CVS scrambling to repair PBM division

WOONSOCKET – CVS Caremark Corp. is working to shore up its ailing pharmacy-benefit management (PBM) division after the company disclosed earlier this month that the unit has lost $4.8 billion in contracts for 2010 because of major clients switching to other providers.

The company hopes to pick a new president for the PBM business before the end of the year, Thomas Ryan, CVS’ chairman, president and CEO, told an investor conference last week, Reuters reported. Ryan has temporarily taken over the PBM business from outgoing executive vice president Howard McLure.

“We know what needs to be fixed,” Ryan said at a Credit Suisse Healthcare Conference in Arizona. He said he wants to bring in an outside executive to run the division, which was created in 2007 when CVS merged with PBM provider Caremark Rx Inc.

CVS stock closed at $30.19 on Monday, down 16.5 percent since the PBM client losses were disclosed. The shares were down 0.1 percent to $30.16 at 11:55 a.m. Tuesday in New York Stock Exchange trading.

Top CVS executives last week held meetings with consultants who help companies choose PBM providers, partly because “Caremark never had a great relationship with consultants over the years,” Ryan said.

John Malley, North American practice leader for pharmacy benefits consulting at Watson Wyatt Worldwide Inc., told Dow Jones Newswires his meeting with CVS management went well.

“I personally believe they finally got the message,” said Malley, who believes the company “lost significant traction in the marketplace” to rivals like Medco Health Solutions Inc. and Express Scripts Inc. this year because it overemphasized its retail stores in marketing itself to PBN clients.

The overall message was “much, much more in line with what a PBM would pitch than what they have been pitching,” Malley told Dow Jones, which was “a retail store that’s posing as a PBM. … That’s what cost them all this business.”

CVS Caremark also plans to retrain the PBM division’s national sales force, according to Malley.

Another PBM consultant, Kristin Begley, said the company may be getting the blame for problems caused by forces beyond its control. “The stars aligned badly for Caremark,” Begley told Dow Jones, although she also said the company is “too diversified.”

One of the large PBM clients that has dropped CVS, Coventry Health Care Inc., recently filed a federal breach-of-contract lawsuit against CVS that accuses the company of billing Coventry for claims it should have denied, according to Dow Jones Newswires.

Coventry Health, which had been a Caremark client since 1999, is moving its more than $1 billion annual PBM contract to Medco next year. Ryan told the investor conference Coventry was leaving because of “a service issue” from two years ago and not the overbilling charges, which CVS denies.