The senate hearing of the PBM industry included 5 major PBM players: CVS, Express Scripts (Cigna), OptumRx (UNH), Humana and Prime Therapeutics.
While the hearing will probably not change anything regarding the recent bills proposed on the rebate practice, the PBM were able to explain and defend their business model in greater details. They explained that rebates are only one tool used to negotiate prices (albeit a major one) but that this is not the only way they make money as most is passed through to the insurer or patient. The hearing did not change our view on CVS but will most likely not be the catalyst needed to get investors interested on the stock.
The other negotiation tools used are:
· formularies (which are developed by independent P&T committees and assess safety and
· efficacy prior to considering competition and net cost)
· offering generics
· negotiations with the retail channel
· drug utilization review
· clinical programs
· efforts to drive adherence, and coordination of care to identify gaps in care
The PBMs offered those solutions to lower the cost of drugs in the US:
· increase the level of competition by getting drugs to the market faster (FDA role)
· reform the drug patent system that protects drug’s exclusivity for too long
· move to value-based payment models for drugs: the payment is linked to the efficacy of the drug to the patient
· drive greater utilization of biosimilars: only 6 are on the market today in the US vs over 20 in Europe – many are caught up in legal actions in the US.
[tag CVS]
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109