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Recent congressional testimony by the chief executive officer of Mylan Pharmaceuticals has focused attention on prescription drug price inflation and on pharmaceutical pricing practices in general. Since 2013, Mylan has raised the price of EpiPen by 150 percent by our analysis. While annual double-digit price increases have become common for branded prescription pharmaceuticals, such triple-digit inflation is also occurring with greater frequency.
With such high inflation, it is important for CVS Health to work hard on behalf of our pharmacy benefit management (PBM) clients to negotiate discounts, rebates and price protection. Rebates are essentially a type of discount that is by and large passed on to clients. Price protection provisions guarantee that as the price of a medication increases, so does the amount of the discount.
While EpiPen’s price has increased 150% over three years, we’ve been able to keep our clients’ cost growth to less than 10% per year*
Pharmaceutical pricing practices may not be familiar to many consumers, and even to some payors, but they have parallels to pricing models throughout the health care system. Pharmaceutical manufacturers set list prices for their products, then negotiate discounts with PBMs.
Several factors affect these negotiations. Market competition, whether from another brand drug or a generic equivalent, is an important factor. Placement on the formulary used by the insurer is another factor. Formularies list the drugs covered by the plan. They may include preferred drugs — generally products for which the PBM has negotiated better pricing in categories which have multiple, competing clinical options. Due to our size and scale, CVS Health is generally able to negotiate larger discounts.
The chart above demonstrates the impact of PBM management on pricing for EpiPen over three years, including the negotiated discounts, rebates and price protection.
The chart below is an illustrative depiction of how this pricing approach works today for PBM clients of CVS Health for a single fill of EpiPen. The manufacturer sets a price of $730. The PBM negotiates discounts, rebates and price protection worth $440. The member pays a flat copay of $70. The net final cost to the payor is $220. Note that this net final cost is actually lower than the quoted $300 cost of the generic Mylan expects to release shortly.
Our Clients’ Costs for EpiPen
Helping to Keep Prescription Drugs Affordable for Consumers
Copays have risen for many consumers over the last several years. Pharmaceutical manufacturers will often provide coupons for individuals in commercial plans that cover their share of the cost — the copayment. These coupons are not allowed in federal programs such as Medicare.
Members of consumer-driven or high deductible plans can also face a large payment which can pose a real deterrent when filling the prescription. Payors can make a broad plan design change to share all rebates with consumers at the point of sale to help make prescriptions more affordable for their members.
Our overall prescription cost management strategy has been effective for our clients. In the first half of 2016, drug costs increased at an annual trend rate of 3.6 percent for our PBM clients. This is lower than the 5 percent increase over all of 2015, largely as a result of the discounts we negotiate to lower client costs.
Cost Management and More — Our Role as a PBM
Prescription cost management, however, goes beyond the negotiations on pharmaceutical pricing. For example, we encourage doctors to prescribe and patients to use generic medications when they are available, leading to equivalent care at a much lower price. Generic dispensing rates are at an all-time high and as soon as there is generic competition for the Mylan EpiPen, we will encourage plan members to use the lowest cost product. Moreover, our research has shown that use of generics improves adherence levels, thereby helping to support better outcomes and lower overall costs.
At CVS Health, our focus is on improving the quality of care and lowering overall cost in multiple areas, aligning with our purpose of helping people on their path to better health. Our adherence programs, which have been demonstrated to be highly effective, take advantage of our multiple channels to ensure patients are using medications appropriately, thereby improving outcomes and lowering costs.
In addition, we have shown that simplifying complex drug regimens for patients, through outreach from our pharmacists, can halve the number of patients who are readmitted to the hospital — again improving care and lowering costs. And through ScriptSync, our prescription synchronization program available through CVS Pharmacy, patients can renew monthly prescriptions in a single trip to the pharmacy, leading to nearly a 10 percent improvement in adherence.
Better use of medications also plays into quality measures used by many payors, including Medicare through its Stars program. That’s why CVS Health designs programs to help PBM clients improve their quality measures. At CVS Health, we realize that reducing inflation is only one part of a multi-pronged strategy aimed at improving overall health care and reducing overall medication costs as well as costs of prescriptions
Our Market-Leading Solutions Help Clients Stay Ahead of Marketplace Trends and Achieve Lowest Net Cost.
Dynamic Trend Management
CVS Health is a leader in providing innovative, proactive solutions that help to cost-effectively manage trend while still ensuring member satisfaction.
Data Source: CVS Health Enterprise Analytics, 2016.
*Average cost growth net of discounts, rebates, price protection and member copays for PBM commercial clients aligned with our formulary management strategy.
Prescription drug trend is the measure of growth in prescription spending per member per month. Trend calculations take into account the effects of drug price, drug utilization and the mix of branded versus generic drugs. Trend figures cited are for commercial cohort (health plans and employers). Gross trend is reported net of rebates.
All of the savings and/or trend changes discussed in this Insights Commentary will vary based on a variety of factors, including demographics, plan design and programs adopted by the client. Client-specific modeling available upon request.
This document contains references to brand-name prescription drugs that are trademarks or registered trademarks of pharmaceutical manufacturers not affiliated with CVS Health.