Photo by Anastasiia Gudantova on Unsplash | Credit: CVS Health
With the healthcare industry facing increased scrutiny for high drug prices, CVS Health announced plans to switch to a more “transparent” prescription reimbursement model for its pharmacies.
Under the new model, CVS CostVantage, CVS’s roughly 9,500 retail pharmacies will get reimbursed by pharmacy-benefit managers (PBMs) and other payers based on the amount that CVS paid for the drugs, in addition to a limited markup and a flat fee to cover the services involved in handling and dispensing the prescriptions.
It’s a similar model to entrepreneur Mark Cuban’s Cost Plus Drugs online pharmacy. Under Cost Plus Drugs’ setup, consumers pay the manufacturer’s cost, plus a 15% markup, a $5 handling fee for the pharmacist, and $5 for shipping. Cost Plus Drugs has become known for delivering low prices on older generics but has faced challenges securing competitive pricing for newer brand-name meds.
Under CVS’ current system, the rate pharmacies are paid for filling prescriptions is largely determined by the pharmacy-benefit managers, which act as middlemen and negotiate rebates from drug manufacturers to insurers. These complex reimbursement formulas aren't directly based on what pharmacies spend to purchase specific drugs, with compensation targets set across groups of drugs rather than particular products. CVS owns Caremark, the country’s largest PBM.
CVS Health execs told The Wall Street Journal that employers and health insurers paying for prescriptions will see some drugs costing less and others more. Still, the restructuring should eliminate the sometimes wide discrepancies insured patients encounter at the pharmacy between the cash cost (with a drug discount card) and using their employer-sponsored drug coverage, according to CVS.
Prem Shah, chief pharmacy officer and president of Pharmacy and Consumer Wellness at CVS Health, told the New York Times that the company’s goal was “to provide a much more transparent model that provides predictability and value for the payers in a way that is more aligned in terms of the way that any other normal market would work.”
The updated model, to launch in 2025, comes as the pharmaceutical industry’s pricing methods face backlash from patients and lawmakers, with Congress considering bills to force more transparency.
Dr. Scott Gottlieb, a former commissioner of the Food and Drug Administration, was optimistic about the change. He said on CNBC that under CVS’s new model, “the consumer is going to have more insight into what drugs actually cost, and it’s going to also help the pharmacies have more stability in their revenue.”
Antonio Ciaccia, a consultant who works with clients who are scrutinizing their deals with their PBMs, was skeptical, however, telling the New York Times that the key problem with drug pricing “is this intersection between PBMs and pharmacies.”