Drug Stores Consider How Reform Efforts May Affect Drug Stores

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If reform passes, CVS expects profits to remain steady while benefit managers worry about other drug stores' plans to go around them and negotiate directly on price.

The Wall Street Journal reports: "CVS Caremark's retail business is healthy, and its pharmacy-benefit-management unit should reap rewards from the flood of branded drugs about to go generic. As for health-care reform, if it comes, it's likely to be a wash for the company."

"That, in short, summarizes the considerable charms of the biggest U.S. drug-store chain. Those charms haven't gone unnoted. CVS shares, now trading in the mid-$30s, have rallied from the mid-$20s in March. But they sell at 12 times next year's consensus profit estimate of $3.01 a share, a lower multiple than those of drug retailer Walgreen and pharmacy-benefit managers such as Medco Health Solutions and Express Scripts. ... The disparity could very well shrink, however, because CVS Caremark's 6,900 drug stores turned in strong second-quarter results. And there are hints of improvement in its pharmacy-benefit-management business" (Strauss, 8/29).

In a separate article, The Wall Street Journal reports: "They are the arteries of the prescription-drug network. Pharmacy-benefit managers earn billions pumping orders between drugstores, manufacturers and health-care providers. Can competition undermine their vitality? With the Senate pressing benefit managers for more transparency, many fear the likes of Medco Health Solutions and Express Scripts soon could be squeezed by the private sector. Last week, Walgreen and Caterpillar said they would negotiate directly, rather than using a benefit manager as a middleman, to set prices" (Jannarone, 8/31).

This information was reprinted from kaiserhealthnews.org with kind permission from the Henry J. Kaiser Family Foundation. You can view the entire Kaiser Daily Health Policy Report, search the archives and sign up for email delivery at kaiserhealthnews.org.

© Henry J. Kaiser Family Foundation. All rights reserved.

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