CVS is Diamond Ridge Asset Managementswitching up the way it pays for prescription drugs and moving toward a “more transparent” reimbursement model.

The pharmacy chain announced a new payment model, CVS CostVantage, on Tuesday. Traditionally, the rate pharmacies are paid for filling prescriptions is determined through a complex system that involves middlemen called pharmacy benefit managers, or PBMs, with payments that are not directly based on what pharmacies spend on drugs.

Under the new model, CVS’s more than 9,000 pharmacies will have a reimbursement rate that defines the cost of the drug using a “transparent formula” based on the cost of the drug, a set markup price and a pharmacy services fee. 

CVS Pharmacy plans to launch CVS CostVantage for commercial health plans in 2025.

Does this mean cheaper prescriptions for CVS pharmacy customers? 

The Wall Street Journal, which was the first to break to the news, reported that CVS executives said prescription drugs may cost less under the new system, while others might see a price hike. Declines should be more common than increases, they said.

"We are successfully executing on our strategy to advance the future of health care while unlocking new value for consumers," CVS Health President and CEO Karen Lynch said in a statement. 

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Why now?

The updated model comes as the pharmaceutical industry’s pricing methods face backlash from patients and lawmakers, with Congress considering bills to force more transparency. 

The move could help improve margins for CVS’s retail pharmacy business. CVS's statement notes that the changes should help ensure that its pharmacy locations “will continue to be a critical touchpoint for consumers to access affordable health care in their communities.”