'Transparent' CVS, Express Scripts, OptumRx PBMs draw interest

The largest pharmacy benefit managers are heralding an era of transparency, and the demand for these new models may suggest their traditional spread pricing approach will fade.

Amid growing complaints and evolving market dynamics, CVS Health subsidiary CVS Caremark, UnitedHealth Group unit OptumRx and Cigna division Express Scripts — which together control nearly 60% of the market, according to the American Medical Association — are pitching customers "transparent" PBM services that promise more flexible designs, more predictable pricing and, potentially, lower costs.

Related: Why more PBMs are embracing biosimilar medications

“It's our responsibility to continue to drive and reshape the way drug pricing is in this country. Make it more transparent to make it easier to understand,” said Prem Shah, group president of CVS Health who oversees its pharmacy and PBM divisions. “This is our step and our movement to do exactly that.”

These transparent PBM alternatives emerged as clients demand greater insight into how their money is spent. At the same time, lawmakers have grilled PBM executives and regulators continue investigating their business practices.

“With all the legislation and regulation and spotlight on them, they've got to try and say, ‘We're moving to this new, transparent model, too,’” said Geoffrey Joyce, health policy director of the Schaeffer Center for Health Policy and Economics at the University of Southern California.

Offering new products also enables the big three PBMs to stay ahead of the competition, said Shawn Gremminger, president and CEO of the National Alliance of Healthcare Purchaser Coalitions, which represents regional employer groups.

Smaller PBMs such as SmithRx, AffirmedRx and Navitus Health Solutions have made transparent pricing and operations their main selling point to lure insurers and employers away from the market leaders.

“There is pressure on them from the market to make changes, so I think their new language reflects that they have at least heard some of the concerns,” said Elizabeth Mitchell, president and CEO of the Purchaser Business Group on Health, a coalition of large employers.

Selling transparency

CVS Health has been the most vocal about the business its newer drug pricing models have attracted and has touted that interest during earnings calls and investor conferences.

About 70% of CVS Caremark's commercial members are in plans that feature at least one element of its TrueCost model, which goes live in January, according to the company.

Shah said employers and health insurers using the model will have more clarity on what drives their pharmacy costs, which should present opportunities to save money. With greater insight, for example, clients may opt to narrow drug formularies or add biosimilar alternatives to reduce spending, he said.

“They could either use those rebate dollars to pay down the premium, or they can use those rebate dollars to pay down the copays for some of their members,” Shah said.

CVS Pharmacy will mandate cost-plus pricing for PBMs that use its more than 9,000 drugstores next year. Charges will be based on the amount CVS Pharmacy pays, plus a markup and a dispensing fee, similar to how the Mark Cuban Cost Plus Drugs Co. operates.

Sometimes, that will mean lower prices and other times higher, but the actual cost will be more visible, Shah said.

“On some scripts we'd lose money, and on some scripts we'd make too much money,” Shah said. “What CostVantage does is allows us to make a fair margin on every script we dispense, and it eliminates some of that cross-subsidization that exists.”

SmithRx is working with CVS Pharmacy to adopt CostVantage, but Alan Pannier, the smaller company's senior vice president of product strategy, has observed pushback from other PBMs.

“Some PBMs engaged, like us, and said, ‘OK, let's figure it out,’” Pannier said. “Others have ignored them because as you move to this CostVantage cost-plus model, it makes it more difficult to have spread pricing and to make money as a PBM, and so many PBMs were kind of adverse to working with them.”

OptumRx has seen "steady interest" in its Cost Made Clear pass-through payment options, Cost Clarity and Cost Advantage, since launching last year, and its Clear Trend Guarantee model that goes live next year has garnered "significant" interest, a spokesperson wrote in an email.

"Cost Made Clear provides customers with even greater network pharmacy cost transparency, more payment model choice and configurability, and increased transparency while achieving drug-level pricing closer to drug-level costs in the marketplace," the OptumRx spokesperson wrote.

Similarly, Express Scripts is offering ClearNetwork to clients looking for simpler drug pricing compared to PBMs' typical practice of negotiating reimbursements with pharmacies on their behalf, and is providing a pass-through model called ClearCareRx. Most Express Scripts claims are now processed through one of these models, a spokesperson wrote in an email.

"In the past few months, we have seen a 350% increase in requests for proposals seeking information about our newer pricing models," the Express Scripts spokesperson wrote.

Shifting competitive dynamics

The big PBMs bringing new models to market may be an acknowledgment that customers and policymakers are discontented, and a tactic to retain business as smaller competitors gain traction, Gremminger said.

More than 70% of employers contract with CVS Caremark, OptumRx or Express Scripts, but about half are considering changing PBMs in the next few years, according to a survey the National Alliance of Healthcare Purchaser Coalitions published in October.

From a client standpoint, however, sticking with their current PBM while taking up a transparent option is easier than changing PBMs altogether, Joyce said.

Will it work?

Employee benefits consultants, business group leaders and academics described this trend as positive, but expressed doubts about how much insight clients can actually glean from these new models.

For example, CVS Caremark, OptumRx and Express Scripts may add hidden fees while still claiming customers are receiving all rebates, and these models may do little more than shift spending from the PBMs to other assets, such as pharmacies and insurers, their parent companies own instead of saving clients money.

Shah said the value of CVS Health's new products will prove itself: “As we continue to drive more transparency, I think we're going to show all the skeptics that this model does work. It does drive lower cost, which we all know, and it does in a way that everyone can see.”