By Larry J. Merlo
October 3, 2018 at 5:00 am ET
Rebates are the latest political hot potato being thrown around in Washington as policymakers consider approaches to lowering the cost of prescription drugs. And depending on who you talk to, prescription drug rebates are either the problem or the solution to high cost drugs. While pharmacy benefit managers use rebates as a tool to drive discounts and costs savings for prescription drugs, pharmaceutical manufacturers say they must set their list prices ever higher because PBMs demand and keep higher and higher rebates. And so the circle goes…
It’s time to put to rest the mistaken belief that rebates cause prescription drug list price increases. To the contrary, the data shows no correlation between manufacturer-driven price increases and drug rebates. In fact, list prices have increased faster for drugs with small rebates than for medications with substantial rebates.
The truth of the matter is that PBMs have been successful in negotiating rebates with drug companies and that virtually all of those rebates are passed on to clients, such as large employers, unions and health plans. Recently, the two largest PBMs, CVS Caremark and Express Scripts Holding Co., said that they keep just 2 percent and 5 percent of rebates respectively, passing along the rest to clients who use the rebates to make prescription drugs more affordable for their employees and members and to bring down their other health care expenses, like health benefit premiums.
But that still leaves the question of what actually happens to drug rebates – and if there is a better way to utilize them to make prescription drugs more affordable for consumers. At CVS Health Corp., we have undertaken comprehensive efforts to help reduce the cost of drugs that include, amongst many other tools, making rebates available to patients when they purchase their medications.
In fact, as both a PBM and a large employer, CVS Health sees this issue from both sides. As an employer, we spend $1.2 billion annually on health care benefits, of which $250 million is for prescription drugs. In our employee plan, we use rebates to bring down the cost of premiums and to help our employees with their out-of-pocket drug costs.
Like many large employers, CVS Health offers a high deductible health plan with a health savings account to its employees, and we have approximately 185,000 employees and dependents currently enrolled in the plan. In the United States, 45 percent of all covered beneficiaries are now in high deductible health plans, which means they are seeing higher out-of-pocket costs on the part of the benefit they use the most – their prescription drug coverage.
High deductible plans associated with HSAs could be more effective in improving medication adherence and health outcomes while controlling cost if they provided more first-dollar coverage at the pharmacy counter for prescription drugs. The Trump administration could take immediate action by regulation to expand the preventive products and services now allowed to be covered under high deductible health plans to include products intended to prevent the worsening of chronic diseases, or to allow a high deductible health plan to cover drugs prior to satisfaction of the deductible.
We know firsthand that this works. CVS Health fully pays for certain drugs, including a number of generic medications, for its covered employees and dependents under the preventive drug list prior to the employee reaching the deductible. Under this coverage, our generic dispensing rate has improved, reducing costs for both CVS Health and our employees.
Our medication adherence metrics for preventive drug regimens for conditions such as hypertension, hyperlipidemia, heart failure, diabetes, asthma/COPD and depression have also improved. Our research shows that health care costs for patients with these conditions are reduced when they take their medications as prescribed. For example, for patients with congestive heart failure, CVS Health found that they spend nearly $8,000 less per year by adhering to their medication.
As an additional step to managing health care costs more effectively, CVS Health also instituted point-of-sale rebates so that our covered employees have the direct benefit of the discounts our PBM negotiates from the manufacturer. And, we are so convinced that point-of-sale rebates are effective in reducing high out-of-pocket costs for those on high deductible health plans while increasing adherence, improving health outcomes and keeping costs down, that we have urged our clients to adopt this same approach.
In fact, currently 10 million lives covered by our PBM are in point-of-sale rebate plans. It’s important to note that point-of-sale rebate plans are not an all or nothing choice. Rebates can be used to help keep premium costs lower while also being applied at the point of sale to help lower out-of-pocket costs.
CVS Health as a large employer, in addition to being a health care company, has wrestled with many of the same challenges other employers do as we seek to balance member costs and offer a sustainable benefit. We, like our clients, use rebates as a tool to drive discounts and support the health care coverage we provide to our employees. By combining point-of-sale rebates, zero-dollar co-pays for preventive drugs with a comprehensive preventive drug list, we are able to address costs both as an employer and for our employees individually – and others could certainly do the same.
In fact, we encourage our clients to do exactly that. We would all be healthier for it.
Larry J. Merlo is president and chief executive officer of CVS Health.
Morning Consult welcomes op-ed submissions on policy, politics and business strategy in our coverage areas. Updated submission guidelines can be found here.