CVS, Medco paths diverge on retailing

By Lewis Krauskopf

NEW YORK (Reuters) - Shares of CVS Caremark Corp (CVS.N: Quote, Profile, Research, Stock Buzz) have soared 35 percent this year, but you might excuse investors for wishing their money had been elsewhere in 2007.

The share price gains of CVS Caremark -- the newly merged drug-store chain and pharmacy benefit manager -- have been outpaced by the 80 percent increases of independent benefit managers Medco Health Solutions (MHS.N: Quote, Profile, Research, Stock Buzz) and Express Scripts Inc (ESRX.O: Quote, Profile, Research, Stock Buzz).

As investors mull which business model is best for future returns, leaders of Medco and CVS Caremark staked their claim on the value, or drag, of owning a retailing arm in separate interviews at the Reuters Health Summit in New York.

CVS shook up the healthcare world with its $24 billion takeover in March of Caremark, leading to speculation that the combination of major retailer and a benefit manager -- which administers prescription benefits for employers and health plans -- could create a defining strategic model.

But Medco CEO David Snow has no such designs. Snow said he sees a possible conflict of interest with such a combination, and flatly declared that he does not want to be a retailer.

With a chain of pharmacies, a pharmacy benefit manager would be motivated to lure people to their stores, as opposed to other pharmacies in their network, Snow said.

"I always worry about conflict of interest," Snow said.

"If all of a sudden, I'm beholden to a 20 percent of the retail network ... am I going to be managing that set of brick and mortar assets the same way I would if I were Switzerland and I had equal relationships across the 60,000 stores?"  Continued...