CVS Pharmacy is revamping how it prices prescription drugs, doing away with a complex and opaque formula system to a much simpler model that could have major implications for how pharmacies get reimbursed.
In an announcement Tuesday, the company said its more than 9,000 pharmacies will be reimbursed by contracted pharmacy benefit managers (PBMs) and payors using a formula built on the cost of the drug, a set markup, and a flat fee to cover pharmacy services.
CVS said the new model, called CostVantage, aims to bring “greater transparency and simplicity to the system.” It is expected to launch for commercial payors in 2025, CVS said.
A similar payment model, sometimes known as “cost plus,” has been promoted by entrepreneur Mark Cuban and his Cost Plus Drugs company. Cuban’s company sells prescription medications at a 15% percent markup, plus pharmacy fees.
The current drug reimbursement system is based largely on complicated rebates PBMs negotiate between manufacturers and insurers, rather than what pharmacies pay for the drugs. It’s faced years of political scrutiny for what critics say is a lack of transparency, and inflated costs for consumers.
“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,” said Prem Shah, president of CVS Pharmacy and chief pharmacy officer at CVS Health, said in a statement.
The move was first reported by the Wall Street Journal.
CVS’s announcement comes as the traditional reimbursement model falls under serious scrutiny. There are bipartisan bills in both chambers to regulate the PBM industry, and the Federal Trade Commission in June expanded its inquiry into PBM’s business practices as they relate to high drug costs.
It also comes after a major California health insurer, Blue Shield of California, announced over the summer it would no longer use CVS Caremark as its sole PBM. Instead, the insurer said it will partner with several companies, including Cuban’s Cost Plus and Amazon Pharmacy.
