The proposed $21-billion merger announced Wednesday between drugstore giant CVS Corp. and pharmacy-benefits manager Caremark Rx Inc. would give the new company immense power to influence prescription drug prices, but that might not translate into more affordable medications for consumers, analysts said.
The combined company would dominate much of the market and reduce competition, becoming both a supplier and a rival to other drugstore chains, analysts said.
"Caremark was constantly pushing retailers for lower prices," said Sean Brandle, national pharmacy practice leader for Segal Co., a benefits consulting firm. "That's gone away.... We've lost one of the checks and balances that was inherent in the system."
The merger was seen as the latest effort by CVS to keep up with a fast-changing prescription drug market increasingly shifting to companies like Caremark that specialize in selling 90-day supplies of generic maintenance drugs by mail order.
The combined company would control more than a fourth of the nation's pharmacy market, dispensing about 1 billion prescriptions a year.
Many of those prescriptions would be filled for people in California, where CVS has become a major player with its acquisition of 700 Osco and Sav-On stores from Albertsons Inc.
CVS and Caremark cited competitive strength as one of the benefits of the deal. They did not mention pricing, but said customers would benefit from "expanded choice, unparalleled access, and more personalized services."
The combined company would be a more formidable competitor to Wal-Mart Stores Inc., which recently slashed the price of generics, prompting other big retailers to do the same and triggering what some view as a new drug war.
"They are all battling for the traffic in their stores," Brandle said.
Because of the two companies' overlapping footprints, the merger must be approved by the Federal Trade Commission in a process that could take months. If the FTC finds antitrust problems, portions of one or both companies may have to be divested before the deal could go forward.
The deal reflects the pressure drugstores have been under in recent years as they have lost prescription business to mail-order companies. These highly automated fulfillment shops can beat retailers' prices on prescription medications because they have lower overhead and labor costs.
