CVS rejects pharma claim that rebates push up drug prices
- CVS Health on Wednesday pushed back against claims by the pharma industry and others that rebates and other price concessions are driving up drug prices, disclosing that it retains only 2% of the rebates it processes.
- "Drug manufacturers want you to believe that increasing drug prices are a result of them having to pay rebates and that PBMs are retaining these rebates," said company CEO Larry Merlo on an earnings conference call. "And this is simply not true."
- CVS' rebuttal is the latest salvo in a back-and-forth debate between PBMs and drugmakers over which side should be held to account for the rising costs consumer pay for prescription medicines. Recent moves by the Trump administration have suggested that rebates could become a focus in the White House's efforts to rein in drug prices.
Rebates, which pharma companies hand back to PBMs and insurers to secure coverage, have become the latest flashpoint in debate over drug costs.
In July, Health and Human Services Secretary Alex Azar signaled in a speech that the administration is examining rebating in its entirety, suggesting the practice may need to be "disrupted." A proposed regulation recently submitted for review by the Office of Management and Budget hinted that one approach may involve changing the legal exemption that allows rebates to circumvent anti-kickback rules.
Targeting rebates is a position that drugmakers are happy to echo. On a recent call, Pfizer CEO Ian Read characterized rebates as "subsidies" pharmaceuticals companies pay to the rest of the healthcare industry. And PhRMA, the drug trade lobby, supports moving away from a system based on rebates as a percent of list prices.
Criticism of rebates mostly falls into two buckets: claims that the practice gives PBMs an incentive to push for higher list prices, and scrutiny into how much PBMs keep of the rebates they receive.
The numbers from CVS, however, appear to undercut some of those attacks.
CVS said it returns 98% of the rebates it negotiates back to clients, such as employers and insurers, which claim to use the money to lower premiums and other insurance costs.
It's not clear, however, exactly how its clients use the money they receive from the rebates CVS negotiates.
In 2018, the pharmacy giant estimates retained rebates from the commercial market will total only $300 million, or about 3% of earnings per share — a figure lower than some outside estimates. David Denton, CVS' chief financial officer, noted that 100% of rebates negotiated for Medicare plans are passed through without any retained by the PBM.
In calculating that $300 million figure, CVS said "rebates" included all price protection, and administrative fees paid by manufacturers for commercial and Medicare Advantage Part D clients.
CVS also rejected the idea that rebates are correlated with rising prices.
"Our data show that list price is increasing faster for drugs with small rebates than it is for medications with substantial rebates," Merlo said.
For example, CVS data appears to show that list prices for multiple sclerosis drugs increased by 27% from mid-2015 through the first quarter of this year. Rebates for those drugs, however, averaged only 7%.
Rebates were significantly higher, though, among asthma drugs and DPP-4 inhibitors, a type of diabetes medicine.
CVS' numbers echo findings from a 2017 report by the Pharmaceutical Care Management Association, a PBM trade lobby, that also concluded there was little correlation between higher rebates and rising list prices.
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