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Molina Renews Pact With CVS to Boost PBM Service Platform

Zacks Equity Research

Molina Healthcare, Inc. MOH recently announced extending its agreement with CVS Caremark for Pharmacy Benefit Management (PBM) services through 2021. This renewal, effective Jan 1, 2019, followed a comprehensive procurement process.

With this deal, CVS Caremark will continue to administer pharmacy benefits for around 4 million members whom Molina Healthcare serves via its Medicaid, Medicare and Marketplace health plans. The deal modifies Molina Healthcare’s current contract with CVS Caremark to orient Molina Healthcare’s pharmacy management strategy with better functional measures, which are under process since last year.

The pact is immediately accretive to earnings and will allow Molina Healthcare to stay responsive to its state partner requirements. Notably, the latter controls around $3 billion of the company’s annual pharmacy costs in a growing government-sponsored health care scenario.

It is needless to say that this is another effort by Molina Healthcare to control its expenses that include clinical strategies with formulary, utilization management and generic dispensing initiatives.

In the second quarter of 2017, the company started a comprehensive restructuring and profitability improvement plan to streamline its organizational structure with an aim to improve efficiency as well as the speed and quality of decision-making. The company plans to reduce annualized run-rate expenses by approximately $300-$400 million by the end of 2018. In the first nine months of 2018, the company incurred $35 million to meet the goals of its 2017 restructuring scheme. As part of this endeavor, the company sold its units —, Pathways Health and Community Support, LLC and Molina Medicaid Solutions — to be able to focus on core growth areas.

The renewed tie-up and the streamlining attempts have helped the company provide better results to its members as well.

Shares of this Zacks Rank #2 (Buy) company have surged 31.4% in a year’s time, outperforming its industry’s growth of 5.7%.

Other Stocks to Consider

Investors interested in the medical sector can also take a look at other top-ranked stocks like Centene Corporation CNC, Humana Inc HUM and Anthem, Inc. ANTM, each carrying a Zacks Rank of 2.

Centene operates as a diversified and multi-national healthcare enterprise in the United States. In the last four reported quarters, the company delivered average four-quarter beat of 4.90%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Humana operates as a health and well-being company in the United States. It came up with average four-quarter earnings surprise of 4.73%.

Anthem operates as a health benefits company in the United States. The company managed to pull off average trailing four-quarter positive surprise of 5.11%.

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