Walgreens' new CEO Tim Wentworth says the pressure is on to develop new drug pricing models following a recent shift in the retail pharmacy market "to give patients the Cost Plus experience."
"The plan designs the market has largely evolved to are creating this underlying demand to give patients the Cost Plus experience so that they don't have an odd surprise when they go to the pharmacy counter," Mr. Wentworth told investors Jan. 4. "The fact that there may be some more marketplace pull there only presents a sense of urgency for our team to do what we've already done and accelerate additional value creation."
In his first earnings call as CEO, Mr. Wentworth told investors that "everything is on the table to deliver greater shareholder value." He emphasized the importance of Walgreens' retail presence from a business and public health perspective, and said he does not foresee additional primary care investments beyond the current VillageMD portfolio, where the company is currently aiming to exit about five markets and close around 60 clinics this year. Mr. Wentworth also noted that Walgreens is not interested in purchasing its own PBM.
"We welcome and will work with payer or PBM partners on any model that recognizes and reimburses pharmacies for the unmatched value we provide patients, including pharmacy services, as well as those models that can ensure more transparency and predictability in reimbursement," he said. "We believe we can help drive a transition in the marketplace over time to more value-based models, which will frankly show through to the end user and the patient."
In January 2022, entrepreneur Mark Cuban launched online pharmacy Cost Plus Drugs, which priced 100 medications by their manufacturing fee, a 15% markup, and a shipping and handling fee. Less than two years later and with more than 2,000 drugs now available, Cigna's Express Scripts and CVS are following suit with more transparent pricing models.
Express Scripts, one of the biggest PBMs in the U.S., will launch a new drug price service in 2024 that sells medications based on their acquisition, pharmacy dispensing and service costs. The service, called ClearNetwork, will be available for its pharmacy network that handled more than 1.1 billion prescriptions in the first nine months of 2023.
On Dec. 5, CVS Pharmacy swung its bat with CVS CostVantage, a pharmacy reimbursement model that accounts for a drug's cost, a pharmacy services fee and a set markup. The new service will also be available in 2024. And Caremark — CVS Health's PBM — will launch TrueCost in 2025; it aims to increase transparency into administrative fees by including the net cost of prescription drugs.
"We think there is very little left in the tank," Mr. Wentworth said when asked about traditional drug reimbursement models by investors. He forecast material changes at Walgreens within a year or two and noted that changing employee demands for pharmacy benefits along with an evolving regulatory landscape is driving the changes in the market.
"We will have to compete. We don't get to just not compete because the reimbursement model changes," he said. "We'll compete though on things that we're actually very good at that we can control. As we look forward to the next three or four years, we can play a leadership role in a way that helps PBMs win."
Two other large insurance and PBM organizations, UnitedHealth Group and Elevance Health, are also joining the fray. In 2023, UnitedHealth Group's Optum Rx rolled out a price matching tool reminiscent of Target and Best Buy. The service scans drug prices and automatically provides the lowest available pricing. Elevance Health is also set to launch a digital and home delivery pharmacy subsidiary in 2024; it will allow users to compare medication costs.
"I don't think any change in a reimbursement model is speedy, but I think there's very strong and clear messaging in the marketplace from us and others that would point to the fact that the way retail pharmacies will create value in the next 10 years isn't simply going to be lowering the cost of the drugs we're purchasing and distributing," Mr. Wentworth said.