CVS Health’s pharmacy segment is rolling out a new prescription drug reimbursement model next year, marking the latest shift by a major industry player toward greater transparency.
The company announced the CVS CostVantage initiative at its annual investor day Tuesday. CVS Pharmacy locations will receive fixed rates from pharmacy benefit managers and insurers consisting of negotiated prices, a flat markup and dispensing fees. In addition, the CVS Caremark PBM will offer TrueCost, billed as a more transparent option, to employer clients next year.
New approaches like these will pave the way for greater clarity in drug pricing and more predictability for patients, said Prem Shah, executive vice president and chief pharmacy officer. “We're changing this outdated reimbursement model that made sense for the last decade, but no longer works today or in the future,” he said.
CVS Caremark was the largest PBM, with a one-third market share, last year, according to Drug Channels Institute.
CVS Health is the latest company responding to employer and patient complaints about confusing pharmaceutical prices and opaque PBM business practices. The PBM industry is also under fire on Capitol Hill, with Congress seemingly poised to advance bipartisan legislation that would require significant changes to their operations. Under these bills, PBMs would have to disclose more about how they strike deals with drugmakers and how much savings they pass along to customers. They also would no longer be allowed to engage in spread pricing.
Last month, Cigna subsidiary Express Scripts unveiled a similar “cost-plus” drug pricing program that will take effect next year. As an alternative to the traditional PBM model, Express Scripts employer customers will be able choose to pay for prescription medications at estimated acquisition costs, plus a fee of up to 15% of the drug’s cost and a flat pharmacy dispensing fee. A number of smaller PBMs are taking the same tack in an effort to better compete against market leaders.
Blue Shield of California unveiled a model in August that will spread PBM operations among five companies and scale back its existing relationship with CVS Caremark. Six upstart PBMs formed the coalition Transparency-Rx in September to lobby for policies that would loosen CVS Caremark's, Express Scripts' and UnitedHealth Group unit OptumRx's grip on the PBM market.
These developments also reflect the influence of the Mark Cuban Cost Plus Drug Co., which launched last year to sell pharmaceuticals for 15% more than it pays manufacturers, plus a pharmacy fee.
Health services rebranding
CVS Health also announced it is combining its health services operations under a single umbrella called CVS Healthspire. The division comprises Caremark, Oak Street Health, Signify Health, MinuteClinic and Cordavis, which is launched in August and partners with drugmakers on biosimilar medicines.
The company expects revenues to reach $351.5 billion to $357.3 billion this year, despite challenges at its insurance subsidiary Aetna's Medicare Advantage and individual market businesses. It also projects growth for recently acquired providers Signify Health and Oak Street Health.