How Banning CVS From Government Healthcare Could Lower Drug Costs
At first glance, a Senate bill House measure that would ban CVS Caremark (CVS) from bidding on the federal government's healthcare plan makes no sense. Why would you want fewer companies to bid on a $10 billion taxpayer-funded prescription-drug contract? Surely, having more bidders would bring down the total price.
The battle behind the bill, however, explains how pharmacy consolidation ultimately ends up increasing drug prices and driving up the cost of healthcare.
CVS Caremark is a combination of a retail pharmacy chain (the former CVS) and a "pharmacy benefits manager," or PBM (the former Caremark). PBMs oversee prescription-drug benefits for health-insurance companies, providing bulk drug-purchase discounts to pharmacies and, in some cases, choosing where patients can fill their prescriptions.
The House bill would ban such PBM/pharmacy combos from federal healthcare contracts because of the possibility that Caremark might deliberately steer patients toward its fellow pharmacy chain, CVS -- even if competing chains are cheaper.
The FTC is currently investigating whether employees with health coverage served by Caremark find it difficult to get their prescriptions filled anywhere other than CVS, according to American Medical News.
In fact, since the 2007 merger of CVS and Caremark the company has been besieged by allegations that it is not a fair dealer. Here are the actions pending against it from just the last year, according to its annual report:
- March 2009: The OIG subpoenas CVS for information on its handling of Medicare prescription drug plans at a PBM subsidiary.
- March 2009: CVS named in eight class action suits alleging the company failed to pay assistant store manages overtime.
- August 2009: FTC begins probe of potential unfair business practices.
- November 2009: CVS named in securities class action alleging insider trading and fraudulent dislosures regarding CVS stock.
- January 2010: The OIG subpoenas CVS for information into possible false claims under Medicare and Medicaid.
The transparency part is being opposed with almost comical logic by Mark Merritt, CEO of PBM lobbyist group the Pharmaceutical Care Management Association:
... the bill would effectively require PBMs to publicly disclose how they negotiate discounts from drug companies and drugstores throughout America. While the average consumer has little use for such information, drug makers and drugstores would find it immensely useful in their efforts to raise drug prices ...Merritt is literally arguing that the government will get lower prices only if CVS is allowed to conduct its price negotiations with drug companies in secret. Only in Washington could such an argument fly.
Related:
Image by Flickr user pixeljones, CC.