By Grace Vitaglione
The health plan that covers some 750,000 current and former state employees and their families has hit a stone wall in negotiations with its pharmacy benefit manager, CVS Caremark, and is pondering legal action against the company, the Office of the State Treasurer announced on June 5.
The company owes the state tens of millions of dollars and is trying to rewrite their contract to get out of having to pay it back, State Treasurer Brad Briner claimed in an exclusive interview with NC Health News.
Pharmacy benefit managers, or PBMs, run the prescription drug benefit for many insurance companies. CVS Caremark has been the State Health Plan’s PBM since 2017.
CVS Caremark is supposed to negotiate with drug manufacturers to save money on drugs for the state employees’ plan, but they’re keeping much of those savings for themselves, claimed Thomas Friedman, executive administrator of the State Health Plan, who works in the state treasurer’s office.
CVS Caremark representatives are also trying to change their contract with the state to keep more money, Friedman alleged.
The state’s current contract with CVS Caremark ends Dec. 31, 2027. Staff from the Office of the State Treasurer are discussing with lawyers to see what options are available to force CVS Caremark to administer and follow the current contract.
CVS Caremark, however, says they are following the contract and saving money for beneficiaries.
The treasurer’s office told CVS Caremark representatives that noon on June 5 was their final deadline to make progress on contract negotiations, but they missed that deadline. Now, the Office of the State Treasurer may be “past negotiations,” said Loretta Boniti, communications director for Briner’s office.
The State Health Plan provides benefits for state employees, retirees and their dependents. Beneficiaries’ day-to-day experience shouldn’t change as a result of this dispute, Briner said. Drugs will be available, and people’s prescriptions will be filled.
“But ultimately, if CVS continues to go down this road and forces us to litigate for an extended period of time, I can’t guarantee we can hold the premiums where we thought they were even a week ago,” Briner said.
Discounts on drugs
PBMs have come under increased scrutiny from advocates, pharmacists and government officials at the state and federal level over concerns of opaque business practices.
The North Carolina Senate and House of Representatives recently passed separate legislation to regulate the companies in late April and early May. As the two chambers differ in how to go about it, neither bill is yet law.
PBMs are supposed to use their power as bulk purchasers to negotiate discounts on drugs for their client — the insurance company. Then the insurance company has the ability to pass along those savings to its members.
Those savings don’t always make their way to members, advocates allege.
The State Health Plan’s contract with CVS Caremark states that the PBM must pass 100 percent of those savings on drugs to the plan, Friedman said. But he alleged that’s not happening.
Instead, CVS Caremark is trying to move money around by offsetting their losses on some drugs with profits on others, he alleged.
Briner said the contract is clear: CVS Caremark must pass along the savings for each drug to the state even if that means they lose money on the transaction. The company is trying to change the contract so that wouldn’t be the case, he alleged.
CVS Caremark is also using their group purchasing organization to withhold money from the state, Friedman alleged. The organization is a separate entity affiliated with parent company CVS Health; it negotiates rebates with drug manufacturers on behalf of CVS Caremark.
That allows CVS Caremark to get around passing all their savings to the State Health Plan, Friedman alleged.
It’s hard to know exactly how much money CVS Caremark might be withholding from the state because of how opaque the practice is, Friedman alleged. He said the president of the company told him and Briner that CVS Caremark withheld about $135 million in drug rebates from the state from 2023 to 2025 and will withhold another $55 million per year in 2026-27. But they’re not sure if that number is accurate.
For context, the State Health Plan spends about a billion dollars on drugs each year, Briner said.
CVS Caremark said they are passing along all the rebates they receive on drugs used by members. The company lowers the cost of prescription drugs for state employees, said Shelly Bendit, senior manager of corporate communications for CVS Health, and the State Health Plan found their pharmacy expenses so far in 2025 are $158 million less than initially budgeted. She also said the State Health Plan chose last month to extend its contract with CVS Caremark through 2027.
The State Health Plan decided to stop covering Humira, a popular drug to treat rheumatoid arthritis, and GLP-1 drugs for weight loss in 2024, but it is now demanding to continue receiving rebates tied to those drugs, Bendit claimed.
“In a show of good faith and partnership throughout this dispute, we have continued to pay the [North Carolina State Health Plan]. Continuing to pay this windfall is unsustainable,” Bendit said in an email.
Other alternatives?
CVS Caremark is also pushing for the ability to sign off on any change to the list of drugs covered by the State Health Plan, Friedman argued. If new drugs come out and the state wants to cover them, CVS Caremark would have to agree to it under their terms.
That means when generic versions of existing branded medications come out, CVS Caremark could stop the State Health Plan from covering the drugs because it’s less profitable for them, Briner claimed.
A critical 2024 report from the Federal Trade Commission found that PBMs sometimes agree to exclude lower-cost alternatives from their list of covered drugs in exchange for higher rebates from manufacturers.
Despite the dispute with CVS Caremark, Briner said the state would likely have the same problems working with the two other main PBMs in the market.
Three giant PBMs processed nearly 80 percent of all prescription claims in the U.S. in 2024: CVS Caremark, Express Scripts and Optum Rx. CVS Health is the parent company of Aetna, the third-party administrator of the State Health Plan. There is no indication that Aetna, which took over administration of the State Health Plan in January, is involved in this dispute.
A new group of smaller PBMs paints themselves as more transparent alternatives to the big three, but Briner said he’s not sure any of those are ready to handle the scale of the State Health Plan.
One of those upstarts is billionaire Mark Cuban’s Cost Plus Drug Company, which launched in 2022 and claims transparent and more affordable drug pricing.
Briner said he doesn’t want to get into “a big, ugly public fight” with CVS Caremark. But he’s found it “bewildering” that the company doesn’t seem to want to find an agreement that works for everyone.
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