With its $69 billion mega-merger with Aetna officially closed, pharmacy giant CVS is making one of its first major shakeups in its business structure after combining forces with the insurer, offering a new option to pass on 100% of drug rebates to its health plan sponsors (i.e., companies or organizations that sponsor health benefits for their employees and members).
One of CVS’ most important factions is its Caremark arm—one of the big three pharmacy benefits mangers (PBMs) alongside Express Scripts and Optum’s PBM unit that serve as (largely opaque) gatekeepers and middlemen in the drug pricing supply chain. PBMs negotiate discounts with drug makers to their products’ list prices and take a cut from those rebates.
However, these discounts don’t necessarily make it down the supply chain to health plan sponsors or consumers themselves. That’s drawn increasing ire from lawmakers and the Trump administration, who have recently pointed to PBMs’ role in propping up drug prices as an issue that needs to be addressed.
CVS’ new “Guaranteed Net Cost” pricing option would reportedly tackle some of these concerns, including a lack of transparency in list-versus-net price negotiations, by ensuring a pass through of drug rebates to plan sponsors. It would apply to retail, mail order, and specialty pharmacy prescriptions alike, according to CVS.
“We see a real opportunity to offer clients a simpler economic model that leverages proven PBM cost management strategies to provide predictable drug costs,” said Derica Rice, president of CVS Caremark, in a statement announcing the new option.
To be clear, while this is a significant change in business structure for CVS-Aetna, the 100% rebate pass through may not ultimately reach consumers, or at least not in full. The decision on whether or not to do that will rely on whether or not the plan sponsors (at first, employer-sponsored health plans, and potentially government health programs in the future) decide to further pass through such discounts to their beneficiaries at the point of sale.
But it is a notable first step in changing the basic relationship between drug makers, PBMs, and plan sponsors. And that likely has a lot to do with the Aetna merger. Mark Bertolini, CEO of Aetna prior to the CVS sale, has argued the two firms’ vertical integration will allow for these precise sorts of changes, as well as shifts in the very way that primary care and chronic disease management is developed on a community level.
“Build a marketplace for a community around health,” Bertolini said of the merger’s possibilities during Fortune‘s Brainstorm Health conference this past March. “Why not eliminate benefits as a notion? Let’s say, we’re going to do what we can in the community to help you, we’re going to build a supply chain, and that supply chain is going to provide you a service at a better cost.”
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