Dive Brief:
All community pharmacies in Optum Rx’s network have transitioned over to a cost-based reimbursement model as the massive pharmacy benefit manager tries to reduce variation in how pharmacies are paid.
Optum Rx first launched the model across roughly 1,400 community pharmacies in March. Now, the PBM, which is owned by healthcare conglomerate UnitedHealth, has notched agreements with three additional pharmacy services administration organizations representing more than 17,000 community pharmacies to transition them to cost-based contracts, Optum Rx said Thursday.
Optum Rx aims to move all of its pharmacy partners to the new model, which should result in pharmacies being paid more for brand-name drugs and less for generics, by January 2028. The PBM is still working on those owned by retail chains and grocers, a network contracting executive said.
Dive Insight:
Pharmacies are generally paid for drugs based on a variety of complex factors beyond cost, which results in them relying on higher rates for some medications to offset losses on others — a delicate balancing act that has become more difficult as pricier branded drugs enter the market.
As a result, pharmacies are often reimbursed less than it costs to acquire and dispense drugs, contributing to losses for many operators. Facing clamor from pharmacies for better contract terms, PBMs, powerful middlemen in the pharmaceutical supply chain, are increasingly pivoting to cost-based reimbursement, wherein pharmacies are generally paid the drug’s acquisition cost, plus a defined markup and occasionally an additional dispensing fee.
When the PBM unveiled the transition in March, pharmacy groups said they were cautiously optimistic about the change. Optum Rx says its response from participating pharmacies to date has been positive.
But details are scarce about the model, as Optum Rx says its contracts with pharmacy services administration organizations, or PSAOs — groups that represent and provide back-end support to community pharmacies — are confidential.
The model can differ based on the specific deal that Optum Rx struck with each organization, according to Mary Jo Jones, Optum Rx’s vice president of network contracting.
“We’ve worked with each PSAO to negotiate what works and what is in the interest of their pharmacies,” Jones said. “It can look a little different PSAO to PSAO.”
Major PBMs have been attempting to improve their relationships with independent pharmacies, including through attempting to reduce variability in payment. In September, Optum Rx also hiked the minimum that certain independent pharmacies are reimbursed for brand name drugs, saying the move should ensure pharmacies are paid closer to the actual cost of medications.
Changes to Optum Rx’s reimbursement structure have major implications for U.S. pharmacies. Last year, the PBM managed $178 billion in pharmaceutical spending for more than 61 million people, according to a securities filing and information on the company’s website.
Optum says its cost-based model creates more predictable reimbursement for its pharmacy partners, which should allow them to stock more medications, leading to fewer out-of-stock and dispensing delays.
Optum Rx has increased payments on branded drugs to independent retail pharmacies as part of its “commitment to a balanced pricing approach,” Patrick Conway, the CEO of UnitedHealth’s health services division Optum, which includes Optum Rx, said during the company’s third-quarter earnings call in October.
Still, it’s unclear whether the new model will lead to higher reimbursement for pharmacies, or just more predictable revenue.
“It’s going to depend on the pharmacy, but the model is designed to help the pharmacies adapt and to better match the rising costs controlled by the drug manufacturers,” Jones said.
Reimbursement pressures have contributed to notable upheaval for the pharmacy industry. In recent years, CVS has closed hundreds of underperforming locations, Rite Aid underwent a bankruptcy and Walgreens went private in a deal with a private equity company. Meanwhile, some regional chains and independent operators have gone out of business entirely, contributing to pharmacy deserts.
Many pharmacies blame PBMs for the situation. PBMs in turn pass the blame along to drug manufacturers for setting high list prices, arguing that price hikes result in pharmacies having to pay more to acquire drugs in the first place.
With the transition to the cost-based model, Optum Rx is following in the footsteps of pharmacy juggernaut CVS Health, which in 2023 said its pharmacies would move to a cost-based model. Cigna-owned Express Scripts also offers a cost-based pricing option.
Major PBMs are voluntarily changing elements of their business models amid intense regulatory and lawmaker scrutiny, client uneasiness with opaque benefits models and competition from pharmacy upstarts like billionaire Mark Cuban’s Cost Plus Drugs.
