Walgreens Sells PBM. Should CVS Follow?

Mar 10, 2011

A RetailWire poll in November 2006 asked whether
the CVS acquisition of pharmacy benefit manager (PBM) Caremark would make it
stronger in relative terms to rival Walgreens. Seventy-nine percent of respondents
said it would. Only five percent said it would make it weaker.

to this week’s announcement that Walgreens had agreed to sell its Walgreens
Health Initiatives PBM to Catalyst Health Solutions and the question has changed
to whether CVS needs to sell Caremark to focus on its retail business.

Lee, a Reuters Breakingviews columnist, wrote, "Since the
merger of the two, the Caremark business has lost some big enterprise contracts
and downgraded earnings projections. It’s also spent precious management
time explaining to enforcers at the Federal Trade Commission why the combination
hurt consumers."

Back to Walgreens, president and CEO Greg Wasson made
clear the reason behind the sale of Walgreens Health Initiatives.

"With nearly 7,700 drugstores as our center of gravity, we are focused
more than ever on delivering convenient, affordable, high quality pharmacy,
health and wellness solutions, and on enhancing our full scope of services
to become America’s first choice for health and daily living needs," Mr.
Wasson said in a press release.

Discussion Questions: What are your thoughts on Walgreens sale of its PBM? Should CVS sell Caremark?

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4 Comments on "Walgreens Sells PBM. Should CVS Follow?"

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Gordon Arnold
11 years 2 months ago

CVS, Walmart and others are facing the same problem that Walgreens appears to have just walked out on. Availability of free prescriptions and very low cost medicines through foreign sourcing has forced a response from USA retail suppliers and none have slowed foreign supply growth. Retailer will find a way to compete against the foreign hoard. I am not so sure that USA based medical manufactures will go unscathed, not to mention how this will have an effect on doctors and medical specialists with their high price products and services.

Mike Blackburn
11 years 2 months ago

The PBM business was never a strategic focus of Walgreen, and with CVS Caremark, the sale is probably more of a political than strategic decision. As for CVS, 2010 was definitely a tough year, but sales will rebound nicely in 2011. Further, the retail side has been positively impacted with revenue synergies from the merger with Caremark. However, PBM margins will continue to erode in 2011 due to pricing pressure…this will remain a risk as Medicare/Medicaid and other 3rd party payers are looking to cut drug costs, and within the supply chain, PBMs appear to have the biggest target on their back.

M. Jericho Banks PhD
M. Jericho Banks PhD
11 years 2 months ago

With the advent of Obamacare, everything in the health industry is up for review. For CVS and other drug chains, it’s a good time to hunker down and wait to see how the legislative battles are resolved. As the saying goes, “When the chips are down, the buffalo leave.”

Ed Rosenbaum
11 years 2 months ago

It appears the complete Health Industry will be up for serious refocusing it’s direction with the advent of the Obama health Plan. Somehow, I think all will survive. But changes are imminent. I am a believer that both Walgreens and CVS need to be more focused on their core retail businesses.


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