The Wall Street Journal reports that CVS Health plans to “move away from the complex formulas used to set the prices of the prescription drugs it sells, shifting to a simpler model that could upend how American pharmacies are paid.” The goal, the story says, is to have “CVS’s roughly 9,500 retail pharmacies … reimbursed by pharmacy-benefit managers and other payers based on the amount that CVS paid for the drugs, in addition to a limited markup and a flat fee to cover the services involved in handling and dispensing the prescriptions. Today, pharmacies are generally paid using complex measures that aren’t directly based on what they spent to purchase specific drugs.”
The Journal notes that “a similar payment model, sometimes known as ‘cost plus,’ has been promoted by entrepreneur Mark Cuban’s eponymous pharmacy company, among others, which have said it brings greater clarity and accountability to drug pricing. CVS’s move, which is to be phased in starting in the first half of 2024, will take the approach to a far greater scale, embedding it in a company that stands at the core of the American drug-supply chain.”
KC’s View:
Here’s the bottom line from the Journal piece: “CVS is making the move as it seeks to stabilize its retail pharmacy business, which has long struggled with stagnating margins on its core function of dispensing prescriptions.”
If CVS wants to simplify and lower prescription pricing, that’s a good idea. Though I think many of us would argue that it has a lot more work to do than just that if it wants to stabilize its pharmacy business. Like maybe more pharmacists?
The other, larger point – it is heartening to see that an entrepreneur like Mark Cuban can start a company that clearly is moving the needle and create competitive pressures even on much larger entities.
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