CVS Caremark (NYSE:CVS), the largest U.S. pharmacy based on total prescription revenue, entered into a new pilot program with Aetna last month to manage the latter’s member prescription. The “Aetna Rx Home Success Program” helps Aetna members manage their health through personal support from a pharmacist including offering in-home consultations and focuses on those who have recently been discharged from a hospital, nursing home or rehabilitation facility. (Read additional details in the CVS press release)
Aetna is among one of the leading diversified health care benefit companies in the U.S., which serves approximately 44 million people with information and resources to help them make more informed decisions about their health care. With 7,531 stores operating across 42 states, CVS is the second largest drugstore chain in the U.S. after Walgreen (NYSE:WAG). CVS runs a Pharmacy Benefit Management (PBM) business which provides order pharmacy services, specialty pharmacy services, plan design and administration, formulary management and claims processing services. The company derives around 60% of its revenue and over 40% of its valuation from this division.
Hospital re-admissions due to improper medication affects nearly 3.5 million patients and results in approximately $15.2 billion dollars in health care costs each year.  The high rates of hospital re-admissions increases the healthcare cost of the patient. In its press release, CVS stated that the intervention of a clinical pharmacist helps patients better understand their medications and avoid potential setbacks to recovery after returning home. The average patient in the program takes over ten prescription medications per day. 
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Last month, CVS also opened a new state-of-the-art Mail Service Pharmacy and Customer Center in Illinois which supports pharmacy inventory and fulfillment needs across the CVS Caremark Pharmacy Benefit Management business. The new facility has the capability to fill 50 million prescriptions annually. In addition, CVS launched a new online drug information center which helps consumers take control of their health by providing them with best-in-class drug information and a variety of innovative resources.
CVS Caremark’s PBM business serves approximately 60 million members across the U.S. and on an average processes 799 million pharmacy network claims and 82 million mail order pharmacy claims annually. We believe that the growing number of partnering pharmacies and the expansion of healthcare coverage to more Americans will help increase the number of claims processed over CVS’s pharmacy network.
Our price estimate of $63 for CVS Caremark is at a 10% premium to the current market price.Notes:
- Aetna Collaborates With CVS Caremark And Dovetail Health To Help Members Manage Their Prescriptions, CVS Caremark Press Releases, August 20, 2013 [↩] [↩]