CVS Caremark shifts PBM model to 100% pass-through pricing and focus on net cost

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A new pricing model from CVS Caremark will focus on net cost of drugs rather than rebates. (CVS)

With pharmacy benefit managers industry facing greater calls for transparency, one of the industry's largest players has unveiled a new business model that passes 100% of rebates to plan sponsors.

CVS Caremark, the PBM owned by CVS Health, announced a new “Guaranteed Net Cost” pricing model on Tuesday that “simplifies the financial arrangement underlying PBM contracts” by building in “net cost predictability.” The model “guarantees the client’s average spend per prescription” after rebates and discounts across retail, mail order and specialty pharmacy distribution channels.

“We see a real opportunity to offer clients a simpler economic model that leverages proven PBM cost management strategies to provide predictable drug costs,” Derica Rice, CVS Caremark president, said in a statement. “As a result, CVS Health is introducing a straightforward, more holistic approach that enables plan sponsors to clearly see the net cost of their pharmacy benefit and select their PBM provider based on that criteria.”

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The new model will pass through 100% of rebates to plan sponsors and will be calculated based on plan utilization, average wholesale price inflation and expected shifts in drug mix due to anticipated drug launches, according to spokesperson Christina Beckerman. Current PBM models do not offer that level of predictability, making it difficult to compare PBM providers.

“This simplifies the finance arrangement and enables clients to focus on net cost,” she said.

Plans will continue to have the option to implement point-of-sale rebates, according to the announcement. Net costs will be influenced by plan design, including efforts to managed drug utilization and encourage lower-cost therapeutic alternatives.

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CVS said it has been “actively briefing” benefit consultants as and current clients and some new and existing clients have already chosen to adopt the new model, though Beckerman did not specify how many plans have signed on. Insurers are not required to adopt the payment model, she said, but the company is “confident that this is the right approach for the future and that clients will agree with us and want to adopt this model.”

The Trump administration appears to be targeting PBMs with a yet-to-be-released proposed rule on rebates. And while officials have alternated between praising and criticizing the industry, the president’s recent drug pricing proposal includes new opportunities for middlemen.

Earlier this year, CVS said it keeps just 2% of rebates, and disclosed that it expects to make $300 million on drug rebates in 2018, amounting to 3% of its annual earnings.

Beckerman said the company does not expect CVS Health’s profitability to increase or decrease as a result of the shift to 100% pass-through rebates.

“With this model, the client evaluation process will no longer reward largest discounts and largest rebates, but rather the true goal of low net cost per claim,” she said.