The Federal Trade Commission has launched an investigation of CVS Caremark over allegations that the two-year-old company is squeezing the prescription drug distribution market for savings while not passing those savings on to plans and patients.
The nation’s largest provider of prescription services was created in the $27 billion March 2007 merger of CVS, the largest retail pharmacy, and Caremark Rx, the second-largest pharmacy benefits manager. It handles close to 33 percent of all patient prescriptions in the nation.
The FTC announced the investigation last week after the company reported that its Caremark business had lost billions of dollars in 2009. The FTC had received complains from health plans, independent pharmacists, consumer groups, five U.S. senators and more than a dozen members of Congress about the effects of the merged retail-PBM business model and the potential risks for consumers and health plans when such a large portion of the pharmaceutical supply chain is controlled by one company.
A report, "CVS Caremark: An Alarming Merger, Two Years Later," recently released by Change to Win, a coalition of American labor unions formed in 2005, said the merger may drive up costs for health plans and reduce quality for patients, reduce transparency and hamper oversight for health plans and compromise the privacy of health plan participants.
“The report highlights CVS Caremark’s continued practice of promoting the use of more expensive brand-name drugs, driving up the cost of prescriptions for health plans and consumers,” said Connie Leyva, president of the California Labor Federation, a part of Change to Win.
The company’s stock plunged 20 percent last Thursday – a single-day loss of $10 million in market value – as investors reacted to the news that several major health plans have decided not to renew their contracts and the company announced the ouster of Howard McLure, Caremark's executive in charge and one of the architects of the merger. The stock has recovered somewhat, but the company's debt rating has since been placed on a negative outlook by Standard & Poor's.
Some analysts, including William Blair's Mark Miller, have suggested the best course of action may be for CVS and Caremark to separate.
"While it is certainly possible that the company could turn things around ... we believe the best course of action may be for the company to unwind the merger of CVS and Caremark," Miller said in a note titled "Dead Money Until Merger Is Unwound."