State Health Plan contract clash risks court battle, insolvency

Stalled contract negotiations between CVS Caremark and North Carolina State Treasurer Brad Briner’s office, along with the State Health Plan (SHP), could result in a possible court battle, higher premiums for state employees, or even insolvency for the Plan.

The treasurer said in a recent press release that CVS Caremark, the Plan’s pharmacy benefit manager (which manages the prescription drug benefits for the SHP), since January 2017, has refused to honor its current contract with the SHP after months of negotiations and many attempts to rectify contractual obligations.

They include Caremark’s failure to provide rebates, post-sale discounts negotiated with drug manufacturers, to the Plan in the amount of tens of millions of dollars since 2023, and the company’s repeated demands would rewrite the agreed upon contract with the Plan to increase its profits at the direct expense of teachers, state employees, retirees, and taxpayers.

The SHP provides benefits for over 750,000 state employees, retirees, and their dependents. 

According to Loretta Boniti, Director of Strategic Communications and Media Relations for the State Treasurer’s office, Caremark has told the Plan that the company’s corporate profits on the contract are no longer as high as Caremark wants.

Regardless, the Plan’s contract requires that Caremark pay certain guaranteed minimum payments to the Plan, regardless of actual collections from drug manufacturers. The contract also requires Caremark to pass on 100% of all rebates and calculate these rebates correctly, which is important to ensure financial stability for the Plan and reduce costs for members.

She told Carolina Journal in an emailed statement that Caremark owes at least $10.1 million for 2023 rebates and $21.8 million for 2024 rebates.

premiums may rise if CVS Caremark doesn’t take corrective action

If Caremark does not pay these amounts, Boniti said the Plan may need to require every active member to pay additional annual premiums of $100 starting in 2026. In addition, if Caremark is allowed to continue to calculate the rebates incorrectly under the contract, it could separately increase annual premiums for the rest of the life of the contract by more than $500 per member.

“Many of Caremark’s unilateral actions and demands have centered around surreptitiously and more directly boosting Caremark’s profits at the expense of the Plan by attempting to reduce Caremark’s binding guarantees to the Plan, by trying to calculate rebates in ways disadvantageous to the Plan, and by attempting to change its contractual commitments when they become less profitable for Caremark,” she told CJ. “So far in the negotiations process, each of Caremark’s demands has not aligned with the Plan’s needs for a clear, stable, and fiscally responsible solution to Caremark’s breach. Thus, the Plan must maintain its rights under the current contract and demand Caremark comply.”

The SHP Board of Trustees voted to make benefit changes to the SHP for its 750,000 members for the 2026 benefit year at their meeting in May. The next board meeting on Aug. 15 will determine the premiums for 2026.

Briner and SHP administrators said the changes were necessary to address the Plan’s projected deficit — $507 million in 2026 and between $800 million and $900 million in 2027.

“We have been working hard to address the $500 million deficit the State Health Plan is facing since my first day in office,” he said in Thursday’s press release. “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.”

“Prescription drug costs are already sky high,” said State Employees Association of North Carolina Executive Director Ardis Watkins in the release. “State employees and retirees cannot afford to pay more,” said “We commend Treasurer Brad Briner and State Health Plan Executive Administrator Thomas Friedman for taking on this fight to bring true transparency to what we’re paying. We stand behind their efforts to hold CVS Caremark to their word.”

CVS Caremark said it’s committed to delivering on it’s contract with the SHP

CVS Caremark spokesperson Shelly Bendit told CJ in an emailed statement that while they recognize the SHP is facing a significant budget shortfall and welcome the opportunity to work together to create additional savings in their pharmacy spend, the company is committed to delivering on its contractual promises to the SHP

“CVS Caremark’s record is clear: we lower the cost of prescription drugs for North Carolina’s teachers and public employees,” she said. “According to the NCSHP, their pharmacy spend thus far in 2025 is $158 million less than initially budgeted, and they have chosen to use those savings to help keep member premiums low. In fact, just last month, the State Health Plan chose to extend its contract with CVS Caremark through 2027 based on our successful partnership, which began in 2017.”

Bendit also said that Caremark has always, and continues to, pass through to the State Health Plan 100% of rebates it receives on drugs used by its members.

She further stated that, for the past 18 months, CVS Caremark has worked in good faith to resolve the contractual dispute with the SHP.

“In early 2024, they changed their plan design and chose to exclude coverage for Humira and anti-obesity coverage for GLP-1 drugs for its beneficiaries,” Bendit added. “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.”

She said in a show of good faith and partnership throughout this dispute, CVS Caremark has continued to pay the SHP, but “continuing to pay this windfall is unsustainable.” 

Bendit said, “We continue to offer tens of millions of dollars of real additional value through other programs consistent with our goal to lower prescription costs for the Teachers and State Employees of North Carolina.”

legal action may be taken if Cvs caremark doesn’t comply with contract

Boniti told CJ that if Caremark fails to comply with clear, stable, and fiscally responsible solutions to the company’s breach, the Plan is ready to move forward to protect its members through legal action.

That said, the Plan remains hopeful that Caremark will comply with the contract without the Plan having to resort to litigation.

She said that under the contract, Caremark is required to perform its duties, even during the dispute. Additionally, Caremark would be liable to the Plan for any harm Caremark’s failure causes to Plan members.

SHP members will still have pharmacy benefits regardless of outcome

Boniti stressed that if Caremark fails to honor its commitments, the Plan is preparing alternative arrangements to make up for Caremark’s default.

“In short, regardless of the outcome of this dispute, members will continue to have pharmacy benefits,” she said.

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