CVS Pharmacy achieves CVS CostVantage milestone

Rhea-AI Summary

CVS Health has announced that all commercial prescriptions at CVS Pharmacy will now be reimbursed through their new CVS CostVantage model starting this year. This innovative reimbursement approach uses a transparent formula based on drug acquisition cost, a set markup, and a service fee reflecting pharmacy service quality.

The model aims to transform pharmacy reimbursement by removing market reliance on cross-subsidization and providing greater clarity in pricing. According to recent survey data, 81% of consumers trust their local pharmacist, and 88% view pharmacists as their most accessible healthcare providers, with nearly 1 in 3 Americans visiting pharmacies weekly—twice as often as physician visits.

The initiative represents a strategic shift towards more sustainable retail pharmacy services, with plans to eventually expand to Medicare and Medicaid managed prescriptions. This new approach helps reduce the need for higher rates on some medicines to subsidize losses on others, while providing enhanced transparency for PBMs and payors.

Positive

• Implementation of transparent pricing model reducing cross-subsidization
• Strong consumer trust metrics with 81% trust rate and 88% accessibility rating
• Planned expansion to Medicare and Medicaid prescriptions
• Enhanced transparency for PBMs and payors

Negative

• None.

Insights

Financial Analyst

CVS Health's implementation of CVS CostVantage marks a transformative shift in pharmacy reimbursement that could significantly impact the company's financial performance. The new model, based on drug acquisition cost plus markup and service fees, eliminates the traditional cross-subsidization approach, potentially leading to more stable and predictable revenue streams.

This strategic move addresses a critical industry pain point - the unsustainable nature of current pharmacy reimbursement models. By implementing a transparent formula, CVS is positioning itself to better capture the true value of its pharmacy services while potentially improving gross margins. The expansion plans into Medicare and Medicaid segments could further amplify the financial impact, considering these programs represent substantial revenue portions.

The timing is particularly strategic as it coincides with increased scrutiny of PBM practices and calls for greater transparency in drug pricing. This proactive approach could help CVS maintain its competitive advantage while adapting to potential regulatory changes in the healthcare sector.

Healthcare Policy Expert

The introduction of CVS CostVantage represents a paradigm shift in pharmacy reimbursement policy that could reshape the entire retail pharmacy landscape. This model addresses long-standing criticism about PBM pricing opacity and could set a new industry standard for transparency.

The model's structure - combining drug cost, markup and service fees - acknowledges the evolving role of pharmacists as healthcare providers, not just medication dispensers. The timing aligns with broader healthcare policy trends toward value-based care and increased transparency. The planned expansion into Medicare and Medicaid programs signals potential systemic changes in how pharmacy services are valued and reimbursed across the healthcare spectrum.

For investors, this initiative demonstrates CVS's ability to lead industry innovation while adapting to regulatory pressures for greater transparency in healthcare pricing.

All commercial prescriptions dispensed at CVS Pharmacy will be reimbursed through CVS CostVantage starting this year 

Innovative approach uses a transparent formula built on the drug acquisition cost, a set markup, and a fee to reflect the quality of pharmacy services provided 

New reimbursement model supports future of retail pharmacy and paves the way for improved PBM transparency

WOONSOCKET, R.I., Jan. 6, 2025 /PRNewswire/ -- Delivering on the promise of a simpler, more transparent, and more sustainable approach to retail pharmacy services, CVS Health® (NYSE: CVS) today announced that all of the commercial prescriptions dispensed through CVS Pharmacy® are contracted through the company's innovative CVS CostVantage reimbursement model starting this year.

"Delivering on our commitment to transform the pharmacy model, we successfully led the way forward, contracting with pharmacy benefit managers and other payors to advance a more transparent approach to reimbursement for the prescriptions we dispense and the services we provide," said Prem Shah, group president, CVS Health. "In our discussions and negotiations, we found common ground and a commitment to a simpler approach to reimbursement and a more sustainable path forward for retail pharmacy. As the leading pharmacy in America, we take our responsibility seriously to continually improve and advocate for community pharmacy. We will also continue to move forward in our work to eventually expand CVS CostVantage to Medicare and Medicaid managed prescriptions as well."

CVS CostVantage

Community pharmacies today do more than fill prescriptions. Patients rely on pharmacists to help fill the gap between provider visits.

Pharmacists are local, accessible and one of the most trusted health care providers. In fact, in a recent survey, 81% of consumers said they trust their local pharmacist, and 88% believe their pharmacists are the most accessible and frequently visited health care providers. Nearly 1 in 3 Americans visit their pharmacy  at least once per week—approximately twice as often as they visit their physician(s)*.

Continuing to maintain community pharmacy is important. The way community pharmacies have historically been reimbursed for services has not fully reflected the value delivered or the underlying costs of doing business.

By removing the market reliance on cross-subsidization caused by market basket approaches to reimbursement, CVS CostVantage provides more clarity, ensuring that CVS Pharmacy has a way of pricing and contracting that reflects the reality of today's marketplace and anticipates the future.

The CVS CostVantage formula is based on the underlying cost of a drug plus a defined markup and a dispensing fee tied to the care and value we provide. This approach helps reduce the need for higher rates on some medicines to help subsidize losses on others.

Beyond resetting the approach for drug reimbursement at the pharmacy level, CVS CostVantage also helps provide greater transparency for PBMs and payors and serves as a crucial building block for PBMs to create simpler, more transparent models for plan sponsors and patients.

About CVS Health

CVS Health® is a leading health solutions company building a world of health around every consumer it serves and connecting care so that it works for people wherever they are. As of September 30, 2024, the Company had more than 9,000 retail locations, more than 900 walk-in medical clinics, more than 225 primary care medical clinics, a leading pharmacy benefits manager with approximately 90 million plan members and expanding specialty pharmacy solutions, and a dedicated senior pharmacy care business serving more than 800,000 patients per year. The Company also serves an estimated more than 36 million people through traditional, voluntary and consumer-directed health insurance products and related services, including expanding Medicare Advantage offerings and a leading standalone Medicare Part D prescription drug plan. The Company is creating new sources of value through its integrated model allowing it to expand into personalized, technology driven care delivery and health services, increasing access to quality care, delivering better health outcomes and lowering overall health care costs.

Media contact
Amy Thibault
401-318-2865
Amy.Thibault@CVSHealth.com 

* FOR TWICE AS OFTEN AS THEY VISIT THEIR PHYSICIAN SOURCE: Berenbrok LA, Gabriel N, Coley KC, et. al. Evaluation of Frequency of Encounters With Primary Care Physicians vs Visits to Community Pharmacies Among Medicare Beneficiaries. JAMA Netw Open. 2020 Jul 1; 3(7):e209132.

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SOURCE CVS Health

FAQ

What is CVS CostVantage and how does it work?

CVS CostVantage is a new reimbursement model that uses a transparent formula based on drug acquisition cost, a set markup, and a service fee. It aims to provide clearer pricing and better reflect the value of pharmacy services.

When will CVS CostVantage be implemented for commercial prescriptions?

CVS CostVantage is being implemented for all commercial prescriptions at CVS Pharmacy starting in 2025.

Will CVS CostVantage expand to Medicare and Medicaid prescriptions?

Yes, CVS Health plans to eventually expand CVS CostVantage to Medicare and Medicaid managed prescriptions, though no specific timeline was provided.

How does CVS CostVantage benefit pharmacy customers?

CVS CostVantage provides more transparent pricing and reduces the need for higher rates on some medicines to subsidize losses on others, potentially leading to more consistent pricing.

What percentage of consumers trust their local CVS pharmacist?

According to the survey mentioned in the announcement, 81% of consumers trust their local pharmacist.