State Health Plan reaches contract impasse with CVS Caremark over pharmacy benefit services

The State Health Plan has halted contract negotiations with CVS Caremark over what the agency is calling a refusal to honor current obligations for its pharmacy benefit manager services.

The SHP is North Carolina's largest purchaser of medical and pharmaceutical services, covering nearly 750,000 teachers, state employees, legislators, retirees and their dependents.

CVS Caremark has been the SHP's pharmacy benefit manager since 2017.

Pharmacy benefit managers are typically third-party administrators of prescription drug coverage, hired by employers, health plans and other payers to handle prescription drug claims processing, formularies development and rebate negotiations.

The Treasurer's Office said in a news release Thursday that 18 months of contract negotiations have resulted in "an untenable impasse" with CVS Caremark, "which potentially endangers the financial well-being of the SHP."

The SHP is evaluating its options to recover money it says CVS Caremark owes, as well as its future relationship with the insurer.

State Treasurer Brad Briner made the SHP's precarious financial status a major focus of his first term.

"We have been working hard to address the $500 million deficit the State Health Plan is facing since my first day in office," Briner said.

"Part of that work includes partnering with organizations who are committed to working alongside us.

"We cannot proceed with vendors who will force the Plan to raise premiums on our state employees by not honoring their contractual obligations."

However. CVS Caremark said it is "delivering on its contractual promises" and that the SHP agreed in May to extend their contract through 2027."

"CVS Caremark's record is clear: we lower the cost of prescription drugs for North Carolina's teachers and public employees," the health insurer said.

"According to the SHP, their pharmacy spend thus far in 2025 is $158 million less than initially budgeted. It has chosen to use those savings to help keep member premiums low."

The SHP claims CVS Caremark has not been providing since 2023 agreed-upon rebates worth in the tens of millions of dollars.

"Caremark's repeated demands would rewrite the agreed upon contract with the SHP to increase its profits at the direct expense of teachers, state employees, retirees and taxpayers," according to the Treasurer's Office.

"Without these corrections, the Plan would face concerns of insolvency or extreme premium increases for Plan members."

"Prescription drug costs are already sky high. State employees and retirees cannot afford to pay more," said Ardis Watkins, executive director of State Employees Association of N.C.

"We stand behind their efforts to hold CVS Caremark to their word."

CVS Caremark said that it "recognizes the State Plan is facing a significant budget shortfall and welcomes the opportunity to work together to create additional savings in their pharmacy spend."

"To be clear, Caremark has always, and continues to, pass through to the State Health Plan 100% of rebates it receives on drugs used by its members.

"Rebates are a commonly used tool from manufacturers across industries that are essentially a post-sale discount. They are only earned on drugs that are actually purchased and dispensed."

A key element of dispute is the SHP's decision in January 2024 to change its pharmacy plan to exclude coverage for Humira and anti-obesity coverage for GLP-1 drugs for its beneficiaries.

Former two-term Treasurer Dale Folwell recommended ending the coverage on April 1, 2024, for 24,749 SHP members prescribed a GLP-1 drug for weight loss.

Folwell claimed that continuing SHP coverage of weight-loss drugs purely for that purpose eventually would bankrupt the SHP. Folwell has projected the SHP facing a $4.2 billion budget gap over the next five years, what he calls "an existential threat."

CVS Caremark said that "we do not dispute their right to change their formulary."

"But, the State Health Plan is demanding that it continue to receive hundreds of millions of dollars in rebates tied to drugs they chose to exclude when they changed their plan design."

"In a show of good faith and partnership throughout this dispute, we have continued to pay the SHP.

"Continuing to pay this windfall is unsustainable."