CVS is revamping the way it reimburses its pharmacies for prescription medications, a move that could make prescription drug pricing simpler and change how much consumers pay for their medicines.
The company said in an announcement Tuesday that its new pharmacy reimbursement model will bring more transparency to its drug pricing system. It’s a similar model to the one entrepreneur Mark Cuban is pushing with his Cost Plus Drugs company.
Currently, the prices customers pay for drugs and the payments pharmacies receive are largely determined by middlemen known as pharmacy benefit managers, which negotiate rebates from drug manufacturers to insurers. These complex reimbursement formulas aren’t directly based on what pharmacies spent to purchase specific drugs.
The new approach, named CVS CostVantage, will use a simpler formula that includes the cost of the drug, a set markup and a fee to determine the drug’s price and reimbursement with pharmacy benefit managers. It is expected to launch for commercial payors in 2025. The Wall Street Journal was first to report the news.
This shift in payment models could change the cost of prescription drugs for some patients, although it will not necessarily make all medicine cost less. Some drugs may cost less, while others might rise in price, CVS executives said. More prescription costs should fall than rise for consumers, employers and health insurers, they said.
“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,” said Prem Shah, president of CVS Pharmacy and chief pharmacy officer at CVS Health, in a statement. “It provides our [pharmacy benefit managers] and payor clients a foundational step towards more pricing clarity for consumers.”
The health care industry as a whole provides less price transparency for consumers than other businesses.
“At a minimum, the goal for CVS and others should be to shine a light on the way drugs are priced, any discounts that are negotiated and overhead that comes from a variety of sources,” said Nick Fabrizio, senior lecturer in health policy at Cornell University. “Americans would be surprised at the hidden costs that are passed on to them by a variety of third parties. These extra or hidden costs make prescriptions more expensive.”
Cuban’s Cost Plus Drug Company provides price transparency throughout the prescription drug supply chain, Fabrizio said, noting that it is “forcing pharmacies to change their model to remain competitive.”
The announcement is the latest in series of changes that are roiling the prescription drug pricing model.
The high cost of medications is one of Americans’ biggest health care headaches, and the lack of transparency surrounding how prices are set have been a focus of a multitude of players, including Congress, which is considering several bills to force more light into the process.
Americans spend around $1,200 a year on average for prescription drugs — more than any other country — according to the Organization for Economic Co-operation and Development. One out of every three US adults taking prescription drugs say that they’ve been unable to take their medication as prescribed due to cost, according to the Kaiser Family Foundation.
CVS Caremark’s business suffered a significant blow over the summer when a major California health insurer, Blue Shield of California, announced it will no longer use the company as its pharmacy benefit manager and instead will partner with several companies, including Amazon Pharmacy and Mark Cuban Cost Plus Drug Company.
Blue Shield said earlier this year that Cuban’s pricing model will be “simple, transparent and more affordable.” The move could shake up the prescription drug pricing system beyond Blue Shield’s 4.8 million members.
This story has been updated with additional context.
