CVS says it will change the way its pharmacies are paid
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 effort to address widespread criticism from health care organizations and employers over high drug costs.
The new model, which will come into effect next year, covers a complex corner of the opaque world of drug pricing. The idea is to pay pharmacies an amount that better reflects how much they spend on a drug, and to provide more information about those payments to health plans and employers, who act as payers.
Prem Shah, who leads CVS’s pharmacy business, said the company’s goal was “to provide a much more transparent model that delivers predictability and value to payers in a way that better aligns with the way any other normal market would work. ”
CVS said the new model would not translate into immediate savings for consumers. It was unclear whether the new model would result in lower costs for health plans and employers who foot the bulk of prescription drug bills.
Adam Fein, a drug distribution consultant who writes a popular industry blog: said CVS’s new model “reflects the latest attempt to solve the system’s crazy economics.”
Under the current system, pharmacies are paid based on an obscure formula that leads to significant differences between individual drugs. For some drugs the pharmacy makes a nice profit, but for others it barely breaks even or loses money. That model can translate into huge bills for health plans and employers for drugs that can be purchased wholesale for much less.
CVS’s new model would instead compensate pharmacies based on how much they paid for a drug. The model would also build in a fixed mark-up and reimbursement for pharmacy services.
CVS is best known for its pharmacies, but the main arm of its business is CVS Caremark, a drug pricing intermediary known as a pharmacy benefits manager, which works on behalf of health plans and employers. Caremark is the largest pharmacy benefit manager in the country. One of the organization’s duties is to reimburse pharmacies for purchasing and dispensing medications, using money collected from health care payers.
A major problem in drug spending “is this intersection between PBMs and pharmacies,” said Antonio Ciaccia, a consultant who works with clients who closely monitor their pharmacy benefit deals.
Mr Ciaccia said he was skeptical that CVS’s new model would lead to lower costs. “There’s nothing in there 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 under CVS’s new model, “consumers will have a better understanding of what medications actually cost, and it will also help pharmacies have more stability in their revenues.”
CVS said the new payment model generally would not apply to so-called specialty drugs, expensive drugs for complex and serious conditions. It also would not apply to pharmacies run by independent pharmacists, many of whom say they are paid by pharmacy managers at levels too low to keep their businesses afloat.
One payer, major nonprofit insurer Blue Shield of California, recently dropped CVS as its primary pharmacy benefits administrator and turned to competitors to handle some of its prescription claims. But on Tuesday, CVS’s announcement was applauded: “There is a clear need to transform the pharmacy care system into one that is more transparent, sustainably affordable and provides a quality experience for everyone,” said Blue Shield Chief Operating Officer Sandra Clarke. of California.