Addressing Rising Drug Prices in the Changing Health Care Landscape

12.16.16

Tom Moriarty, Chief Health Strategy Officer and General Counsel for CVS Health, discusses the trends and market forces that are causing prescription drug prices to rise, and explores what can be done about it.

It’s no secret that health care spending is growing at an unsustainable rate, currently making up 18 percent of GDP. If this trend continues, it will reach 20 percent within the next several years, equating to more than $250 billion per year.

The good news is that the current trajectory of health care spending is not inevitable. But it is going to require addressing numerous cost drivers, one of which is increasing spending on prescription drugs.

Inflation without Innovation

We are seeing prices rise year after year as drugs remain on the market, a problem that is compounded by a lack of true innovation. Manufacturers are introducing more “me too” drugs and fewer breakthrough therapies, and at the same time, prices are rising faster than overall health care inflation.

Injecting Competition and Improving Health

As a pharmacy benefit manager (PBM) our goal is to inject real market competition to keep costs down. And we are seeing success. In 2015, the drug trend (the measure of growth in prescription spending per member per month) for clients of CVS Caremark was less than 5 percent, well below the published inflation rates. In fact, a recent analysis estimates that PBMs save the health care system an average of $6 for every $1 spent on PBM services.

Prescription benefit management goes beyond price negotiations and can be an important tool in improving health outcomes. And pharmacists play an essential role in this by driving medication adherence and closing gaps in care. Americans taking their medications as prescribed is one of the most effective ways to fight chronic diseases like high blood pressure, diabetes and high cholesterol. Studies have shown this could save more than $300 billion in unnecessary medical costs each year and save tens of thousands of lives.

Our integrated model employs clinical solutions to support patients across the continuum of care. For instance, we have shown that simplifying complex drug treatment regimens for patients through outreach from our pharmacists can halve the number of patients who are readmitted to the hospital —improving care and significantly lowering costs to the health care system.

More Progress Can Be Made

The speed of drug approvals affects competition in the market and access to new medications. A comparison with the European Union (EU) shows that the U.S. has much catching up to do. For instance, the drug approval process in the EU typically takes only 12 months compared to 18 months in the U.S. When it comes to access to biosimilars, the EU has 20 approved medicines, and we have four. The first biosimilar was introduced in the EU in 2006. In the U.S., it wasn’t until 2015.

Let’s create more competition to lower the cost of prescription drugs by increasing the flow of generics and biosimilars to the market. There is currently a backlog of more than 3,000 generic drug applications awaiting approval at the FDA. Clearing out this backlog, and bringing more competition to the market needs to be a top priority, as well as promoting policies that do not delay generic and biosimilar entry. We should also advance policies that empower pharmacists to provide patient care. They are uniquely positioned to recognize and close gaps in care that would otherwise lead to wasteful spending.

Despite the many challenges associated with drug pricing, I believe we can come together around a common-sense agenda to make these reforms a reality and to take a step forward in putting the health care system on a path that is sustainable for generations to come.

Read Tom Moriarty’s full introductory remarks at the “Politics and Prices: What's Next for Drug Costs?” panel discussion.

In Focus: Competition Can Lower Prices

When there is product competition within a class of drugs, the free market has an extraordinary ability to lower prices. Here’s what the private sector was able to do in the high profile case of Sovaldi. This breakthrough hepatitis C treatment was introduced in 2014, at a cost of $84,000 for a 12-week treatment cycle.

When a competing drug with comparable therapeutic effectiveness was introduced in the market several months later and tough private-sector negotiations by PBMs occurred, the price was lopped in half. As a result, the cost of treating hepatitis C patients in the U.S. in 2015 was lower than what many government-controlled health care systems pay across the globe.