Episode 6 – The CVS and FTC Settlement: What it Means for Plan Sponsors

Mike Stull (0:10)

Hello, everyone. It is Madison. It is Mike.

It is Healthcare Headlines. In today’s episode, we are talking about a headline that we’ve been waiting a while for.

Madison Connor (0:22)

16 weeks to be exact.

Mike Stull (0:24)

Right, but who’s counting, right?

Madison Connor (0:26)

I was. You were too.

Mike Stull (0:30)

I definitely was as well. So the FTC has announced the details of its settlement with CVS Caremark. And for those of you who have been following along with us, you’ll know that the Express Script settlement was published quite a while ago.

And most of the things that we’ll talk about today as expected are very consistent with the Express Script settlement. But we thought because this is CVS Caremark, it’s our largest PBM that most of our clients utilize. We better get on camera.

And do a recap of what’s all included in the settlement and how it impacts our clients. But to just take a step back, why don’t we give the audience some background into where this all started?

Madison Connor (1:22)

Yeah, Mike. So this stems from a 2024 insulin pricing lawsuit that was filed by the FTC against the big three PBMs and the settlement, if you read it, it’s 18 pages long. It goes far beyond insulin pricing.

It is a voluntary settlement and there are no admissions of fault or wrongdoing within that. Like you said, ESI was the first to settle in February. And then in March, there was an announcement that CVS Caremark had reached a proposed settlement.

We were on stage at the Annual Benefits Forum when this news broke. It’s been a waiting game ever since. OptumRx also announced in early July that it also has reached a proposed settlement.

But we don’t know the terms of that particular deal yet because it is awaiting approval from the FTC chair. But I suspect it will be closely mirroring the terms that we’ve seen out of the first two settlements.

Mike Stull (2:17)

I think that’s a pretty clear crystal ball to look into. So let’s jump into what this one says. In the Express Scripts offer or settlement, it talked a lot about a standard offering and the whole concept of a standard offering is in this one too.

What’s that all about?

Madison Connor (2:37)

Yeah, that’s the way that these provisions in the FTC are going to be incorporated for plan sponsors. So they say that a standard offering must be made to all plan sponsors. And this does include public entities, all real self-insured employers.

And you actually may deviate from the standard offering. But if you do so, you have to sign a template notice acknowledging that you were aware of the terms of the standard offering and you chose an alternative arrangement. But really, this is a way to encourage adoption of the FTC’s preferred model.

And ultimately, though, the plan does retain the autonomy to choose. It’ll be interesting to see how many plan sponsors are willing to sign that template agreement and whether there will be widespread deviation from that model moving forward.

Mike Stull (3:25)

Absolutely. Let’s talk about some of the provisions that are required as part of the standard offering.

Madison Connor (3:33)

These do have a rolling implementation, I would say. So there are some parts that take effect in 2028 and some pieces that take effect in 2029. But in 2027, we’ll start to see those offers come out that feature those provisions within the settlement.

So for 2028, patient out-of-pocket costs may not exceed the net costs. TrumpRx purchases will also need to count towards member cost share. This is interesting.

And the settlement even admits this. This will not be possible unless direct-to-consumer purchases are exempt from the calculation of Medicaid best price. So we’ll have to wait and see on that piece.

There’s not entirely a bunch of certainty at that point. And then finally, for 2028, PBM compensation must be delinked from the list price of the drug. And I know that this concept of delinking is something that we’ve discussed on previous podcasts.

Mike, why don’t you remind the audience what we mean by delinking?

Mike Stull (4:32)

Yeah. So today, most PBMs are compensated through their group purchasing organizations or GPOs based on a percentage of the list price of brand drugs that they contract with the manufacturers for rebates. And so opponents of that model say that that creates a perverse incentive or a conflict of interest to the PBM to prefer high list price drugs.

And so the whole idea behind delinking is instead of a percentage of the list price, you translate that into some sort of per member per month fee, a flat fee, or some other type of per occurrence fee in order to really eliminate that incentive to prefer high list price drugs. So that’s what delinking is all about. But there is more to the standard offering.

So let’s jump into what else is in there.

Madison Connor (5:33)

Yep. We talked about 2028. Let’s talk about the pieces that take effect in 2029.

In 2029, standard offers will not include spread pricing. There will be no rebate guarantees. And point of sale rebates will be incorporated into that offering, as well as cost plus reimbursement for retail community pharmacies.

And the language that it uses is acquisition cost, actual acquisition cost, versus some of the benchmarking you may see like NADAC and some of the state laws.

Mike Stull (6:02)

Yeah, I don’t necessarily like the whole point of sale rebate language that’s in this settlement. I think that’s a requirement more so that will impact employers and plan sponsors versus the PBMs. The employers and plan sponsors will be the ones that pick up the tab for point of sale rebates. And ultimately, employers and plan sponsors will simply adjust deductibles, adjust premiums, adjust max out-of-pockets.

So the whole idea that, you know, clients are going to save so many billions of dollars by this is Washington funny math. And we know Washington’s not very good at math.

Madison Connor (6:48)

Or PBMs.

Mike Stull (6:49)

Or PBMs sometimes.

Madison Connor (6:51)

So plan sponsors aren’t picking up on this. So we sent out a template or an update to clients yesterday, and there were several responses that came back particularly concerned about the point of sale rebate language.

Mike Stull (7:02)

And they should be because, I mean, it will impact the math equation that plan sponsors use to set, you know, what is the premium? What’s the deductible? What’s the max out-of-pocket?

And at the same time, as we head into 2027, you’re going to have some very highly rebatable drugs actually lowering their list price. So think of Ozempic, think Wegovy And so you have multiple pieces changing along the way.

So a lot to think about from a plan sponsor perspective. But that’s, you know, that’s a little bit further down the road. The other thing that I don’t necessarily like about the FTC settlement is the definition of rebates.

And it actually differs. It’s much looser than the definition in the Consolidated Appropriations Act or even in some of the state legislation that’s been passed.

Madison Connor (8:03)

Yeah. We should probably talk about how the FTC settlements and the CAA requirements relate and differ from each other.

Mike Stull (8:10)

Absolutely.

Madison Connor (8:12)

This time is as good as any, right?

Mike Stull (8:14)

As good as any. Go right ahead, Madison.

Madison Connor (8:16)

Yep. And under the CAA, there’s the requirement for PBMs to pass through 100% of all rebates, fees, and other remuneration that it receives from drug manufacturers. And then the FTC is then, again, encouraging the adoption of a point of sale rebate model.

It is complicated because we’re at this time, at this point of time, where there are several different branches of the government trying to enact policy and change in the PBM industry. And they’re doing it in different ways. And some of the ways are a bit inconsistent with each other.

So as we look to 2028, when some of these pieces will be implemented, it’ll be very important to look at the actual definitions of rebates to determine how do these harmonize or conflict with each other. And it’s going to present some challenges from a compliance perspective moving forward.

Mike Stull (9:06)

Absolutely. But I think the one thing that we need to make sure that we emphasize is that there isn’t anything in this settlement that will impact clients for 2027. Nothing that will impact the pricing.

Nothing that will impact land design heading into 2027.

Madison Connor (9:27)

There is some confusing language throughout the settlement that has an effective date of 1-1-27. But what they mean there is that these pieces of the standard offering will be incorporated into bids beginning in the 2027 calendar year. For effective dates in 2028.

So that’s the confusion there.

Mike Stull (9:49)

Absolutely. So thinking forward to 2028 and what our contracting strategy is going to be, that’s one of the things we wanted to just wrap up this episode talking about. And I think as we look back at our contract at least, we’ve always had options.

So whether it’s been needing a pass-through deal versus a traditional deal, we have options. Needing exclusive specialty versus open specialty, which is in a lot of the state laws, we have that option. We even have the option to carve out specialty altogether.

So having all of these different options, traditional rebates and point of sale rebates, having all of these options has always been something that’s been part of our contract. And so there’s nothing in the settlement that necessarily gives me pause from a contracting perspective as we go into 2028. What we will be focused on more so are some of the changes that you mentioned in the Consolidated Appropriations Act.

That will certainly change the way that we negotiate for rebates. It will certainly not change the way that we negotiate for retail discounts, particularly, I should say, the state legislation impacts the way that we’ll negotiate for retail discounts because so many of them have some type of minimum reimbursement requirement and those don’t apply towards guarantees. So you lose out on the ability to negotiate for those.

And the last thing is we’re focused much more on these new pricing models that are coming out of the PBMs and in the case of CVS, true cost, which was specifically excluded from this settlement.

Madison Connor (11:49)

So true costs will always be allowed according to the settlement.

Mike Stull (11:52)

Yep.

Madison Connor (11:53)

Before we wrap this up, Mike, I do have one final question for you at putting your FTC commissioner hat on. What did they miss?

Mike Stull (12:02)

Yeah, well, how much time do we have left?

Madison Connor (12:05)

Not very much.

Mike Stull (12:06)

Maybe that’s a topic for another episode. But, you know, it’s funny. We talked at the beginning about waiting for this to come out.

And as all these other changes have been happening across the marketplace, when this did come out, I read it. It was like, wah, wah, wah. I’m not sure that there was a lot in here that got me excited.

I think their biggest mess is the rebate piece of it and not including manufacturer administrative fees, not including some of the other types of manufacturer revenue in the definition of rebates. That’s the big mess. But we’ll save the rest for a future episode.

And maybe President Trump wants to appoint me as a FTC commissioner for PBM reform.

Madison Connor (12:57)

They might have some openings. And as we look forward, you mentioned some of the CAA definitions. We’re going to continue to monitor any implementing rules for the CAA, how that impacts rebate contracting moving forward.

And certainly this is something that is going to change quite a bit over the next two years. So we’ll continue to provide updates and break things down along the way.

Mike Stull (13:18)

Absolutely. And we’ve already had a lot of conversations with different consulting firms on some of the changes that are happening. Clients always have questions.

Always feel free to reach out. And if you have a specific topic that you want us to cover in a future episode, always happy to do that as well. Well, I think that does it for this one.

Madison Connor (13:39)

I think so. Thank you so much.