CVS Wins Major CalPERS Pharmacy Benefits Contract, Unseating UnitedHealth

CVS Health has secured a significant victory in the competitive pharmacy benefit manager (PBM) landscape, winning a lucrative contract with the California Public Employees' Retirement System (CalPERS). The five-year agreement, set to commence in January 2026, marks a notable shift as CVS Caremark replaces UnitedHealth's Optum Rx, which has managed CalPERS' prescription drug benefits since 2017.

Contract Details and Financial Implications

While the exact financial terms of the contract remain undisclosed, the scale of the agreement is substantial. CalPERS, the largest pension fund in the United States, has seen its total outpatient pharmacy spend surge to nearly $2.4 billion in 2023, a 36% increase over three years. The new contract covers outpatient prescription drug benefits for approximately 587,000 members enrolled in both non-Medicare and Medicare HMO and PPO plans, representing about 40% of CalPERS' 1.5 million health benefit recipients.

CVS has agreed to put $250 million at risk, contingent on the PBM's ability to control drug costs and improve the health outcomes of CalPERS members. This performance-based approach aligns with CalPERS' goal of ensuring value for every dollar spent on prescription drugs and maintaining program sustainability.

Strategic Objectives and Performance Guarantees

CalPERS' decision to switch to CVS Caremark was driven by several key factors:

1. Enhanced transparency and accountability in PBM operations
2. Improved rebate benefits and drug pricing
3. Stronger audit and oversight provisions
4. Ambitious performance guarantees

CVS has committed to keeping drug cost trends to 6.5% over the five-year contract period, a notable target given that employers' prescription drug costs jumped 8% last year alone, according to a Mercer survey. Additionally, the PBM has agreed to clinical guarantees, including improving outcomes for patients with high blood pressure and diabetes.

Impact on CalPERS Members and Industry Implications

While prescription drug access is expected to remain largely unchanged for CalPERS members, some disruption is anticipated. CVS's formulary is described as "tighter" though clinically appropriate, potentially requiring medication changes for approximately 15% of Medicare members and 5% of non-Medicare members.

This contract award underscores the ongoing dominance of the "Big Three" PBMs – CVS Caremark, Optum Rx, and Cigna's Express Scripts – which collectively control 80% of the U.S. prescription drug market. Despite growing scrutiny of PBM business practices and calls for alternatives, major contracts like CalPERS continue to be awarded to established industry leaders.

The CVS-CalPERS agreement represents a significant development in the pharmaceutical industry's ongoing efforts to balance cost control with quality healthcare delivery. As stakeholders across the healthcare spectrum watch closely, this contract may set new benchmarks for PBM accountability and performance-based contracting in the years to come.