How Competition Can Increase Access and Reduce Costs

10.18.16

Recent high-profile drug price increases are driving a national conversation about medication cost and access. Branded drugs prices in particular are rising faster than the rate of inflation overall. But while they make up just 15 percent of all dispensed prescriptions, these drugs account for 75 percent of pharmaceutical spend.1 So it’s imperative that we do everything we can to ensure that medications are accessible and affordable. One important part of our strategy is fostering competition to keep drug prices in check.

Competition is Key

In the pharmaceutical market, like in other parts of the economy, consumers benefit when producers have to compete to attract their business. Pharmacy benefit managers (PBMs), such as CVS Caremark, encourage this competition by leveraging their clients’  combined purchasing to negotiate lower prices with drug manufacturers. PBMs also compete among one another for health plan and employer clients, contributing to the incentive to negotiate the lowest-possible drug prices.

When Competition Works, Patients Benefit

There are many ways that patients benefit from pharmaceutical market competition. Here are three examples:

The Generic Marketplace

When patents for brand name drugs expire and generic medicines are allowed to enter the market, robust competition causes prices to plummet. According to the Generic Pharmaceutical Association, the use of generics over brand name drugs saved the U.S. health care system $254 billion in 2014. Eighty-five percent of the drugs dispensed by CVS Health are highly effective, less-expensive generic medications.

Access to Breakthrough Cures

When a breakthrough hepatitis C drug was introduced to the market in 2014, its price of $1,000 a pill (about $84,000 for a full course of treatment) caused concern that the medication would be out of reach for millions of patients. A competing therapy was soon launched, and PBMs were able to leverage their negotiating power and tools such as formularies to achieve significant savings for customers. According to the Pharmaceutical Care Management Association, PBMs were able to negotiate lower prices for these breakthrough cures than other industrialized countries with government price controls.

Medicare Part D

More than 40 million Medicare beneficiaries receive their drug benefits through a Medicare Part D plan. Beneficiaries may choose among numerous plans that use PBM negotiations to make prescription drugs affordable and accessible. The Part D program is overwhelmingly popular among seniors and other Medicare beneficiaries with costs to the health care system that are significantly less than originally projected.

Proactive Pharmacy Management Strategies

As one of the largest drug purchasers in the U.S. health care system, CVS Health employs industry-leading purchasing strategies to encourage more competitive pricing and make breakthrough drugs more affordable for patients who need them. Our utilization management programs and flexible formulary options help deliver lower costs for PBM clients, while ensuring their members have access to the medications they need. 

More Can be Done

Federal regulations can slow down the process of introducing competition into the drug market. For example, it takes about three to four years on average to introduce a new generic medication. Supporting efforts to accelerate market competition, combined with continued public pressure on the companies that have adopted abusive pricing practices, can help patients avoid unnecessarily expensive medications.

Visit our Rising Drug Prices information center to learn more about our efforts to contain drug costs.

[1] Percentage of all prescriptions in the US market for 2015 taken from IMS; Average cost range from “The 2016 Economic Report on Retail, Mail, and Specialty Pharmacies,” Drug Channels Institute, Jan 2016 (page 4).