WebMD Inks Exclusive Deal With CVS

American drugstore giant CVS (NYSE: CVS) and health information Web site Healtheon/WebMD (Nasdaq: HLTH) announced today that they have forged a five-year, exclusive alliance.

The agreement calls for the Woonsocket, Rhode Island-based CVS to be the exclusive online pharmacy for Healtheon/Web MD and in the health channels of partners Lycos, Excite@Home and the Microsoft (Nasdaq: MSFT) Network.

Atlanta, Georgia-based Healtheon/WebMD expects to provide more than one billion advertising impressions for CVS through its own site and its partners' health channels. While both companies expect to benefit from new e-commerce revenue opportunities, as the content site driving new customers to CVS, Healtheon/WebMD will also collect fees for connectivity transactions and click through impressions to CVS.

Online From Doctors To Prescriptions

The agreement will make prescription and other sales completely electronic, with prescriptions now able to move from the doctor's office directly onto the Internet through Healtheon/WebMD, and then to CVS for fulfillment.

Payment can also be handled electronically through CVS' benefit management service, which will be able to contact third-party payors and pharmacy benefit managers directly using the Healtheon/WebMD network.

During the next six months, the companies expect that approximately 50 million electronic pharmacy transactions will be moved to the WebMD network. These transactions connect and automate CVS Pharmacies to payors, PBMs and other healthcare institutions.

"This partnership represents another step in CVS' strategy to achieve leadership in the online pharmacy sector and will enhance the service we provide physicians and our customers on CVS.com and in our 4,100 stores," CVS/pharmacy Chairman Tom Ryan said.

As part of that progression, CVS founded its own online pharmacy last spring, quickly swallowed up one online competitor, Soma.com, and forged a joint agreement with Merck-Medco Managed Care LLC, one of the nation's largest health care and mail order prescription services.

Through the Merck-Medco deal , under which CVS agreed to be the exclusive fulfillment house for the company's health plan members, CVS picked up 51 million new customers.

Competition Drives Innovation

CVS' aggressive approach can be partly attributed to its late arrival to the highly competitive, if highly scrutinized, online prescription business. The eastern U.S. drugstore chain beat brick-and-mortar competitor Walgreens, a national chain, onto the Net, but had to play catch up with PlanetRx.com, one of the country's best-known Web-only pharmacies, and Rite Aid, another eastern U.S. regional chain.

CVS has the ability to fill prescriptions either by shipping them directly to customers or making them available for pickup at one of its 4,100 retail stores. CVS's weekly newspaper circulars and its stores, with an established customer base of about 55 million people, will now carry WebMD signs and other promotions to help drive business to the Web.

The companies also plan to develop new products and technologies, such as a standard, end-to-end solution for generating, transmitting and filling prescriptions electronically. They also are working on educational information and new tools to inform customers about alternative healthcare and pharmaceutical choices.

The alliance will also enable Healtheon/WebMD to enhance its "myhealthrecord" personalized health information service with additional information and special offers from CVS.

Healtheon Web MD was formed in November as a result of the merger between Healtheon Corporation, Web MD, MEDE America and Medcast, and calls itself the first to connect physicians and patients to the healthcare system.