A new Rx pricing structure from CVS
Stakeholders around the US healthcare system are calling for greater transparency and affordability in prescription drugs. While various State and Federal legislative proposals seek to address these issues, a number of key players are making changes to their business models on their own initiative.
Recently CVS Pharmacy announced that they will implement changes in their 9,000 retail pharmacies with the goal of simplifying reimbursement by defining their financial structure with contracted insurers and PBMs. Today, formulary placement, utilization management programs and other factors serve to disconnect the drug’s price from its cost to the consumer. This can sometimes result in plan members being able to obtain a drug at a lower price if they pay cash rather than use their insurance plan. The CVS announcement outlines a new approach, called CostVantage, that will base each drug’s price and reimbursement on its acquisition cost and a defined mark-up and patient management fee.
On the surface this sounds much like the approach of the Mark Cuban Cost Plus Drug Company. However, there are some noticeable differences. First, CVS has not outlined what its mark-up or fees will be and did not indicate its pricing benchmark. The Mark Cuban plan uses its own acquisition cost as the pricing benchmark and adds a flat 15% mark-up and a delivery fee. CVS also indicated its mark-up percentage amount might vary by PBM or carrier and that it will not make drug-level prices public. (The Mark Cuban plan does provide drug-level pricing). So, while CVS’s pricing might be simpler under the new structure – a step in the right direction -- it’s not yet more transparent. And as for affordability, CVS has indicated that while many consumers will see lower prices under the new systems, others might see increases.
Despite this dynamic and some unknowns, many industry observers indicate that CVS’s move is a good first step moving away from a complex pricing system. But it’s important to note that the new system only applies to drugs dispensed through the retail channel, which means that it does not affect the key driver of pharmacy cost trend---high-cost specialty drugs. These drugs are usually dispensed through mail order, a physician’s office or in an outpatient hospital setting.
The change will be rolled out for cash-paying consumers in late 2024 but will not apply to private sector health plans until 2025. Given that CVS is a major player in the pharmacy system, their announcement has received a lot of attention, but its short-term impact will likely be modest. We’ll keep you posted.