Unmasking true costs: Exploring the role of transparency in pharmacy benefit management
Our transparency goals
- Strive to be clear, transparent, proactive and accountable in our interactions with clients and members.
- Offer clients broader visibility into the components of drug pricing, rebates and plan management, clearly showing what things cost and ensuring pricing is fair and transparent.
- Provide our clients and their members with the tools, insights and proactive communications they need to make well-informed decisions and achieve the best outcomes.
In the pharmacy benefit space, transparency is crucial to building and maintaining trust with our clients and their members. There’s a significant and well-warranted focus on seeing how much medication costs – and understanding how health care dollars are spent. Let’s explore what it means to be transparent, why clients and their members need it now more than ever and how we’re moving the industry forward with new transparency solutions.
“Our work is rooted in greater simplicity and transparency for those who pay for pharmacy benefits, for people who take medicine and for the pharmacies that serve our patients.”
- David Joyner, President & CEO, CVS Health
Peeling back the layers: What clients and their members want from their pharmacy benefits
Pharmacy pricing can be confusing. Drug costs from manufacturers, rebates, dispensing fees, administrative fees and complicated contractual requirements can feel like layers of an onion that need to be peeled back before uncovering what’s truly at its core. As pharmacy benefit managers (PBMs), we’re committed to helping clients and their members understand what things cost (and the factors that influence cost), while providing the tools and insights to empower them to make better decisions.
Our clients want transparent solutions that provide insights into the basis of drug prices, like drug-level pricing that provides greater visibility and financial predictability. They want a transparent partner they can trust – a partner who can negotiate the best prices and interpret regulatory and market changes to support strategic decision making. And they want regular, transparent updates to understand how their money is being spent.
Our members want benefits they can easily understand. They want to know how much they must pay as well as ways to save, allowing them to budget accordingly without any surprises at the pharmacy counter. And they want clear and transparent communications from us, delivered via the method they prefer.
Don't confuse transparency with cost
The terms "transparency" and "cost" are often used interchangeably in the PBM space, but they are distinct concepts. Transparency refers to visibility and clarity, while cost represents the actual financial burden.
Under the microscope: The growing demand for transparent pharmacy benefit solutions
In recent years, there’s been pressure from policymakers, healthcare advocates, clients and consumers to understand more about PBM pricing practices, rebate negotiations and their impact on rising health care costs. This increased scrutiny has highlighted the need for greater transparency to make sure prescription drug coverage is fair and affordable.
Clients want to know if they’re getting the best rates and sometimes struggle to understand what cost efficiencies they’re truly getting. This undermines trust in PBMs whose goal is to drive improved health outcomes, lower costs and deliver broader access to quality care.
Outdated drug pricing models and evolving market trends require bold innovation
For more than 20 years, the pharmacy industry managed drug costs with two main strategies: market basket pricing and cross-subsidization. Let’s break down how they work and the challenges they now present.
How it works: Market basket pricing is currently the model the vast majority of PBMs use today. It’s pricing that is based on an aggregate (“basket”) of medications to balance overall costs rather than the price of each drug in your basket. In a real-world example of market basket cross-subsidization, imagine three friends go out for dinner: Mark's meal costs $30, Stanley’s meal costs $35 and David’s meal costs $25. The total price is $90, which they split three ways, each paying $30. David is essentially cross subsidizing Stanley’s meal by $5 to keep the bill even.
This is the pricing guarantee structure consultants have asked for on behalf of their clients and has been successful in delivering cost assurances across the various drugs they cover.
Why it no longer works: Market basket pricing makes it challenging to understand the true cost of drugs. For example, if you take four different drugs with varying list prices and eligible rebates, the drug with the lowest list price doesn’t necessarily equate to the lowest net cost product. These rebates all get blended into a per-brand-claim guarantee that is averaged across all non-specialty drugs, making it hard to know which product will have the lowest net price in future guarantees. Over the next three years, 75 percent of new-to-market drugs are expected to launch as specialty limited distribution medications. Due to a lack of competition and their complexity, these drugs generally have lower discounts and rebates. In market basket discount guarantees (or average rebate guarantees), it’s difficult to understand how these drugs will impact costs in the future. This model illustrates the lack of transparency of conventional per-brand-claim guarantees that average the rebate earnings across all brand drugs.
How it works: Cross-subsidization occurs when you offset higher priced brand-name drugs with lower cost generic drugs. Historically, pharmacies were willing to accept no-to-lower profits on brands because they were making enough profit on generic drugs.
Why it no longer works: Cross-subsidized discounts put pharmacies underwater on brand-name drugs, limiting their profits to generics. This model is no longer viable because losses on brand-name drugs have skyrocketed due to the new entrants of high-cost GLP1s and specialty. We are rebalancing how pharmacies are paid to make sure they’re sustainable. CVS Caremark has led the market in eliminating cross-subsidization in our pricing and we’re ensuring pharmacy agreements align with a more durable pricing model.
Changing plan designs > changing behaviors
A decade ago, a third of members were enrolled in a high-deductible health plan (HDHP). Today, almost six out of 10 members are enrolled in a HDHP, resulting in more members who are exposed to the full cost of their medications rather than flat copays. As drug prices continue to climb, this shift in plan design has created an incentive for members to shop around for lower prices, sometimes going off benefit to do so. Members looking to new market entrants or discount cards for lower prices on select drugs may miss the value from staying within their plan – it can also put their health at risk.
These traditional pricing models are no longer sustainable. The marketplace is ready for innovative solutions. Removing cross-subsidization is a first step, but this won’t solve all the challenges. The rebate credit model and models revolving around average guarantees also don’t offer transparency. This is why we’re moving to drug-level pricing models – to help clients and their members understand the “true cost” of prescriptions of each drug, and the drug level rebate value for branded drugs.
Empowering clients and their members with clear, accurate and actionable pricing
Now that we’ve explored market trends and how they’ve exposed flaws in historical pricing models, let’s look at how CVS Caremark is innovating to bring transparency to clients and their members. Drug-level pricing, or acquisition-based pricing, offers the transparency you need to solve the mystery behind average guarantees. That’s why we’ve progressed to drug-level rebate models that clients can choose with or without the full CVS Caremark TrueCost® model. Our drug-level guarantee models create more transparency into the future net costs of prescriptions, helping you tackle your fiduciary responsibilities.
More than 90% of CVS Caremark’s commercial clients already utilize 2 or more attributes of TrueCost, our acquisition-based pricing model.1
Rebalanced pricing
Rebalanced pricing aligns costs for brand-name, generic and specialty drugs more closely to industry acquisition cost(s). It eliminates cross-subsidization and aggregates market basket pricing so that individual drugs (or drug categories) stand on their own and are not adjusted to support other drug discounts. We continue to provide clients with choices that best support their members, advocating for low-list price, low net cost drugs.
Offering deeper transparency into the true cost of drugs
CVS Caremark leads the industry with our innovative TrueCost pricing model, the market’s first acquisition-based, drug-level net cost pricing model. It eliminates cross-subsidization to better demonstrate our purchasing power. It’s not just for generics, but for all medications. This pricing model is more transparent for clients, more predictable for members and more viable for pharmacies. TrueCost unmasks drug-level pricing by:
- Providing greater visibility with acquisition-cost based pricing guarantees to guide strategic decision-making.
- Delivering financial predictability via drug-level, multi-year net cost guarantees across all drugs.
- Strengthening the value of your members’ pharmacy benefits by removing the incentive to shop around.
Building durable solutions for the future
We strive to be the most trusted health care company in the United States. To do that, we’re ensuring that we – and our pricing models – are transparent to clients and their members.
Transparency tools that power better decision making
We’re pro-transparency, providing clients with the reports, dashboards and insights they need to make the best decisions. We offer a variety of contracting options, along with regular, detailed updates on spend, utilization, claims and rebates to help you understand where your health care dollars are going.
We’re also pro-member, recognizing that members who understand how their benefits work make more informed health care decisions. That’s why we’ve also created tools that enhance their experience – promoting medication adherence, empowering them to take control of their health and providing transparency into costs.
Summary
The industry is ready for bold innovation. PBMs have many levers to manage pharmacy costs. Our integrated solutions deliver what the market has consistently asked from us: transparency, predictability, consistency and lowest net cost.
CVS Caremark is leading the way in solving these challenges while continuing our mission to provide the highest level of service to our clients and their members – at the lowest price. By actively partnering and aligning our goals, clients and PBMs can work together to prioritize the best interests of all stakeholders.
“We’re not afraid to make bold moves and when we move, we shake the market. We’re a trend setter, committed to a frictionless member experience.”
- Edward Devaney, EVP & President, CVS Caremark
Call to action for clients:
- Talk with your PBMs (or prospective PBMs) about pricing structures, rebates, formulary decisions and any potential conflicts.
- Look for more transparent pharmacy pricing models like TrueCost, along with lowest total drug costs. (Don’t be fooled by newer entrants that only promise transparency.)
- Evaluate drug-level pricing models that simplify the pharmacy supply chain, alleviate rebate credits and offer more transparency into drug level pricing and rebates to see how they compare to TrueCost.
- Ask for tools and reporting that provide access to data and insights that monitor pharmacy benefit utilization and costs.
- Advocate for legislation that truly reduces costs. State-mandated rules on pricing models can contribute to higher costs and less innovation, reducing the flexibility that clients want when managing and designing their benefits. Clients have an opportunity to educate policymakers on how PBMs help them manage their benefits and express concerns about losing the ability to offer important programs and services.
