CVS Caremark agreed to buy the Medicare Part D unit of Universal American Financial for about $1.25 billion, more than doubling the size of its program after pharmacy-benefits management sales fell for two quarters.
CVS, the largest provider of prescription drugs in the U.S., said in a statement Friday that Universal American's Part D business serves about 1.9 million Medicare PDP members. CVS, based in Woonsocket, R.I., has about 1.2 million members.
The deal enables CVS to expand into what it called one of the fastest growing segments of the pharmacy-benefit management, or PBM, market, after slumping PBM revenue contributed to a 20 percent drop in its third-quarter profit. Medicare Part D, the federally subsidized prescription-benefit program for Medicare beneficiaries older than 65 or who otherwise qualify through disability, is growing partly because of aging demographics.
"It substantially increases their current presence in that market," said Kemp Dolliver, an analyst at Avondale Partners LLC in Boston who rates the stock "market perform." "It also meshes nicely with the retail store front in that it is a population that typically needs a lot of counseling by pharmacists because they're on multiple medications."
CVS fell 23 cents to $34.77 in New York Stock Exchange composite trading. The shares have climbed 7.9 percent this year. Universal American, based in Rye Brook, New York, jumped $5.84, or 40 percent, to $20.45.