CVS to alter the way it prices prescribed drugs

An individual walks by a CVS pharmacy store in Manhattan, Latest York, U.S., November 15, 2021.

Andrew Kelly | Reuters

CVS Health on Tuesday said it would revamp the way it prices prescribed drugs and scrap a posh model that typically sets how much pharmacies get reimbursed and what patients pay for those medications.

The brand new effort makes CVS the newest company to attempt to upend the standard prescription drug pricing system, which has faced years of political scrutiny for what critics call a scarcity of transparency and inflated health-care costs for U.S. consumers.

CVS will launch a latest model for reimbursing its pharmacies on Jan. 1, 2025 for business payors, executives said throughout the company’s 2023 investor day.

CVS’ latest model could change the associated fee of prescribed drugs for some patients, but it would not necessarily make all medicine cost less, company executives said. Some dcirugs may cost less, while prices of others might rise, they noted. But more prescription costs should fall than climb for consumers, employers and health insurers, in response to the executives.

Still, CVS is “committed to lowering drug pricing” and making the method more transparent, CEO Karen Lynch said on CNBC’s “The Exchange” on Tuesday.

“What this does is it essentially aligns the economics of our pricing for drugs to what consumers can pay on the pharmacy counter,” Lynch said of the brand new model. “What people have been saying is, ‘We do not understand, it isn’t transparent, it’s hard to know how much drugs cost.'”

“We’re changing that,” she added.

Shares of CVS closed nearly 4% higher on Tuesday following the corporate’s investor day, where it also issued a greater 2024 revenue forecast than Wall Street expected.

CVS said the plan, named CVS CostVantage, will use a “sustainable and transparent” formula to find out a drugs’s price and the corresponding reimbursement pharmacies receive from pharmacy profit managers. Those middlemen negotiate drug discounts with manufacturers on behalf of health insurers, large employers and others that contract them.

Under the brand new model, CVS’ greater than 9,000 retail pharmacies will get reimbursed by PBMs and other payors based on the associated fee of the drug, a “clearly defined” markup, and a fee to cover handling and dishing out the prescriptions, said Prem Shah, president of CVS’ pharmacy and consumer wellness segment, throughout the company’s investor day.

Lynch told CNBC: “It’s a price plus markup, plus a fee. And that is the transparency of what we’re attempting to do.”

Currently, pharmacies are typically paid using a sophisticated system indirectly based on what they spent to buy drugs. That model, which involves a multitiered network of insurers, drug manufacturers, PBMs and pharmacies, results in ambiguity around fees and markups added to the unique cost of a drug.

Billionaire Mark Cuban last 12 months launched a web based pharmacy that takes the same approach to CVS’ latest reimbursement model. The corporate, called Cost Plus Drugs, goals to drive down the worth of medicines broadly by selling them at a set 15% markup over their cost, plus pharmacy fees.

Cuban said in an email to CNBC that he has “no response in any respect” to CVS’s latest model.

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Cuban’s enterprise is already shaking up the broader health-care industry: CVS suffered a blow over the summer when a serious California health insurer, Blue Shield of California, announced it would now not use the corporate as its PBM and as a substitute will partner with several corporations, including Cuban’s firm and Amazon Pharmacy.

CVS Health’s Caremark is certainly one of the main PBMs within the U.S. Caremark and other PBMs have faced increased scrutiny over their role in surging drug costs, and the Federal Trade Commission can also be investigating their practices.

Cuban’s drug company has put pressure on other corporations that manage drug advantages to make their very own changes. For instance, Cigna announced last month that its PBM will offer a pricing model similar to Cost Plus Drugs.

The Biden administration is taking its own steps to rein in prices of medicines.

As a part of the president’s Inflation Reduction Act, the administration in August announced the first 10 prescribed drugs that can be subject to drug price negotiations with the federal Medicare program, which goals to make costly medications cheaper for older Americans.