CVS's Merlo: PBMs are the solution, not the problem
WOONSOCKET, R.I. — One of CVS Health’s greatest challenges is to correct a misperception that pharmacy benefit managers are causing drug prices to rise, President and CEO Larry Merlo said Thursday during the company’s fiscal fourth-quarter earnings conference call.
Despite a concerted effort to discuss the benefits of PBMs with politicians in an effort to separate “fact from fiction,” Merlo acknowledged there is no simple answer to change these misperceptions and it “needs to be a surround-sound dialogue.”
“PBMs are the solution, not the problem,” he said in the earnings call. “Numerous evaluations from the [Federal Trade Commission], Congressional Budget Office and other government agencies have consistently concluded that PBMs operate in a highly efficient market and drive real savings.”
Added Merlo: “Our CVS Caremark solutions have helped to reduce client costs from an unmanaged gross trend of 11.8% to a managed trend of 3.3% year to date through September of 2016. A recent industry study showed that every dollar invested in PBM services returned $6 in savings for our clients and members.
“The value of PBMs is quantitatively clear,” he continued.
Looking more closely at its PBM business — a strong earnings driver for CVS is its fiscal fourth quarter ended and fiscal 2016 ended Dec. 31 — the company announced it is having a strong PBM selling season. Gross wins in the 2017 season topped 7.9 billion, with net new business topping 4.4 billion.
“We had an outstanding welcome season and processed significantly more transactions this year,” Merlo said.
Looking ahead, CVS expects PBM net revenue growth to increase between 7.5% and 9.5% in 2017.
Specialty pharmacy is also a sign of strength, with revenues growing 12% year over year in its 2016 Q4. “Specialty continues to outpace the market and gain share,” stated Merlo.
Other news and notes from the earnings call:
Regarding the possible repeal and replacement of the Affordable Care Act, Merlo said, “It’s extremely difficult to comment on scenarios that play out in the coming months.”
Script performance at Target pharmacies CVS acquired has improved versus prior quarters.
Generic epinephrine that CVS now offers at all locations for $109.99 is 80% cheaper than a competitor product and is a great example how competition helps the consumer.
Front-store comparable-store sales declined by 2.9% in CVS Health’s Q4, due to softer customer traffic and a focus on increased personalization. Moving forward, CVS Pharmacy President Helena Foulkes noted during the earnings call that CVS will place a front-store emphasis on health and beauty products, while de-emphasizing consumables and general merchandise. CVS will continue to roll out store “resets” to improve the health and beauty mix, as well as add healthy food offerings.
CVS’s Curbside pickup service is now available at 4,000 locations.
For information about CVS Health’s fiscal Q4 earnings, click here.