Their "Cost Plus" Ain't Our Cost Plus | NCPA Executive Update | December 8, 2023

NCPA December 8, 2023

Dear Colleague,

Doug Hoey As part of my daughter's prep for college she has taken some aptitude tests to help determine majors to consider. I was reminded that one characteristic of science-related fields is to have a healthy amount of skepticism. And, as pharmacists, we definitely have a scientific bent. So, it is with a healthy, heaping amount of skepticism that I heard CVS-Aetna's announcement that they are revamping their pricing model using a "cost-plus" model.

Anyone who has heard me speak or read my writings knows that NCPA's number one priority is Changing the Pharmacy Payment Model. And, a cost-plus model is one important way to do that. In fact, NCPA's number one legislative priority would reform Medicaid programs in all 50 states and territories to the pharmacy's cost (using NADAC as a proxy for pharmacy cost) plus a professional dispensing fee determined by the respective state (states that have adopted this model so far generally pay a $9-$13 dispensing fee. That legislation is waiting to be called for a vote in the House next week.

The benefits of this model are transparency, predictability, and more stability for everyone—consumers, payers, and pharmacies.

In science, keeping an open mind is a virtue—just not so open that your brains fall out.While a lot of details are still TBA, CVS-Aetna announced their version of a cost-plus program for their CVS pharmacies (CostVantage) and another cost-plus program that their Caremark unit will sell (TrueCost) to employers and other payors. At least in theory, TrueCost is the program that could directly affect community pharmacies and chain pharmacies, but CostVantage will undoubtedly be used as a reference point for payment to other pharmacies.

Is CVS-Aetna changing its business model to endorse a transparent, straightforward prescription payment model for other pharmacies?

Color me skeptical.

Here's why:

CVS-Aetna's announcements have scant details, raising all kinds of questions about if the predictability and transparency that they reference is just for CVS-Aetna or if payors, consumers, and pharmacies will also enjoy predictability and transparency. Based on CVS-Aetna's long track record, the latter group shouldn't hold their breath.

CVS-Aetna's motivation to move from the opaque, covert model they helped invent, perfect, and enjoy for the last couple of decades is not altruistic. NCPA has led the way to raise the specter of shady PBM business practices. Congress is seriously considering PBM reform which would include a cost-plus model for all Medicaid prescriptions. Announcing a "transparent" model is one way to try to launder the black hat that CVS-Aetna wears in the industry. Also importantly, another motivator is that CVS-Aetna lost (sort of—they kept the specialty part of the business) a significant contract to BlueShield California in favor of Mark Cuban's cost-plus model and Amazon. And, speaking of Cuban, though, cost-plus has its origins with independent pharmacies such as Blueberry Pharmacy, Cuban's big megaphone has drawn additional attention to the concept of a cost-plus model which has put more pressure on the current, broken, PBM model.

So, what could CVS-Aetna do to actually build a transparent cost-plus model?

First, they could identify the benchmark that will be used as a proxy for pharmacy acquisition cost. Express Scripts' recent announcement of Clear Network spins the pricing benchmark roulette wheel between three benchmarks—which perpetuates the PBM self-appointment as judge, jury, and executioner.

Second, they could identify a reasonable percentage mark-up on the prescription with 100 percent going to the pharmacy. The PBM would be paid a processing fee much like a credit card transaction. FYI: The average credit card processing fee is 2.24 percent, according to the Merchants Payment Coalition.

Third, they would establish a professional dispensing fee consistent with Cost of Dispensing (COD) studies. Importantly, they would pay incentives to higher performing pharmacies, perhaps based on things like consumer experience and factors that the pharmacy can actually control.

Congress must press forward with PBM reform. CVS-Aetna's announcement about its version of a "cost-plus" model could be a step in the right direction but it's not based on the limited information available so far. The first step in the Scientific Method is to "question" and, based on CVS-Aetna's past, I question that it will be implemented in a way to truly Change the Pharmacy Payment model to the benefit of consumers, pharmacies, and competition.


Doug Hoey

B. Douglas Hoey, Pharmacist, MBA