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On Monday, Catalyst Health Solutions Inc. announced a long-term agreement with Regence Rx Inc. to exclusively provide pharmacy benefit management (“PBM”) service to the latter’s clients through its PBM unit - Catalyst Rx. Catalyst Health will also take over Regence’s PBM staff, technology and internal client service assets. Moreover, the two companies will jointly create a pharmacy center of excellence in Northwestern U.S.

The deal will be effective from May 1, 2012 to December 31, 2017 and carries an option for an extension till December 2021. The PBM services covered by the agreement include claim settlement, mail and specialty drug management, rebate contracting, member services, network administration, data reporting, analytics, client service and sales support services. However, Regence will carry on offering clinical and contracting services to its clientele.

Both Catalyst Health and Regence will be mutually benefited by the agreement. Regence will be able to enhance its customer service on the back of Catalyst Health’s efficiency in the PBM business, its large operating scale, well-established provider network and product development capabilities. On the flip side, the PBM business of Catalyst Health will get a boost as Regence Health Plans cover over 1.2 million policyholders.

Cambia Health Solutions Inc.’s subsidiary – Regence’s forte lies in providing affordable PBM services. Apart from PBM, the company also offers related clinical and contracting support services to the members of other Medicaid and Blue Cross and Blue Shield plans.

Catalyst Health has many similar alliances for its fast growing PBM business. In February 2012, the company announced the extension of Catalyst Rx’s alliance with WellCare Health Plans Inc. .  Catalyst Rx provides pharmacy benefit services to the company.

Catalyst’s PBM business is benefiting from the rising health care costs. Expenditure on prescription drugs is one of the fastest growing components of healthcare costs and employers and government agencies are turning to PBM companies to control the spending on prescription drugs.

Currently, Catalyst Health carries a Zacks #2 Rank (a short-term Buy rating). Considering the fundamentals, we also maintain our long-term Neutral recommendation on the shares.

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