PBMs and Drug Spending in 2019: CVS Health and Express Scripts Outperform Prime Therapeutics

It’s time for our annual Drug Channels examination of PBM drug spending reports. For 2019, we again aim our magnifying glass at the annual trend reports from the largest pharmacy benefit managers (PBMs): CVS Health, Express Scripts, and Prime Therapeutics. (See their report links below.)

Once again, we find that commercial drug spending did not race higher—contrary to what you keep hearing from journalists and politicians. Spending rose by less than 3% in 2019, continuing a multiyear trend of slow growth. At some plan sponsors, total drug spending even declined. For specialty drugs, higher utilization—not drug costs—was again the biggest factor driving specialty spending growth.

Notably, clients of Prime Therapeutics fared worse than those of Express Scripts and CVS Caremark. Below, I explain three factors behind Prime’s underperformance. Its third place finish highlights why the PBM industry continues to consolidate.

START YOUR ENGINES!

As always, I encourage you to review the source materials for yourself. Here are links to the PBMs’ 2019 drug trend reports:

• CVS Health

• Express Scripts (I reviewed this report in Latest Express Scripts Data: Slow Drug Spending Growth—And Big Plan Savings from Manufacturer Copay Programs .)
  

• Prime Therapeutics

A few comments on these data:

• Our comparison focuses only on commercial payers: employers and health plans. Those are the only data reported by all three PBMs. Express Scripts provided separate trend figures for Medicare, Medicaid (excluding statutory rebates), and Exchanges. Prime Therapeutics provided separate trend data for Medicare and Medicaid (excluding statutory rebates).

• These reports are full of interesting numbers, but they’re primarily marketing documents, not peer-reviewed research studies. I believe that the data are roughly comparable among the reports, despite some methodological differences.

• MedImpact plans to release its report within a month or so. The other large PBMs—Anthem (IngenioRx), Humana,* and OptumRx (UnitedHealth)—provide no public transparency into their performance. Sorry, no participation trophies this time!

SLOWDOWN

The chart below shows the unweighted average drug trend figures over the past six years. As you can see, drug spending continues to grow more slowly than every other part of the U.S. healthcare system.

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These data provide a reasonably comprehensive picture of the overall commercial payer market. The three PBMs included in the 2019 computation accounted for about 60% of pro forma U.S. retail, mail, long-term care, and specialty equivalent prescription claims in 2019. See Exhibit 88 in our 2020 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

The data also echo the numbers from the government’s National Health Expenditure Accounts. See Latest CMS Data: Drug Spending is Not Skyrocketing; Hospitals and Physicians Dominate Healthcare Costs.

WINNER’S CIRCLE

The chart below summarizes the reported 2019 commercial drug trend figures from each of the three PBMs considered in this article: the Caremark business of CVS Health; the Express Scripts business of Cigna; and Prime Therapeutics. The PBM reports are the only public sources that distinguish between spending on traditional drugs and spending on specialty drugs.

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The PBMs’ data highlight key trends about drug spending:

• For 2019, CVS and Express Scripts reported overall changes in drug spending that were in the low single digits. Prime reported mid-single-digit growth in overall drug spending.

• Spending growth on traditional drugs declined by mid-single digits for the third consecutive year. This decline came from deeper commercial rebates on brand-name drugs, ongoing deflation in generic drugs, and a small increase in the generic dispensing rates.

• The results for CVS and Express Scripts were comparable. For CVS Caremark’s commercial clients, net drug prices for traditional drugs declined by -6.3%, while utilization grew by 1.5%. For Express Scripts’ commercial clients, net drug prices for traditional drugs declined by -6.4%, while utilization grew by 1.4%.

SPECIALTY FUEL

The overall spending figures don’t tell the whole story. That’s because year-over-year changes in drug spending have two primary components:

• Unit costs—the payer’s cost per unit of therapy. Unit costs vary with:
• the rate of inflation in brand-name drug prices
• shifts to different drug options within a therapeutic class
• a shift in mix of therapeutic classes utilized by beneficiaries
• the substitution of generic drugs for brand-name drugs

• Utilization—the total quantity of drugs obtained by a payer’s beneficiaries. Utilization varies with:
• the number of people on drug therapy
• the degree to which they adhere to their drug therapy
• the average number of days of treatment

The total change in spending shown above equals the sum of changes in unit cost and changes in utilization. The chart below deconstructs changes in spending on specialty drugs for the three PBMs in our review.

As you can see, a majority of specialty drug spending growth can be attributed to the growth in the number of people being treated and the number of prescriptions being dispensed. Utilization growth can be considered a positive trend, because it is well established that pharmaceutical spending reduces medical spending and improves patients’ health.

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Note that the launch of generic versions of non-biologic specialty drugs is working its magic on costs, just as when traditional brand-name drugs lose exclusivity. Generic drugs account for a meaningful share of prescriptions in such therapeutic categories as oncology, e.g., imatinib mesylate, anastrozole, tamoxifen citrate, and inflammatory conditions, e.g., methotrexate, sulfasalazine. Many of these drugs have been subject to the deflationary forces affecting the entire generic industry.

Express Scripts provided the most detailed information about trend by therapeutic category. Click here to see its Top 15 therapy classes for commercial plans. (You can view the underlying data by clicking the “Show table” button.) As you can see, unit cost growth was in the mid-single-digit range for three major specialty categories—oncology, HIV, and multiple sclerosis. Only one category-- inflammatory conditions—experienced a double-digit increase in unit cost trend.

PIT STOP FOR PRIME

The relative underperformance of Prime Therapeutics is the most striking revelation of the 2019 drug trend figures.

Here are three reasons what I think Prime lagged behind its larger PBMs peers:

• Smaller rebates. Prime Therapeutics accounted for only 6% of equivalent claims in 2019. It simply didn’t have the scale to extract the highest rebates from pharmaceutical manufacturers. This lack of leverage translated into higher net prices. For Prime’s commercial clients, net drug prices for traditional drugs declined by only -3.0%, which is about half of the rate of its two larger peers.
  
  The 2019 results highlight why Prime decided to align with Express Scripts for formulary rebates and network pharmacy rates. See Express Scripts + Prime Therapeutics: Our Four Takeaways From This Market Changing Deal. Prime now sources formulary rebates via Ascent Health Services, the secretive Switzerland-based group purchasing organization (GPO) that Express Scripts launched in 2019.

• More generous pharmacy reimbursement. It appears that Prime was consistently reimbursing retail pharmacies at higher rates than Express Scripts was. That’s why pharmacies have been hit by the fallout from the Express Scripts / Prime partnership. For example, retail pharmacy reimbursement was reportedly cut when the pharmacy network shifted from Prime to Express Scripts. At least one plan—Blue Cross Blue Shield of Alabama—was forced to reinstate the higher Prime rates after independent pharmacies complained.

• Diverting patient support funds to plan sponsors. Another difference: CVS and Express Scripts have each partnered with secretive and independent private companies to operate specialty drug maximizer programs for their plan sponsor clients. These arrangements allow the PBMs to shift manufacturers’ patient support funding to their plan sponsor clients. See Why Do CVS And Express Scripts Rely on Secretive Private Companies to Run Their Copay Maximizer Programs?
  
  For whatever reason, Prime has stayed away from these shady practices. Perhaps the 18 Blue Cross and Blue Shield health plans that have ownership stakes in Prime were reluctant to partner with such mysterious companies.

DON'T LEAVE PATIENTS IN THE DUST

On average, third-party payers and patients gain from the slow growth in drug spending—especially in light of the much higher growth in other parts of the healthcare system. However, patients often face rising out-of-pocket costs for products whose net prices are declining.

As I noted in my review of commercial benefit design:

“Patients are finding their benefits to be increasingly mysterious, with more tiers, more coinsurance, and greater use of deductibles. When people complain about ‘drug prices,’ they are actually complaining about the share of costs that they pay—and how those costs are computed.”

You won’t hear this perspective in the PBMs’ trend reports.

* Clarification: Humana Pharmacy Solutions, the internal PBM of the health insurer Humana, derives a majority of its business from Medicare drug plans. Most of its commercial business is in the small to mid-market. Therefore, the company does not publish a drug trend report covering its individual and employer group business.