Pharmacy giant CVS Health on Tuesday announced an overhaul of its drug-pricing model to boost transparency amid scrutiny of the soaring cost for medications.
The new system, called CVS CostVantage, will shift to fixed rates for reimbursements from pharmacy benefit managers and insurers, per the announcement, which was earlier reported on by The Wall Street Journal.
Out-of-pocket drug prices in the US are decided by a complex, multi-tiered network including insurers, drugmakers, pharmacies and pharmacy benefit managers (PBMs), resulting in ambiguity around fees and markups to the original cost of the drug.
CostVantage will be introduced for commercial insurance plans from 2025, in an expected boost to the company’s pharmacy and consumer wellness unit, executives said at its investor day.
The company’s shares rose nearly 4% in morning trade after it forecast 2024 revenue above market estimates. It also predicted growth of 9% to 10% in 2025 adjusted earnings per share.
PBMs like CVS’ Caremark, which work as middlemen between insurers and drugmakers, have faced scrutiny over their role in surging health care costs, with the Federal Trade Commission also investigating their practices.
CostVantage’s structure will be similar to the “cost plus” payment model earlier implemented by Mark Cuban’s Cost Plus Drugs, which prides itself on having “no middleman. No price games. Huge drug savings.”
“It provides our PBM and payor clients a foundational step towards more pricing clarity for consumers.”
It wasn’t immediately clear if CVS’s shift towards cost plus will make its drugs cheaper, the popular chain told The Journal that costs will much more closely reflect what it pays to acquire the drugs.
The move isn’t expected to increase CVS pharmacies’ profits, either, but it will ensure more predictable earnings, according to the outlet.
“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,” CNS Health executive Prem Shah told The Post.
As CVS has been making moves to benefit its prescription drugs, its also had to overhaul its over-the-counter offerings after the Food and Drug Administration recalled eye drops sold at the drugstore — plus 26 other major retailers — following a shocking report that detailed a slew of “insanitary conditions” at a factory in India.
Kilitch Healthcare India Limited voluntarily recalled lots of eye products with expiration dates ranging from November 2023 to September 2025 after visiting the pharma giant’s Mumbai plant last month and publishing a report that said personnel at the manufacturing site “were working barefoot.”
“The deputy manager of production confirmed that this is their standard practice.”
And in a room designated for washing small machine parts, an “operator was observed taking his hat off and brushing his hair,” added the report, which was conducted last month by the FDA’s Department of Health and Human Services.
The FDA posted a full list of the recalled products and lot numbers, and instructed consumers of any of the recalled eye drops to return the product to the place of purchase and report any adverse reactions to the FDA’s MedWatch Adverse Event Reporting Program.
CVS and Rite Aid have since swiped their respective store-brand Lubricant Eye Drops and Multi Action Relief Drops from shelves, among other eye products, while Target had to ditch its High Performance Lubricant Eye Drops and Walmart had to be wary of its Equate Hydration PF Lubricant Eye Drops.
A CVS spokesperson told The Post at the time that it “immediately stopped the sale in-store and online of all products” upon receiving notification by the FDA of the recall last month.