Key Highlights :
New Deal: CVS Caremark will take the place of UnitedHealth's Optum Rx as CalPERS's pharmacy benefits manager from January 2026.
Performance Risk: CVS stands to lose a maximum of $250 million if it does not manage drug expenses and drive clinical improvement.
Member Impact: 5–15% of CalPERS members might have to switch medications because of CVS's more limited drug list.
Key Background :
CalPERS, the largest public pension fund in the country, has also been contending with the sharply increasing prescription medication expenses. In 2023, it spent almost $2.4 billion on outpatient medication, a 36% increase in three years. This represents more than 20% of its overall healthcare premiums. The increasing cost pressure, in addition to pressure to provide improved health value to its members, led CalPERS to reassess its pharmacy benefit management approach.
UnitedHealth's Optum Rx had been handling CalPERS's pharmacy benefits since 2017. Yet, over time, doubts were raised about the transparency of the rebate system at Optum. People questioned whether CalPERS was really getting the full value of the negotiated price of drugs. CalPERS leadership was also becoming increasingly interested in bringing its vendor relationships into line with measurable performance objectives, particularly as drug spending rose.
Early in 2025, CalPERS issued a competitive bid solicitation for its pharmacy benefit contract. CVS Caremark was the leading contender, promising not just a more attractive financial deal but also committing to a risk-sharing arrangement. The contract has a six-year cap on drug cost growth (no more than 6.5%) and up to $250 million in penalties if performance metrics aren't achieved. These targets are linked to both spending trends and clinical outcomes in chronic conditions such as hypertension and diabetes.
CVS's offer also entailed a narrower formulary to ensure maximal use of medications and keep costs at bay. Although the decision might lead certain members to switch to substitute drugs, CalPERS is taking a balance of both fiscal prudence and members' overall long-term health. The leadership made it clear that any such alterations will be handled with utmost care in order not to interrupt care.
This. victory is strategically important for CVS, which has been coming under growing pressure from regulators and market trends over the past couple of years. While the struggle won't significantly change its bottom line, it underscores CVS's position as a formidable player in the PBM space and signals increased demand for large purchasers for PBMs to offer increasing amounts of transparency and accountability.
For CalPERS, the change is part of a wider policy approach: leveraging its size and clout to drive suppliers to innovation, cost-saving, and member-centered results.