CVS Is Planning a Big Change to How It Prices Drugs

The nation's biggest drugstore chain is planning a massive overhaul of how it prices prescription drugs. CVS Health says it is shifting from the current complex and opaque pricing model to a simpler, more transparent system based on what its pharmacies actually pay for the drugs, plus a set markup and a fee, the Wall Street Journal reports. The company said Tuesday that the new model will make prices more predictable and while the cost of some drugs could go up, more prices will be lowered, reports the AP. The new CVS CostVantage system is similar to that used by Mark Cuban's Cost Plus Drugs company.

The current system, has been criticized as "complex and secretive," per the Journal. Prices are "largely determined by middlemen known as pharmacy benefit managers, which negotiate rebates from drug manufacturers to insurers," CNN reports. CVS says the new system will be introduced in stages starting in the first half of 2024. Adam Fein, chief executive of the Drug Channels Institute, calls it a "fundamental change in how pharmacy services are priced."

Analysts praised the move, calling it a big step toward transparency from a major player in the industry. "At a minimum, the goal for CVS and others should be to shine a light on the way drugs are priced, any discounts that are negotiated and overhead that comes from a variety of sources," says Nick Fabrizio, senior lecturer in health policy at Cornell University, per CNN. "Americans would be surprised at the hidden costs that are passed on to them by a variety of third parties. These extra or hidden costs make prescriptions more expensive." (More CVS stories.)