CVS, With 1,100 CA Locations, Unveils Plan To Transform Drug Pricing

CALIFORNIA — CVS Health, the nation’s largest drugstore chain with more than 1,100 locations in California, on Tuesday unveiled its plan to transform drug pricing in hopes that customers will pay closer to what pharmacies pay for medications.

The drug retail giant announced plans to launch CVS CostVantage, which it said “evolves the traditional pharmacy reimbursement model and brings greater transparency and simplicity to the system.”

Under the model, CVS’s 9,500 retail pharmacies will be reimbursed by pharmacy benefit managers and payors “using a transparent formula built on the cost of the drug, a set markup, and a fee that reflects the care and value of pharmacy services,” CVS said in a news release. The company declined to disclose target ranges for its drug markup or the flat fees, according to The Wall Street Journal.

Currently, drug prices can be cryptic because pharmacies often receive payment via complex measures that aren’t directly based on what they paid for certain drugs.

“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, executive vice president, chief pharmacy officer and president of pharmacy and consumer wellness at CVS Health. “It provides our [pharmacy benefit managers] and payor clients a foundational step towards more pricing clarity for consumers.”

ALSO SEE: 2023 Places With The Lowest Cost of Living In California: New Report

CVS said it plans to launch CostVantage with benefit managers in 2025. The Wall Street Journal first reported CVS’ plan earlier this year.

For the most part, pharmacies are paid by pharmacy benefit managers, according to the Journal. They use a complicated setup where payment targets are set across groups of drugs, rather than specific products.

The new payment model is similar to one used by Dallas Mavericks owner Mark Cuban, who launched an online drug company that buys generic drugs from manufacturers and sells them directly to patients.

While some drugs may be less expensive, others could become more costly CVS said, though more should be cheaper under the new model.

Adam Fein, chief executive of the Drug Channels Institute, told The Journal that CVS’ plan is a “fundamental change in how pharmacy services are priced, and “a legitimate step toward transparency.”

ALSO SEE: Best Maternity Care Hospitals In CA In 2023: 63 Make The Grade

The pricing model comes as regulators increasingly scrutinize drug pricing. In June, the Federal Trade Commission expanded its investigation into practices by pharmacy-benefit managers, which it called “middlemen.”

“As part of its ongoing study on pharmacy benefit managers (PBMs) and their impact on the accessibility and affordability of prescription drugs, the Federal Trade Commission has issued a compulsory order to a third group purchasing organization (GPO) that negotiates drug rebates on behalf of PBMs,” the FTC said at the time. “The compulsory order will require the GPO entity to provide information and records on its business practices.”

And in October 2022, President Joe Biden issued an executive order, requiring the Department of Health and Human Services to look into new health care payment and delivery models that would lower drug costs and promote access to drug therapies for beneficiaries enrolled in the Medicare and Medicaid programs. In May, HHS proposed changes that would allow it and states to better negotiate for expensive drugs.