Tuesday, January 04, 2011

CVS-UAM: Part D Powerhouse with a Surprising Alliance

Welcome to 2011, the year with the third numerical palindrome (11-02-2011) of the 21st century.

The year's consolidation activity got started with a bang when CVS Caremark (NYSE:CVS) acquired Universal American's (NYSE:UAM) Medicare Part D Business. Read the press release.

The deal exemplifies the ongoing PBM consolidation trend that I have been predicting for a few years. Scale matters for Medicare Part D prescription drug plans (PDPs), too. (See data below). Profits from the coming generic boom create even more deal momentum. CVS Caremark even gets some bragging rights by taking one of Medco Health Solution's (NYSE:MHS) biggest Part D clients—a reversal of recent trends for these two competitors.

I want to highlight an intriguing but little-noticed angle on the deal. Starting in January 2012, the National Community Pharmacists Association (NCPA) will become business partners with its arch-nemesis CVS Caremark. Strange bedfellows, indeed!

Questions for CVS Caremark shareholders: How important is NCPA’s support of the Universal American Part D plans? Will the alliance reduce NCPA's anti-CVS lobbying to Congress and the FTC, thereby lessening political pressure on CVS Caremark?

THE PART D LANDSCAPE

Kaiser Family Foundation published a very informative report last September called Medicare Prescription Drug Plans In 2010 and Key Changes Over Five Years: Summary Of Findings. Here are two highlights.

The top 10 firms offering Medicare Part D Plans represented 69.2% of total enrollment in 2010. Universal American is the third largest firm offering a Part D plan (with 7.4% share of enrollment) and CVS Caremark is the fifth largest firm (with 4.3% share of enrollment). The combined business would have been slightly larger than Humana (NYSE:HUM) in 2010. We'll see what happens in 2011 given Humana's Walmart partnership. See Walmart-Humana: An Inevitable Surprise for Pharmacies and PBMs.

The Community CCRx Basic PDP is the fourth largest Part D plan. (A firm can offer multiple plans.) CCRx has a 90 Days at Retail/No Mail Order model. It's not comparable to CVS Caremark’s Maintenance Choice program, which is not offered in Part D plans anyway.

THE CCRx SITUATION

The Community CCRx PDP is a strategic alliance with NCPA and MemberHealth LLC, Universal American’s Pharmacy Benefits Manager (PBM). Read the agreement.

Medco currently provides prescription benefits management to MemberHealth, but announced yesterday that its contract will end on December 31, 2011. See Medco Announces Update on Status of Agreement With MemberHealth, LLC. CVS Caremark will take over the business in 2012.

So, the same NCPA that is engaged in a holy war against CVS Caremark will now be business partners with CVS Caremark. (Read the anti-CVS vitriol on NCPA's blog.) Fascinating.

Here's what NCPA Executive Vice President and CEO Kathleen Jaeger said about the deal:
"NCPA will need to examine the agreement before we can reach any definitive conclusions. We understand that CVS Caremark is committed to maintaining the same plan design that Universal American-Member Health has had with independent community pharmacies for at least the next two years, including no mail order component. That’s two years from now – so, right now, we are dealing with the status quo; in that the Community CCRx plan should remain true to its roots as a plan that utilizes community pharmacists first and foremost to improve health outcomes and lower system costs."
I checked NCPA’s Form 990—the publicly available tax return filed by all non-profits that you can download for free from Guidestar. NCPA had total assets of $20 million at the end of its fiscal year ending June 30, 2009. However, NCPA reported only $51 in income and $5,253 in assets from the CCRx relationship. (See Schedule R of the Form 990.)

Since the CCRx relationship provides only a trickle of money to NCPA, I wonder if someone is regretting the fact that NCPA helped turn CCRx into one of the biggest Part D plans.

Anyway, the arrangement is worth more to CVS Caremark than NCPA. It will be interesting to see how this relationship evolves, especially with the projected growth of Part D and the closing of the donut hole.

8 comments:

  1. Given the bulk of lives are duals the no-mail design probably doesn't bother CVS so much as duals use little mail anyway - and it probably bothers cvs less than it would mhs.

    Also, if NCPA walks away from the partnership in 2 years because they just hate cvs, given the lives are mostly duals am I wrong to assume cvs can just create a new entity with a similar bid as ccrx and expect to get a similar allocation, thus hedging the risk of losing the lives?

    ReplyDelete
  2. Mistake one: NCPA reported only $51 in income and $5,253 in assets from the CCRx relationship.

    Unbelievable, this means that past Independent pharmacist’s financial and time investments in CCRx will now be turned against them by increasing CVS/Caremark political clout via increased lobbying dollars and Part D market share. NCPA members not only did not get a good ROI from CCRx endorsement, they will actually be harmed by the relationship long term.

    Mistake two: Our National and State Pharmacy Organizations showed business contractual naiveté by allowing thousands of pharmacists to support a company that could be sold to the competitions with no financial consequences to UAM.

    I advocated years ago that National and State Pharmacy Organizations form a Part D network that they either owned or contractually controlled. That task is much more difficult in the market today; however, a Part D network is still possible and could be done simultaneously with the formation of ACO and Medical Home networks.

    In addition PBMs will exclusively control the MTM market near future……… Independents community pharmacist must obtain this HIT and networking capability or see the profession backslide.

    ReplyDelete
  3. A helpful reader directed me to the Universal American SEC filing containing the 2005 agreement with NCPA. See SUBCONTRACT AGREEMENT BY AND BETWEEN MEMBERHEALTH, INC. and COMMUNITY CARE RX, L.L.C. as of October 21, 2005.

    Adam

    ReplyDelete
  4. The success of CCRx to drive UAM into the #3 spot of firms offering PDP plans in 2010 (by enrollment) is at least partially (if not mostly) driven by community pharmacist conscious or unconscious bias toward CCRx due to the no-mail order stance. Like it or not, as long as community pharmacists assist customers with plan selection (despite a prohibition on steerage), the bias of the pharmacist will undoubtedly show up.

    Over time, if CVS/Caremark introduces mail order to these plans and/or makes other business-driven changes to these plans at the expense of community pharmacies, you will see the voluntary membership in these plans dwindle.

    I would be shocked if someone else in the Medicare Part D space doesn't make a play to replace UAM/CCRx as the community pharmacy friendly plan, and pick up the community pharmacist lobby. It seems NCPA will (eventually) be looking for a new partner.

    ReplyDelete
  5. I view this as a big "Screw You!" from CVS/Caremark to NCPA. It's as if CVS/Caremark said, "You want to play hardball NCPA? Well, here's what we can do."

    But as Brian said, CCRX was built on the backs of independent pharmacists. And if CVS/Caremark transforms the plan into a bastardized version of its prior self, then independent pharmacists will just move patients over to the inevitable new plan that is independent-friendly.

    ReplyDelete
  6. You forgot to mention that UAM bought MemberHealth in 2007 just after Part D was started. So, they have earned a good ROI on their purchase.

    ReplyDelete
  7. No need to fret, pharms, CVS will be dead in 13 months. They are out-of-contol - that's why WalGreen's backed off their suit - the FTC told them to stay at home ..."we've got this." That's what the FTC told WalGreens. WalGreen's said, "cool." C'mon ... why would any billion dollar company back away from such an egregious violation of free trade. The HealthSouth 'bama boys have never been good at hiding their moves (or name changes) with anything but money - they just keep on moving until they cease ... then head for the caymans. Sharehloder warning #1.

    ReplyDelete
  8. And, not trying to scare, CVS is designated out of Delaware. It gets scarier the more you research. Just blogging.

    ReplyDelete

Related Posts Plugin for WordPress, Blogger...