CVS 2009 Annual Report Download - page 26

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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis should be read
in conjunction with our audited consolidated finan-
cial statements and Cautionary Statement Concerning
Forward-Looking Statements that are included in this
Annual Report.
Overview of Our Business
CVS Caremark Corporation (“CVS Caremark”, the “Company”,
“we” or “us”) is the largest pharmacy health care provider
in the United States. As a fully integrated pharmacy services
company, we believe we can drive value for our customers
by effectively managing pharmaceutical costs and improving
health care outcomes through our pharmacy benefit manage-
ment, mail order and specialty pharmacy division, Caremark
Pharmacy Services
®
; approximately 7,000 CVS/pharmacy
®
retail stores; our retail-based health clinic subsidiary,
MinuteClinic
®
; and our online pharmacy, CVS.com
®
.
In March 2007, we completed our merger with Caremark Rx,
Inc. (the “Caremark Merger”). Following the Caremark Merger,
we changed our name to CVS Caremark Corporation and
Caremark Rx, Inc. became a wholly-owned subsidiary,
Caremark Rx, L.L.C. (“Caremark”). The Caremark Merger brought
together the nation’s largest retail pharmacy chain and a leading
pharmacy benefit manager. We believe the Caremark Merger
has uniquely positioned our Company to deliver significant
benefits to health plan sponsors through effective cost manage-
ment solutions and innovative programs that engage plan
members and promote healthier and more cost-effective
behaviors. In addition, the Caremark Merger has enhanced our
ability to offer plan members and consumers expanded choice,
greater access and more personalized services.
In 2009, we made changes to our reportable segments to reflect
changes that were made to the way our management evaluates
the performance of operations, develops strategy and allocates
resources. This change involves recording certain administrative
expenses previously recorded within the Pharmacy Services and
Retail Pharmacy segments in a new Corporate segment. The
Corporate segment consists of costs primarily associated with
executive management, corporate relations, legal, compli-
ance, human resources, corporate information technology
and finance. This change had no impact on our consolidated
results of operations. As a result of this change, the Company
has three segments: Pharmacy Services, Retail Pharmacy and
Corporate. Our historical segment disclosures have been revised
to conform to the current presentation.
We also made a change to our Pharmacy Services segment
as it relates to our intersegment activities (such as the Mainte-
nance Choice
®
program). This change impacts the gross
profit and operating profit lines within the Pharmacy Services
segment. Under the Maintenance Choice program, eligible
members and plan sponsors can elect to pick up their mainte-
nance prescriptions at Retail Pharmacy segment stores instead
of receiving them through the mail. When this occurs, both
the Pharmacy Services and Retail Pharmacy segments now
record the revenue, gross profit and operating profit on a
standalone basis and corresponding intersegment eliminations
are made. This change had no impact on our consolidated
results of operations.
Overview of Our Pharmacy Services Segment
Our Pharmacy Services business provides a full range of
pharmacy benefit management (“PBM”) services including mail
order pharmacy services, specialty pharmacy services, plan
design and administration, formulary management and claims
processing. Our clients are primarily employers, insurance
companies, unions, government employee groups, managed
care organizations and other sponsors of health benefit plans
and individuals throughout the United States.
As a pharmacy benefits manager, we manage the dispensing
of pharmaceuticals through our mail order pharmacies and
national network of approximately 64,000 retail pharmacies
(which include our CVS/pharmacy and Longs Drugs
®
stores)
to eligible members in the benefit plans maintained by our
clients and utilize our information systems to perform, among
other things, safety checks, drug interaction screenings and
brand to generic substitutions.
Our specialty pharmacies support individuals that require
complex and expensive drug therapies. Our specialty pharmacy
business includes mail order and retail specialty pharmacies that
operate under the Caremark
®
and CarePlus CVS/pharmacy™
names. Substantially all of our mail service specialty pharmacies
have been accredited by The Joint Commission.
We also provide health management programs, which include
integrated disease management for 27 conditions, through
our strategic alliance with Alere LLC and our Accordant
®
health management offering. The majority of these integrated
programs are accredited by the National Committee for
Quality Assurance.
CVS Caremark
22