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Read Between the Headlines: Decoding the latest “cost-plus” announcements from CVS and ESI

On November 14, 2023, Express Scripts (ESI) announced its new “ClearNetwork” pricing model. Not to be outdone, 21 days later, CVS announced its own version of cost-plus pricing branded “TrueCost” and “CostVantage.” Well, I guess we’re all set now. Problem solved. Expect the price of Rx to plummet. Well, not so fast…

These new pharmacy pricing programs by PBMs and pharmacies are a notable shift in the way prescription drugs are priced, but the impact they will have on pricing is likely not going to be noticeable. In fact, this is likely more about being able to dismiss the narrative of startup competitors like Mark Cuban Cost Plus Drugs, than it is about actually lowering prices.

Yet, despite the appearance of transparency, these new programs still involve elements of fuzzy math, complicating the landscape of pharmacy reimbursement and pricing—even the most dedicated coupon-clipping detective would struggle to navigate this.

Cost plus as a pharmacy model has been around for hundreds of years. This is not new. In a true cost-plus model, the need for net cost disclosure for a drug at a specific quantity is emphasized. Unlike arbitrary cost basis, this approach aligns with the practice of publicly sharing the exact net cost by National Drug Code (NDC) for each drug regardless of the payor. This transparency ensures that the term "True Cost" accurately reflects the net expenses incurred by the company, excluding any confounding factors like inter-company transactions.

However, as Adam Fein from the Drug Channels Institute points out in his December 6, 2023 article, there are several positives that come from these new programs—but they mostly help the pharmacy’s economics, not the consumer’s. For example:

  • Addressing problems with reimbursement rates vs. wholesale drug selling prices

  • Removing hidden cross-subsidies between the pharmacy and the PBM

  • Delinking pharmacist services from drug prices

  • Enabling pharmacies to benefit from limitations in the computation of acquisition costs

Fein goes on to point out that there are some real potential drawbacks of these new “cost-plus” pricing programs, including:

  • Weakened incentives for pharmacies

  • Varying mark-ups negotiated with individual payors

  • Concerns about the computation methodology for “acquisition costs”

  • Internal pricing games due to vertical integration (CVS Caremark is, after all, paying CVS Pharmacy…so “left pocket, right pocket” games are there for the taking)

Let’s be clear about the risks of playing acquisition cost bingo with these companies. National Average Drug Acquisition Cost (NADAC) and state-based Average Acquisition Cost (AAC) sound impressive, but conveniently skip over off-invoice discounts, rebates, and price concessions. Like in Vegas, in this game, the house always wins.

In its offering to plan sponsors, ESI is providing plan sponsors with a contract where claim cost equals the ‘acquisition cost’ + up to a 15% mark up + dispensing fee.

Alternatively, for plan sponsors paying these claims, in the opt-out contract being sent to independent pharmacies, ESI left off the “1” in front of the “5” in “15,” only paying the pharmacy a 5% markup, ESI pockets the difference.

Given the latest ERISA fiduciary rules for plan sponsors, transparency into drug pricing for the patient is now, more than ever, table stakes. Plan sponsors need to be ready to deal a winning hand to their members, offering transparent pricing that turns the prescription purchasing game into one where patients and their plan sponsor come out on top.

In the end, as always, it’s “buyer beware.”

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