By Jon Kamp
Health insurer Coventry Health Care Inc. (CVH) has extended its contracts with pharmacy-benefit manager Medco Health Solutions Inc. (MHS) by three years while renegotiating for some beneficial changes, Coventry disclosed Wednesday.
The Bethesda, Md., insurer didn't describe the changes in detail, but Chief Financial Officer Randy Giles cited "an improved cost structure" and terms that give Coventry more flexibility. The new deal went into effect Jan. 1 and runs through 2015 for Medicare customers and 2016 for commercial customers.
"Given that pharmacy spend represents nearly 20% of our medical expenditures, this is an important improvement to a critical part of our overall cost structure across our product portfolio," Giles said on Coventry's fourth-quarter earnings call.
The new deal also gives Medco some longer-term security following a year in which the pharmacy-benefit manager, or PBM, has endured some high-profile customer losses.
Giles declined to comment on specifics regarding the cost-structure impact, but said the changes were a key driver for Coventry's positioning of Medicare Part D prescription drug products for this year. The changes were also an important factor as Coventry prepares for insurance exchanges called for by the U.S. health-care overhaul law, Giles said.
The new deal allows Coventry to "adapt more easily to health care changes in the marketplace going forward," the CFO said. He called Medco a "critical partner" for Coventry.
PBMs handle drug benefits for corporate customers and health plans. Medco is awaiting anti-trust clearance for its planned deal with competitor Express Scripts Inc. (ESRX), which aims to buy Medco to create the industry's biggest PBM.
The Wall Street Journal reported Tuesday that a final Federal Trade Commission decision on the deal is not imminent according to people familiar with the matter, and that the companies and agency are talking about whether combined mail-order pharmacy and specialty pharmacy operations would harm competition.
The proposed consolidation has drawn sharp criticism from retail pharmacies and consumer groups. The PBMs, which have said they expect the deal to close in the first half this year, say joining forces would give them clout to negotiate larger drug discounts, lower health-care costs and improve patient care.
Medco shares recently traded down 0.8% to $60.13. Shares of Coventry, which reported lower-than-expected earnings for the fourth quarter due to a higher tax rate, were down 2.4% to $30.25.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728; [email protected]