CVS Launches New Plan That Will Pass Drug Rebates Back to Health Plans

After increased pressure on pharmacy benefit managers (PBMs) to remake their approaches to rebates, CVS Health has announced that it will offer a new prescription benefit option in 2019 that will pass all drug makers' rebates back to its plan clients.

CVS’ new plan, which it calls a Guaranteed Net Cost pricing model, “simplifies the financial arrangements underlying PBM contracts and focuses on helping plan sponsors deliver savings through PBM cost management strategies,” according to the company’s announcement.

In an approach that CVS’ president, Derica Rice, called “straightforward” and “holistic,” the model guarantees the clients’ average spend per prescription after factoring in rebates and discounts. The Guaranteed Net Cost is calculated using plan utilization and expected rebate value, and by applying projected inflation in drug prices and any expected shifts in drug mix, such as a move from brand-name drugs to cheaper options. Plan clients will receive 100% of rebates provided to CVS, and the PBM will assume the risk related to inflation and changes in drug mix.

The new model has been announced shortly on the heels of another major change by competitor PBM, Express Scripts. In a November 2018 announcement, Express Scripts said that, in 2019, it will launch its National Preferred Flex Formulary. The new option mirrors the National Preferred Formulary, but it is unique in that plans can choose to cover products with lower list prices, such as authorized alternatives to brand-name drugs.

Under the Flex option, cash-paying patients will have immediate access to these lower-priced drugs when they become available, while employers and plans will be able to choose whether to cover the lower-priced options or brand-name drugs, the latter of which may have rebates available.

In a statement, Steve Miller, MD, chief executive officer of Express Scripts, said that the new formulary is an example of a move toward a “more sustainable pricing model” under which “manufacturers are more easily able to do the right thing for patients.”

Both PBMs’ announcements come after months of increasing pressure from a variety of stakeholders regarding the high cost of drugs to US payers and patients, and particularly the link between those high prices and manufacturers’ rebates. While organizations such as America’s Health Insurance Plans have contended that rebates are not to blame for skyrocketing drug prices, other stakeholders, including the Trump administration, have disagreed with that assessment. In May 2018, alongside the announcement of the administration’s blueprint to lower drug prices, HHS Secretary Alex Azar proposed overhauling PBMs’ role in negotiating drug prices, suggesting that they could be required to use fixed prices or value-based contracts rather than being allowed to receive undisclosed rebates from manufacturers.