Dive Temporary:
- CVS has gained a brand new pharmacy profit supervisor contract with one of many greatest healthcare consumers within the nation, the California Public Workers’ Retirement System.
- With the five-year contract award, CVS Caremark has unseated UnitedHealth’s Optum Rx, which has managed CalPERS’ prescription drug profit since 2017.
- Monetary phrases of the contract weren’t disclosed. Nevertheless, CVS has agreed to place $250 million in danger, contingent on the PBM controlling drug prices and enhancing the well being of CalPERS members.
Dive Perception:
The brand new PBM contract, which kicks off in January 2026, was designed to manage the rising prices of prescribed drugs — a rising concern for CalPERS, the biggest pension fund within the U.S.
CalPERS’ whole outpatient pharmacy spend reached virtually $2.4 billion in 2023, up 36% from simply three years prior. Drug prices are actually consuming up greater than one-fifth of the fund’s healthcare premiums, in line with CalPERS paperwork.
These numbers are for all of CalPERS’ members, not the smaller slice that’s captured on this contract, which covers outpatient prescription drug advantages for roughly 587,000 members enrolled in each non-Medicare and Medicare HMO and PPO plans. That represents about 40% of the 1.5 million individuals who obtain well being advantages by CalPERS.
Nonetheless, the contract covers a serious chunk of CalPERS’ drug spending. A spokesperson declined to supply extra particulars on the monetary phrases of its settlement with CVS, however CalPERS’ earlier contract with Optum Rx was valued at $5 billion. The pension fund budgeted $19 million for PBM administrative charges in its most up-to-date fiscal yr alone.
The contract, although sizable, is probably going immaterial to CVS’ earnings. Nevertheless it strikes the corporate in a optimistic route because it struggles with rising spending in well being advantages, stabilizing its retail pharmacy enterprise and a barrage of regulatory and legislative scrutiny of its PBM, in line with Michael Cherny, an analyst with Leerink Companions.
“Nobody PBM contract is ever that massive a deal within the grand scheme of issues, however a win is a win. And CVS profitable CalPERS, which it misplaced in 2017, doesn’t harm in any respect,” Cherny wrote in a word Tuesday.
CalPERS declined to touch upon different bidders for the contract and the way their bids in comparison with CVS’. However the fund elected to half methods with Optum Rx after figuring out it will not be getting the total advantages of rebates in what was presupposed to be an 100% pass-through contract. CalPERS additionally needed extra transparency and scientific and monetary accountability from its PBM, in line with CalPERS chief scientific director Dr. Julia Logan.
“There are areas of the contract that we imagine we are able to and may enhance upon,” Logan stated in a June assembly of CalPERS’ administrative board, in line with a transcript.
In a July presentation on the seller search, CalPERS stated CVS was “discovered to be the strongest candidate” primarily based on its “sturdy monetary supply for Primary and Medicare,” together with its stable transition and implementation plan, and alignment on contract phrases.
“CVS had one of the best and most credible monetary supply,” with “considerably higher” rebates and costs on medicine, the presentation reads.
In a Tuesday launch on the deal, CalPERS added that CVS additionally gained out over different distributors as a result of it dedicated to elevated audit and oversight provisions, together with efficiency ensures placing $250 million in danger if CVS doesn’t attain value and high quality targets.
Scientific ensures embody enhancing outcomes for sufferers with hypertension and diabetes. As for value, CVS has agreed to maintain drug value development to six.5% over the 5 years of the contract interval, in line with CalPERS paperwork.
For context, employers’ prescription drug prices jumped 8% final yr alone, in line with a Mercer survey.
“By holding the PBM accountable for delivering outcomes, we’re aligning their pursuits with these of our members and their public sector employers,” Don Moulds, CalPERS’ chief well being director, stated in an announcement. “This contract is designed to make sure that each greenback spent on prescribed drugs delivers worth for our members and ensures the sustainability of our program.”
Prescription drug entry ought to stay primarily the identical for CalPERS members, the fund stated. Nevertheless, there might be some disruption, because the July presentation says CVS’ formulary is “tighter” although clinically applicable.
Roughly 15% of the fund’s Medicare members and 5% of its non-Medicare members might have to alter treatment, in line with the paperwork.
Ed DeVaney, the president of CVS Caremark, stated the corporate is “honored” to win the contract in an announcement.
“We’re dedicated to constructing a powerful, collaborative relationship with CalPERS to ship inexpensive protection and broaden entry to high-quality well being care for his or her plan members,” DeVaney stated.
PBMs, which negotiate rebates on medicine with pharmaceutical firms, administer drug advantages for well being plans and reimburse pharmacies for shelling out medicines, say they’re indispensable for controlling snowballing drug prices. Nevertheless, employers and plans say they’re more and more fed up with sure enterprise practices of main PBMs that might be hiding the place their cash goes, whereas inflating the worth of medication.
The need for alternate options has given rise to a crop of youthful, smaller PBMs that say they’re extra clear and paid extra merely than the legacy gamers.
Nonetheless, CalPERS awarding the contract to CVS exhibits the problem of deposing the Huge Three — Caremark, Optum Rx and Cigna’s Specific Scripts — which collectively management 80% of the U.S. prescription drug market.
