. CVS Caremark, Medco and Express Scripts have all offered their own plans but have been careful about actively marketing them to avoid competing directly with insurance clients. Medco had about 755,000 PDP members at the end of November and Express Scripts only had about 148,000. Nevertheless, CVS Caremark’s PDP business got a boost a couple of years ago when it acquired Longs Drug Stores, whose RxAmerica PBM unit marketed its own stand-alone Part D plans (Also see "Westward Ho! CVS Gets Big California Footprint Through Longs Acquisition" - Pink Sheet, 18 Aug, 2008.). CVS Caremark also added PDP members in 2009, when it ended a Part D partnership with Universal American and split the members enrolled in their jointly offered plans (Also see "Universal American, CVS/Caremark End Part D Alliance With Membership Split" - Pink Sheet, 18 Feb, 2008.). That relationship, formed in anticipation of the start of Part D, likely laid the groundwork for this latest transaction. The Community CCRx plans have developed a strong following among poorer Medicare beneficiaries based on a low-cost approach that combines lower premiums with a formulary geared toward promoting generics. Medco has acted as PBM for the Universal American PDPs but its contract was terminated effective Dec. 31, 2011, the PBM announced Jan. 3. Medco also said that the impact of the termination on its 2012 earnings “will not be material as this business is very heavily weighted toward particularly low-margin [Medicaid/Medicare] dual-eligible business.” The plans are eligible for auto-enrolled low-income members in 26 of the 32 Part D regions in 2011. By Cathy Kelly |