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Our Take: CVS’ new PBM model focuses on net cost pricing for greater predictability

Dec 10, 2018

CVS announced that it is launching a new pharmacy benefits plan that returns 100 percent of drug rebates to its clients.

In a statement, CVS said its new Guaranteed Net Cost pricing model “more closely aligns PBM incentives with plan sponsors’ objectives” by offering more predictability and transparency, and that it “focuses on helping plan sponsors deliver savings through PBM cost management strategies such as formulary, utilization management and performance pharmacy networks.”

“We see a real opportunity to offer clients a simpler economic model that leverages proven PBM cost management strategies to provide predictable drug costs,” said Derica Rice, president of CVS Caremark. More here.

Our TakeLooks like CVS is taking preventive action to address what might be coming from the Trump administration.

Recall that back in May, President Trump announced his Blueprint to Lower Drug Prices. Since then, there has been a flurry of activity from HHS, CMS and the FDA, which is approving generics at a faster rate than we’ve seen in some time.

CMS, for instance, announced a new policy on step therapy, which would allow Medicare Advantage plans to negotiate drug prices for Part B drugs. HHS Secretary Alex Azar has requested that the FDA create a working group on drug importation. And several pharmaceutical companies, in the wake of the Blueprint’s release, agreed not to raise drug prices in 2018.

That lasted less than five months. Pfizer announced last month that it would raise prices on 41 drugs in January.

In any event, Trump appeared to call out PBMs when he announced the Blueprint. “We’re very much eliminating the middlemen,” he said. “Whoever those middlemen were—and a lot of people never even figured it out—they’re rich. They won’t be so rich anymore.”

And in August, Azar said it was within his agency’s power to eliminate rebates on prescription drug purchases. “The question of rebates may very well be fundamental to the issue of how you reverse these constant incentives to higher list prices (for drugs),” he said.

Drugmakers have argued that the rebate system is flawed—that they are pressured by PBMs to provide rebates, and that PBMs don’t pass those savings on to consumers. They say the rebate system creates a perverse incentive to raise list prices.

CVS has acknowledged that, historically, it retains about 2 percent of the rebates negotiated with drugmakers—about $300 million annually.

CVS’ manager of corporate communications, Christina Beckerman, told Fierce Healthcare that the company does not expect CVS Health’s profitability to increase or decrease as a result of the shift to 100 percent pass-through rebates.

“With this model, the client evaluation process will no longer reward largest discounts and largest rebates, but rather the true goal of low net cost per claim,” she said.

What else you need to know
Dignity Health and Catholic Health Initiatives (CHI) announced the leadership team for their to-be-combined system, CommonSpirit Health. Kevin Lofton, CEO of CHI, and Lloyd Dean, president and CEO of Dignity, will be co-CEOs of the new organization. Elizabeth Shih will be the chief administrative officer supporting Lloyd Dean, and Patricia Webb will be the chief administrative officer supporting Kevin Lofton. Other executive team members include:

• President and COO: Marvin O’Quinn
• Chief Financial Officer: Daniel Morissette
• Chief Medical Officer: Dr. Robert Wiebe
• Chief Nursing Officer: Kathleen Sanford
• Chief Business Lines Officer: Paul Edgett
• Chief Strategy and Transformation Officer: Charles Francis
• Chief Information officer: Deanna Wise
• Chief Mission Officer: Thomas Kopfensteiner
• Chief Legal Officer: Mitch Melfi
• Chief HR Officer: Darryl Robinson
• Senior Vice President, Physician Enterprise: Dr. Bruce Swartz

U.S. District Court Judge Richard Leon has ordered a hearing regarding the merger between CVS Health and Aetna, the Hartford Current reported. CVS and Aetna completed their merger on Nov. 18. The Justice Department approved the merger in October, contingent upon Aetna’s selling its Medicare Part D drug plan business to WellCare Health Plans, which it completed on Nov. 30. However, the court is required to approve the agreement between the government and the merging companies. Leon could order a halt to the integration of the two companies while he further reviews antitrust implications of the deal. More here.

GlaxoSmithKline (GSK) entered into a definitive agreement to acquire Waltham, Mass.-based Tesaro for $5.1 billion. GSK said Tesaro will significantly strengthen GSK’s pharmaceutical business, boosting GSK’s pipeline and commercial capability in oncology. Tesaro is a commercial-stage biopharmaceutical company that markets Zejula (niraparib), an oral poly ADP ribose polymerase (PARP) inhibitor approved for use in ovarian cancer. More here.

Health care spending in the U.S. grew at a rate of 3.9 percent to $3.5 trillion, or $10,739 per person, according to a new analysis from the CMS Office of the Actuary. The study, published online by Health Affairs, shows that growth slowed for the second straight year. The rate of spending was tied to slower growth in spending for hospital care, physician and clinical services, retail prescription drugs, private health insurance and Medicaid. Summarhere.

Tenet has exited the health insurance business with the sale of its Golden State Medicare health plan, which serves 9,800 members in California. In 2016, Tenet said it would divest its health insurance business lines, which at the time amounted to six plans covering 140,000 people. Tenet sold four plans in 2017 and another earlier this year. More here.

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