Managed Care Firms Bulk Up

"RxSolutions has really strengthened its business," Hemsley said in April. And "while it is not as large as Medco, we would view it as every bit as sophisticated."

New Landscape

Given recent developments, Santangelo sees some chance that UnitedHealth could in fact start handling all of its PBM business itself. By doing so, Santangelo estimates that UnitedHealth could boost its annual profits by about 2% per year. While modest, that gain would far exceed the contribution expected from the looming Fiserv buyout.

Meanwhile, for Medco, the impact could be huge. All told, experts figure, Medco relies on UnitedHealth for more than one-fifth of its annual revenue. Because of steep volume discounts, however, UnitedHealth makes a smaller contribution to Medco's bottom line.

Still, Santangelo estimates that UnitedHealth is responsible for up to 30 cents of Medco's annual profits -- or about 8% of the earnings that the company is expected to generate this year.

For its part, Santangelo notes, Medco has already pledged to stick with its future targets even if the company loses its largest customer. Santangelo assumes that Medco has issued conservative guidance, with upside from high-margin generic drug sales likely, as a result.

Santangelo has a neutral rating on Medco's stock. His firm seeks to do business with the companies it covers.

"While we acknowledge size and scale would instantly make UNH a credible player, we do not believe that one additional captive PBM ... will significantly change the already competitive landscape," Santangelo wrote on Monday. "We caution investors not to get too caught up in this situation and lose sight of the bigger picture, which remains bright for the company and the industry" overall.