CVS makes drug pricing simpler, more transparent (part of major rebranding effort)

CVS Health, the nation’s largest pharmacy chain, will streamline how it prices drugs by moving to a cost-plus model during the first half of 2024. The move comes as the company launches a rebrand of its health-care delivery services and makes other strategic moves in an attempt to improve company performance.

Under the pricing plan, pharmacy benefit managers and other payers will reimburse the company’s roughly 9,500 retail pharmacies based on the amount that CVS paid for the drugs, plus a limited markup and flat fee to cover services involved in handling and dispensing prescriptions. Today, pharmacies generally are paid using complex measures that aren’t directly based on what they spent to purchase specific drugs. The change will have a mixed impact on employers and insurers paying for prescriptions, CVS executives said.

CVS is making the move as it seeks to stabilize its retail pharmacy business, which has long struggled with stagnating margins on its core function of dispensing prescriptions. The company also is responding to criticism from lawmakers, employers and patients about the complexity and lack of transparency around how drugs are bought and sold. Members of Congress and some employer groups have argued that the current setup is flawed and secretive.

CVS said prices will more closely reflect what the company’s pharmacies pay to acquire drugs. The shift also is likely to eliminate many high-profile discrepancies in which patients with insurance found they could get medications for less when they paid cash with a drug discount card instead of using their employers’ drug benefit coverage.

The company will call the payment model CostVantage. When it starts rolling out next year, the new prices first will become available to consumers paying cash for their prescriptions using an array of drug discount cards. In 2025, the model will be incorporated into CVS pharmacies’ contracts with PBMs covering drugs paid for under employer plans. Executives said they plan to eventually implement the new retail pharmacy payment model for government-backed coverage, such as Medicare plans.

“Transparency and clear pass-through pricing based on the actual cost of the drugs is exactly what we have been hoping the market will do,” Elizabeth Mitchell, CEO of the Purchaser Business Group on Health, told The Wall Street Journal. “What really matters is, will this make drugs more affordable?”

CVS said the change isn’t expected to increase its pharmacies’ profits but would ensure more stable and predictable earnings. The company declined to disclose target ranges for its drug markup or the flat fees.

During its 2023 investor day this week, CVS Health outlined several strategies aimed at improving both customer service and the company’s bottom line. In addition to CostVantage, TrueCost offers client pricing reflecting the true net cost of prescription drugs, with visibility into administrative fees. Simplified pricing will help consumers be confident that their pharmacy benefit is providing the best possible price and allow members to have stable access to national pharmacy network, the company said.

Related: CVS, GoodRx to launch drug discount program for commercially insured

CVS Healthspire will be the new brand name for the company’s health services segment, which includes Caremark, Cordavis, Oak Street Health, Signify Health and MinuteClinic. These groups will continue to focus on integration across the company’s assets to deliver connected patient care, pharmacy benefits and innovative provider support solutions.

The company reported total revenues of $351.5 to $357.3 billion for 2023, with operating income of $13.6 to $14 billion. For 2024, it projects total revenues of at least $366 billion and operating of at least $15 billion

CVS operates nearly 10,000 drugstore locations across the country and more than 1,100 MinuteClinics. It also is the parent company of Aetna, which has 25 million members, and the PBM CVS Caremark. The company aims to build a vertically integrated health-care company including clinics, pharmacies, a health plan and other services.

“We are successfully executing on our strategy to advance the future of health care while unlocking new value for consumers,” President and CEO Karen S. Lynch. said. “The combination of our businesses and the key growth areas we have invested in drive our ability to lower the total cost of care, improve health outcomes and deliver on our commitments to our customers, consumers and shareholders.”