UPDATE: CVS Wins Calpers Prescription-Benefits Contract

(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; [e-mail]