CVS to vary the way it costs prescribed drugs with new pharmacy reimbursement mannequin

CVS Well being on Tuesday stated it can revamp the way it costs prescribed drugs and scrap a posh mannequin that usually units how a lot pharmacies get reimbursed and what sufferers pay for these drugs.

The brand new effort makes CVS the most recent firm to attempt to upend the standard prescription drug pricing system, which has confronted years of political scrutiny for what critics name an absence of transparency and inflated health-care prices for U.S. shoppers. 

CVS will launch a brand new mannequin for reimbursing its pharmacies on Jan. 1, 2025 for industrial payors, executives stated through the firm’s 2023 investor day. 

CVS’ new mannequin may change the price of prescribed drugs for some sufferers, but it surely won’t essentially make all medication value much less, firm executives stated. Some dcirugs might value much less, whereas costs of others may rise, they famous. However extra prescription prices ought to fall than climb for shoppers, employers and well being insurers, in line with the executives.

Nonetheless, CVS is “dedicated to reducing drug pricing” and making the method extra clear, CEO Karen Lynch stated on CNBC’s “The Trade” on Tuesday.

“What this does is it basically aligns the economics of our pricing for medication to what shoppers can pay on the pharmacy counter,” Lynch stated of the brand new mannequin. “What folks have been saying is, ‘We do not perceive, it isn’t clear, it isn’t simple to grasp how a lot medication value.'”

“We’re altering that,” she added.

Shares of CVS closed almost 4% larger on Tuesday following the corporate’s investor day, the place it additionally issued a greater 2024 income forecast than Wall Road anticipated.

CVS stated the plan, named CVS CostVantage, will use a “sustainable and clear” formulation to find out a medicine’s value and the corresponding reimbursement pharmacies obtain from pharmacy profit managers. These middlemen negotiate drug reductions with producers on behalf of well being insurers, giant employers and others that contract them. 

Underneath the brand new mannequin, CVS’ greater than 9,000 retail pharmacies will get reimbursed by PBMs and different payors primarily based on the price of the drug, a “clearly outlined” markup, and a charge to cowl dealing with and meting out the prescriptions, stated Prem Shah, president of CVS’ pharmacy and shopper wellness phase, through the firm’s investor day. 

Lynch informed CNBC: “It is a value plus markup, plus a charge. And that is the transparency of what we’re attempting to do.”

Presently, pharmacies are usually paid utilizing a sophisticated system circuitously primarily based on what they spent to buy medication. That mannequin, which entails a multitiered community of insurers, drug producers, PBMs and pharmacies, results in ambiguity round charges and markups added to the unique value of a drug.

Billionaire Mark Cuban final 12 months launched a web-based pharmacy that takes the same method to CVS’ new reimbursement mannequin. The corporate, known as Price Plus Medication, goals to drive down the worth of medicines broadly by promoting them at a set 15% markup over their value, plus pharmacy charges.

Cuban stated in an e-mail to CNBC that he has “no response in any respect” to CVS’s new mannequin.

Cuban’s enterprise is already shaking up the broader health-care business: CVS suffered a blow over the summer season when a serious California well being insurer, Blue Protect of California, introduced it can now not use the corporate as its PBM and as an alternative will companion with a number of corporations, together with Cuban’s agency and Amazon Pharmacy. 

CVS Well being’s Caremark is likely one of the main PBMs within the U.S. Caremark and different PBMs have confronted elevated scrutiny over their position in surging drug prices, and the Federal Commerce Fee can also be investigating their practices.

Cuban’s drug firm has put stress on different corporations that handle drug advantages to make their very own adjustments. For instance, Cigna introduced final month that its PBM will supply a pricing mannequin related to Price Plus Medication. 

The Biden administration is taking its personal steps to rein in costs of medicines.

As a part of the president’s Inflation Discount Act, the administration in August introduced the first 10 prescribed drugs that can be topic to drug value negotiations with the federal Medicare program, which goals to make pricey drugs extra inexpensive for older Individuals.

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