CVS Pharmacy Changes Reimbursement and Prescription Pricing

CVS Pharmacy is set to revolutionize the landscape of prescription drug pricing by altering its pharmacy reimbursement model for prescription medications. The reformation isn’t only expected to simplify the often complex pricing system, but it may also influence how much consumers spend on their medicines.

“We are leading with an approach that will shift how our retail pharmacy is compensated by implementing a more transparent and sustainable model that fairly aligns pharmacy reimbursement to the quality services we provide. It provides our [pharmacy benefit managers] and payor clients a foundational step towards more pricing clarity for consumers.”

Prem Shah, president of CVS Pharmacy and chief pharmacy officer at CVS Health, via CNN

Lauded for its potential to bring increased transparency to drug pricing, CVS’s fresh approach appears to align with the strategy promoted by Mark Cuban’s Cost Plus Drug Company. The present pricing and payment system for pharmacies and consumers is largely controlled by intermediaries known as pharmacy benefit managers. These entities negotiate discounts from drug manufacturers to insurers, resulting in a complicated equation for reimbursement that doesn’t directly correlate with the pharmacy’s original expenditure on the drug.

Set to debut in 2025 for commercial payers, CVS’s newfound model, aptly called CVS CostVantage, integrates the cost of the drug, a predetermined markup, and a fee into a simpler price determination formula. The implementation of this strategy marks a significant shift in payment models, possibly altering the price tag on prescription drugs for some customers. However, the change won’t necessarily make all medications less expensive. CVS leadership acknowledges that while some drugs may come with a lower cost, others could potentially have a price increase.

Transparency in pricing is an uncommon trait in the health industry compared to other sectors. Nick Fabrizio, a senior health policy lecturer at Cornell University, stressed the importance of unveiling pricing methods, negotiated discounts, and overhead costs that are often hidden. Fabrizio cited Cuban’s Cost Plus Drug Company as an example of transparent pricing, forcing competitors to rethink their business models to stay in the game.

This CVS initiative comes as the latest development in a string of changes that are shaking up the conventional prescription drug pricing model. With the high cost of medication plaguing Americans, there’s a growing call for clarity around pricing methods. Congress finds itself amidst this debate, with several bills under consideration to inject transparency into the process.

Earlier this year, CVS Caremark felt the industry’s winds of change when Blue Shield of California chose to discontinue its association with the company’s pharmacy benefit management. The California-based health insurer decided instead to team up with several competitors, including Amazon Pharmacy and Mark Cuban Cost Plus Drug Company.

Currently, Americans are spending approximately $1,200 annually on prescription drugs on average, surpassing any other country, as per the Organization for Economic Co-operation and Development. Furthermore, one in three U.S. adults has reportedly not adhered to their prescribed medication regimen due to the associated high costs, according to the Kaiser Family Foundation.