CVS Pharmacy is promising to make its drug pricing system simpler and more transparent. But that may not translate into lower costs or more clarity for consumers.
The company announced Tuesday that its new CVS CostVantage model will revamp how its pharmacies are paid for prescription medications. It will use a formula that includes “the cost of the drug, a set markup and a fee that reflects the care and value of pharmacy services.”
High drug prices are among Americans’ top health care complaints, and players across the pharmaceutical supply chain are under pressure from public officials and competitors to lower costs.
But CVS CostVantage will not directly affect patients buying drugs at the pharmacy counter. The arrangement is between CVS Pharmacy and the pharmacy benefit managers and payors, including insurers and employers that provide coverage to Americans, that are its clients. CVS says it will work with each pharmacy benefit manager, known as a PBM, and payor to determine the markup and fee, though those won’t be made public. The company operates the nation’s largest PBM, CVS Caremark.
Currently, the prices customers pay for drugs and the payments pharmacies receive are greatly influenced by PBMs, which serve as middlemen and negotiate rebates from drug manufacturers to insurers. The complex reimbursement formulas aren’t directly based on what pharmacies spent to purchase specific drugs.
The new CVS Pharmacy model, which covers both generic and brand name drugs, will reduce the cost of most drugs, though some may see slight increases, said Amy Thibault, CVS Pharmacy spokeswoman.
Savings will be passed along to the PBMs and payors, and it’s up to them to decide how much they’ll pass along to their members, she continued. Tuesday’s announcement does not mention cost savings for either consumers or CVS Pharmacy clients, instead stressing transparency and sustainability for the company’s massive retail pharmacy chain.
Consumers’ out-of-pocket costs will continue be determined by patients’ drug coverage benefits, Thibault said. Those with job-based or Affordable Care Act policies, for instance, typically pay either a set co-pay or a percentage of the drug’s price, known as co-insurance, after they meet their deductible. The cost often differs depending on the type of drug, with generic medications being the least expensive.
The initiative will begin in 2025 with commercial payors, including PBMs, insurers and employers. Other payors, including Medicare and Medicaid, will be brought in later.
Pressure from the competition and Congress
Though CVS CostVantage shares some similarities with Mark Cuban’s Cost Plus Drug Company, there are some main differences. Cuban’s effort centers on generic drugs, which consumers can purchase directly from its website for the price it costs the company to buy the medication from manufacturers, plus a 15% markup and $5 pharmacy cost. The prices are public, and the model cuts out PBMs, which have come under attack from Congress and others for contributing to high drug prices and running opaque operations.
Whether patients benefit from CVS CostVantage remains to be seen, but some experts are skeptical.
“It’s fine to be more transparent, but are we getting this to decrease costs or not?” said Nick Fabrizio, senior lecturer in health policy at Cornell University. “The end result is if it’s not less expensive, people are going to think that that’s just lip service.”
The growing pressure on PBMs, including CVS Caremark, to increase transparency may be contributing to the company announcing the new reimbursement model. But shifting payments from CVS Caremark to the retail pharmacy chain may just be “sloshing money around within the company,” said Karen Van Nuys, senior fellow at the Schaeffer Center for Health Policy & Economics at the University of Southern California.
“This feels like window dressing to me to give the appearance that they are responding to the pressures both in Congress and in the market from agents like Mark Cuban’s company,” she said.
