Pharma

CVS to transform its prescription reimbursement model

The new model, called CVS CostVantage, closely resembles Mark Cuban Cost Plus Drugs’s pricing model.
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Francis Scialabba

· 3 min read

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CVS is “resetting” its prescription drug reimbursement model.

The retail pharmacy giant announced on December 5 that it’s ditching the traditional method for one that more closely resembles Mark Cuban’s Cost Plus Drugs’s model. The new approach, dubbed CVS CostVantage, prices drugs in a “simpler” way and is a “step toward more pricing clarity for consumers,” company executives said in a statement.

Pharmacies usually receive reimbursement for prescriptions from pharmacy benefit managers (PBMs), which use a complex pricing method that’s not correlated with the drug acquisition costs pharmacies pay.

Under the CostVantage method, CVS pharmacies are to receive reimbursement based on a drug’s cost, plus a set markup amount and a fee that “reflects the care and value of pharmacy services,” according to the company. CVS declined to specify markup and fee costs. (Cost Plus Drugs also prices drugs based on acquisition costs, a 15% markup, and a $5 pharmacy labor fee.)

“We are leading with an approach that will shift how our retail pharmacy is compensated by implementing a more transparent and sustainable model that fairly aligns pharmacy reimbursement to the quality services we provide,” Prem Shah, EVP, chief pharmacy officer, and president of pharmacy and consumer wellness at CVS, said in a statement.

CVS also owns CVS Caremark, which pharmaceutical research firm Drug Channels Institute says is one of the largest PBMs in the US with a reported 33% market share in 2022. The company plans to start CostVantage for commercial payers on January 1, 2025, CVS executives said in a statement.

The new pricing model won’t necessarily mean lower prescription costs for patients right away, CVS executives said. But it “will make savings happen a lot faster than they otherwise would, and will have a longer-lasting impact on how drugs are reimbursed at [the] pharmacy and by PBM clients,” the execs said in a statement to Healthcare Brew.

And while the change may not raise CVS profits, it should make the company’s earnings more predictable, Shah said in a statement.

“We believe CVS CostVantage should reset the financial outlook of our retail business,” Shah said.

Adam Fein, CEO of Drug Channels Institute, told the Wall Street Journal that CostVantage is a “fundamental change in how pharmacy services are priced.”

“If this model is accepted by payers and PBMs, then retail pharmacy margins will be higher and more stable than they otherwise would have been,” Fein wrote in a December 5 post.

Navigate the healthcare industry

Healthcare Brew covers pharmaceutical developments, health startups, the latest tech, and how it impacts hospitals and providers to keep administrators and providers informed.