CVS plans to overhaul how drugs are priced

CVS Pharmacy plans to overhaul how it prices prescription drugs, doing away with the complex and often-opaque formulas that typically govern what patients pay for medications.

Under a system announced Tuesday, which it calls CostVantage, CVS said it will price drugs based on cost, a set markup and a fee to cover pharmacy services. The company said the format is designed to ensure medication prices more closely reflect their "true net cost."

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"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, executive vice president, chief pharmacy officer and president of pharmacy and consumer wellness at CVS Health.

The program will start in 2025, according to CVS. News of the drug pricing changes was first reported by the Wall Street Journal.

CVS is changing course amid a shifting commercial and regulatory landscape for drug pricing. The Biden administration is working through Medicare to negotiate costs, while private pharmacies and insurers are trying new approaches as well.

It's unclear at this point what sort of savings customers could get on individual drugs. CVS executives told the Journal that the effect on pricing will be mixed: some drugs will cost less and others could increase. The revamp pursued by CVS is similar to the pricing model implemented by the online pharmacy founded by entrepreneur and investor Mark Cuban, called the Mark Cuban CostPlus Drug Co. It bypasses health insurers in selling generic drugs directly to patients and advertises savings of hundreds or thousands of dollars compared with competitors.

For example, abiraterone acetate, a generic drug used to help treat prostate cancer, is sold online for $33.50 through the CostPlus pharmacy even though it carries a retail price of $1,093.20, according to CostPlus. Dipyridamole, which is used to prevent blood clots, is listed at $6.20 for 30 pills of 25 mg each, compared with a retail price of $50.10.

Blue Shield of California announced in August it would restructure how it pays for medicine by enlisting five companies to handle the supply chain that gets medication from manufacturer to consumer - instead of a single entity known as a pharmacy benefit manager.

"The current pharmacy system is extremely expensive, enormously complex, completely opaque, and designed to maximize the profit of participants instead of the quality, convenience and cost-effectiveness for consumers," Paul Markovich, chief executive of Blue Shield of California, said at the time.

CVS owns a large pharmacy benefit manager, CVS Caremark, that provides services to Blue Shield of California; its stock fell 8 percent the day the nonprofit health plan made its announcement in August. These changes come against a backdrop of greater government scrutiny on drug pricing and efforts to tamp them down. The Federal Trade Commission in June expanded its inquiry into practices by pharmacy benefit managers. The agency also has taken a more aggressive approach to pharmaceutical mergers, filing suit to block Amgen from acquiring Horizon Therapeutics before reaching a settlement in September that allowed the deal to go forward with conditions.

On Tuesday, CVS shot up 3.7 percent, closing just above $71 a share, after the Woonsocket, R.I.-based chain outlined its drug-pricing plan and raised its 2024 revenue outlook.

President Biden issued an executive order last year directing the Department of Health and Human Services to study new models to lower drug costs for Medicare and Medicaid beneficiaries. HHS in May proposed a rule designed to give the agency and states greater leverage to negotiate payment for the most expensive drugs covered by Medicaid.

The centerpiece of the Biden administration's efforts to tame drug prices, the Inflation Reduction Act, in August announced the first 10 prescription drugs that will be subject to a maximum price for reimbursement in Medicare.

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