Retail chain CVS Pharmacy announced it would overhaul how it pays for drugs in a move that it says will simplify costs and increase transparency.
In an announcement on Tuesday, the firm stated that its more than 9,000 locations will be paid by contracted pharmacy benefit managers (PBMs) and payors using a formula that uses the cost of the drug.
Described as a “transparent formula,” CVS said that it will be “built on the cost of the drug, a set markup, and a fee that reflects the care and value of pharmacy services.” The model, called “CostVantage,” will launch for commercial payors in 2025, CVS added.
“What CVS is doing—at the pharmacy and at the [pharmacy benefit managers]—is rewiring or resetting how reimbursement happens in an industry that has become very complex and largely follows a model based on how things used to be a decade ago,” a CVS Pharmacy spokesperson told news outlets this week.
“Only we can take this kind of step forward, given our leadership on the PBM and pharmacy. It is a necessary foundational step to make this entire system more consumer-friendly, preserve choice for payers, and maintain a viable retail pharmacy industry.”
Under the system, some drugs might cost less, but others may actually rise in price, CVS executives told the Wall Street Journal this week.
“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, president of CVS Pharmacy and chief pharmacy officer at CVS Health, said in the news release. “It provides our [pharmacy benefit managers] and payor clients a foundational step towards more pricing clarity for consumers.”
CVS Health runs one of the nation’s largest drugstore chains and a large pharmacy benefit management business that operates prescription drug coverage for big clients like insurers and employers. It also sells health insurance through its Aetna arm, and the company has been providing a growing amount of care through its drugstores and clinics.
Americans spend around $1,200 each year on prescription drugs, or more than any other country, according to the Organization for Economic Cooperation and Development. Meanwhile, the Kaiser Family Foundation said that about one in three U.S. adults taking prescription medication have said they aren’t able to take the drugs due to cost.
Dr. John Brownstein, an official at Boston Children’s Hospital, told ABC News that the CVS move is similar to other industry decisions on drug pricing.
“By basing drug costs on their actual acquisition price, CVS is taking a crucial foundational step to make healthcare more consumer-friendly and ensure the viability of retail pharmacies,” he said.
CVS also announced on Tuesday a 10 percent hike in its quarterly dividend and laid out its forecast for next year. CVS Health expects adjusted earnings of at least $8.50 per share. It also forecasts total revenue of at least $366 billion.
Analysts expect earnings of $8.51 per share on $344.5 billion in revenue, according to FactSet.
Edward Jones analyst John Boylan said in an email that he saw the stronger-than-expected revenue guidance and dividend hike as a “show of confidence by management.”
Shares of CVS Health Corp., based in Woonsocket, Rhode Island, jumped 3.7 percent, or $2.54, to close Tuesday at $71.02 while broader indexes slipped.
