CVS Health has introduced a white paper highlighting several new techniques it claims will reduce the cost of drugs (“Current and New Approaches to Making Drugs More Affordable”). CVS determines that these new techniques, together with several approaches already in use, will help patients afford the medications they need (thus ensuring that more people take their medications as prescribed) and reduce profit margins for pharmaceutical companies.

The white paper initially discusses three pricing techniques for managing costs already in place at its Pharmacy Benefit Manager (PBM) arm, CVS Caremark: (1) encouraging greater use of generics and other lower cost alternatives through step therapy; (2) prior authorization; and (3) formulary management.  The paper argues that these methods have helped it “improve adherence and keep drug cost inflation under control in spite of steady price increases by manufacturers,” noting that price growth for PBM clients was only 0.2 percent despite drug manufacturer increases of nearly 10 percent (as calculated by CVS Health Enterprise Analytics.)

The paper then goes on to describe the three new strategies that the PBM giant will employ as a part of its plan to lower drug costs.

Assistance for patients during the deductible phase of insurance.  CVS notes that patients with chronic illnesses who are insured under high deductible plans often face daunting out-of-pocket costs. The white paper proposes to utilize a wider preventive drug list, which enable plans to have zero-dollar copays for drugs that prevent disease (including diabetes, hypertension, hyperlipidemia, asthma/COPD, and depression).

Reducing the “launch price” of new medications. The initial price of a new drug introduced to market, its “launch price,” is set by the manufacturer. CVS proposes to influence drug makers in the setting of these prices by utilizing a quality-adjusted life years (QALY) analysis to compare the cost and effectiveness of a drug and allowing clients to exclude any drug (with some exceptions for “breakthrough” medications) launched at a price of greater than $100,000 per QALY from their plan. As a basis of comparison, the paper indicates that in Europe most drugs are priced at launch to produce effectiveness at $50,000 per QALY. The QALY ratio is set by the Institute for Clinical and Economic Review, also known as ICER.

Transparency in drug costs. CVS Caremark plans to increase awareness of the true cost of a drug via the introduction of several new tools available to doctors, pharmacists, and consumers. Tools such as Rx Savings Finder and Check Drug Cost Tool enable users to see the true cost of a drug, the amount the member will have to pay, and a list of therapeutic alternatives and the cost of each. CVS believes that increased transparency will lead to more cost-effective prescribing by physicians and therefore lowered per-fill costs for patients.

CVS believes that the implementation of the described strategies will lead to lowered prescription costs and better health outcomes for patients as their medications become more affordable. The paper pulls no punches in noting that its new strategies are designed to lower profit margins for pharmaceutical companies, placing the blame for high-drug costs squarely on the manufacturers and suggesting that “big pharm” focus its energies and money on the discovery of new drug treatments rather than marketing. It is not a tough call to predict pushback from drug manufacturers on the CVS paper and its strategies.

The FisherBroyles Pharmacy and Health Care Law team is pleased to keep you updated on events of interest to those in the healthcare and pharmaceutical industries. Questions regarding the subject matter of this alert may be directed to any of the following attorneys:

Brian Dickerson, FisherBroyles Partner
Brian E. Dickerson

Anthony Calamunci, FisherBroyles Partner
Anthony Calamunci

Nicole Waid, FisherBroyles Partner
Nicole Hughes Waid

Amy Butler, FisherBroyles Partner
Amy Butler