Trump rebate rule will hike premiums for seniors, CVS Health CEO says

CVS Health's top executive on Wednesday warned that a proposal from the Trump administration to eliminate the opaque rebates passed between drugmakers and benefit managers would raise premium costs for seniors enrolled in Medicare, undercutting a key argument the White House is using to drive support for the plan.

The draft rule – slated to take effect in January 2020 – is one of the most significant actions the administration has taken to date to try to curb high drug costs. Top pharmaceutical companies praised the proposal, which still allows the industry full pricing authority. But middleman pharmacy benefit managers, including CVS Health, say it would be detrimental to their own efforts to try to lower treatment costs and could raise monthly insurance costs as much as 52 percent.

“We see the rebate rule taking us backwards, not forwards,” CEO Larry Merlo told investors on Wednesday. “A small percentage of seniors may net out favorably…but as many as 70 percent of beneficiaries are going to be worse off.”

Merlo also blasted the cost of the proposal – estimated at $200 billion over 10 years – as detrimental to taxpayers, and said it could lead to fewer seniors opting to join Medicare Part D plans.

“Branded pharma ends up with a profit windfall,” he added.

Pharmaceutical companies previously succeeded in sinking a detrimental drug pricing proposal from the Obama administration by claiming it would raise costs for seniors. The industry spent millions in an grassroots campaign to spread that message. Should pharmacey benefit managers employ a similar strategy, it could make it more difficult for the White House to advance their plan.

A spokeswoman for the Department of Health and Human Services said the "status quo is indefensible."

"These kickbacks that drug companies pay to middlemen are currently nontransparent. The recently announced proposal would bring transparency to the system and lower patients’ out-of-pocket spending at the pharmacy counter," she said in an emailed statement. "Plans have a variety of tools at their disposal to keep premiums steady, and we believe they will use them, as plans already compete incredibly aggressively on premiums."

The spokeswoman also said that, while premiums could increase as much as $5 per month under the administration proposal's, they would be nowhere near as high as CVS projected.

While the Trump administration is targeting a significant aspect of the benefit manager’s business model with the rebate rule, other proposals further empower the ability of CVS Health, Express Scripts and others to negotiate lower costs from drugmakers.

Critics of the current system charge that a sizable portion of the negotiated rebates are held by benefit managers to help bolster profits. CVS says 100 percent of rebates are “turned over in the Medicare business and have been utilized to buy-down premiums.”

And while the rule would only serve to transform the pricing model in the Medicare program, experts say it would eventually expand to the commercial market. Merlo, however, said he does not see a “rapid adoption” on that part of its business.

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CVS Health on Wednesday reported a 12.5 percent rise in revenue for three months through December, to $54.4 billion. Adjusted profits rose to $2.14 per share, higher than Wall Street expectations. Its retail sector -- which includes prescription drug sales -- lost $270 million in the quarter. CVS recently completed a $70 billion acquisition of heatlh insurer Aetna.