Consumer Transparency

Helping Members with High-Cost Drugs at the Point of Sale

FEATURE
June 7, 2017
Executive Vice President and Chief Operating Officer, CVS Health

Prescription drug affordability continues to be a serious concern and drug pricing a highly contentious issue.

Drug costs for some consumers have risen significantly due to a number of factors, including ongoing double-digit gross price hikes by brand manufacturers. Proactive pharmacy benefit management (PBM) strategies have been able to keep net price growth relatively low despite these price increases. However, as the number of consumers covered by high deductible health plans (HDHPs) grows, many are being exposed to gross drug prices during the deductible phase, often for the first time.

Shift Away from Brands

Nearly nine out of 10 prescriptions dispensed today are generics, which means that the volume of brand drugs dispensed has shrunk significantly over the last several years. One way that brand manufacturers have worked to maintain profits is to raise gross prices year after year. These increases have been a major factor contributing to prescription drug trend for many years.

Brand Manufacturers Increase Prices as Brand Market Share Shrinks 

Brand RX Volume Drops, Brand Prices Skyrocket between 2010 and 2015
Brand RX Volume Drops, Brand Prices Skyrocket between 2010 and 2015


Source: Visante analysis of published Quintiles IMS data. Study used Wholesale Acquisition Cost (WAC) to evaluate price. 

Blunting the Impact of Price Increases

PBMs utilize market competition and industry expertise to negotiate discounts and rebates from brand manufacturers to reduce the net cost of prescriptions for their clients. CVS Health passes these discounts and rebates directly to clients and offers a range of solutions that help further lower prescription costs for clients and plan members.

Formulary is foundational to cost control. Removing drugs from the formulary and promoting the appropriate use of lower-cost alternatives such as generics has proven very effective in helping keep net costs low. Carefully managing the use of high-cost branded drugs, including specialty pharmaceuticals, has also helped keep drug trend — a measure of spending growth — in the single digits for payors. 

Market Overview

When Formulary Exclusions were introduced in 2012, Net Price Growth has declined compared to Gross Price Growth due to the impact of PBM-Negotiated Discounts, Rebates and Price Protection.
When Formulary Exclusions were introduced in 2012, Net Price Growth has declined compared to Gross Price Growth due to the impact of PBM-Negotiated Discounts, Rebates and Price Protection.


Source: IMS Health, National Sales Perspectives, IMS Institute for Healthcare Informatics, March 2016. Values are estimated.

The Role of Benefit Design

2016 Annual OOP Prescription Drug Costs for Individual Members: 59.6% Under $100, 29.1% $101-$500, 7.2% $501-$1000, 4.1% spend >$1,000/year .

A majority of insured plan members have relatively low out-of-pocket (OOP) costs. Nearly 60 percent of those covered by CVS Health-administered plans spent less than $100 in OOP costs in 2016. However, 4 percent of members spent more than $1,000 — averaging more than $1,800 annually.

Many members with high OOP costs are in HDHPs. Twenty-nine percent of workers in employer-sponsored plans were covered by a HDHP in 2016 — five times more than 10 years before. These consumers are increasingly exposed to higher gross prices for prescriptions during the deductible phase, when they are responsible for the pre-rebated gross cost of the drug. 

2016 Annual OOP Prescription Drug Costs for Individual Members: 59.6% Under $100, 29.1% $101-$500, 7.2% $501-$1000, 4.1% spend >$1,000/year .

An Ongoing Conversation 

Exposure to, and the need to pay, high gross prescription costs have driven protests and social media campaigns, which have attracted the attention of lawmakers and media. Pharmaceutical manufacturers have responded to this scrutiny in various ways. A few have pledged to keep price increases below 10 percent. In an effort to divert the focus from manufacturers, the Pharmaceutical Research and Manufacturers of America, an industry group, recently released a consumer-targeted advertising campaign urging that payors “share the savings” with members. The campaign attempts to shift the conversation from drug pricing and manufacturer-driven gross price increases to the rebates negotiated by PBMs to help control costs for payors.

Amidst the charged atmosphere and controversy, our commitment and focus remain on helping clients provide an affordable, accessible benefit that delivers effective care to their members. 

Introducing Consumer Transparency in HDHPs

Consider a common high deductible plan in which a $100 rebate has been negotiated on the initial discounted drug cost of $250. Members who have not met their deductible would typically be responsible for the full $250. The manufacturer would provide the rebate within a specified period of time, and the payor would receive the full rebate amount according to contracted terms. If the payor implemented point-of-sale (POS) rebates, member cost in this example would be $150, a decrease of $100. 

During Deductible, Member May Pay Full Discounted Gross Drug Cost: $250 Discounted Gross Drug Cost, ($250) Member Cost, ($100) Rebate Negotiated from Manufacturer (Rebate Remitted to Plan; PBM-negotiated rebate from manufacturer; paid to plan. May be used to lower overall member benefit cost – deductibles, premiums, copays), -$100 Plan Cost.
During Deductible, Member May Pay Full Discounted Gross Drug Cost: $250 Discounted Gross Drug Cost, ($250) Member Cost, ($100) Rebate Negotiated from Manufacturer (Rebate Remitted to Plan; PBM-negotiated rebate from manufacturer; paid to plan. May be used to lower overall member benefit cost – deductibles, premiums, copays), -$100 Plan Cost.
Applying Rebate at Point-of-Sale (POS) Reduces Member Cost at POS: $250 Discounted Gross Drug Cost, $100 Rebate Negotiated from Manufacturer (Rebate Applied at POS. Reduces member’s out-of-pocket cost at POS. Plan assumes greater cost share and may adjust other costs to compensate – deductibles, premiums, copays), $150 Member Cost, $0 Plan Cost
Applying Rebate at Point-of-Sale (POS) Reduces Member Cost at POS: $250 Discounted Gross Drug Cost, $100 Rebate Negotiated from Manufacturer (Rebate Applied at POS. Reduces member’s out-of-pocket cost at POS. Plan assumes greater cost share and may adjust other costs to compensate – deductibles, premiums, copays), $150 Member Cost, $0 Plan Cost


Illustrative example. Data source: CVS Health Enterprise Analytics

Maintaining Plan Cost Share Structure

Applying rebates at POS shifts the cost share structure of a plan, increasing overall payor cost share. In the illustrative example we are using, the member’s cost share would decrease by 8 percent, while payor cost share would go up by the same amount. For the 180,000-member plan that this example is based on, rebates to the payor would decline by approximately $7.5 million. A 3 percent increase in the employee premium would help to offset the rebate reduction. Plan-specific modeling is available for CVS Caremark PBM clients.

Plan May Adjust Premium to Help Maintain Plan/Member Cost Share 

Original Plan Design Cost Share: 22% Member, 78% Client. Cost Share with POS Rebates: 14% Member, 86% Client. (Sample Plan: 180K lives; Custom formulary; POS rebates.)
Original Plan Design Cost Share: 22% Member, 78% Client. Cost Share with POS Rebates: 14% Member, 86% Client. (Sample Plan: 180K lives; Custom formulary; POS rebates.)

As a PBM, we promote competition and utilize our scale and clinical expertise to deliver savings and efficiencies to help our clients while helping keep prescription drugs affordable and accessible for members. Through the insights provided by our integrated model, we understand the challenges that some consumers face with rising drug costs, which is one reason we developed the capability to reduce members’ OOP spending by applying rebates at point of sale. Our consumer research shows that OOP costs may be a barrier to accessing needed medical care. A solution like POS rebates that reduces how much a member has to pay out-of-pocket can help improve adherence. Several clients have implemented this solution, and we are using it for our own employee benefit as well. 

Considering POS rebates for your plan? Ask Us for a point-of-sale analysis.*

Note: The downloadable PDF for this article was updated since the article was first published at 5 am ET on June 7, 2017. If you downloaded a copy prior to 7 pm ET on June 8, please download the newest version.

FEATURE
June 7, 2017
Executive Vice President and Chief Operating Officer, CVS Health

*Available for CVS Health current clients