CVS/Caremark Takes Aim at Discount Cards' Hidden Side Effects

     Jon Kamp’s recent WSJ article focused on CVS/Caremark’s attempts to stanch the flow of pharmacy discount cards and their negative effects on prescription spending.  We aren't talking about the random cards that people receive in the mail that promise discounts on all medications (those are a subject for another day); CVS/Caremark is fighting against the discount cards disbursed by manufacturers.  Many people have seen or used these cards.  You get a prescription for a brand name medication that will be expensive, such as Solodyn.  Solodyn is a brand name, extended release formulation of minocycline, an antibiotic commonly used to treat acne.  Since Solodyn is expensive, your provider gives you a discount card to reduce your co-pay on the medication to an affordable level.  Now, in a perfect world, these cards would be a major benefit to patients, helping them afford needed medicines that would otherwise not be taken due to cost.  And there are certainly some cases where that is what happens.  

     Often, in my experience, the discount card is for a brand-name medication that provides little benefit over a cheaper alternative in the same class.  Generic Solodyn is available, so brand name is typically only filled by patients with coupon cards or other forms of reduced co-pays.  Generic Solodyn, extended release minocycline, is ~5-10 bucks a tablet.  Brand name Solodyn is ~$20-30 a tablet.  So why does anyone pay for Solodyn?  Because they have a coupon card that reduces their co-pay down to twenty bucks, not much more than the co-pay for generic minocycline.  No harm, no foul though right?  Patient is happy and the pharmacy will get reimbursed from the Pharmacy Benefit Manager (PBM) and the manufacturer/card processor.  

     Not exactly.  The pharmacy has the extra fun of dealing with split billing the medication, holding another expensive inventory item on the shelf, as well as an additional accounts receivable to wait on.  But that isn't the real story.  Why CVS/Caremark is attempting to head off these cards at the pass is because they take advantage of the way benefit plans are commonly designed and change the way the co-pay structure incentivizes patients to use cheaper, effective alternatives where possible.  Though benefit structures can be complicated, co-pays are commonly in tier systems.  

     One basic example would be a first tier with an initial price for preferred generics, a second, higher co-pay tier for non-preferred generics and preferred brands, and a third, still higher co-pay for non-preferred brands or very expensive medications.  Some drugs may not be covered by the plan at all, such as over-the-counter items or lifestyle drugs.  For drugs that are covered, the pharmacy will electronically send a claim to the PBM, and the PBM will reimburse the pharmacy a contractually agreed amount meant to cover the cost of the medicine and dispensing.  Then the pharmacy will charge the patient the copay amount that the PBM returned in the claim (pharmacies also contractually agree to charge the copay).  

     For our Solodyn example, it may fall in a higher tier, such as Tier 3, since there is a comparable generic minocycline available.  A patient's hypothetical co-pay might be $50 for Tier 3 medicines.  With a coupon card, the co-pay may come down to, say, $20 with the manufacturer/coupon processor paying $30.  This is acceptable to many patients, even if the generic Tier 1 copay is a little lower, say $10.  The patient has the Solodyn filled and begins treatment.  

     But the money for the Solodyn has to come from somewhere; remember a 30 day supply is over $700 just for the pharmacy to order.  If the medication is covered, as it was in this hypothetical example where it fell in Tier 3, then the PBM will reimburse the pharmacy something close to that cost.  Hundreds of dollars are spent on the drug, but the patient bears very little of the cost burden.  PBMs have plenty of money you say?  Well, who ultimately pays for the medicine is the plan sponsor, typically an employer or federal agency.  

     So money that could have been used for raises, hiring additional people, paying dividends, reducing operating deficits, whatever, is instead an additional benefits expense.  CVS/Caremark is taking a step in the right direction by not covering many of these coupon card products, thereby placing the cost burden elsewhere.  If the manufacturer wants to subsidize the product to a large enough degree that patients will pay for it, or if patients want to pay full price, that is their business. 

     Of course that won't be the case, and these prescriptions will get changed to a viable, less expensive alternative or go unfilled.  Now, CVS/Caremark is also discontinuing coverage for medications that wouldn’t agree to rebates CVS/Caremark asked for, and both of these steps have the main objective of increasing that bottom line profit number.  But realigning patient’s economic incentives with the most cost-effective treatments also saves the plan sponsor, patient, pharmacy, and healthcare system as a whole money.  In a system that wantonly spends money without evidence-based justification, steps like this by CVS/Caremark are a move in the right direction.