Aug. 9, 2018
Dive
Brief:
- CVS Health
on Wednesday pushed back against claims by the pharma industry and others
that rebates and other price concessions are driving up drug prices,
disclosing that it retains only 2% of the rebates it processes.
- "Drug
manufacturers want you to believe that increasing drug prices are a result
of them having to pay rebates and that PBMs are retaining these
rebates," company CEO Larry Merlo said on an earnings conference
call. "And this is simply not true."
- CVS' rebuttal is the latest salvo
in a back-and-forth debate between PBMs and drugmakers over which
side should be held to account for the rising costs consumer pay for
prescription medicines. Recent moves by the Trump administration have suggested that
rebates could become a focus in the White House's efforts to rein in drug
prices.
Dive
Insight:
Rebates,
which pharma companies hand back to PBMs and insurers to secure coverage,
have become the latest flashpoint in the debate over drug costs.
In
July, HHS Secretary Alex Azar signaled in a speech that the administration is
examining rebating in its entirety, suggesting the practice may need to be
"disrupted." A proposed regulation recently submitted for review by
the Office of Management and Budget hinted that one approach may involve
changing the legal exemption that allows rebates to circumvent anti-kickback
rules.
Targeting
rebates is a position that drugmakers are happy to echo. On a recent call,
Pfizer CEO Ian Read characterized rebates
as "subsidies" pharmaceuticals companies pay to the rest of the
healthcare industry. And PhRMA, the drug trade lobby, supports moving away from
a system based on rebates as a percent of list prices.
Criticism
of rebates mostly falls into two buckets: claims that the practice gives
PBMs an incentive to push for higher list prices, and scrutiny into how
much PBMs keep of the rebates they receive.
The
numbers from CVS, however, appear to undercut some of those attacks.
CVS
said it returns 98% of the rebates it negotiates back to clients, such as
employers and insurers, which claim to use the money to lower premiums and
other insurance costs.
It's
not clear, however, exactly how its clients use the money they receive from the
rebates CVS negotiates.
In
2018, the pharmacy giant estimates retained rebates from the commercial market
will total only $300 million, or about 3% of
earnings per share — a figure lower than some outside
estimates. David Denton, CVS' chief financial officer, noted that 100% of
rebates negotiated for Medicare plans are passed through without any retained
by the PBM.
In
calculating that $300 million figure, CVS said "rebates" included all
price protection, and administrative fees paid by manufacturers for commercial
and Medicare Advantage Part D clients.
CVS
also rejected the idea that rebates are correlated with rising prices.
"Our
data show that list price is increasing faster for drugs with small rebates
than it is for medications with substantial rebates," Merlo said.
For
example, CVS data appears to show that list prices for multiple sclerosis drugs
increased by 27% from mid-2015 through the first quarter of this year. Rebates
for those drugs, however, averaged only 7%.
Rebates
were significantly higher, though, among asthma drugs and DPP-4 inhibitors, a
type of diabetes medicine.
CVS'
numbers echo findings from a 2017 report by the Pharmaceutical
Care Management Association, a PBM trade lobby, that also concluded
there was little correlation between higher rebates and rising list
prices.
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