UPDATE: UnitedHealth CEO: Assessing Options On Medco Pact
June 01 2011 - 11:54AM
Dow Jones News
UnitedHealth Group Inc. (UNH), one of the largest U.S. health
insurers, is weighing the future of its relationship with Medco
Health Solutions Inc. (MHS) and whether to bring in-house some of
the drug-benefit business that Medco handles for its health-plan
members.
UnitedHealth is Medco's largest customer and accounts for some
17% of revenue and less than 10% of profit; the contract between
the two companies runs through 2012. While UnitedHealth says it has
a good partnership with Medco, the insurer also has been investing
in its own large, in-house pharmacy benefits manager, OptumRx, and
believes it could benefit by bringing some business in-house,
United's CEO said Wednesday.
OptumRx is "a very capable" and scalable platform, UnitedHealth
Chief Executive Stephen Hemsley said at a Sanford C. Bernstein
conference.
OptumRx, formerly Prescription Solutions, serves outside
customers, a portion of UnitedHealth's commercial members and its
Medicare and Medicaid plans. Medco handles pharmacy benefits for a
substantial portion of UnitedHealth's commercial health plan
members.
"We are making assessments about how we will proceed going
forward and we may proceed in a continued relationship with Medco
in some fashion, but ... also obviously have the option and the
capacity to in-source the business that we [have] with Medco
today," he said in response to an audience question. "We believe
that that can be positive to our business as well, so we are
sorting out the best course of action."
UnitedHealth hasn't reached "closure" on the matter yet, but
needs to do so this year because of the timing of a potential
conversion, he said.
A Medco executive speaking later at the same conference said
there are many potential options and it's very early in the
discussions.
While investors have known for some time that UnitedHealth was
considering moving its Medco business in-house, such a move would
follow some significant business losses for one of the largest U.S.
pharmacy benefits managers.
In a surprise to the market, Medco recently lost to CVS Caremark
Corp. (CVS) a multibillion-dollar contract to provide mail-order
pharmacy and other services to more than five million U.S. federal
employees, retirees and dependents, prompting a selloff.
Medco also was dropped this year from consideration for renewal
of a large contract with the California Public Employees'
Retirement System amid questions surrounding more than $4 million
in payments that the company made to a former Calpers board member
it had hired as a consultant.
Medco shares recently traded down 21 cents to $59.65.
-By Dinah Wisenberg Brin, Dow Jones Newswires, 215-982-5582;
dinah.brin@dowjones.com
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