CVS Secures Major PBM Contract with CalPERS, Unseating UnitedHealth's Optum Rx

CVS Health's pharmacy benefit manager (PBM) division, CVS Caremark, has won a significant contract with the California Public Employees' Retirement System (CalPERS), one of the largest healthcare buyers in the United States. The five-year agreement, set to commence in January 2026, marks a notable shift as CVS replaces UnitedHealth's Optum Rx, which has managed CalPERS' prescription drug benefits since 2017.

Contract Details and Financial Implications

While the exact financial terms remain undisclosed, the contract's scope is substantial. It covers outpatient prescription drug benefits for approximately 587,000 CalPERS members enrolled in both non-Medicare and Medicare HMO and PPO plans, representing about 40% of CalPERS' 1.5 million health benefit recipients. For context, CalPERS' previous contract with Optum Rx was valued at $5 billion, with $19 million budgeted for PBM administrative fees in the most recent fiscal year.

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. Specific performance guarantees include:

1. Keeping drug cost trends to 6.5% over the five-year contract period
2. Improving outcomes for patients with high blood pressure and diabetes

These targets are particularly noteworthy given that employers' prescription drug costs increased by 8% last year alone, according to a Mercer survey.

Rationale Behind the Switch

CalPERS' decision to switch providers stems from several factors:

1. Concerns about not receiving full benefits of rebates under the previous 100% pass-through contract with Optum Rx
2. A desire for increased transparency in PBM operations
3. The need for greater clinical and financial accountability

Dr. Julia Logan, CalPERS' chief clinical director, emphasized the fund's intention to improve upon the previous contract. CalPERS cited CVS as "the strongest candidate" based on its robust financial offer, solid transition and implementation plan, and alignment on contract terms.

Don Moulds, CalPERS' chief health director, stated, "By holding the PBM accountable for delivering results, we're aligning their interests with those of our members and their public sector employers."

Impact on Members and Industry Implications

While CalPERS assures that prescription drug access should remain largely unchanged for members, some disruption is anticipated. Approximately 15% of Medicare members and 5% of non-Medicare members may need to change medications due to CVS's "tighter" formulary.

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 practices and calls for alternatives, major contracts like this demonstrate the challenges faced by smaller, more transparent PBM startups in gaining market share.

The deal also comes at a crucial time for CVS, as the company grapples with rising health benefit costs and works to stabilize its retail pharmacy business amidst regulatory and legislative scrutiny of its PBM operations. While the contract is likely immaterial to CVS's overall earnings, analysts view it as a positive development for the company.