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CVS Caremark gets contract to serve 1.1 million CareFirst members

By Jessica Wohl

(Reuters) - CVS Caremark Corp is set to provide pharmacy benefit and other services for 1.1 million CareFirst BlueCross BlueShield members starting next year, a deal that could represent about $1 billion in annual spending on medications and boost CVS' profit by a penny per share, an industry analyst said.

The three-year contract is the latest win for CVS Caremark, which has been gaining ground with its combined approach of running retail drugstores and a pharmacy benefits management business.

This year stands to be a busy one for the healthcare sector as the United States prepares for 30 million people to join the ranks of insured patients under the Affordable Care Act, or "Obamacare," starting in 2014.

CareFirst announced the contract, which begins on January 1, 2014, in a statement issued on Monday. It said the contract covers its commercial and Medicare Part D members.

The deal could add about 1 penny per share to CVS Caremark's earnings in 2014, JP Morgan analyst Lisa Gill said on Tuesday.

CareFirst said that it expects to see substantial savings in prescription drug costs, and would reflect those savings in its subscribers' premiums.

"As federal health reform begins to fully take effect, we are heading into a challenging environment in which meeting our members pharmacy needs - and doing so cost efficiently - is more important than ever," CareFirst President and Chief Executive Chet Burrell said.

Pharmacy benefits managers, or PBMs, such as CVS Caremark administer drug benefits for employers and health plans and run mail order pharmacies. CVS also operates its namesake stores.

Gill said that CVS displaced Argus with the contract win.

DST Systems Inc, which owns Argus Health Systems, could not be reached immediately for comment on Tuesday.

CareFirst, an independent licensee of Blue Cross and Blue Shield, offers services in Maryland, Washington, D.C., and Northern Virginia. The not-for-profit says that it is the largest health care insurer in the Mid-Atlantic region and its members include more than 577,000 members in the Federal Employees Health Program.

CareFirst's deal with CVS Caremark "may indicate that large health plans are more comfortable with the capabilities and product suite of the larger PBMs as a means to drive prescription drug savings," Gill wrote in a note to clients.

CVS Caremark was not immediately available to comment. The company is set to report its quarterly results on Wednesday.

(Reporting by Jessica Wohl in Chicago; Editing by Leslie Gevirtz)

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