By Leroy Leo and Mariam Sunny
(Reuters) -CVS Health on Tuesday forecast 2024 revenue above market estimates and said it would simplify the structure through which its pharmacies get reimbursed for drugs, in a push for more transparency amid scrutiny on surging healthcare costs.
Under the new model, called CostVantage, the company's over 9,000 pharmacies will have a fixed markup and fees to define drug cost and related reimbursement with contracted insurers and pharmacy benefit managers (PBMs).
Currently, out-of-pocket drug prices are decided by a complex, multi-tiered network including insurers, drugmakers, pharmacies and PBMs, resulting in ambiguity around fees and markups to the original cost of the drug.
"We have to make a change because our consumers are demanding it, the government's demanding it, and we have the opportunity here to drive a much more transparent model," CEO Karen Lynch said at the company's investor day.
CostVantage will be introduced for commercial insurance plans from 2025 and is expected to benefit the pharmacy and consumer wellness unit, executives said.
The company's shares rose 4% in afternoon trade.
Lynch said CVS expects its long-term earnings growth to be at least 6%, with a recovery in margins from its Medicare Advantage plans in 2025 helping the year's adjusted earnings per share rise by as much as 9% to 10%.
It expects 2024 revenue of at least $366 billion, ahead of LSEG estimates of $345.81 billion.
Separately, shares of GoodRx, which offers discount coupons for prescription drugs, slumped nearly 10% as the new CVS program raised competitive concerns.
CVS also said its PBM unit, Caremark, will in 2025 launch a program called TrueCost to offer clients more visibility into prescription drug pricing and administrative fees.
PBMs, which work as middlemen between insurers and drugmakers, have faced increasing political pushback over their role in surging drug costs.
"This is a great first step, in that it's bringing transparency to one part of the drug supply chain," said Julie Balter from Alliance of Community Health (NYSE:CYH) Plans.
"But I do think we need to continue to push for transparency throughout; transparency in how the drugs are priced, in purchasing them, (and) in the rebate aggregators."