Bending the Prescription Drug Cost Curve

How Policy Reform Can Help
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February 7, 2017
Former Executive Vice President and Chief Operating Officer, CVS Health

Prescription drug prices in the U.S. are inflating faster than most consumer commodities and are projected to rise between 6 and 9 percent a year through 2021, according to one recent report. The good news is the current trajectory of health care spending is not inevitable.

CVS Health pharmacy benefit management (PBM) strategies have helped keep post-rebate client trend at or near 3 percent despite a nearly 12 percent increase in unmanaged inflation and utilization. But curbing escalating drug costs is going to require addressing numerous other cost drivers. Market reforms and changes to legislative policies that encourage greater competition can help bend the long-term cost curve.

Policies to End Drug Price Manipulation

An increasingly common practice among branded drug manufacturers is patent stacking – obtaining additional patents for a drug just before the original expires. Frequently these patents have nothing to do with the drugs’ clinical action but address something such as its mode of delivery or how it is manufactured, and can delay the launch of competitive products. Some makers also offer patent settlements to generic drug manufacturers to delay bringing a lower-cost generic to market, a strategy known as “pay-for-delay.” CVS Health supports passing laws that end such deals, including the Preserve Access to Affordable Generics Act.

Generics helped save $227 billion in 2015, and a total of $1.46T over 10 years.

Other proposed legislation that could make a meaningful difference is the Creating and Restoring Equal Access to Equivalent Samples – or CREATES – Act, aimed at ending abuse of Risk Evaluation and Mitigation Strategies (REMS) requirements. Roughly 40 percent of U.S. Food and Drug Administration (FDA) approvals are subject to REMS. The program is designed to ensure drug safety once a medication is brought to market. However, some brand drug manufacturers use the REMS program to delay generics from coming to market by denying generic manufacturers access to drug samples they need to ensure bioequivalence when seeking abbreviated review. By some estimates, abuse of the REMS program has resulted in $5.4 billion in annual lost savings. We support legislation introduced in Congress to end this practice.

Generics helped save $227 billion in 2015, and a total of $1.46T over 10 years.

Fostering Competition to Help Lower Drug Prices

In a time of escalating brand drug prices, generics are a powerful tool in controlling drug costs. Generics helped save $227 billion across the health care system in 2015 alone for a total savings of $1.46 trillion over 10 years. They have the potential for much greater savings. But the pace of generics coming to market is slowing.

One significant reason is the estimated backlog of 4,000 generic applications at the FDA. Prioritizing review for those medications that have an established market shortage can help foster more competition and that, in turn, can help bring down costs. The Increasing Competition in Pharmaceuticals Act would require the FDA to make a decision on single-source generics within 150 days of an application being submitted and introduces other provisions such as a priority review voucher.

Realizing the Promise of Biosimilars

At least four biosimilars have already been approved in the U.S. and another 25-35 are in development. However, the U.S. is far behind the European Union where 20 biosimilars are available. The first biosimilar in the U.S. came to market priced about 15 percent lower than the reference biologic. Over the next five years, biosimilars are expected to account for between $27 and $58 billion in savings. CVS Health recognizes and supports the advancement of biosimilars in the marketplace.

Biosimilars and follow-on biologics are key components of our 2017 formulary strategy and as each biosimilar enters the market, we will conduct a careful clinical and financial review process as part of our new-to-market evaluation strategy. Recently issued FDA guidelines provide clarity to manufacturers and may help pave the road for the designation of interchangeable biosimilars, which will give patients more options to expensive biologics. We also support the bipartisan Price Relief, Innovation and Competition for Essential Drugs Act, which would reduce exclusivity from 12 to seven years to help bring biosimilars to market faster. 

Working Together to Keep Prescription Drugs Affordable

Policy proposals such as these are examples of market reform that complement PBM cost-management tools and help bring down drug spend and trend. CVS Health is a founding member of the recently launched Coalition for Affordable Prescription Drugs, which intends to target the issues at the root of rising drug costs. Through collaborations like the coalition, and supporting – and advocating for – meaningful legislative reform, we can help make a difference and break the cycle of escalating prescription drug prices.

Want to learn more about policy and market reforms that can help lower your costs? Ask Us
February 7, 2017
Former Executive Vice President and Chief Operating Officer, CVS Health

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