CVS to Alter its Prescription Medicine Pricing Approach with a New Pharmacy Reimbursement Mechanism

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CVS Health has announced a significant shift in how it prices prescription drugs, aiming to revamp the traditional model that determines pharmacy reimbursement and patient costs. The move, named CVS CostVantage, is set to launch on January 1, 2025, for commercial payors. The new model aligns drug pricing economics with what consumers pay at the pharmacy counter, focusing on transparency and understanding the actual costs of medications.

Under CVS’ new model, named CVS CostVantage, more than 9,000 retail pharmacies will be reimbursed based on the drug’s cost, a clearly defined markup, and a fee to cover handling and dispensing prescriptions. This “cost plus markup, plus a fee” approach aims to bring transparency to the often convoluted prescription drug pricing system. The current model involves complex negotiations among insurers, drug manufacturers, pharmacy benefit managers (PBMs), and pharmacies, leading to ambiguity around fees and markups.

While CVS acknowledges that the cost of some drugs may decrease, others might see price increases under the new model. However, the company asserts that more prescription costs should decrease for consumers, employers, and health insurers. CVS is committed to lowering drug pricing and enhancing transparency in the process, according to CEO Karen Lynch.

The move comes as part of a broader trend of companies attempting to disrupt the traditional prescription drug pricing system. Billionaire Mark Cuban launched an online pharmacy called Cost Plus Drugs, employing a similar approach to CVS’ new reimbursement model. Cuban’s venture, which sells medicines at a set 15% markup over their cost, has influenced other companies in the industry to make similar changes to their pricing models.

CVS Health’s announcement reflects a response to the increased scrutiny of pharmacy benefit managers (PBMs) and their role in surging drug costs. The Federal Trade Commission is investigating PBM practices, and companies like Cigna have also announced changes to their PBM pricing models in response to evolving industry trends. The Biden administration is also taking steps to address medication prices, with the Inflation Reduction Act aiming to negotiate drug prices with the federal Medicare program.

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