According to the Financial Times, health insurer WellPoint (NYSE:WLP) is trying to sell its pharmacy business management segment.
Call me a long-term thinker, a diversifier, or some other Foolish name, but I think that's a horrible idea.
Sure, I can see the short-term benefit: The company can likely sell off the division that manages drug benefits for more than shareholders think it's worth -- investors have trouble valuing multiple moving parts, and sometimes the parts are worth more than the sum.
But the long-term growth story for pharmacy benefit managers looks promising -- Express Scripts (NASDAQ:ESRX) saw EPS jump 30% last year, and Medco Health Solutions (NYSE:MHS) saw EPS increase an equally impressive 28% after charges. There's a reason that CVS became CVS Caremark (NYSE:CVS), and I'm sure Merck (NYSE:MRK) and Eli Lilly (NYSE:LLY) would have loved to have held on to their pharmacy business management segments they let go a few years ago.
While President Obama's plan to lower health care costs will likely hurt health insurers, it's likely to benefit pharmacy benefit managers. The companies make more money doling out generic drugs than they do more expensive branded drugs. A further push into generics by the government and penny-pinching consumers should drive earnings in the coming years.
WellPoint, UnitedHealth Group (NYSE:UNH), Aetna, and other health insurers with in-house pharmacy benefit management segments would be better off holding onto their drug management businesses. Sure the segments are a slight distraction from their main business, but with the unknown surrounding how universal health care will turn out, they can probably use the distraction.
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UnitedHealth and WellPoint are Motley Fool Inside Value picks. If you're interested in picking through the wreckage for possible turnaround candidates, you should have the Inside Value team on your side. Check it out for free with a 30-day trial.
Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. MedcoHealth Solutions and UnitedHealth are Motley Fool Stock Advisor selections. The Fool owns shares of UnitedHealth. The Fool has a disclosure policy.
