After publishing my Nov. 29 blog, which delved into Cost Plus Drugs’ expansion into the specialty drug market, CVS Health revealed plans to streamline its pricing and sales approach for pharmaceuticals in retail pharmacies. This move by the pharmacy giant, which operates approximately 9,500 retail pharmacies, involves simplifying the reimbursement process for these pharmacies. The current practice employs intricate formulas that may not necessarily align with the actual costs incurred by the retail pharmacies for the drug, a process that is familiar to most healthcare cost structures.
CVS Health’s strategy
CVS seems to be adopting a strategy likened to Mark Cuban’s successful Cost Plus Drug model, which has garnered positive results for the newcomer and the patients benefiting from its online pharmacy since its inception in January 2022. CVS Health has announced that its retail pharmacies will now be reimbursed under a fresh approach named CostVantage. This approach entails pharmacy benefit managers and other payers to reimburse CVS based on the cost incurred by CVS for the drugs, coupled with an undisclosed (at this time) standard markup and a fixed fee to cover the handling and dispensing of the drug.
The shift in pharmaceutical cost calculation introduced by CVS, set to be implemented in 2024, seems to mark a positive stride toward drug transparency — an area of increasing concern among Washington legislators, hospitals, providers, employers and consumers in recent years. Similar to Cost Plus Drug’s online pharmacy model, CVS’s new pricing framework will initially be accessible to self-pay/uninsured consumers through drug discount cards. This approach is expected to progress and extend to employer plans, pharmacy benefit manager (PBM) contracts and Medicare Advantage plans over time.
CVS asserts that the transition to the CostVantage methodology for calculating retail drug costs will establish a more consistent and stable revenue stream for its retail pharmacies in the long run. It’s a safe assumption that this strategic move will not only maintain but enhance the retail pharmacy giant’s competitive edge in pricing and foster patient trust, thanks to the adoption of a simpler and more transparent pricing approach.
In the race to innovation, being a strong contender doesn’t always require being the first out of the gate. It’s about understanding industry needs and entering the competition at the right time with the right tools. CVS Health seems to have taken a strategic approach to the pharmacy transparency movement, observing the benefits and recognizing the value of transitioning from a seemingly proven methodology to a more sustainable reality. This shift positions them as leaders in their market, emphasizing that certain aspects of healthcare are not impervious to change, no matter how daunting it may seem.