- Pharmacy benefits manager startup Capital Rx on Wednesday announced a novel pricing framework that itemizes the actual unit cost for all drugs based on a CMS-run benchmark.
- The Clearinghouse Model allows pharmacies and employers to verify and authenticate a drug's price in real time. Actual unit costs for drugs will be the same for all its customers, and employers will know those costs ahead of time in the PBM's contracts — a departure from how traditional PBMs practice.
- The framework is meant to eliminate price variability for the Capital Rx customers. Pharmacies in the network (including large chains such as Walmart and Walgreens) will be able to sell covered drugs at the lowest prescription prices, according to New York City-based company.
As retail prescription drug spending continues to grow, the push toward price transparency has been hindered by some industry players and helped by others. With its announcement of a model meant to eliminate arbitrary prescription drug pricing and let patients and employers know what they'll be paying for medication, Capital Rx clearly wants a place in the latter group.
The Clearinghouse Model operates quite differently than traditional pharmacy benefit managers, which often inject a fair amount of obfuscation into how prescription drugs are priced and reimbursed. Purposefully or not, the practice pads their bottom lines.
Two-year-old Capital Rx manages prescription drug benefits for employers, unions and government entities and is backed by growth equity investment firm Edison Ventures.
The PBM uses the National Average Drug Acquisition Cost, which is maintained by CMS based on surveys of acquisition costs from retail pharmacies, as a benchmark for prescription drug pricing. NADAC prices only update when acquisition costs rise or fall by 2% or higher, meaning Clearinghouse prices should stay largely consistent.
Currently, various employer groups pay wildly different prices for the same drugs due to a controversial practice called "spread pricing" among traditional PBMs, including CVS Health's Caremark, Cigna's Express Scripts and UnitedHealth Group's OptumRx.
Differences between list prices and net transaction cost create these large spread opportunities for PBMs to make a profit. The companies charge payers more than a drug is sold for at the pharmacy and pocket the difference.
Because employers and insurers don't know what the PBM is reimbursing the pharmacy, and the pharmacy doesn't know how much the employer is paying for the drugs, the practice of spread pricing has proliferated and contributed to the rapid growth of the PBM industry. PBMs are expected to report total revenue of over $500 billion this year.
Capital Rx looked at "a variety of models" to try and stop the practice, according to COO Joseph Alexander, and eventually formed its own framework based on how the New York Stock Exchange operates, with parties verifying and authenticating drug prices.
PBMs are a popular target of lawmakers and the Trump administration in the fight to lower healthcare prices, but efforts to stamp out practices like spread pricing have so far been toothless. HHS announced a plan earlier this year to eliminate legal protections for rebate negotiations, but it fell through six months later following harsh industry backlash.
Several major legacy PBMs, including CVS Caremark, OptumRx and Express Scripts, have embraced passthrough discounts, meaning they pass along a greater percentage of rebates to plan sponsors. However, although PBMs passed through 91% of rebates to payers in 2016, administrative fees and other revenue skyrocketed, according to Pew Charitable Trusts, offsetting employer savings.
Capital Rx is hardly the first to take a new tack to try and fix the problem. In March, Centene eschewed CVS Caremark in favor of RxAdvance, a six-year-old venture promising "unparalleled savings" and a more transparent experience, although analysts chalk much of the PBM's publicity up to typical Silicon Valley-hype.
Capital Rx has hooked some large investors, drawn in by its plans to make waves in the PBM space. In July, it secured a $12 million funding round from Princeton, New Jersey-based Edison. The PBM launched in April of last year.