PBM Transparency and the CVS Caremark Conundrum

By Devin Stone

Demanding transparency from pharmacy benefit managers (PBMs) is a notion that has clearly gained steam. Most recently, the U.S. Senate and House have approved limited PBM disclosure requirements in their health reform bills. It’s a small step toward reining in egregious and costly PBM practices like spread pricing (paying the pharmacy one price then quietly billing health plans much more) and rebate abuse (pocketing huge sums from drug makers before giving plan sponsors what’s left). Leading patient and labor advocates agree.

The PBMs continue to oppose these reforms, primarily by arguing that transparency will lead to higher drug prices as pharmacies and manufacturers learn what their competitors are charging.  As this blog has discussed earlier, the disclosure proposals before Congress explicitly state that all information collected will remain confidential, and therefore out of the hands of pharmaceutical manufacturers and retail pharmacies.  That’s partly what led the Congressional Budget Office (CBO) to score the requirements budget neutral and, in fact, many public and private payers are saving money through transparency

But what if the rates at which pharmacies are reimbursed by PBMs were fully disclosed? The PBMs say higher prices would be the certain outcome.

That leads us to the transparency dilemma of CVS Caremark.

CVS Caremark is, of course, both a retail pharmacy and a PBM.  Its PBM negotiates with practically every competing retail chain in the country to establish how much these pharmacies will be paid for dispensing medications to patients whose coverage is managed by CVS Caremark.  On the other side of the corporate giant, CVS Caremark has to negotiate with other PBMs to determine how much its retail pharmacies will be paid for dispensing prescriptions to patients whose coverage is managed by rival PBMs. 

In other words, CVS Caremark’s PBM knows exactly how much the Walgreen’s and the Wal-Marts of the world are charging, which in theory is information CVS Caremark could use during negotiations with other PBMs regarding reimbursement levels. 

If one follows the notion that fully disclosing such information will lead to higher prices charged by retail pharmacies, than one must ask: Has the CVS Caremark merger led to higher prices for patients covered under competing PBMs such as Express Scripts and Medco Health Solutions? 

Ironically, the only way to know is through transparency.

What can be stated with confidence is that disclosing the reimbursement amounts between chain pharmacies and PBMs will have little to no impact on the ability of independents to negotiate better contracts.  Again, CVS Caremark can act as a practical example.  In 2008 Change to Win put together a report documenting the reasons why CVS Caremark is bad for patients, including a historical list of reimbursement levels established between the retail pharmacy and the prescription drug programs it had contracted under.  Even with this information, independent pharmacies have not benefitted as they receive PBM contract offers on a “take-it or leave-it” basis. 

Without transparency, employers have little leverage when negotiating contracts with PBMs.  PBMs select the information that they want to share and restrict other information and they determine who can audit their services.  In other words, their message to their employer customers is, the customer is always right as long as you agree with me.  The real winners of transparency will be patients and health plans.

5 Responses to “PBM Transparency and the CVS Caremark Conundrum”

  1. 1 Adam J. Fein January 11, 2010 at 5:37 pm

    Hi Devin,

    Here’s something that I don’t understand: how precisely would independent pharmacies benefit from “PBM transparency”? Do you expect independent pharmacy margins to increase, decrease, or stay the same if the rates at which pharmacies are reimbursed by PBMs were disclosed?

    I’m also curious about the notion of transparency. Does NCPA believe that pharmacies should disclose any spreads between a pharmacy’s acquisition costs and the rates at which a pharmacy is reimbursed by PBMs?

    Appreciate any insight that you can share.


  2. 2 George Van Antwerp January 14, 2010 at 11:57 am


    Do you really believe this? Transparency has been around for a while. Most payors understand spread pricing and rebates. They know they exist. They’ve had the choice between “transparent” agreements and traditional PBM agreements for years now.

    There’s no savings from the “transparent” agreements that I’ve ever seen. The PBMs give most of their rebates to the clients.

    There aren’t any retailers (other than perhaps in the Wal-Mart to employer contacts) where acquisition price is know. What do you think cash customers would think if they knew what the bottle of 30 generics cost you?

    This is a decade old arguement. The government should stay out of the PBM business as long as they are saving their clients money.


    • 3 Eugene December 9, 2012 at 5:52 pm

      George, I disagree. The government as well as any payor should be granted full access to PBM practices and how they generate revenue.

      One deceptive method is from predatory audits. We recently received an audit that took back $10,000. Largely, this was due to a prescription for a patient who routinely requested brand name (DAW 2) and we did not have proper documentation. Yes, it was our fault, but for not writing “DAW 2” on the prescription for a patient we’ve served faithfully for years, the PBM takes back $10,000. It was not a fradulent prescription, it was not an inaccurate fill but this is just a way PBMs generate easy revenue.

      What a bottle of 30 generics may cost a pharmacy? It varies, let’s say between a few cents to maybe $50? Let’s say the pharmacy makes $10 from a generic medication fill, which it does not even make. Is that highway robbery? But George, what about brands? This accounts for 70%+ of my inventory purchases, not the generics. If cash customers knew that I’m making just about $10 on a medication that cost me $100, what do you think they will think? If I offered my cash customers the chance to take over my business, would they take it, knowing those few facts?

      Trying to make an honest living is tough when you have giant machines that have full control and can change at any time, what they will decide to pay you. At least with transparency, there’s hope for change.

  1. 1 Transparency…Transparency – Enough « Enabling Healthy Decisions Trackback on January 14, 2010 at 11:54 am
  2. 2 Examining PBM Arguments Against Greater Transparency in the Federal Employee Health Plan « NCPA's The Dose – The Voice of the Community Pharmacist Trackback on February 26, 2010 at 3:53 pm

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

Search by Categories

%d bloggers like this: