(Reuters) -CVS Health on Tuesday forecast 2024 revenue above market estimates and said it would shift to fixed rates for reimbursements from pharmacy benefit managers and insurers, to boost transparency amid scrutiny on high drug prices.
Out-of-pocket drug prices in the U.S. are decided by a complex, multi-tiered network including insurers, drugmakers, pharmacies and pharmacy benefit managers (PBMs), resulting in ambiguity around fees and markups to the original cost of the drug.
The new CVS model, called CostVantage, will have a fixed markup and fees to define drug cost and related reimbursement with contracted insurers and PBMs, the company said.
PBMs like CVS’ Caremark, which work as middlemen between insurers and drugmakers, have faced scrutiny over their role in surging healthcare costs, with the U.S. Federal Trade Commission also investigating their practices.
CVS’ new drug reimbursement model looks similar to that of Mark Cuban Cost Plus Drug Company, an online pharmacy launched by the billionaire which aims to drive down the cost of drugs broadly by selling them at a 15% markup over its cost, plus pharmacy fees.
Rhode Island-based CVS also said it would bring its portfolio of health services such as doctors clinics and pharmacies under an umbrella brand called CVS Healthspire.
The rebranding encompasses businesses the company built over the last few years such as the biosimilar unit, Cordavis, as well as recently acquired healthcare services firms Signify Health and Oak Street Health.
The company, which last month tempered its 2024 profit forecast for the third time, said it was counting on CostVantage, better margins under its government-supported Medicare Advantage insurance plans for older adults and other healthcare services to boost its earnings.
Evercore analyst Elizabeth Anderson said the forecast underscores the management’s confidence in the stability of medical costs and the company’s ability to offset challenges in 2024.It forecast revenue of at least $366 billion, ahead of analysts’ average estimate of $345.81 billion, according to LSEG data.
Shares of CVS rose nearly 3% in premarket trading.
(Reporting by Leroy Leo in Bengaluru; Editing by Sriraj Kalluvila and Devika Syamnath)
