Lowering drug prices is an uphill battle, but CVS Health is proposing three new ways to work around the high costs of care. A new data set from CVS Health tackles the costs of drug prices vs. pharmaceutical profit margins – and actually has a few solutions to the high costs of prescription medications.
CVS Health recently released a comprehensive white paper on drug prices vs. pharmaceutical profit margins. We’ve touched on drug rebates, and the growing pressure for restructuring how drug rebates work. Instead of rebates, it is really the prices of pharmaceutical drugs that need to be adjusted to truly make a difference. CVS Health addresses this, noting that:
“In recent months, the debate about drug pricing has become one about rebates negotiated by pharmacy benefit managers (PBMs) on behalf of payors to help control costs. Manufacturers claim that rising drug costs are a result of higher rebates and that PBMs profit from drug price inflation because they retain the rebates. This is simply not true. High drug prices have no correlation to rebates.
Manufacturers, and no one else, set drug prices. A new CVS Health white paper ‘Current and New Approaches to Making Drugs More Affordable’ busts the myths behind rebates and drug prices.”
The white paper stresses that it is possible for drug manufacturers to lower prices – and lays out exactly how little it will hurt profit margins. See the green line in the chart below? That’s the amount drug manufacturers can earn after lowering prices. You do not have to be a business major to see that a whopping 23% is still higher than other industries. At this point, it is up to those who have a voice to push back against the manufacturers in hopes that they will lower their prices. CVS Health has three strategies to do just that.
The methods of using rebates, coupons, and direct-to-consumer advertising to build loyalty to high-cost drugs allow them to push list prices higher. CVS Health proposes additional innovative strategies to help bring down drug prices so that they are affordable, and to keep costs under control.
CVS Health proposes:
1. Zero Out-of-Pocket Costs for Chronic Disease
Assistance for patients in the deductible phase of their insurance, during which they shoulder all the costs. CVS Health recommends a wider “preventive” drug list for clients with any kind of high deductible health plans, and believes that the government should broaden the definition of what is considered a preventive drug. Research recently completed indicates that expanding preventive drug lists to the five most chronic diseases — diabetes, hypertension, hyperlipidemia, asthma/ COPD, and depression — could substantially improve care and lower costs.
2. Reducing Launch Price Using Comparative Effectiveness
Addressing the launch price of new medications right from the start. Launch prices have been steadily rising for years, and are completely up to the discretion of the manufacturer. CVS Caremark is initiating a program that allows clients to exclude any drug launched at a price of greater than $100,000 from their plan in hopes manufacturers will begin to moderate launch prices.
3. Transparency in Drug Costs
The third new strategy centers on greater transparency in drug pricing and costs: A renewed emphasis on transparency so that members, their doctors and their pharmacists can understand the true cost of a prescribed medication. This should cover the true cost of the drug, the amount the member will have to pay, and a list of therapeutic alternatives and the cost of each alternative.
The most important aspect of the study is lowering drug prices to improve health and ensure people can access and take their medications. The white paper notes:
“To accomplish this, medications must be affordable. The techniques we have used to this point are based on evaluating the comparative effectiveness of various medications based on clinical evidence and using market techniques to ensure the lowest possible cost. The proposed innovations build on that base of clinical evidence and health care economics to address two key aspects of the drug cost crisis: burdensome out-of-pocket payments and ever-higher drug launch prices. These innovations will do two things: help patients afford the medications they need, and lower profit margins for pharmaceutical companies. However, lower profits should not impede discovery. Today, drug manufacturers spend more money on marketing than discovery. These marketing expenditures can be shifted, thereby refocusing the drug manufacturing industry on its primary goal — the discovery of new treatments for illness.”