Opportunities Ahead: Merlo Discusses the Future of Health Care

10.13.16

“We are all patients at some point in our lives. We all want care that is more affordable, accessible, and effective.”

CVS Health President and CEO Larry Merlo opened his October, 2016, keynote remarks at the Executives’ Club of Chicago with this simple observation. 

But while health care is about people, we face a fundamental economic challenge that must be addressed if we are to make progress toward the goal of high-quality, affordable health care for all, he explained.

“It’s as if we have two health care systems operating side-by-side: the first is the system of yesterday, in which insufficient competition leads those who produce goods and services to produce more and charge more,” Merlo said. “The second is the system of tomorrow, in which consumers are empowered with more choices and more information to improve quality and drive down costs.”

What Drives Health Care Spending?

Health care spending is growing too rapidly, and it’s hurting our economy, noted Merlo. If current trends continue, within 10 years $1 out of every $5 spent in the United States will go toward health care. Merlo outlined the three factors that contribute most heavily to health care spending:

  • Cost – Brand-name prescription drug costs are rising faster than health care inflation overall,1 and the prices of products and services do not necessarily reflect better outcomes for patients.

  • Quality - Management of chronic disease accounts for 86 percent of health care spending, and today nearly half of all Americans suffer from one or more chronic diseases, such as diabetes and hypertension.2 More effective care coordination for these patients, including medication management, could reduce spending by about $300 billion annually.3

  • Access – One in five Americans lacks regular access to primary care.4 Without easy access to lower-cost, high-quality options many choose the least cost-effective site of care: the emergency room.

There Are Solutions

Despite the challenges, there are solutions we can implement today, noted Merlo. “Virtually everywhere you look in health care today, you see innovative approaches resulting from market competition,” he said.

Spotlight: Five Ways CVS Health is Improving Health Outcomes

These include accountable care organizations, medical centers of excellence, and a growing commitment by employers to make employee wellness a top priority. In addition, the proliferation of convenient, low-cost sites of care, including urgent care centers and retail health clinics such as MinuteClinic, are an ideal complement to primary care and an affordable alternative to an emergency room visit.

Technology is also making it possible to coordinate care provided in retail settings with primary care physicians and other health care professionals through the patient’s electronic health record. For example, MinuteClinic has formed alliances with more than 70 major health systems across the country to do just that.

Spotlight: The Role of Pharmacists as Health Providers 

And of course, pharmacists are playing an increasingly important role in tackling the complicated issues associated with chronic disease and medication adherence. Most patients interact far more frequently with their pharmacist than they do with their physician. Merlo noted that CVS Health’s more than 30,000 pharmacists are making the health care system more accessible, and also more effective, through the delivery of patient care programs, particularly those related to medication adherence.

Market Solutions for Rising Prescription Drug Prices

“It is a fact that pharmaceutical companies are raising prices for new and existing branded drugs at rates exceeding health care inflation overall,” said Merlo.

“In response, pharmacy benefit managers (PBMs) such as CVS Caremark are pursuing aggressive cost-reduction strategies. PBMs are able to combine the purchasing power of millions of Americans on behalf of their employer and health plan clients, and deploy a variety of other tools and programs to ensure that clients and members receive the right pharmaceutical care at the lowest-possible cost.”

The Road Ahead

In closing, Merlo emphasized that commonsense, market-oriented reforms have helped to address quality, access, and cost. And there is more that can be done:

  • Improvements to the Affordable Care Act (ACA). While the ACA has increased access to care for about 20 million people, more must be done to ensure that access is also affordable.

  • Government-funded comparative research on the effectiveness of care. This can help Americans distinguish between procedures, services, and drugs that actually provide greater value from those that are simply overpriced.

  • Increased competition to lower the cost of prescription drugs. There is currently a backlog of more than 3,000 potential drug approvals at the FDA, many of which are generics. Clearing out this backlog, and increasing the speed to market of new biosimilars, can increase competition and decrease costs.

“Health care spending is increasing too rapidly, and reducing it must be a national priority, not just inside the Beltway in Washington, D.C., or in our state capitals,” Merlo concluded. “Let’s complete the transformation of American health care. Let’s create a system that works for everyone, and is sustainable for generations to come.”

Read the full text of Larry Merlo's remarks at the Executives’ Club of Chicago.

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).
2 U.S. Centers for Disease Control and Prevention.
3  Medication Adherence: A $300 Billion Problem. Prescriptions for a Health America.
4 Health Resources and Services Administration [HRSA]. Shortage Designation: Health Professional Shortage Areas & Medically Underserved Areas/Populations.

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