CVS Caremark, one of our pharmacy benefit managers (PBM) servicing managed care plans in Pennsylvania’s Medicaid program, is committed to helping our Managed Medicaid clients in the state reduce their drug costs while improving the health outcomes of Medicaid patients. A recent report found that PBMs saved Pennsylvania $238 million in Medicaid spending in 2016, and that if the state were to fully utilize PBM tools and capabilities, it would save taxpayers $1 billion over 10 years (2019-2028).
CVS Caremark uses innovative tools to bring down the cost of drugs for clients and patients, including highly effective clinical programs, effective negotiation with drug manufacturers for lower prices, innovative purchasing and formulary design, and enhanced data analytics that allow us to provide the right drug to the right patient at the right time at the lowest possible cost. As a result, our clients have seen lower drug cost inflation and improvements in patient health through the appropriate use of medications. In 2017, drug cost growth for our clients was only 0.2% despite manufacturer brand list price increases on drugs near 10%.
Over the past several months, we have cooperated with the Pennsylvania Auditor General’s request for information about how we lower costs for Medicaid clients and patients, fairly manage our pharmacy networks, and maintain appropriate firewall protections between our businesses. When reviewing the Auditor General’s report on PBMs in Pennsylvania’s Managed Medicaid program, it is important to keep the following facts in mind:
The primary source of high pharmaceutical costs in Pennsylvania and throughout the country – the drug manufacturing industry – is not represented in the Auditor General’s report. Drug companies alone are responsible for the high list prices of their products.
We reimburse the pharmacies in our network fairly and CVS Caremark reimburses independent pharmacies at a higher rate overall then we do chain pharmacies, including CVS Pharmacy. In fact, the Ohio Department of Medicaid recently confirmed our higher reimbursement to independent pharmacies. What independent pharmacies neglect to mention when they complain about PBM reimbursement is that they receive substantial discounts and rebates from their affiliated Pharmacy Services Administration Organizations after they are invoiced for the products they purchase.
The report incorrectly implied that PBMs collected and kept $2.86B from the State of Pennsylvania in 2017. This figure actually represents the state’s total pharmaceutical spend for the Medicaid program, almost all of which PBMs passed through to the pharmacies as reimbursement for prescriptions filled for Medicaid enrollees. The reported 100% increase in Pennsylvania’s pharmaceutical spend from 2013-2017 reflects overall increases in drug prices and increased pharmacy costs resulting from the state’s expansion of Medicaid to an additional 700,000 people during that same period.
CVS Health maintains stringent firewall protections between our CVS Pharmacy retail business and our CVS Caremark PBM business to prevent any anti-competitive activity. Any retail acquisition activity by CVS Pharmacy is completely unrelated to, separated from, and not coordinated in any way with CVS Caremark’s management of its pharmacy network. Like every other pharmacy chain, CVS Pharmacy has acquired independent pharmacies and chain pharmacy locations that are closing since well before CVS and Caremark merged a dozen years ago. Pharmacy acquisitions are the standard industry method through which a closing pharmacy transfers its prescription files to another licensed pharmacy.
PBMs are subject to rigorous review and evaluation by their clients, including Managed Medicaid plans. In their contract terms, both government and commercial plan sponsors have the right to enlist third party experts to audit PBMs and ensure transparency and compliance with the terms of the agreement. Clients are also routinely represented by expert consultants when negotiating contracts with PBMs.
The concept of “spread pricing” in a PBM contract is regularly misrepresented. It is a pricing model often chosen by our clients, including Managed Medicaid plans, because it provides stability and certainty around their drug costs when prices fluctuate up or down in the marketplace. The “spread” between what clients pay a PBM and what the PBM reimburses pharmacies funds the vitally important benefit management services the PBM provides to a client, in lieu of the client paying a separate administrative fee.
CVS Caremark does not engage - and has never engaged - in the practice of placing “gag rules” on our network pharmacies that would prevent them from informing a patient about a lower cash price for a drug. In fact, our contracts with all of the pharmacies in our network require that CVS Caremark members always get the lower price between the pharmacy's cash price and the plan's copay.
PBMs such as CVS Caremark play a critical role in helping to reduce drug prices for patients and taxpayers in Pennsylvania. We look forward to discussing the report’s recommendations with the Auditor General and members of the legislature.