(Updates share price in second paragraph; adds CVS statement in
fifth paragraph and background information throughout)
DOW JONES NEWSWIRES
The U.S.'s largest public pension fund said Monday it picked CVS
Caremark Corp. (CVS) to administer prescription-drug benefits to
more than 346,000 of its members in a contract worth about $565
million in yearly drug spending.
CVS shares were up 1.1% at $37.90 in after-hours trading.
Through the close, the stock has risen 7.8% since the beginning of
the year, moderately outperforming the wider market.
The deal marks another competitive win for CVS Caremark, which
in past years has struggled with the integration of the CVS
drugstore chain with Caremark since their merger in 2007.
The California Public Employees' Retirement System, popularly
known as Calpers, said CVS would administer prescription-drug
benefits to members in three of its preferred provider organization
programs. Ann Boynton, a Calpers benefit-programs official, said in
a release that it was "confident that Caremark will meet the needs"
of Calpers members.
CVS said in a statement it was pleased by Calpers's selection
and that its services "deliver greater choice and convenience for
filling prescriptions, improve health outcomes and lower overall
health-care costs."
CVS succeeds Medco Health Solutions Inc. (MHS) in the Calpers
contract. In March, Calpers told Medco that it wouldn't renew its
contract when it expires at the end of the year. To win the new
three-year contract, which begins Jan. 1, CVS was up against the
likes of MedImpact and UnitedHealth Group Inc.'s (UNH) Prescription
Solutions.
In May, CVS beat Medco for another three-year contract to
provide mail-order drug and other services for the Federal Employee
Program, which generates about $3 billion in annual revenue. CVS
also won a key Aetna Inc. (AET) contract last year.
However, the new CVS contract with Calpers comes amid a
long-running whistle-blower lawsuit alleging the company defrauded
Calpers while overseeing the pension fund's drug plan from 2003 to
2006. Boynton said Monday that "neither Calpers nor any of our
officers or employees are party to the action," adding that Calpers
carefully considered it throughout contract negotiations.
In the suit, several former Caremark employees claim CVS's
mail-order pharmacy business cheated Calpers out of millions of
dollars through such fraudulent practices as changing patient
prescriptions without authorization and falsifying prescription
turnaround times to avoid monetary penalties. CVS has denied the
allegations and has said they wouldn't affect talks with
Calpers.
A message left with Medco seeking comment wasn't immediately
returned.
-By Joan E. Solsman, Dow Jones Newswires; 212-416-2291;
joan.solsman@dowjones.com