CVS Health PBM and Pharmacy Price Changes

This video provides an in-depth exploration of CVS Health's new PBM (Pharmacy Benefit Manager) and pharmacy pricing models, CostVantage and TrueCost. Dr. Eric Bricker, drawing insights from Adam Fein of DrugChannels.net, meticulously breaks down the intricate financial flows involved in prescription drug pricing, comparing the "old world" of opaque negotiations with the newly announced, supposedly more transparent, system. The core purpose is to demystify how pharmacies are reimbursed, how PBMs generate profit, and ultimately, how these changes impact employers, health plans, and patients.

The presentation begins by establishing the complexity of current pharmacy pricing, characterized by widely variable Maximum Allowable Costs (MAC) negotiated between PBMs and individual pharmacies. In the "old world" scenario, the MAC often bore little relation to the pharmacy's acquisition cost, leading to situations where pharmacies, particularly independent ones, could lose money on prescriptions while PBMs captured significant "spreads" (profit margins). Dr. Bricker illustrates this with a hypothetical example involving three pharmacies (CVS, an independent, and a grocery store chain), showing how the PBM and pharmacy spreads accumulated to a substantial markup over the drug's actual acquisition cost.

The video then transitions to explaining the CostVantage and TrueCost models, which aim to simplify the MAC calculation to "Acquisition Cost PLUS a Dispensing Fee." However, a critical nuance highlighted is that these dispensing fees are not standardized and are still subject to negotiation, allowing CVS Caremark (the PBM arm) to set different fees for its own CVS pharmacies versus external pharmacies. Through a parallel numerical example, Dr. Bricker demonstrates how this shift primarily reallocates profits within the CVS ecosystem, moving more of the "spread" from the pharmacy to the PBM, while the total amount captured by the combined CVS entities (pharmacy + PBM) remains largely consistent. The analysis also touches upon the competitive implications, noting how the new MAC structure makes CVS's pricing more comparable to transparent models like Mark Cuban's Cost Plus Drugs and GoodRx, potentially diminishing their competitive edge. The speaker concludes by urging employers and plan sponsors to demand specific, real-world numbers from their PBM representatives to truly understand the impact on their plans.

Key Takeaways:

• CVS's New Pricing Models: CVS Health has introduced CostVantage and TrueCost, new PBM and pharmacy pricing models designed to change how pharmacies are reimbursed for prescription drugs.
• Shift from Opaque MAC: The traditional "old world" pricing involved a Maximum Allowable Cost (MAC) that was independently negotiated between PBMs and pharmacies, often leading to significant variability and a lack of transparency regarding actual drug acquisition costs.
• New MAC Formula: Under CostVantage, the MAC is now structured as the Acquisition Cost of the medication PLUS a Dispensing Fee, aiming for a more transparent and cost-plus approach.
• Non-Standardized Dispensing Fees: A crucial detail is that the dispensing fees are not uniform across all pharmacies; CVS Caremark (the PBM) negotiates different dispensing fees for its own CVS pharmacies compared to independent or grocery store pharmacies.
• Reallocation of Spreads: The analysis reveals that while the new model shifts the distribution of profit (or "spread") between the pharmacy and the PBM, the total amount captured by the "middlemen" (CVS's combined pharmacy and PBM operations) remains largely unchanged or slightly increases.
• Impact on Pharmacy Profitability: The "old world" could result in pharmacies losing money on certain prescriptions due to MACs being lower than acquisition costs, a common complaint from independent pharmacies. The new model aims to ensure pharmacies are reimbursed at least their acquisition cost plus a fee.
• Competitive Implications: The new pricing structure makes CVS's MACs more competitive with transparent drug pricing programs like Mark Cuban's Cost Plus Drugs and GoodRx, potentially reducing the comparative advantage these alternatives previously offered.
• Employer Call to Action: Employers, plan sponsors, brokers, and consultants are strongly advised to engage their PBM representatives (specifically CVS) to fill in actual numbers for specific drugs to accurately assess the financial impact on their health plans and members.
• Market Reaction: CVS's stock price reportedly increased following the announcement of these changes, suggesting market approval of the financial strategy despite external pressures for greater transparency and lower drug costs.
• Persistent Complexity: Despite the stated aim of simplification, the video underscores that drug pricing remains highly complex, and even "changes" can primarily involve internal reallocations of profit rather than significant reductions in overall costs to the healthcare system.
• Strategic Importance for Pharma: Understanding these PBM and pharmacy pricing dynamics is critical for pharmaceutical companies, as it directly impacts commercial operations, market access strategies, and the overall financial ecosystem for their products.

Tools/Resources Mentioned:

• DrugChannels.net (Adam Fein)
• Wall Street Journal (cited for original article on CVS price change)
• Mark Cuban's Cost Plus Drugs program
• GoodRx
• Transparent PBMs (mentioned as external pressure): Capital Rx, MedOne

Key Concepts:

• PBM (Pharmacy Benefit Manager): An intermediary that manages prescription drug benefits for health insurance companies, large employers, and other payers.
• Acquisition Cost: The price a pharmacy pays to a wholesaler or manufacturer to purchase a medication.
• Maximum Allowable Cost (MAC): The maximum amount a PBM will reimburse a pharmacy for a generic or multi-source brand drug.
• Dispensing Fee: A fee paid to the pharmacy for the professional services involved in dispensing a prescription, separate from the cost of the drug itself.
• Pharmacy Spread: The difference between the MAC paid by the PBM to the pharmacy and the pharmacy's acquisition cost for the drug; represents the pharmacy's profit or loss on a prescription.
• PBM Spread: The difference between what the PBM charges the health plan for a drug and what the PBM reimburses the pharmacy for that same drug; represents the PBM's profit.
• CostVantage & TrueCost: New pricing models introduced by CVS Health for its PBM (Caremark) and pharmacy operations, aiming to base pharmacy reimbursement on acquisition cost plus a dispensing fee.