CVS Caremark vs. Walgreen

CVS Caremark (NYSE: CVS  ) and Walgreen (NYSE: WAG  ) are longtime competitors -- both Fortune 500 companies in the pharmacy services/retail drug store business -- and according to a recent CNN article, the feud has intensified. Both companies run pharmacy benefit management (PBM) plans with several million members. CVS Caremark dropped Walgreen from its PBM in reaction to Walgreen's announcement on Monday that it would no longer participate in new or renewed plans from CVS Caremark's drug benefits unit.

CVS Caremark's move is clearly a direct attempt to compete for Walgreen's customers. It means that some CVS Caremark plan members may not have their prescriptions honored at a Walgreens pharmacy, and consequently, may be forced to pay much more at Walgreens. Walgreen, of course, is not pleased, and its spokesperson said: "Right now, you may be 2 miles from a Walgreens, but because of this action, you may have to drive 20 miles to another pharmacy to get prescriptions filled."

CVS Caremark maintains that, excluding Walgreen, its pharmacy network includes about 57,000 pharmacies across the country (including other retail chains, supermarket pharmacies, and independent pharmacies), while Walgreen operates 7,500 stores nationwide. However, Walgreen has more than 50% market share in certain cities, and industry consultant Adam Fein said, "Personally I think that CVS Caremark is making a major strategic blunder. I don't think they can assemble a credible pharmacy network in certain cities without Walgreens."

What do you think? Blunder or brilliant move? Let us know in the comments box below.

Claire Stephanic does not own any of the companies mentioned. You can read The Motley Fool's disclosure policy here.


Read/Post Comments (7) | Recommend This Article (14)

Comments from our Foolish Readers

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  • Report this Comment On June 10, 2010, at 2:53 PM, Tsharp1947 wrote:

    If you clearly show your customers that the "bottom line" is more important to your company than they are, you are doomed to lose! Buy Wag, short CVS!

  • Report this Comment On June 10, 2010, at 3:08 PM, rx1937 wrote:

    i think that walgreen is foolish and greedy by asking for higher fees...i think cvs should/must drop then in this competive market to satisfy the cost containment for its clients..

  • Report this Comment On June 10, 2010, at 4:15 PM, derjimmer wrote:

    BIG BLUNDER.

    GO WAG

  • Report this Comment On June 10, 2010, at 4:46 PM, TheDeadCatBounce wrote:

    This will hurt both companies but WAG will recover. CVS has bigger issues and will suffer through them for quite some time. On a personal note, Caremark is garbage and I would prefer socialized medicine to dealing with those dunder heads any longer.

  • Report this Comment On June 11, 2010, at 11:29 AM, caltex1nomad wrote:

    Walgreen fired the first shot. CVS will not suffer. They will expand their network of pharmacies and will build new CVS stores where they don't have coverage. Most of the Walgreen stores I have been in lately look outdated, dirty and unorganized. I hold CVS stock for a good reason.

  • Report this Comment On June 21, 2010, at 9:54 PM, trymk46 wrote:

    as an independent pharmacist i have been reimbursed below my cost for years by the PBM. when CVS bought Caremark they completely shut out my pharmacy to my patients. So, WAG get there reimbursement increased but will I? I doubt it. We as independents could never band together because of anti trust laws, but these guys have made a mockery of that.

  • Report this Comment On November 04, 2010, at 10:37 PM, runnermike1 wrote:
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