A third-party sale occurs when an insurance company (or government agency) is responsible for reimbursing a retail pharmacy for a customer’s prescription medication. These third-party payers rarely reimburse the pharmacy the full price for medications purchased by those covered by prescription drug plans.
If the sales mix of CVS Corporation becomes more heavily comprised of these kinds of third-party transactions, its revenue growth will be constrained by the restrictive reimbursement terms characteristic of so many prescription drug plans. While the company’s revenue may be constrained by these plans, its cost of goods sold will remain the same (or possibly increase). Should this happen, the company’s gross profit margin will likely experience downward pressure.
Prospects for CVS Corporation appear to be very strong. However, some analysts believe that a shift in CVS Corporation’s sales mix to increased pharmacy revenue from third-party insurers could put pressure on the company’s gross profit margins.
Explain what is meant by these analysts
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