Medco, Caremark Itching to Play Medicare Card

Following its recent merger, Caremark has managed to further dominate an industry already concentrated in the hands of a very few. Critics have long fretted over the lack of competition -- and the potential for abuses -- in a sector where three PBMs, including the enlarged Caremark, control more than 70% of all mail-order prescriptions. Caremark's buy leaves No. 3 player Express Scripts trailing far behind.

"We believe this market has been transformed from a four-player oligopoly to a two-player duopoly dominated by Medco and Caremark," Piper Jaffray analyst Daren Marhula wrote last week.

Marhula, for one, is excited. He sees great opportunities for big PBMs -- even without new Medicare offerings. And he especially likes Caremark, whose shares are trading within a dollar of an eight-year high set earlier this month. On Friday, the stock added 11 cents to $33.20.

"Caremark continues to be our favorite stock pick," he wrote. "We believe it will be the stock with the 'sizzle' over the next year."