CVS Health, the nation’s largest pharmacy chain with more than 9,000 locations, said Tuesday that it planned to change the way its pharmacies are paid for the drugs they dispense, in an apparent attempt to address widespread criticism from health plans and employers over the high cost of drugs.
The new model, which takes effect next year, addresses a complex aspect of the opaque world of drug pricing. The idea is to pay pharmacies an amount that more accurately reflects what they spend on drugs and to provide more information about those payments to health insurance plans and employers, who act as payers.
Prem Shah, who leads CVS’s pharmacy business, said the company’s goal is “to provide a much more transparent model that provides predictability and value to payers in a way that is more aligned with how any other normal market would work. »
CVS said the new model would not result in immediate savings for consumers. It was unclear whether the new model would result in lower costs for health plans and employers who foot most of the prescription drug bill.
Adam Fein, a drug distribution consultant who writes a popular industry blog, said CVS’s new model “reflects the latest attempt to address the wacky economics of the system.”
Under the current system, pharmacies are paid according to an obscure formula that results in substantial variations depending on individual medications. For some drugs, the pharmacy makes handsome profits, but for others, it barely breaks even or loses money. This model can result in huge bills for health plans and employers for drugs that can be purchased at a much lower price from a wholesaler.
CVS’s new model would instead compensate pharmacies based on the price they paid for a drug. The model would also incorporate a fixed markup and fees for pharmaceutical services.
CVS is best known for its pharmacies, but the largest part of its business is CVS Caremark, a drug pricing intermediary known as a pharmacy benefits manager that works on behalf of health plans and employers. Caremark is the nation’s largest pharmacy benefits manager. One of their jobs is to reimburse pharmacies for purchasing and dispensing a drug, using money collected from health care payers.
A key issue in drug spending “is this intersection between PBMs and pharmacies,” said Antonio Ciaccia, a consultant who works with clients who are scrutinizing their agreements with their pharmacy benefit managers.
Mr. Ciaccia said he was skeptical that CVS’s new model would lead to lower costs. “There’s nothing in this that explains how this is going to work,” he said.
But others were more optimistic. Dr. Scott Gottlieb, former commissioner of the Food and Drug Administration, said on CNBC that thanks to the new CVS model, “the consumer will have a better idea of the real cost of drugs, and this will also help pharmacies to have more stability in their income”.
CVS said the new payment model generally would not apply to so-called specialty drugs, which are expensive medications intended to treat complex and serious illnesses. It also would not apply to pharmacies run by independent pharmacists, many of whom say they are paid by pharmacy benefit managers at levels too low to keep their businesses afloat.
One payer, large nonprofit insurer Blue Shield of California, recently abandoned CVS as its primary pharmacy benefits manager and turned to competitors to handle some of its prescription claims. But on Tuesday, he applauded CVS’ announcement: “There is a clear need to remake the pharmaceutical care system into one that is more transparent, sustainably affordable and provides a quality experience for all,” said Sandra Clarke, Director of Operations at Blue Shield. from California.
