CVS Caremark Aims To Fix Pharmacy Benefit Marketing Message
November 16 2009 - 12:43PM
Dow Jones News
CVS Caremark Corp. (CVS) appears to have gotten the message
regarding its marketing of pharmacy benefits management offerings
to potential clients, but it remains to be seen whether that will
be enough to reverse the slide in the company's PBM business.
Days after disclosing "big client losses" totaling a net $4.8
billion for 2010, the hybrid drug store chain and PBM dispatched
several senior executives last week to meet with the consultants
who guide employers in choosing a drug-benefit vendor.
The executives offered consultants a glimpse of plans to pitch
employers more on the offerings of the Caremark pharmacy benefits
management business and less on the company's CVS retail
stores.
"I personally believe they finally got the message," John
Malley, North American practice leader for pharmacy benefits
consulting at Watson Wyatt Worldwide Inc. (WW), said last week
after meeting with CVS Caremark executives.
Caremark "lost significant traction in the marketplace" this
year because of a misfired marketing message to potential clients
that emphasized drawing pharmacy-plan members into CVS stores,
Malley said. CVS Caremark officials acknowledged a messaging
problem recently after the company detailed a disappointing
"selling season" for 2010 contracts and unexpectedly high client
defections.
CVS Caremark shares dropped more than 20% on Nov. 5. after the
company said the PBM operating profit could decline by 10% to 12%
next year. CVS Caremark offered a variety of reasons, including
service issues, for a handful of major account terminations by
government and private-sector clients.
At a Credit Suisse investor conference Thursday, CVS Caremark
Chief Executive Thomas Ryan, who ran CVS before the merger, said
the company would make changes in its PBM marketing message.
"We focused too much on the retail side. ... We forgot to talk
about the PBM capabilities," he said.
Watson Wyatt's Malley saw a significant difference in the
marketing message in a meeting with Caremark executives Wednesday.
These senior executives didn't participate in the sales meetings
with clients earlier this year and indicated the company will put
its national sales force through a retraining process, he said.
"They were very, very dialed in to their understanding of how
they were losing" business and what competitors Medco Health
Solutions Inc. (MHS) and Express Scripts Inc. (ESRX) were doing
right, Malley said. The new marketing message is focused on PBM
initiatives such as reducing overall health costs through more
effective use of pharmaceuticals and managing chronic conditions,
he said.
A CVS Caremark official wasn't available to comment for this
story. The company noted that David Joyner, a top sales and account
services executive, is expected to provide an update on the
consultant meetings at a Lazard Capital conference Tuesday.
"We at Watson Wyatt were very excited to see the change," Malley
said. "This is much, much more in line with what a PBM would pitch
than what they have been pitching, and what they have been pitching
is a retail store that's posing as a PBM. ... That's what cost them
all this business."
Consultant Kristin Begley, national pharmacy practice leader at
Hewitt Associates Inc. (HEW), had a different view. She believes
many of Caremark's dropped accounts left for reasons beyond company
control, and "it could happen to any company. ... The stars aligned
badly for Caremark."
She did say CVS Caremark was "too diversified" and scattered in
its client presentations this year and now appears to have
simplified its pitch to focus more on the PBM's core competencies.
The company also plans to introduce PBM cost savings guarantees,
she said.
Begley said about two out of 10 of her clients are either not
interested in or suspicious of the CVS Caremark business model,
formed in 2007 with the merger of a major drug store chain and a
large PBM. While some analysts question the soundness of the hybrid
business model, she noted that Walgreen Co. (WAG), on a smaller
scale, has had a similar arrangement.
-By Dinah Wisenberg Brin, Dow Jones Newswires, 215-656-8285;
dinah.brin@dowjones.com
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