CVS Health has announced that it would abandon a complicated approach, which normally determines the amount the consumers pay for prescription drugs, and instead reevaluate its pricing strategy. It is the latest firm to attempt to disrupt the conventional prescription medication pricing structure with its new initiative.
Executives from CVS revealed the new reimbursement model for pharmacies on Tuesday, December 5, at the 2023 Investor Day. The new model is set to be implemented on January 1, 2025.
In a report by CNBC, CVS' new model is expected to affect how much some patients pay for their prescription drugs, but the company has stated that this will not be the case for all medications. It was pointed out that certain medications may have lower prices, and others might have higher ones. Customers, businesses, and health insurance should expect prescription prices to decrease rather than increase, executives said.
According to Prem Shah, president of CVS' pharmacy and consumer wellness business, this is a crucial step towards a consumer-friendly paradigm and would allow payers to establish more predictable pricing at the pharmacy counter.
New Pharmacy Reimbursement Scheme
CVS' CostVantage, the company's new plan, would use a "sustainable and transparent" mechanism to calculate the cost of medications and the reimbursement that pharmacies will get from the middlemen, commonly known as pharmacy benefit managers (PBM). Health insurance, big employers, and others use these middlemen to negotiate medication prices with manufacturers.
Shah said the new approach would allow PBMs and other payors to repay CVS' over 9,000 retail pharmacies according to the following: the drug's cost, a clearly defined markup, and a charge to cover the expense of receiving and dispensing the prescriptions.
There is a confusing system in place right now that does not directly pay pharmacists based on how much they spend on drugs. There is a lot of gray area about the fees and markups that are added to the initial cost of a medicine under that model, which includes a multitiered network of insurers, drug makers, PBMs, and pharmacies.
More Cost-Cutting Efforts
Last year, the online pharmacy of billionaire Mark Cuban was founded, mimicking CVS' new payment scheme. By selling drugs at a predetermined 15% markup over their cost plus pharmacy costs, the firm known as Cost Plus Drugs hopes to reduce drug prices for everyone.
A big California health insurer, Blue Shield of California, announced in the summer that it will no longer use CVS as its PBM and instead will collaborate with several companies, including Cuban's venture and Amazon Pharmacy. This caused CVS to suffer a blow. This move is just one example of how Cuban's venture is already causing waves in the broader healthcare industry.
Efforts to lower medicine costs are also being made by the Biden administration, as well.
To make expensive medicines more accessible for older Americans, the administration in August revealed the first ten prescription drugs that would be included in drug price talks with the federal Medicare program. This move is part of the president's Inflation Reduction Act.
