This story originally appeared on Business Insider.
CVS just announced plans for a major shift to how drugs are sold in its pharmacies — and it’s a sign the retailer is bending to market pressures.
The retail pharmacy chain is set to launch a program that will flip how its pharmacies get reimbursed by pharmacy-benefit managers and insurers. Under that program, called CostVantage, CVS’s pharmacies will get paid based on the cost of the drug plus a set markup and a service fee. It’s not clear if it will always lead to lower costs for customers at the pharmacy counter.
The new program offers a far simpler model than how CVS’s pharmacies have traditionally been reimbursed. At least in part, it’s a response to models like billionaire Mark Cuban’s online pharmacy taking hold in the market.
CVS has been facing increased pressure to provide transparent drug pricing in the past two years as consumers turn to companies like Mark Cuban Cost Plus Drugs for lower drug prices. Blue Shield of California, for example, said it’s ditching a CVS unit and replacing it with Cuban’s company for some prescription drug tasks. Cuban declined to comment for this story.
The billionaire’s drug-pricing model, which made waves across healthcare when the company launched at the start of 2022, looks remarkably similar to the program CVS is now adopting.
Federal lawmakers and the US Federal Trade Commission have also been scrutinizing the prescription drug supply chain. They’ve been especially focused on pharmacy-benefit managers and the lack of transparency around how much drugs cost.
CVS’s new model “provides our PBM and payor clients a foundational step towards more pricing clarity for consumers,” said Prem Shah, executive vice president, chief pharmacy officer, and president of pharmacy and consumer wellness at CVS Health, in a statement.
Getty Images / Justin Sullivan via BI
How Mark Cuban changed drug pricing
Cuban’s pharmacy buys drugs directly from manufacturers and sells them to consumers at a 15% markup, plus pharmacy fees.
The company’s patients pay for the drugs out of pocket, skirting middlemen like PBMs or insurers, and generally paying far less for their medications as a result. Cost Plus says it has more than 2 million members.
Cost Plus isn’t the first company to try to revolutionize how consumers pay for pricey drugs. GoodRx has offered coupons for drug discounts for more than a decade.
Still, GoodRx works with PBMs to get those discounts rather than with the pharmacies, and has made some enemies in the process. The drug-discount startup took a revenue hit last year when an unnamed grocer, rumored to be Kroger, renegotiated a number of its drug pricing contracts at once and forced GoodRx to stop offering discounts for those drugs at the grocer.
Kroger announced in July that it’s now partnering with Cost Plus.
GoodRx’s stock tumbled more than 6% on Tuesday, while CVS gained 3.8%.
Other healthcare firms have been feeling the pressure to provide lower prices, too. Walgreens announced a new drug-discount app last week that helps patients find savings for their prescriptions. Cigna’s pharmacy-benefits unit, Express Scripts, announced a transparent pricing option last month.
CVS is the biggest US pharmacy chain by prescription revenue, followed by Walgreens, according to Drug Channels.
It’s not clear if CVS’s new program will result in lower prices overall for consumers. Some drugs will cost more under CostVantage, while others will cost less, according to the Wall Street Journal. The costs could also depend on the terms of an individual’s insurance plan, and whether they choose to use it.
But the announcement looks to be a step in the right direction for drug pricing transparency.
CVS said it plans to launch the program in full through contracts with commercial payers in 2025.
Rebecca Torrence
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