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 planned to change the way its pharmacies are paid for the drugs they dispense, in an apparent attempt to address widespread criticism from health plans and employers about high drug costs.

The new model, which will begin taking effect next year, involves a complex corner of the opaque world of drug pricing. The idea is to pay pharmacies an amount that more closely reflects how much they spend on a drug and provide more information about those payments to health plans and employers, which act as payers.

Prem Shah, who heads CVS’ pharmaceutical business, said the company’s goal was to “provide a much more transparent model that provides predictability and value for payers in a way that is more aligned in terms of the way any other market would work.” normal. “

CVS said the new model would not result in immediate savings for consumers. It was unclear whether the new model would result in lower costs for health plans and employers that pay most of the prescription drug bill.

Adam Fein, a drug distribution consultant who writes a popular blog about the industry, saying CVS’s new model “reflects the latest attempt to fix the system’s strange economics.”

Under the current system, pharmacies are paid according to a murky formula that results in substantial variations between individual medications. For some drugs, the pharmacy makes considerable profits, 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 for much less from a wholesaler.

Instead, CVS’s new model would compensate pharmacies based on how much they paid for a medication. The model would also include a fixed margin and fee for pharmaceutical services.

CVS is best known for its pharmacies, but the most important arm of its business is CVS Caremark, a drug pricing intermediary known as a pharmacy benefit manager that works on behalf of health plans and employers. Caremark is the nation’s largest pharmacy benefit manager. One of its functions is to reimburse pharmacies for the purchase and dispensing of a medication, using money collected from healthcare payers.

A key problem in drug spending “is this intersection between PBMs and pharmacies,” said Antonio Ciaccia, a consultant who works with clients examining their agreements with their pharmacy benefit managers.

Ciaccia said he was skeptical that CVS’s new model would lead to lower costs. “There’s nothing in this that explains how it’s 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 the new CVS model, “the consumer will have more information about what medications really cost and it will also help pharmacies have more stability in their income.”

CVS said the new payment model would not generally apply to so-called specialty drugs, which are expensive medications for complex and serious conditions. It also would not apply to pharmacies run by independent pharmacists, many of whom say they are paid at levels too low by pharmacy benefit managers to keep their businesses afloat.

One payer, large nonprofit insurer Blue Shield of California, recently eliminated CVS as its primary pharmacy benefit manager and turned to competitors to handle some of its prescription drug claims. But on Tuesday, she applauded CVS’s announcement: “There is a clear need to remake the pharmacy care system into one that is more transparent, sustainably affordable and provides a quality experience for all,” said Sandra Clarke, director of Blue Shield operations. Of California.