Rising prices for prescription medicines have become an increasingly contentious issue and cast a harsh spotlight on the pharmaceutical industry. As a result, a growing number of state and federal lawmakers are proposing legislation to somehow halt the trend. Drug makers maintain their prices fuel needed innovation and blame insurers for forcing consumers to pay higher costs. But Troy Brennan, the chief medical officer and executive vice president at CVS (CVS) Health, argues differently. CVS runs the nation’s second-largest pharmacy benefits manager, which negotiates drug prices for companies and government agencies, among others. He maintains CVS is cutting costs to clients. Here is an excerpt of our conversation.
Pharmalot: So you issued a statement saying your clients spent 5 percent more on drugs last year than in 2014, when their drug costs rose 11.8 percent.
Brennan: Yes, we continued to see double-digit inflation across the board, both in specialty medicines and brand-name medicines. Price increases for generics were much smaller. But without our management, the overall increase in spending last year would have been 12.5 percent.
Pharmalot: Can you break that down?
Brennan: So of that 12.5 percent, increased utilization (industry jargon for a larger number of prescriptions) accounted for 1.3 percent. The rest was in price inflation — specialty medicines rose 2.8 percent, other brand-name medicines rose 7.6 percent, and generics increased nearly 1 percent. But using various management programs, what would have been a 12.5 percent increase in spending last year was reduced to 5 percent.
Pharmalot: And you did that by how?
Brennan: We have the usual major tools in front of us. Managing formularies (these are lists of preferred drugs for which coverage is provided); prior authorization (the process used by PBMs to determine whether coverage is warranted); and tiers (or categories of drugs that require consumers to pay different amounts). We used these approaches to make sure patients used less expensive medications … We also use rebates (which are received from drug makers based on assorted contract terms).
Pharmalot: But you’ve also said that prices rose for certain categories of medicines more than others. Which ones and what are you doing in response?
Brennan: We’re doing analysis on a daily basis and looking for places where there is significant growth in utilization or price inflation. A couple really caught our attention — dermatological and diabetes. There are a lot of brand-name medicines in both categories with a lot of background inflation and especially increasing utilization. … With dermatological products, there is a lot of marketing to doctors and direct-to-consumer advertising.
We also saw a failure (among physicians) to adhere to evidence-based guidelines for prescribing. In diabetes, we see a lot of patients started on more expensive branded medicines, instead of metformin, which is an older, less expensive treatment. In dermatological, there were a lot of significant and costly product launches and increased utilization.
So what we can do is put new prior authorization programs in place that are more sophisticated than the ones we had before in order to reduce utilization.
Pharmalot: You mentioned dermatology meds. Valeant Pharmaceuticals, as you know quite well, has invited scrutiny into its insurance reimbursement practices for these medicines, which are a visible part of its business. Are you looking at Valeant, in particular?
Brennan: We’re looking at the entire category. But for example, Jublia (which is a topical medicine sold by Valeant) is an expensive drug in that category (Jublia sells for about $500 for a 4 milliliter bottle, according to GoodRx). With Jublia, the clinical trials showed a 16 percent success rate, and the oral medications have a success rate of 30 percent to 50 percent. So we want patients to try the oral medication first … We’ll end up looking at half a dozen to a dozen medicines.
Pharmalot: You mentioned rebates. There is a lot of criticism of drug makers for not being transparent about how they arrive at their pricing, but there is also growing criticism of PBMs for not being transparent as well. What are you prepared to do about this?
Brennan: We’re trying to be more transparent this year and reporting our (spending) trend after rebates are applied. In the past, we didn’t do that … I certainly understand that people are more curious about the numbers. But rebates are very clear for our clients. It’s very transparent. Ninety-eight percent of our clients know rebates go back to them. But we don’t break out rebates by category or class of drug because we think it would hurt our bargaining position with drug makers. We’re not going to talk about individual rebates for individual pills, because it’s a competitive position.