CalPERS Shifts to CVS Caremark in Groundbreaking Risk-Based PBM Contract

The California Public Employees' Retirement System (CalPERS) has announced a significant change in its pharmacy benefits management, awarding a new contract to CVS Caremark that introduces a novel risk-based approach to prescription drug coverage. This move, set to take effect in 2026, will impact nearly 600,000 members enrolled in CalPERS' basic and Medicare HMO and PPO plans.

Performance-Based Contract with $250 Million at Stake

In a bold step towards aligning pharmacy benefit manager (PBM) interests with those of its members, CalPERS has structured the contract with CVS Caremark to include substantial performance guarantees. The agreement puts $250 million at risk for the PBM if it fails to meet specific goals related to controlling pharmacy costs and ensuring quality health outcomes. This risk-based model extends to improved care metrics for high-priority conditions such as high blood pressure and diabetes.

Ram??n Rubalcava, chair of the CalPERS Board of Administration Pension and Health Benefits Committee, emphasized the organization's commitment to affordability and quality, stating, "This new contract reflects CalPERS' ongoing commitment to affordability and quality for our members."

Transparency and Oversight Take Center Stage

CalPERS cited CVS Caremark's commitment to "performance guarantees in key areas" as a crucial factor in their selection. The retirement system also highlighted the contract's promises of "increased transparency, audit and oversight provisions," signaling a shift towards greater accountability in PBM practices.

Don Moulds, CalPERS' chief health director, explained the rationale behind the new approach: "By holding the PBM accountable for delivering results, we're aligning their interests with those of our members and their public sector employers. This contract is designed to ensure that every dollar spent on prescription drugs delivers value for our members and ensures the sustainability of our program."

Member Impact and Industry Implications

While CalPERS assures that most enrollees will continue to fill prescriptions at their current pharmacies, the transition may lead to some formulary changes affecting copays for certain members. Additionally, some individuals may need to switch to similar medications under the new plan.

This move by CalPERS comes at a time when PBMs are facing increased scrutiny from legislators and policy experts for their role in rising prescription drug prices. The innovative contract structure could set a new standard for PBM accountability in the industry, potentially influencing future agreements between large health plans and pharmacy benefit managers.

Ed DeVaney, president of CVS Caremark, expressed confidence in the company's ability to meet the contract's demands, stating, "Every day we work to negotiate the lowest net cost for medications, identify safe and clinically effective therapies and support the unique needs of our customers. Through innovation and a relentless focus on improving the member experience, we are driving better health outcomes and lowering out-of-pocket costs for consumers."