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Two of the three major PBMs, CVS/Caremark and Express Scripts, Inc. (ESI), have made recent announcements around alternative cost structures they will be offering in the marketplace. OptumRx has yet to make an announcement, but as one of the three industry leaders, is likely considering a new product for market.
It appears to Risk Strategies Consulting that this onslaught of action is tied to increased market pressure to “improve transparency,” “remove spread pricing,” and “lower costs.” This market pressure is a result of not just plan sponsor demands, but more importantly, a flurry of federal and state regulatory and legislative actions.
Risk Strategies Consulting has previously expressed our concerns about quality, depth, appropriateness, and efficacy of recent regulatory and legislative action. We remain concerned that most state and federal officials do not fully and adequately understand the true nature of the pharmacy supply chain, and as a result are not accurately and consistently defining "transparency,” “net acquisition costs,” and “actual cost of goods.” This has resulted in less-than-ideal responses from both the market and PBMs.
Blue Shield of California announced a supposed $500 million savings through an a la carte solution which included partnering with Mark Cuban’s Cost Plus Drug Company and Amazon. At the time, we questioned these savings given that specialty pharmacy will remain with CVS/Caremark, and that rebates will be provided through Prime Therapeutics. We note that well over 50% of total pharmacy dollars are tied to these two categories. Blue Shield of California has yet to “show the math” tied to their supposed savings.
We are concerned that a similar dynamic is occurring with both the CVS/Caremark and ESI offerings. In neither case has either entity performed the needed crosswalk to demonstrate and detail where and how plan sponsors and members will benefit from these new offerings. There needs to be demonstrable improvement to clinical outcomes, financial costs, and/or member experience. On the face of what has been described, these appear to be “financial plays.” However, the limited details do not quantify supposed or expected values. The math matters and tells the story. In addition, any offering, existing or new, faces intensified difficulties due to state and federal regulatory actions that sometimes, while well intentioned, contradict each other and perhaps limit true innovation.
The CVS/Caremark Cost Plus arrangement, TrueCost, is set to be revealed in 2025, and has not yet specified how acquisition costs will be defined. In fact, it appears that CVS/Caremark will be creating a new index/methodology from which they will be pricing and selling their goods and services. If this is accurate, it appears to only add an additional complexity, rather than simplification, to the market. On the other side, ESI’s ClearNetwork offering, set to launch in early 2024, employs a three-point approach to determining acquisition cost including the lowest of Predictive Acquisition Cost, National Average Drug Acquisition Cost, and Wholesale Acquisition Cost. These existing indices do not reflect true net-acquisition costs; triangulating the cost of goods against each of the three may bring some cost savings that cannot yet be determined/valued.
On the retail pharmacy side, CVS Health has unveiled CostVantage. In their published release, CVS Health states that this will be a new contracting methodology they will utilize with payors for their 9,000+ pharmacies. CVS Health also states this will lead to “transparent pricing” and “sustainable retail economics.” The information released to date does not define transparency and we are concerned that sustainability of reimbursement levels will be achieved through higher costs to members and plan sponsors.
If our concern is accurate, this apparent increase in reimbursement levels could lead to major disruption as some of the payors push back in refusing what could be an increase that would harm the market. This is somewhat reminiscent of the circumstances, approximately 12 years ago, when ESI had to eliminate Walgreens from its network. The disruption was significant and actually benefited foot traffic into CVS stores, as millions of customers and their prescriptions were forced to move from Walgreens to CVS. We believe any increase in reimbursements will need to have a demonstrated value tied to member experience, clinical efficacy, or a to be determined metric.
Our stated observations, questions and concerns are not intended to question the motives or integrity of either PBM. Instead, we are asking them and others to “slow down a bit” and provide the needed details so that firms like ours can provide accurate and thoughtful advice, and more importantly that plan sponsors and patients have the needed information to make the most informed possible decision.
Risk Strategies Consulting is in the midst of offering a white paper designed to address the complexities and intricacies of the pharmacy supply chain. In this document, we will put forth our best understanding of where, how, and to whom the moneys flow, from both the buy side and the sell side of the system. We will also attempt to quantify those dollars. As part of our paper, we will offer recommended contract language around true net acquisition costs, audit rights, and other key provisions. The document will touch on key clinical metrics for oncology, cardiology, and cardiodiabesity. The focus needs to shift towards providing care, rather than just the cost of goods. We are including the clinical metrics because the job of a good PBM is to provide care, not just benefits, and be aligned and accountable with plan sponsors and patients. The publishing of our white paper is an attempt to change the tone and nature of the ongoing dialogue around pharmacy care. As we have written before, information vacuums have resulted in demagoguery, villainization, fear mongering, and misinformation.
Plan sponsors and consumers are rightfully frustrated by the ever-rising cost of pharmacy care. It is the responsibility of those of us advising these clients and customers to drive needed change. This can only occur through the delivery of thoughtful and accurate information. We welcome comments, critiques, and additions to our white paper from our colleagues in the industry when it is published in the coming weeks. You can always reach us by emailing us, here.