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CVS, Caremark Rx Agree to Merge

Deal Creates the Largest Pharmacy Dispenser in the U.S.

By Truman Lewis
ConsumerAffairs.com

November 2, 2006

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Drugstore chain CVS Corp. has agreed to pay $21 billion for pharmacy benefits manager Caremark Rx Inc., creating a giant that will control more than one billion prescriptions per year, more than a quarter of all prescriptions filled in the U.S. annually.

It will be by far the largest of any drugstore chain or pharmacy benefits manager (PBM). The companies say the "merger of equals" will lead to new services and efficiencies that will both lower drug prices and improve returns to shareholders.

But critics say the deal will reduce competition and will lead to higher prices for many consumers. The deal will need to pass anti-trust muster with the Federal Trade Commission (FTC).

The deal puts pressure on other big retailers to pursue mergers with the other two big PBMs, Medco Health Solutions and Express Scripts.

The PBMs manager prescription benefits plans for large employers and government agencies. Some employees covered by the plans get their prescriptions filled by mail while others get specially-negotiated prices at participating pharmacies.

"I have had a problem with Caremark for at least 5 years," Conni of Chesterland, Ohio, wrote. "I take a few high priced medications that they continually would try to change every time I needed a refill."

Many of the nation's largest employers, like General Motors and IBM, have forced millions of their employees to use "mandatory mail" programs, prompting bitter complaints from many that the PBMs are unresponsive to their needs and too quick to substitute one drug for another.

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"My meds are still not here. So I called again. They said the person who placed the order did not set it up for 2 day delivery," said Carolyn of Houston, who said she has high blood pressure, high cholesterol and diabetes.

"Every three months Caremark sends me a letter telling me how important that I take my meds. I just have to laugh because I could take them on time if they sent them on time. I can't believe I pay them $700.00 every three months for this poor service," she said.

The mail-order PBMs are highly profitable, since they can concentrate all of their operations in a few large processing centers, without the expense of running local stores.

CVS already owns a small PBM, PharmaCare, which recently won a contract to manager prescriptions for DaimlerChrysler. Besides lower prices on prescription drugs, employees get a 20% discount on private-lable CVS products.

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