CVS Caremark Corp. (CVS) appears to have gotten the message regarding its marketing of pharmacy benefits management offerings to potential clients, but it remains to be seen whether that will be enough to reverse the slide in the company's PBM business.

Days after disclosing "big client losses" totaling a net $4.8 billion for 2010, the hybrid drug store chain and PBM dispatched several senior executives last week to meet with the consultants who guide employers in choosing a drug-benefit vendor.

The executives offered consultants a glimpse of plans to pitch employers more on the offerings of the Caremark pharmacy benefits management business and less on the company's CVS retail stores.

"I personally believe they finally got the message," John Malley, North American practice leader for pharmacy benefits consulting at Watson Wyatt Worldwide Inc. (WW), said last week after meeting with CVS Caremark executives.

Caremark "lost significant traction in the marketplace" this year because of a misfired marketing message to potential clients that emphasized drawing pharmacy-plan members into CVS stores, Malley said. CVS Caremark officials acknowledged a messaging problem recently after the company detailed a disappointing "selling season" for 2010 contracts and unexpectedly high client defections.

CVS Caremark shares dropped more than 20% on Nov. 5. after the company said the PBM operating profit could decline by 10% to 12% next year. CVS Caremark offered a variety of reasons, including service issues, for a handful of major account terminations by government and private-sector clients.

At a Credit Suisse investor conference Thursday, CVS Caremark Chief Executive Thomas Ryan, who ran CVS before the merger, said the company would make changes in its PBM marketing message.

"We focused too much on the retail side. ... We forgot to talk about the PBM capabilities," he said.

Watson Wyatt's Malley saw a significant difference in the marketing message in a meeting with Caremark executives Wednesday. These senior executives didn't participate in the sales meetings with clients earlier this year and indicated the company will put its national sales force through a retraining process, he said.

"They were very, very dialed in to their understanding of how they were losing" business and what competitors Medco Health Solutions Inc. (MHS) and Express Scripts Inc. (ESRX) were doing right, Malley said. The new marketing message is focused on PBM initiatives such as reducing overall health costs through more effective use of pharmaceuticals and managing chronic conditions, he said.

A CVS Caremark official wasn't available to comment for this story. The company noted that David Joyner, a top sales and account services executive, is expected to provide an update on the consultant meetings at a Lazard Capital conference Tuesday.

"We at Watson Wyatt were very excited to see the change," Malley said. "This is much, much more in line with what a PBM would pitch than what they have been pitching, and what they have been pitching is a retail store that's posing as a PBM. ... That's what cost them all this business."

Consultant Kristin Begley, national pharmacy practice leader at Hewitt Associates Inc. (HEW), had a different view. She believes many of Caremark's dropped accounts left for reasons beyond company control, and "it could happen to any company. ... The stars aligned badly for Caremark."

She did say CVS Caremark was "too diversified" and scattered in its client presentations this year and now appears to have simplified its pitch to focus more on the PBM's core competencies. The company also plans to introduce PBM cost savings guarantees, she said.

Begley said about two out of 10 of her clients are either not interested in or suspicious of the CVS Caremark business model, formed in 2007 with the merger of a major drug store chain and a large PBM. While some analysts question the soundness of the hybrid business model, she noted that Walgreen Co. (WAG), on a smaller scale, has had a similar arrangement.

-By Dinah Wisenberg Brin, Dow Jones Newswires, 215-656-8285; dinah.brin@dowjones.com
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