Drugstore giant CVS Health announced Tuesday that it is dramatically changing the way its pharmacies are reimbursed for prescription medications, shifting to a model that it says is simpler and more transparent.
Under the new model, branded CVS CostVantage, the company’s thousands of pharmacies will get paid based on what CVS paid for the drug plus a set markup and a flat fee to cover its services. The new plan, similar to that used by Mark Cuban’s Cost Plus Drug Company, represents a significant departure from the more opaque payment models widely used by pharmacies for the prescription drugs they sell — “complex measures that aren’t directly based on what they spent to purchase specific drugs,” as The Wall Street Journal’s Anna Wilde Mathews explains.
The change is reportedly set to be phased in starting next year before being rolled out under contracts with pharmacy-benefit managers representing employer insurance plans in 2025. The shift could have a broad impact given CVS’s standing as the nation’s largest drugstore chain. “It’s a fundamental change in how pharmacy services are priced,” Adam Fein, chief executive of the Drug Channels Institute, which researches the drug supply chain, told the Journal, calling the move “a legitimate step toward transparency.”
The change won’t necessarily mean cheaper drugs across the board, though. Some drugs may rise in price, though more drugs should cost less than they currently do, company executives reportedly said. “CVS said the change isn’t expected to increase its pharmacies’ profits, but would ensure more stable and predictable earnings,” the Journal noted.
CVS Health told investors Tuesday that it projects total revenues of at least $366 billion for 2024, up from an expected range of $351.5 billion to $357.3 billion for 2023, and operating income of at least $15 billion, up from around $14 billion.
The bottom line: Changes are starting to percolate through the prescription drug business as consumers, lawmakers and competitors push for increased transparency.
